<PAGE>
As filed with the Securities and Exchange Commission on November 26, 1997
Registration No. 333-35557
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
(Exact name of registrant as specified in its certificate)
an Iowa limited partnership 7394
------------------------------- --------------------------
(State or other jurisdiction of (Primary Standard
incorporation or organization) Industrial Classification)
39-1904041
(I.R.S. Employer Identification No.)
100 SECOND STREET, SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------------------
THOMAS J. BERTHEL
PRESIDENT OF THE GENERAL PARTNER
100 SECOND STREET, SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(Address, including zip code, and telephone number,
including area code, of agent for service)
MICHAEL K. DENNEY, ESQ.
BRADLEY & RILEY, P. C.
100 FIRST STREET, SW
CEDAR RAPIDS, IOWA 52404
(319) 363-0101
(Recipient of copies of service)
<PAGE>
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Proposed Proposed
Title of each class Amount offering maximum Amount of
of securities to be price aggregate registration
to be registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
Units of Limited Partnership
Interest(1). . . . . . . . . . 25,000 Units $1,000 Per Unit(2) $25,000,000 $7,575.75
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement covers Units of Limited Partnership Interest
("Units") which will be issued during the Offering Period, as defined
herein.
(2) Subscriptions for Units will be accepted in the minimum amount of two Units
for a minimum subscription price of $2,000.
-------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
thereafter become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
- --------------------------------------------------------------------------------
Cross Reference Sheet
Between Items of
Form S-1 and Registration Statement
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<TABLE>
<CAPTION>
Item No. and Caption in Form S-1 Location in Prospectus
- -------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Outside Front Cover of Prospectus
Statement and Outside Front Cover
2. Inside Front and Outside Inside Front and Outside
Back Cover Pages of Prospectus Back Cover of Prospectus
3. Summary Information, Risk Summary of the Offering
Factors and Ratio of Earnings To Fixed Charges and the Partnership; Risk Factors
4. Use of Proceeds Estimated Use of Proceeds
5. Determination of Offering Price Summary of the Limited
Partnership Agreement
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page; Investor Suitability
Standards; Plan of Distribution;
Summary of Promotional and
Sales Material
9. Description of Securities to Summary of the Offering and the
be Registered Partnership; Summary of the
Limited Partnership Agreement
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Cover Page; Cash Distributions and
Redemptions; Compensation of the
General Partner; Conflicts of Interest; Prior
Experience of the General Partner and
Affiliates; Investment Objectives and
Policies; Equipment Acquisitions;
Capitalization; Management's Discussion
and Analysis of Financial Condition;
Financial Statements of the Partnership
and the General Partner
12. Disclosure of Commission Position on Fiduciary Responsibility of the
Indemnification for Securities Act Liabilities General Partner
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any State.
SUBJECT TO COMPLETION DATED NOVEMBER 26, 1997
$25,000,000
TELECOMMUNICATIONS INCOME FUND XI, L.P.
AN IOWA LIMITED PARTNERSHIP
$1,000 Per Unit
A Minimum of 1,200 Units ($1,200,000) of
Limited Partnership Interest
Minimum Investment: 2 Units ($2,000)
Telecommunications Income Fund XI, L.P., is a newly organized Iowa
limited partnership (the "Partnership"). The General Partner of the
Partnership is Berthel Fisher & Company Leasing, Inc., an Iowa corporation
(the "General Partner"). The Partnership hereby offers a minimum of
$1,200,000 and a maximum of $25,000,000 in units of limited partnership
interest in the Partnership ("Units") for sale to prospective investors in
the Partnership ("Limited Partners") by means of this Prospectus.
THESE ARE SPECULATIVE SECURITIES. THIS OFFERING INVOLVES CERTAIN MATERIAL
RISKS. See "RISK FACTORS" beginning on page 13. The most significant risk
factors to be considered by an investor are:
- Limited Partners must rely solely on the General Partner. There are
conflicts of interest between the Partnership and the General Partner.
- Program Assets to be acquired by the Partnership are unspecified.
- The Partnership has no operating history.
- The General Partner is entitled to substantial fees which will be
received regardless of whether Limited Partners receive a return of
their investment. Such fees include Acquisition Fees (5% of Equipment
acquired and financings placed by the Partnership ($72,058 from Gross
Proceeds at the Minimum Offering if maximum leverage is used and
$1,501,191 from Gross Proceeds at the Maximum Offering if maximum
leverage is used)) and Management Fees of 2.0% of the payments
received by the Partnership on account of its leasing and financing
activities. See "Estimated Use of Proceeds."
- It is not certain that investors will ever receive their own money
back or that cash distributions will ever be made. Cash distributions
may include a return of capital.
- Lessees may default on leases or become bankrupt.
- Use of leverage to purchase Program Assets will increase the
Partnership's need for cash flow to meet debt service requirements.
The Partnership intends to borrow the maximum of 40.0% of Gross
Proceeds ($10,000,000) if the Maximum Offering is attained.
- There are significant restrictions on the transferability of Units,
and it is not anticipated that an active market will ever develop for
Units. The Units will not be listed on an exchange.
- The Limited Partners' federal tax liability may exceed their cash
distributions for a given year.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Price to Selling Proceeds to
Units Public Commissions(1) Partnership(2)
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Per Unit . . . . . . . . . . --- $1,000 $90 $910
Total Minimum(3) . . . . . . 1,200 $1,200,000 $108,000 $1,092,000
Total Maximum(4) . . . . . . 25,000 $25,000,000 $2,250,000 $22,750,000
- ------------------------------------------------------------------------------------------
(See Notes to the Table on following page)
(Cover continued on next page)
</TABLE>
THE DATE OF THIS PROSPECTUS IS NOVEMBER 26, 1997.
-2-
<PAGE>
The Partnership intends to use the Net Proceeds of this offering to
acquire Equipment to be leased to unaffiliated third parties and to acquire
other Program Assets. The Partnership intends that a major percentage of the
Equipment acquired by the Partnership will be telecommunication equipment.
See "Investment Objectives and Policies." The Partnership has been formed
primarily for income-oriented investment purposes. Most of its income is
expected to be "passive activity income". THERE CAN BE NO ASSURANCE THAT ANY
OF THE PARTNERSHIP'S OBJECTIVES WILL BE ACHIEVED OR THAT ANY SPECIFIC LEVEL
OF CASH DISTRIBUTIONS CAN OR WILL BE ATTAINED. See "Risk Factors,"
"Investment Objectives and Policies" and "Tax Consequences."
If all of the Selected Selling Agent Fees are paid to the Managing Sales
Agent, it is estimated that Front End Fees paid to the General Partner and
affiliates of the General Partner from Gross Proceeds will be: (a) 13.1% of
Gross Proceeds assuming no borrowing ($157,429 if the Minimum is sold and
$3,279,762 if the Maximum is sold; and (b) 10.7% of Gross Proceeds and
borrowings assuming maximum borrowing ($180,058 if the Minimum is sold and
$3,751,191 if the Maximum is sold). After paying all fees and expenses and
establishing reserves, if the Minimum of Units is sold and the maximum is
borrowed, it is estimated that $965,942 of Net Proceeds will be invested in
Program Assets, and if the Maximum of Units is sold and the maximum is
borrowed, it is estimated that $20,123,809 of Net Proceeds will be invested
in Program Assets. AFTER DEDUCTION OF ALL FRONT END FEES TO BE PAID FROM
GROSS PROCEEDS, ESTABLISHING A RESERVE AND ASSUMING THE PARTNERSHIP BORROWS
THE MAXIMUM (40.0% OF GROSS PROCEEDS), IT IS ESTIMATED THAT 80.5% OF THE
LIMITED PARTNERS' INVESTMENT WILL BE AVAILABLE AS NET PROCEEDS FOR INVESTMENT
BY THE PARTNERSHIP. SEE "ESTIMATED USE OF PROCEEDS."
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS
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 NOT PERMITTED.
(1) The Units in the Partnership are being offered through Berthel Fisher &
Company Financial Services, Inc. ("Financial Services"), an affiliate of
the General Partner, as Managing Sales Agent. Financial Services will in
turn engage other broker-dealers who are members of the National
Association of Securities Dealers, Inc. as Selected Sales Agents to offer
to sell the Units. The Managing Sales Agent will receive a Fee of 9.0% of
Gross Proceeds of the Offering, payable by the Partnership. Out of such
amount, the Managing Sales Agent will pay a fee to Selected Sales Agents of
6.0% of the Gross Proceeds from Units sold by the Selected Sales Agents
(6.5% to Selected Sales Agents who sell more than $1,000,000 of Units).
See "Compensation of the General Partner and Affiliates" and "Plan of
Distribution."
(2) Does not take into account Organizational and Offering Expenses payable by
the Partnership. See "Estimated Use of Proceeds."
(3) The minimum does not include Units purchased by the General Partner or
Affiliates.
(4) The maximum includes Units purchased by the General Partner or Affiliates.
The Partnership is not a mutual fund or any other type of investment
company within the meaning of the Investment Company Act of 1940 and is not
subject to regulation thereunder.
Until the minimum Gross Proceeds of $1,200,000 have been raised, payments
made by subscribers will be held by First National Bank Iowa, Cedar Rapids,
Iowa as Escrow Agent. See "Payment for Units" under "Plan of Distribution."
The offering will terminate on the Closing Date, which is to be no later than
one year after the Effective Date; provided that if the Minimum Offering has
been achieved and registration is renewed with the applicable federal and
state agencies, the General Partner may extend the offering period and
postpone the Closing Date for up to an additional year (i.e., two years) from
the Effective Date.
-3-
<PAGE>
THE PARTNERSHIP WILL UTILIZE THIS PROSPECTUS TO MAKE OFFERS AND
SOLICITATIONS ONLY IN STATES IN WHICH THE PARTNERSHIP HAS MADE APPROPRIATE
FILINGS OR OTHERWISE COMPLIED WITH STATE LAW. THE USE OF FORECASTS IN
CONNECTION WITH THIS OFFERING IS PROHIBITED. ANY REPRESENTATION TO THE
CONTRARY AND ANY PREDICTION, 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 NOT PERMITTED.
INVESTORS ARE REQUIRED TO REPRESENT THAT THEY MEET THE OFFERING'S
SUITABILITY STANDARDS AND THAT THEY ARE PURCHASING FOR INVESTMENT AND NOT FOR
RESALE.
PROSPECTIVE INVESTORS ARE ENCOURAGED TO READ CAREFULLY THE ENTIRE
PROSPECTUS, WHICH CONTAINS A COMPLETE COPY OF THE FORM OF PARTNERSHIP
AGREEMENT, AND WHICH IS ACCOMPANIED BY ANY CURRENT SUPPLEMENT.
-4-
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY OF THE OFFERING AND THE PARTNERSHIP. . . . . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Estimated Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 8
Compensation of The General Partner And Affiliates . . . . . . . . . . 9
Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . . 9
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Tax Status of the Partnership . . . . . . . . . . . . . . . . . . 10
Publicly Traded Partnerships. . . . . . . . . . . . . . . . . . . 10
Passive Activity Income Tax Rules . . . . . . . . . . . . . . . . 10
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Prior Experience of The General Partner And Affiliates . . . . . . . . 10
Investment Objectives And Policies . . . . . . . . . . . . . . . . . . 11
Equipment Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . 12
Cash Distributions And Redemption. . . . . . . . . . . . . . . . . . . 12
Operating Distributions . . . . . . . . . . . . . . . . . . . . . 12
Distributions on Liquidation and Winding Up . . . . . . . . . . . 12
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Risks of Equipment Ownership And Leasing . . . . . . . . . . . . . . . 13
Partnership And Business Risks . . . . . . . . . . . . . . . . . . . . 15
Federal Income Tax Risks . . . . . . . . . . . . . . . . . . . . . . . 17
INVESTOR SUITABILITY STANDARDS . . . . . . . . . . . . . . . . . . . . . . 19
ESTIMATED USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . 21
COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES . . . . . . . . . . . . 22
CONFLICTS OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER. . . . . . . . . . . . . . 31
TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Brief Summary of Material Tax Consequences of Investment . . . . . . . 32
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . 50
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
The General Partner and Its Affiliates . . . . . . . . . . . . . . . . 53
Executive Officers of the General Partner. . . . . . . . . . . . . . . 54
Directors of the General Partner . . . . . . . . . . . . . . . . . . . 55
Operation of the General Partner . . . . . . . . . . . . . . . . . . . 56
PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES . . . . . . . . . . 56
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Differences Between the Partnership and Other Public and
Private Programs . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Information Regarding Private Programs . . . . . . . . . . . . . . . . 58
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . 59
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Types of Equipment to be Acquired. . . . . . . . . . . . . . . . . . . 60
Telecommunications Industry in General . . . . . . . . . . . . . . . . 61
Telecommunications Equipment Market Factors. . . . . . . . . . . . . . 61
Telecommunications Equipment Residual Values . . . . . . . . . . . . . 62
Acquisition Policies and Procedures. . . . . . . . . . . . . . . . . . 62
Temporary Investments; Return of Uninvested Net Proceeds . . . . . . . 64
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-5-
<PAGE>
Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Working Capital Reserves . . . . . . . . . . . . . . . . . . . . . . . 68
Sales of Lease Receivables and Residual Values . . . . . . . . . . . . 68
Sale of Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Demand for Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 69
EQUIPMENT ACQUISITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT . . . . . . . . . . . . . . . 70
Partnership Capital. . . . . . . . . . . . . . . . . . . . . . . . . . 71
Partnership Allocations. . . . . . . . . . . . . . . . . . . . . . . . 71
Voting Rights of Limited Partners. . . . . . . . . . . . . . . . . . . 71
Liability of Partners to Third Parties . . . . . . . . . . . . . . . . 72
Exculpation and Indemnification of the General Partner . . . . . . . . 72
Withdrawal or Removal of the General Partner . . . . . . . . . . . . . 73
Dissolution and Liquidation. . . . . . . . . . . . . . . . . . . . . . 73
Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Appointment of the General Partner as Attorney-in-Fact . . . . . . . . 74
Principal Office of the Partnership. . . . . . . . . . . . . . . . . . 74
Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Transferability of Units . . . . . . . . . . . . . . . . . . . . . . . 74
Roll-up Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 76
CASH DISTRIBUTIONS AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . 76
Cash Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Redemption of Units. . . . . . . . . . . . . . . . . . . . . . . . . . 79
Liquidation Policies . . . . . . . . . . . . . . . . . . . . . . . . . 80
REPORTS TO LIMITED PARTNERS. . . . . . . . . . . . . . . . . . . . . . . . 81
MAINTENANCE OF RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . 82
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION. . . . . . . . 83
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . 83
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Broker-Dealers and the Selling Agreements. . . . . . . . . . . . . . . 85
The Offering of Units. . . . . . . . . . . . . . . . . . . . . . . . . 86
Admission of Limited Partners. . . . . . . . . . . . . . . . . . . . . 86
Cancellation of Offering . . . . . . . . . . . . . . . . . . . . . . . 87
Subscription for Units . . . . . . . . . . . . . . . . . . . . . . . . 87
Payment for Units. . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SUMMARY OF PROMOTIONAL AND SALES MATERIAL. . . . . . . . . . . . . . . . . 88
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 90
FINANCIAL STATEMENTS OF THE PARTNERSHIP AND THE GENERAL PARTNER. . . . . . 91
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
EXHIBIT "A" - AGREEMENT OF LIMITED PARTNERSHIP . . . . . . . . . . . . . . A-1
EXHIBIT "B" - SUBSCRIPTION AGREEMENT . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT "C" - TABULAR INFORMATION CONCERNING PRIOR TRANSACTIONS. . . . . . C-1
EXHIBIT "D" - NOTICE TO CALIFORNIA INVESTORS . . . . . . . . . . . . . . . D-1
-6-
<PAGE>
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SUMMARY OF THE OFFERING AND THE PARTNERSHIP
- -------------------------------------------------------------------------------
The Partnership is an equipment leasing program. The principal office of
the Partnership is located at 100 Second Street, SE, Cedar Rapids, Iowa
52401. The Partnership's phone number is (319) 365-2506. The principal
investment objective of the Partnership is to obtain the maximum available
economic return from its Investment in Program Assets. The Partnership
intends to purchase Equipment and lease it to unaffiliated third parties,
with a view toward generating Cash Flow during its Operating Phase, making
Operating Distributions, reinvesting undistributed Cash Flow from operations
in additional Equipment for lease, and maximizing the residual values of
Equipment upon sale.
The following is a summary of the pertinent facts and highlights from the
material contained in this Prospectus. The following summary is qualified in
its entirety by the more detailed information contained elsewhere in this
Prospectus.
I. RISK FACTORS
The purchase of Units involves risks. Prospective investors should
carefully review the section entitled "Risk Factors" beginning on page 13
before purchasing Units. The material risks of an investment in the
Partnership are summarized as follows:
- INVESTORS CANNOT TAKE PART IN MANAGEMENT OF THE PARTNERSHIP AND MUST
RELY SOLELY ON THE GENERAL PARTNER. Limited Partners cannot take an
active role in management and must rely solely upon the General
Partner for management of the Partnership.
- EQUIPMENT TO BE PURCHASED WITH NET PROCEEDS AND THE LESSEES OF SUCH
EQUIPMENT ARE UNSPECIFIED AND CANNOT BE ASSESSED BY INVESTORS. No
Equipment has been identified by the Partnership for purchase, and no
lessees have been identified. Accordingly, investors are unable to
assess for themselves the exact nature of Equipment that will be
purchased by the Partnership or the quality of lessees.
- THE PARTNERSHIP HAS NO OPERATING HISTORY. The Partnership is newly
formed and has no operating history. However, the officers and
directors of the General Partner also serve or have served as general
partners, officers or directors of affiliates of the General Partner
which are currently operating or have operated leasing businesses.
See "Prior Experience of the General Partner and Affiliates" and
Exhibit C - "Tabular Information Concerning Prior Transactions."
- GENERAL PARTNER ENTITLED TO FEES. The General Partner is entitled to
substantial fees which it will receive regardless of whether Limited
Partners receive a return of their investment.
- LIMITED PARTNERS MAY NOT RECEIVE A RETURN AND MAY NOT RECEIVE THEIR
INVESTMENT BACK. It is not certain either that Limited Partners will
ever receive their own money back or that they will receive a return
on their investment. Cash Distributions made during the Operating
Phase may include a return of the Limited Partners' own money.
- LESSEES MAY DEFAULT OR BECOME BANKRUPT. Lessees may default on the
obligations under a lease or become bankrupt. If the Partnership
cannot re-lease or sell the Equipment, the Partnership will experience
a loss of anticipated revenues. Such defaults or bankruptcies will
result in a reduction of distributions to Limited Partners.
-7-
<PAGE>
- THERE MAY BE INSUFFICIENT REVENUE TO MEET DEBT SERVICE WHEN LEVERAGE
IS USED. The use of leverage increases the risk of an investment in
the Partnership because it requires the Partnership to meet debt
repayment requirements even though the lease of Equipment purchased
with the debt may fail or produce insufficient revenue to meet the
debt service obligations. The General Partner intends to borrow the
maximum of 40.0% of the Gross Proceeds ($10,000,000 if the Maximum of
$25,000,000 of Units is sold).
- NO PUBLIC MARKET FOR UNITS AND NO RIGHT TO REDEMPTION. There is no
public market for the Units, and it is not likely that a market will
develop. The Units are subject to restrictions on transfer and can
only be transferred in conformity with the Partnership Agreement and
in compliance with applicable law.
- THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR TAX PURPOSES MAY BE
CHALLENGED. The availability of any tax benefits of investing in the
Partnership is dependent upon the classification of the Partnership as
a partnership, and not as an association taxable as a corporation.
The IRS may challenge the Partnership's classification as a
partnership.
- ADVERSE TAX CONSEQUENCES WILL RESULT IF PARTNERSHIP IS TREATED AS
"PUBLICLY TRADED". The treatment of the Partnership by the IRS as a
publicly traded partnership will have significant adverse effects on
investors.
- EQUIPMENT MAY RAPIDLY DECLINE IN VALUE. Equipment purchased by the
Partnership may rapidly decline in value, thereby impairing the
General Partner's ability to obtain Residual Value. Upon the sale of
equipment at the end of a lease, Private Programs operated by the
General Partner received a nominal price, usually less than ten
percent (10.0%) of the cost of the equipment.
- PARTNERSHIP MAY PURCHASE EQUIPMENT FROM A MANUFACTURER IN WHICH
AFFILIATE OWNS AN INTEREST. An Affiliate of the General Partner owns
approximately 6.2% of Intellicall, Inc., one of several manufacturers
from which the Partnership will acquire Equipment. The General
Partner has a conflict of interest that could result in the General
Partner making credit and leasing decisions to benefit that
manufacturer.
- EMERGING GROWTH COMPANIES MAY BE WEAK LESSEES. The Partnership may
enter into leases with emerging growth companies. These leases
involve a higher degree of risk than leases with established
companies.
II. ESTIMATED USE OF PROCEEDS
If the minimum number of Units is sold and the maximum (40.0% of Gross
Proceeds) is borrowed, it is estimated that 19.5% of the Gross Proceeds will
be used to pay fees and expenses and for reserves, and 80.5% will be used to
acquire Program Assets. If the maximum number of Units is sold and the
maximum (40.0% of Gross Proceeds) is borrowed, it is estimated that 19.5% of
the Gross Proceeds will be used to pay fees and expenses and for reserves,
and 80.5% will be used to acquire Program Assets. See Table I of Exhibit C -
Tabular Information Concerning Prior Transactions, for information regarding
the Managing Sales Agent's history of not raising the maximum offering size
for transactions greater than $1,000,000. See "Estimated Use of Proceeds."
The Partnership will use Gross Proceeds to pay Front End Fees (fees and
expenses incurred by the Partnership in connection with the organization of
the Partnership, the offering and sale of Units and the acquisition of
Program Assets) in an amount no greater than $199,429 (16.6% of Gross
Proceeds) assuming no indebtedness, and in an amount no greater than $222,058
(18.5% of Gross Proceeds) assuming indebtedness equal to 40% of Gross
Proceeds and assuming only $1,200,000 of
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Units are sold. Front End Fees paid from Gross Proceeds will be no greater
than $4,154,762 (16.6% of Gross Proceeds) assuming $25,000,000 of Units are
sold and assuming no indebtedness, and will be no greater than $4,626,191
(18.5% of Gross Proceeds) assuming $25,000,000 of Units are sold and assuming
indebtedness equal to 40% of Gross Proceeds. The table included in
"Estimated Use of Proceeds" shows estimated Total Organization and Offering
Expenses (other than Managing Sales Agent Fee and Selected Selling Agents
Commissions) of 3.5%, or $42,000 at the Minimum Offering amount. Because it
is highly likely that these expenses will exceed $42,000, the General Partner
will promptly pay all such Organization and Offering Expenses that are in
excess of the maximum percentage limits set forth in that table.
Front End Fees means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition
phase, including Organization and Offering Expenses (expenses incurred in
connection with formation of the Partnership and preparing the Partnership
for registration and subsequently offering and distributing it to the public,
including sales commissions paid to brokers or dealers in connection with the
distribution of Interests), Acquisition Fees (fees and commissions paid by
any party in connection with the initial purchase or manufacture of Equipment
acquired by or financings placed by the Partnership) and Acquisition Expenses
(legal fees and expenses, travel and communication expenses, costs of
appraisals, accounting fees and expenses, and miscellaneous expenses relating
to selection and acquisition of Program Assets) and any other similar fees,
however designated. That portion of Organization and Offering Expenses
consisting of commissions to broker dealers will be paid to an Affiliate of
the General Partner and other broker dealers who sell Interests. Such
Organization and Offering Expenses as printing, legal and accounting expenses
and advertising expenses will be paid to the persons or entities providing
such services. Acquisition Fees will generally be paid to the General
Partner, but in limited circumstances Acquisition Fees may be paid to
unrelated third parties. The General Partner will pay Acquisition Expenses
out of its Acquisition Fee to the persons or entities providing services for
which such expenses are incurred.
III. COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES
The General Partner and Affiliates will receive various types of
compensation in connection with the offering and operation of the
Partnership. See "Compensation of the General Partner and Affiliates."
- The Managing Sales Agent, an affiliate of the General Partner, will
receive a fee equal to 9.0% of the Gross Proceeds ($108,000 if the
minimum is sold and $2,250,000 if the maximum is sold).
- The General Partner will receive fees for acquisition services equal
to 5.0% of the cost of Equipment and financing provided by the
Partnership.
- The General Partner will provide re-leasing services to the
Partnership at a price not to exceed 2% of rental payments received on
account of such re-leasing activities.
- Until the General Partner elects to begin the liquidation of the
Partnership assets, the General Partner will receive (i) a fee for
services in connection with managing the operations of the Partnership
equal to 2.0% of the aggregate amount of Gross Rental Payments, loan
payments and other payments received by the Partnership on account of
its leasing and financing activities, (ii) reimbursement of expenses,
and (iii) interest on loans, if any, made to the Partnership.
Payments to the General Partner for managing the operations of the
Partnership will cease accruing upon the election of the General
Partner to liquidate the Partnership (the close of the Operating
Phase).
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- The General Partner has an interest in the profits and losses of the
Partnership to the extent it owns Units.
- When Limited Partners have received a return of their Capital
Contribution, plus a return of 9.6% per annum during the Operating
Phase (the period that ends when the General Partner elects to begin
the liquidation of the Partnership's assets), and no less than an 8.0%
annual, cumulative, compounded daily, distribution based on their
Adjusted Capital Contributions, the General Partner will receive 20.0%
of all remaining amounts distributed.
IV. CONFLICTS OF INTEREST
There are numerous conflicts of interest between the Partnership and the
General Partner and its Affiliates. These conflicts arise primarily because the
General Partner has established all of the terms relating to investment in the
Units, the General Partner will control the Partnership, the General Partner
also conducts its own leasing activities, and the General Partner and its
Affiliates will receive various forms of compensation from the Partnership. See
"Conflicts of Interest."
V. TAX CONSEQUENCES
There are numerous tax consequences relating to an investment in Units
that are fully described in "Tax Consequences" and that should be reviewed in
full. The most significant tax consequences are highlighted below:
A. TAX STATUS OF THE PARTNERSHIP
The General Partner has not requested a private letter ruling from the
IRS that the Partnership will for federal income tax purposes be classified
as a partnership rather than as an association taxable as a corporation. The
Partnership has received an opinion from its tax counsel as to its tax status
as a partnership, but such opinion is not binding upon the IRS. If the
Partnership were taxed as a corporation, the after-tax return to a Limited
Partner from an investment in the Partnership would likely be reduced. See
"Federal Income Tax Risks" under "Risk Factors" and "Tax Consequences."
B. PUBLICLY TRADED PARTNERSHIPS
If the Partnership is a "publicly traded partnership," it will be treated
as a corporation for tax purposes and would be subject to other adverse tax
treatment. Based upon representation of the General Partner that it intends
to limit transfers, tax counsel has opined that the Partnership will not be
treated as "publicly traded." See "Federal Income Tax Risks" under "Risk
Factors" and "Tax Consequences."
C. PASSIVE ACTIVITY INCOME TAX RULES
An investment in the Partnership will be considered to be an investment
in a "passive activity." Losses from passive activities do not reduce an
individual Limited Partner's federal taxable income from salaries, active
businesses in which he materially participates, or portfolio items such as
stocks or interest-bearing securities. Income from a passive activity may be
offset by losses from other passive activities.
Due to the complexity of the passive activity rules and other tax law
rules promulgated by Congress, prospective investors are urged to consult
their own tax advisors as to the particular income
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tax consequences to them of the purchase, ownership, and disposition of
Units. See "Federal Income Tax Risks" under "Risk Factors" and "Tax
Consequences."
VI. MANAGEMENT
The General Partner of the Partnership is Berthel Fisher & Company
Leasing, Inc., Cedar Rapids, Iowa. The General Partner will manage and
control all of the affairs of the Partnership, and will make all investment
decisions with respect to the Partnership's acquisition, leasing and sale or
other disposition of Equipment and other Program Assets. The General Partner
has four executive officers, one of whom is a full time employee, and a board
of directors consisting of five persons, including three of the four
executive officers.
VII. PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES
The General Partner has operated a leasing business since 1988. The
General Partner has served as general partner of Telecommunications Income
Fund IX, L.P. ("TIF IX"), a publicly held equipment leasing limited
partnership that began operations on October 31, 1991, and Telecommunications
Income Fund X, L.P. ("TIF X"), a publicly held equipment leasing limited
partnership that began operations on September 29, 1993. The General Partner
has duties in connection with the operation of TIF IX and TIF X that are
similar to its duties under the Partnership Agreement of the Partnership.
Affiliates of the General Partner previously operated eight Private
Programs, all of which were primarily involved in the leasing of
telecommunications equipment. Operations in all of the Private Programs have
been completed. The general partners' duties in connection with the
operations of the Private Programs were generally similar to the General
Partner's duties under the Partnership Agreement of the Partnership. See
"Conflicts of Interest," "Prior Experience of the General Partner and
Affiliates," "Management" and "Exhibit C - Tabular Information Concerning
Prior Transactions."
VIII. INVESTMENT OBJECTIVES AND POLICIES
The principal investment objective of the Partnership is to obtain the
maximum available economic return from its Investment in Program Assets. To
achieve this objective, the Partnership plans to (i) purchase Equipment for
lease to unaffiliated third parties, (ii) purchase Equipment that is subject
to existing leases, in which case the Partnership will also acquire the
lessor's interest in the lease, and (iii) sell or re-lease Equipment as
leases expire. To facilitate leasing arrangements, the Partnership may enter
into lease commitments with various third parties so that appropriate and
adequate security filings can be completed and to enable lessees to plan for
equipment installation. These commitments may involve the taking by the
Partnership of security interests in property other than the Equipment. The
Partnership will collect commitment fees in connection with the giving of
lease commitments. In some circumstances, the Partnership will enter into
financing arrangements which will involve making secured loans to or other
debt arrangements with unaffiliated third parties. These financings will be
completed only if such financings are advantageous to the Partnership, and
will include cases where lease transactions with those third parties would
result in unfavorable tax treatment. Such loans will generally be
securitized with a first security interest in equipment.
The Partnership's activities will be undertaken with a view toward (i)
generating Cash Flow from operations, with the intent to make monthly
distributions during the Operating Phase (the period that ends when the
General Partner elects to begin the liquidation of the Partnership assets);
(ii) increasing the Partnership's assets by reinvesting in additional Program
Assets (during the Operating Phase) any undistributed Cash Flow from
operations; (iii) obtaining the residual values of Equipment upon sale; (iv)
obtaining values from sales of the Partnership's lease portfolios upon
entering the Liquidating Phase (the
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period during which the General Partner will liquidate the Partnership
assets); and (v) providing cash distributions to the Partners during the
Liquidating Phase. See "Risk Factors," "Investment Objectives and Policies"
and "Tax Consequences."
The Partnership will acquire primarily telecommunications equipment, but
the Partnership will also acquire other types of equipment that meets the
investment objectives of the Partnership. Telecommunications equipment
acquired by the Partnership will generally be call processing systems for use
in hotels, hospitals, detention centers and other facilities, pay telephone
equipment and related equipment. See "Types of Equipment to be Acquired"
under "Investment Objectives and Policies" and "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." Equipment the
Partnership acquires will generally be leased to third parties under Full
Payout Leases or will be subject to Full Payout Leases at the time the
Equipment is acquired. A Full Payout Lease is a lease under which the
non-cancelable rental payments due during the initial term of the lease are
sufficient to cover the Purchase Price of Equipment.
The General Partner may sell the Partnership's Equipment at any time.
However, the General Partner anticipates that it will hold Equipment for a
period of approximately three to five years, depending upon the type of
Equipment and the Partnership's stage of operations. Once the General
Partner elects to go into the Liquidating Phase, the General Partner intends
to liquidate the Partnership's assets as soon as practicable. See "Sale of
Equipment" under "Investment Objectives and Policies" and "Sales of Lease
Receivables and Residual Values" under "Investment Objectives and Policies."
IX. EQUIPMENT ACQUISITIONS
The General Partner may acquire Equipment in its own name and hold title
thereto on a temporary basis for the purpose of facilitating the acquisition
of such Equipment for the Partnership. See "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." The General Partner
shall be paid an Acquisition Fee for Equipment purchased by the Partnership,
including Equipment purchased from the General Partner, and for financings
placed by the Partnership. See "Compensation of the General Partner and
Affiliates." If, at the time Limited Partners are first admitted to the
Partnership, the General Partner owns Equipment that meets the standards
imposed by the General Partner for acquisition by the Partnership, the
General Partner will transfer to the Partnership any Equipment approved by
the Partnership.
X. CASH DISTRIBUTIONS AND REDEMPTION
A. OPERATING DISTRIBUTIONS
The Partnership intends to make monthly distributions to Partners
("Operating Distributions") during the Operating Phase (the period which ends
when the General Partner elects to begin the liquidation of Partnership
assets) to the extent cash is available for such purpose. See "Cash
Distributions and Redemptions." Partners will receive Operating
Distributions after the General Partner has first received reimbursement for
expenses incurred for administrative services, but before the General Partner
receives a Management Fee. The payment of Operating Distributions will be
made only during the Operating Phase. See "Cash Distributions and
Redemptions" for a fuller explanation of Operating Distributions to be made
by the Partnership.
The General Partner anticipates that distributions will begin within 60
days following the end of the first full calendar quarter after the date that
Limited Partners are first admitted to the Partnership. There is no
assurance that distributions will commence at that time. Distributions may
vary in amount and may be suspended at any time by the General Partner if the
Partnership, in the judgment of the General Partner, is receiving
insufficient returns on its Lease Portfolio.
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B. DISTRIBUTIONS ON LIQUIDATION AND WINDING UP
The General Partner expects that the offering of Units will terminate no
later than one year after the Effective Date, but the offering may be
extended for up to an additional one year period. Beginning no earlier than
three and one-half years and no later than five years after the date on which
the offering of Units terminates, the Partnership will enter the Liquidation
Phase, which means it will cease reinvesting in Equipment and other Program
Assets and will not enter into additional leases. The General Partner will
then proceed diligently to wind up the Partnership's affairs and to convert
all of the Partnership's assets into cash, which will be distributed as
described in "Cash Distributions and Redemptions." If the offering is not
terminated until two years after the Effective Date, as will be the case if
the offering is extended for an additional one year period, the Partnership
must enter the Liquidation Phase no later than seven years after the
Effective Date.
Amounts remaining available to be distributed among the Partners after
satisfying all Partnership liabilities and obligations and/or providing
reserves for future or contingent Partnership liabilities (and if during the
Operating Phase, after utilizing Cash Flow for Investment in Program Assets
to the extent determined by the General Partner) will be distributed as set
forth in "Cash Distribution and Redemptions."
Once the Partnership enters the Liquidation Phase and the liquidation of
Partnership assets has begun, when the General Partner believes that all but
approximately 20.0% of the Partnership assets have been distributed, it will
cause an audit of the Partnership's books and records to be made. The
General Partner will distribute the remaining Partnership assets in
accordance with the terms of the Partnership Agreement only after the
completion of such audit. Although the General Partner cannot predict how
long it will take to wind up the Partnership's affairs and convert all of the
Partnership's assets into cash, the Partnership must dissolve no later than
December 31, 2012. See "Summary of the Limited Partnership Agreement -
Dissolution and Liquidation."
C. REDEMPTIONS
The General Partner is permitted, in its sole discretion, and on a very
limited basis, to redeem Units. Units may not be redeemed until after
December 31, 1999. The General Partner will not redeem Units if such
redemptions would not be in the best interest of the Partnership or if, in
the opinion of counsel to the Partnership, such redemptions could result in
the Partnership being characterized as a "publicly traded" partnership for
Federal income tax purposes. See "Redemption of Units" under "Cash
Distributions and Redemptions." No assurance may be given that the Limited
Partners will be able to participate in the redemption program.
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RISK FACTORS
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An investment in Units involves various risks. Prospective investors,
therefore, should consider the following factors, in addition to others
discussed in this Prospectus, before making a decision to purchase Units:
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A. RISKS OF EQUIPMENT OWNERSHIP AND LEASING
1. LESSEES MAY DEFAULT OR BECOME BANKRUPT. Default by a lessee or
bankruptcy of a lessee may result in Equipment being returned to the
Partnership at a time when the General Partner may be unable to arrange for
the re-leasing or sale of such Equipment. This will result in the loss of
anticipated revenues from the leasing of such Equipment and the inability to
recover the Partnership's investment in such Equipment. In addition, a
default by or bankruptcy of a lessee may result in loss of revenue from the
leasing of such Equipment and the incurring of litigation costs to the
Partnership which may not be recovered from the lessee. Such a default or
bankruptcy may result in reduced distributions to Limited Partners.
2. THERE MAY BE INSUFFICIENT REVENUE TO MEET DEBT SERVICE WHEN LEVERAGE
IS USED. The use of borrowed funds as anticipated by the Partnership will
cause the risk of loss to the Limited Partners to be greater because fixed
payment obligations must be met regardless of the amount of revenues. If
debt service payments are not paid when due and the lender forecloses on the
debt, the Partnership may sustain the loss of its equity investment in the
Equipment used to secure the debt. A foreclosure by a lender may also result
in adverse tax consequences to the Limited Partners. The General Partner
intends to borrow the maximum of 40.0% of Gross Proceeds ($10,000,000 if the
Maximum of $25,000,000 of Units is sold).
If and to the extent the Partnership utilizes borrowings, the interest
rates paid by it may be higher than interest rates paid by established
equipment leasing companies with established credit ratings. As a result,
the Partnership may be required to charge its lessees higher monthly rentals
than would be charged by a lessor with a lower cost of borrowing. The
Partnership has not entered into any agreements to obtain such financing, and
it is not presently possible to ascertain the availability or terms of such
financing.
If a portion of the Partnership's debt is cross-collateralized (i.e.,
secured by a lien upon Equipment other than that acquired directly with the
proceeds of the debt), upon default by a lessee the lender may be in a
position to accelerate the debt secured by the cross-collateralized Equipment.
3. DEFAULT BY LESSEE MAY AFFECT PARTNERSHIP'S LOANS. The terms of
Partnership loans may permit the lender to accelerate the due date of such
loans upon default by lessees of leases used to secure such loans. In the
event of such acceleration, the lender would be in a position to foreclose
upon the Equipment securing the loan unless the Partnership repaid the entire
unpaid balance, which the Partnership is unlikely to be able to do unless it
could promptly (i) cure the lease default with other revenues or reserve
funds, (ii) obtain possession of and re-lease the related Equipment and
refinance the accelerated obligation, or (iii) obtain other financing until
such re-lease and refinancing could be arranged. Foreclosure by a lender or
premature sale of Equipment may result in financial loss to the Partnership
and adverse tax consequences to its Limited Partners, including recapture of
all depreciation deductions previously claimed.
4. EQUIPMENT MAY RAPIDLY DECLINE IN VALUE AND THE GENERAL PARTNER MAY
BE UNABLE TO OBTAIN SIGNIFICANT RESIDUAL VALUE FOR THE PARTNERSHIP EQUIPMENT.
The Equipment purchased by the Partnership may rapidly decline in value.
There can be no assurance that the Partnership will be able to obtain
residual values sufficient to return Capital Contributions to Limited
Partners. The residual values ultimately realized will depend, among other
factors, upon (a) the standards observed by lessees in maintaining the
Equipment; (b) the General Partner's ability to effectively remarket the
Equipment; (c) the cost of comparable new Equipment; (d) technological
obsolescence of the Equipment; (e) the demand for used Equipment; (f) general
economic and business conditions, as well as such conditions and changes
within the telecommunications industry affecting leases which might reduce
the demand
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for leased equipment generally; and (g) competition. Most of these factors
are beyond the control of the General Partner. Upon the sale of the equipment
at the end of a lease, Private Programs operated by the General Partner
received a nominal price, usually less than ten percent (10%) of the cost of
the equipment.
5. CHANGES IN TECHNOLOGY MAY RESULT IN OBSOLESCENCE OF EQUIPMENT. The
success of the Partnership may depend, among other factors, upon
technological changes and the ability of the General Partner to upgrade the
Equipment to avoid obsolescence. The inability due to technological
obsolescence to renew leases or enter into new leases or to sell Equipment
after the expiration of the initial term of a lease may result in the loss of
anticipated revenues, the reduction of residual values, and the inability to
recover the Partnership's Investment in Program Assets.
6. ECONOMIC AND BUSINESS FACTORS BEYOND THE CONTROL OF THE GENERAL
PARTNER INCREASE THE RISK OF THE LEASING BUSINESS. The equipment leasing
business is subject to many economic and business factors that are beyond the
control of the General Partner. In addition to risks discussed specifically
below, such factors include: (a) economic and business conditions generally
and within the telecommunications industry, including but not limited to,
inflation, recession, fluctuation of interest rates and availability of
financing; (b) increases in operating expenses; (c) changes in tax laws or
accounting rules or in other laws or governmental regulations relating to
matters affecting the ownership, leasing, use or operation of Equipment; and
(d) the viability of equipment manufacturers and lessees. Any one or more of
the risks may cause cost increases relating to the leasing of Equipment which
cannot be offset by increased leasing revenues.
7. REDUCED REVENUES MAY RESULT FROM POSSIBLE LACK OF DEMAND FOR
EQUIPMENT. Insufficient demand for equipment leasing may not permit the
Partnership to keep all of its Equipment fully leased at rental rates which,
after payment of operating expenses and debt service on Partnership
borrowing, will provide, together with any anticipated sale proceeds or
residual value, an acceptable rate of return on the Partnership's investment
in such Equipment.
8. INABILITY TO RENEGOTIATE EXPIRED LEASES. Because the configuration
of Equipment may be user-specific, the Partnership may be at a disadvantage
when negotiating with lessees for the extension of leases or the purchase of
Equipment by lessees at the expiration of leases.
9. POOR MARKET CONDITIONS AT TIME OF LIQUIDATION MAY DELAY OR IMPAIR
SATISFACTORY LIQUIDATION. At the beginning of liquidation of the
Partnership's assets, it is contemplated that the Partnership will have a
substantial portion of its assets (including a portion of the returns earned
on prior leases) invested in Equipment and subject to the interest of
borrowers, and, therefore, at risk. A weak market for Equipment, lease
financing or lease portfolio sales at that time may have an adverse affect on
the Limited Partner's overall return on investment, and may delay or impair
the ability of the Partnership to return the Limited Partners' original
investment and to pay a return on that investment.
10. THE PARTNERSHIP MUST COMPETE WITH OTHER LEASING COMPANIES AND WITH
OTHER FINANCING INSTITUTIONS. The equipment leasing industry is highly
competitive, offering users alternatives to the purchase of nearly every type
of equipment. The Partnership will be in competition with equipment
manufacturers, equipment distributors, equipment managers, leasing companies,
financial institutions and other parties engaged in leasing, managing,
marketing, remarketing or financing equipment. Many of these competitors
have significantly greater financial resources than the Partnership and may
have greater experience than the General Partner.
11. POSSIBLE FAILURE OF LEASES OF EQUIPMENT LOCATED IN FOREIGN
COUNTRIES. The Partnership may enter into leases with United States companies
for Equipment to be located in foreign countries. In such cases, the laws of
such foreign countries may control the disposition of leased Equipment, and
it is possible that the Partnership may not be able to gain possession of the
Equipment upon default of such leases, resulting in loss to the Partnership.
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B. PARTNERSHIP AND BUSINESS RISKS
1. CONFLICTS OF INTEREST BETWEEN RELATED PARTIES. There are conflicts
of interest between the Partnership, the General Partner, and various
affiliates of the General Partner. The Partnership has and will enter into
contractual relationships with the General Partner and affiliates of the
General Partner involving the payment of compensation and commissions. The
Partnership will compete with the General Partner and its affiliates in the
business of equipment leasing and for management time and services. These
conflicts may affect the success of the Partnership. See "Conflicts of
Interest."
2. RISK OF GENERAL PARTNER'S CREDIT. The General Partner's credit
agreement for its own operating line requires the General Partner to maintain
minimum stockholders' equity and to maintain an interest coverage ratio of
1.1 at year end. The General Partner was in violation of these covenants at
December 31, 1996. The General Partner's bank amended the credit agreement
to reduce the stockholders' equity requirement. The bank waived the interest
coverage ratio at December 31, 1996. It is likely that the General Partner
will be in violation of the interest coverage ratio on December 31, 1997,
and, if so, there can be no assurance that the bank will waive the violation
of the interest coverage ratio. Although the General Partner is now in
compliance with the covenant requiring minimum stockholders' equity, there
can be no assurance that the General Partner will not in the future be in
violation of this covenant. Adverse operating results of the General Partner
could cause continued non-compliance with these covenants, in which event the
General Partner's bank could immediately accelerate the maturity of the
entire outstanding balance under the credit agreement or deny or restrict the
General Partner's access to funds under the credit agreement, thus materially
and adversely affecting the General Partner's financial condition and
continuing business operations.
3. FINANCIAL CONDITION OF THE GENERAL PARTNER. During the years ended
December 31, 1995 and 1996, the General Partner incurred net losses of
$393,720 and $836,556, respectively. During the first nine months of 1997,
the General Partner has incurred net losses of $182,122. The General
Partner's continuation as a going concern is dependent upon its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain refinancing as may be required, and ultimately to attain profitable
operations. The General Partner anticipates that existing capital resources,
cash flows from operations, and financing from the General Partner's parent,
will be adequate to satisfy the General Partner's minimum capital
requirements and liquidity needs for the next twelve months. The General
Partner's plans for future growth and profitability anticipate the need for
completion of this Offering in order to generate fee income. No assurance
can be provided that this Offering will be completed as planned or that the
General Partner continue as a going concern during the life of the
Partnership. See "Financial Statements of the Partnership and the General
Partner."
4. LESSEES OF EQUIPMENT ARE UNSPECIFIED AND CANNOT BE ASSESSED BY
INVESTORS. No Equipment has been identified for acquisition or acquired by
the Partnership. There can be no assurance when, or if, funds available for
the acquisition of Equipment will be fully invested in Equipment. Purchasers
of Units will not have an opportunity prior to making their investment to
evaluate for themselves Equipment to be acquired by the Partnership, the
seller of such Equipment, the actual leasing arrangements for such Equipment,
the creditworthiness of the lessees of such Equipment or any related risks.
No assurance can be given that the General Partner will be able to obtain
leases which will achieve the investment objectives of the Partnership.
5. THE PARTNERSHIP HAS NO OPERATING HISTORY. The Partnership is
newly-formed and has no operating history. Purchasers of Units cannot
investigate the business of the Partnership and must rely (a) upon the
representations in this prospectus as to the business the Partnership expects
to conduct, and (b) upon the experience of the General Partner. See "Prior
Experience of the General Partner and Affiliates."
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6. FRONT END FEES AND EXPENSE REIMBURSEMENT. A significant portion
(18.5%, see "Estimated Use of Proceeds") of Investors' capital contributions
will be paid to the General Partner, the Managing Sales Agent and others as
Front End Fees regardless of whether Limited Partners will receive a return
of their investment. As a result, fewer funds will be available to the
Partnership for the acquisition of Equipment. Further, during the Operating
Phase, the General Partner will receive reimbursement for its expenses, thus
making less cash available for working capital, distributions to Limited
Partners and investment in additional Equipment.
7. LIMITED PARTNERS MAY NOT RECEIVE A RETURN AND MAY NOT RECEIVE THEIR
INVESTMENT BACK. Limited Partners may not receive their original investment
back, in which case Limited Partners will not have received a return of their
investment. Limited Partners may receive a return of their investment, but
will not receive a return on their investment until the Limited Partners have
received more than the amount invested. There is no assurance the Limited
Partners will receive a return on their investment or that they will receive
their original investment back from the Partnership. Cash Distributions made
during the Operating Phase may include a return of the Limited Partners' own
money.
8. LACK OF DIVERSIFICATION. The Partnership intends to invest
primarily in telecommunications equipment. Accordingly, there may not be
diversity in the type of Equipment owned by the Partnership. The sale of
only the minimum number of Units will result in limited or no
diversification. In addition, the ability of the Partnership to acquire
Equipment at an attractive cost, the availability of Equipment for purchase
and the amount of capital at the disposal of the Partnership will affect the
amount of diversity of Equipment acquired by the Partnership. The
profitability of the Partnership may, therefore, be affected by the lack of
diversification of Equipment and lessees.
9. EMERGING GROWTH COMPANIES MAY BE WEAK LESSEES. The Partnership may
enter into leases with lessees that are emerging growth companies that have
not had substantial operating histories. Emerging growth companies may be
particularly susceptible to fluctuations in the general business environment,
which may impact their ability to operate their businesses and make their
lease payments. Leases with emerging growth companies, therefore, may
involve greater risk to the Partnership than leases with more established
lessees.
10. THERE MAY BE LIMITED DIVERSIFICATION OF LESSEES. If the Partnership
sells only 1,200 Units ($1,200,000), its ability to diversify its investments
in Equipment and its lessees (and, therefore, its ability to achieve
spreading of risks) may thus be limited. Even if the Partnership sells more
than 1,200 Units, the amount of its available funds may permit investment in
only a limited amount of equipment. See "Acquisition Policies and
Procedures" under "Investment Objectives and Policies." Furthermore, since
there is no limitation on the amount which the Partnership may invest in any
one equipment transaction, it would be possible for the Partnership to invest
all of its available funds in a single transaction.
11. NO PUBLIC MARKET FOR UNITS AND NO RIGHT TO REDEMPTION. There is not
now any market for Units, and it is not anticipated that an active market
will ever develop. Accordingly, Limited Partners will not be able to
liquidate their investments in the event of an emergency or otherwise, and
Units may not be readily accepted as collateral for a loan. A Partnership
Unit may be transferred only 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 the sole discretion of
the General Partner. Although the Partnership may agree to redeem Units
under certain limited circumstances by repurchasing them from Limited
Partners, there is no requirement that it do so. See "Cash Distributions and
Redemptions."
12. COST OF INSTALLATION AND REMOVAL OF TELECOMMUNICATIONS EQUIPMENT MAY
LIMIT PARTNERSHIP'S REMEDIES ON DEFAULT OF LESSEE. Since telecommunications
equipment purchased by the
-17-
<PAGE>
Partnership will be installed at a specific lessee-user's facility, the cost
of both installation and removal of such leased equipment may be significant
relative to the cost and leasing revenues of such Equipment. Such
installation costs make it more difficult to exercise the Partnership's
remedy of repossession in the case of a default by a lessee, particularly in
light of the expense of exercising such remedy in relation to the value of
used telecommunications equipment.
13. FINANCING MAY NOT BE AVAILABLE TO THE PARTNERSHIP, THEREBY LIMITING
THE AMOUNT OF EQUIPMENT THE PARTNERSHIP CAN ACQUIRE. The money market
conditions that exist at the time the Partnership will be seeking to obtain
financing of Equipment could make financing difficult or costly to obtain.
The Partnership may be forced to finance the purchase of Equipment using only
the cash proceeds from this offering, with little or no borrowings. This
would make it more difficult for the Partnership to achieve the
diversification of lessees which it is seeking, would impair its ability to
spread the risk of unproductive investments over numerous items of Equipment,
and would decrease interest and depreciation deductions available to
Partners. Limited availability of financing may also adversely affect the
ability of the Partnership to sell Partnership Equipment when a sale is
determined to be in the Partnership's best interests and may affect the terms
of such sale.
14. GOVERNMENT REGULATION OF EQUIPMENT MAY NEGATIVELY AFFECT BUSINESS OF
THE PARTNERSHIP. The use, maintenance and ownership of the type of
telecommunication equipment the Partnership will acquire is subject to
regulation by federal, state and local authorities, which may impose
restrictions and financial burdens on the Partnership's ownership and
operation of Equipment and, accordingly, affect the profitability of the
Partnership. Changes in government regulations or industry standards or
deregulation may also affect the ownership, operation and sale of, and demand
for, Equipment.
15. LIMITED PARTNERS MAY HAVE AN OBLIGATION TO REPAY CERTAIN
DISTRIBUTIONS. In general, under the Iowa Limited Partnership Act (the "Iowa
Act"), Limited Partners are liable to the Partnership for a period of one
year following the return of any part of their original funds invested in the
Partnership (their "Capital Contributions") and may be required to repay to
the Partnership, with interest, any such return made to them within the prior
year if the Partnership does not have other assets sufficient to satisfy the
claims of creditors who extended credit to the Partnership or whose claims
arose prior to such return. In addition, if a Limited Partner receives a
return of his Capital Contribution in violation of the Partnership Agreement
or of the Iowa Act, such Limited Partner may be liable for up to six years
for the amount of the Capital Contribution wrongfully returned.
16. RISKS OF JOINT VENTURES WITH OTHER ENTITIES. Some of the
Partnership's Equipment may be owned by joint ventures between the
Partnership and the seller of the Equipment or another third party, such as a
leasing company or user of the Equipment. An investment in a joint venture
which owns Equipment, instead of investing directly in the Equipment itself,
may under certain circumstances involve risks not otherwise present,
including, for example, the possibility that the co-venturer might become
bankrupt, that the co-venturer may have economic or business interests or
goals which become inconsistent with those of the Partnership, the
possibility of an impasse if no co-venturer has controlling interest, that
while one joint venturer may buy equipment from the other joint venturer in
the event of a sale, it may not have the resources to do so, or that the
co-venturer may be in a position to take action contrary to the Partnership's
instructions or policies.
17. INVESTORS CANNOT TAKE PART IN MANAGEMENT OF THE PARTNERSHIP AND MUST
RELY SOLELY ON THE GENERAL PARTNER. All decisions with respect to the
management of the Partnership and its assets, including major decisions
involving the acquisition, leasing, re-leasing and sale of Equipment will be
made exclusively by the General Partner. Limited Partners will have no right or
power to take part in the management of the Partnership. Accordingly, no person
should purchase Units unless such person is willing to entrust all aspects of
the management of the Partnership to the General Partner, and has evaluated the
General Partner's capabilities to perform such functions. See "Management" and
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<PAGE>
"Summary of the Limited Partnership Agreement." In addition, the General
Partner will have numerous conflicts of interest in managing the business of
the Partnership. See "Conflicts of Interest." If the General Partner
becomes unable to manage the affairs of the Partnership for any reason
unrelated to the Partnership, including adverse changes in the General
Partner's business or condition, dissolution of the Partnership could result
at a time when such dissolution would be adverse to the interests of the
Limited Partners.
C. FEDERAL INCOME TAX RISKS
1. THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR TAX PURPOSES MAY
BE CHALLENGED. The availability of any tax benefits of investing in the
Partnership and the after-tax yield of an investment in the Partnership
depends upon its classification as a partnership for federal income tax
purposes, rather than as an association taxable as a corporation. The
General Partner of the Partnership has not requested, and does not intend to
request, a ruling from the Internal Revenue Service that it will be
classified as a partnership for federal income tax purposes. In the absence
of such a ruling, there can be no assurance that the Partnership will not
constitute an association taxable as a corporation. The Partnership will
rely upon the opinion of Bradley & Riley, P.C., its counsel ("Counsel"), as
to its partnership tax status. Unlike a tax ruling, an opinion of counsel
only represents such counsel's best legal judgment, and has no binding effect
or official status of any kind, and no assurance can be given that the
conclusions reached in said opinion would be sustained by a court if
contested. See "Partnership Tax Status" under "Tax Consequences."
2. ADVERSE TAX CONSEQUENCES WILL RESULT IF PARTNERSHIP IS TREATED AS
"PUBLICLY TRADED". The Revenue Act of 1987 contains numerous provisions that
have an adverse impact on any "publicly traded" partnerships, including the
taxation of certain "publicly traded" partnerships as corporations. The
treatment of the Partnership by the IRS as a publicly traded partnership will
have significant adverse effects on investments. See "Tax Consequences
- --'Publicly Traded' Partnerships."
3. LIMITED PARTNERS' TAX LIABILITY MAY EXCEED DISTRIBUTIONS TO LIMITED
PARTNERS. The Partnership intends to make Operating Distributions on a
monthly basis. See "Cash Distributions and Redemptions." Each Limited
Partner will be liable for the payment of income taxes on such Limited
Partner's distributive share of the Partnership's Net Income. This is true
regardless of the amount of distributions to the Limited Partner for that
taxable year. See generally "Tax Consequences," "Partnership Allocations"
under "Summary of the Limited Partnership Agreement," and Article XII of the
Partnership Agreement attached as Exhibit A.
4. CHALLENGES TO STATUS OF THE PARTNERSHIP AS OWNER OF EQUIPMENT AND TO
STATUS OF LEASES. The availability of certain tax benefits of investing in
the Partnership depends upon the treatment of the Partnership as the owner of
the Equipment and the treatment of leases as true leases for federal income
tax purposes. Because the Partnership has not entered into any leases and
has not negotiated the terms of any leases, no opinion of Counsel can be
given concerning the treatment of the Partnership as the owner of the
Equipment and the treatment of leases as true leases for federal income tax
purposes. Accordingly, no assurance can be given that the Internal Revenue
Service may not challenge successfully the status of any particular lease as
a true lease, asserting that purchase of the Equipment by the Partnership and
the lease of the Equipment to the lessee merely constitute steps in a secured
financing transaction. In such event, the Partnership would not be entitled
to claim certain deductions, including depreciation deductions. For a
further discussion of this risk, see "Characterization of Partnership's
Leases as Leases for Federal Income Tax Purposes" under "Tax Consequences."
5. IRS CHALLENGE TO TAX DEDUCTIONS WOULD DIMINISH TAX BENEFITS. The
return from investment in the Partnership and, indirectly, in Equipment,
would be diminished if various tax benefits
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<PAGE>
were disallowed. There can be no assurance that the Internal Revenue Service
would not challenge (a) the Partnership's inclusion of the Acquisition Fee in
the basis of the Equipment, (b) the manner in which Organization and Offering
Expenses are deducted or amortized, (c) the current deduction of fees paid to
the General Partner out of Operating Distributions, or (d) the period over
which depreciation deductions may be claimed by the Partnership.
6. EMPLOYEE BENEFIT PLANS AND OTHER TAX EXEMPT ENTITIES THAT INVEST IN
THE PARTNERSHIP MAY BE TAXED ON UNRELATED BUSINESS INCOME. Employee benefit
plans (as defined in "Employee Benefit Plans") and other tax exempt entities are
taxable on all "unrelated business income" in excess of $1,000 during any fiscal
year. Most of each Qualified Plan's distributive share of the Partnership's Net
Income will constitute "unrelated business income." See "Investment by Employee
Benefit Plans" under "Tax Consequences." Therefore, an Employee Benefit Plan
that purchases Units will likely be required to report a portion of its pro rata
share of the Partnership's Net Income as "unrelated business income."
7. LIMITED PARTNERS MAY BE SUBJECT TO CERTAIN TAXES. The investment in
the Partnership or the Partnership's acquisition, ownership, leasing, operation
or sale of Equipment may affect a Partner's liability for the "alternative
minimum tax." Additionally, as a result of the Partnership's ownership or
operation of Equipment, Limited Partners may now or in the future be subject to
state or local income taxes in jurisdictions in which they are residents and
also in jurisdictions in which they are non-residents. See "Alternative Minimum
Tax -- Non-Corporate Taxpayers" under "Tax Consequences;" "Alternative Minimum
Tax -- Corporate Taxpayers" under "Tax Consequences;" and "State Income Tax
Consequences" under "Tax Consequences."
- -------------------------------------------------------------------------------
INVESTOR SUITABILITY STANDARDS
- -------------------------------------------------------------------------------
Investors (including assignees) are subject to certain suitability
standards established by the Partnership. To verify that an investor satisfies
such standards, the General Partner will rely upon the representations made by
such investor. The General Partner requires each broker-dealer selling Units on
behalf of the General Partner to make every reasonable effort to assure that
those persons being offered or sold Units are suitable and appropriate in light
of such person's age, educational level, knowledge of investment, investment
objectives and other pertinent factors.
1. SUBSTANTIAL MEANS AND NET WORTH. An investment in Units is a
long-term investment suitable only for investors who have no need for liquidity
in this investment and who have adequate means of providing for their current
needs and contingencies. Units generally will be sold to an investor only if
the investor represents in writing in the Subscription Agreement (Exhibit B to
this Prospectus) that the investor either: (i) has a net worth (exclusive of
home, home furnishings and automobiles) of at least $45,000 and expects to have,
for the current taxable year, gross income from all sources in excess of
$45,000; or (ii) has a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000. Investors residing in certain states are
subject to additional suitability standards set forth below and in the
Subscription Agreement. The Partnership requires each investor to make the
representation referred to above as part of its effort to assure that each
investor meets the minimum standards. The Partnership would assert the
representation as evidence that it used reasonable effort to ensure compliance
with the requirements of North American Securities Administrators Association,
Inc. and as evidence that the investor making such representation met the
minimum standards.
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<PAGE>
2. ABILITY AND WILLINGNESS TO ASSUME RISKS. The determination of whether
a purchase of Units is suitable for a particular investor will depend upon,
among other things, the investment objectives and policies of the investor and
the willingness and financial ability of each investor to assume such risks as
the lack of a market for the Units and the resulting long-term nature of such an
investment.
3. ABILITY TO HOLD UNITS FOR AN EXTENDED PERIOD OF TIME. An investment
in Units is suitable only for an investor who has adequate financial means to
make such investment on a long-term basis and who is prepared to bear the
economic risks of investment in Units for a lengthy and indefinite period of
time. Limited Partners will not have the right to withdraw or receive any
return of their Capital Contributions (as defined in this Prospectus - see
"Glossary") except under the limited circumstances of redemption and return of
uninvested net proceeds. In the case of redemption, after December 31, 1999,
Limited Partners may request the General Partner to redeem their Units. Neither
the General Partner nor the Partnership is required to redeem Units or to
repurchase Units from any Limited Partner, but if the General Partner determines
a redemption to be in the best interest of the Partnership, it may, in its
discretion, redeem a Limited Partner's Unit, provided not more than 1.0% of the
total Units may be redeemed in any year and not more than 5.0% of the total
Units may be redeemed over the life of the Partnership. See "Cash Distributions
and Redemptions." There are restrictions on the transferability and resale of
Units imposed by the laws of certain states, by federal income tax laws and by
limitations imposed by the General Partner in order to avoid adverse
consequences under federal income tax laws. The General Partner will
discourage, and intends to prevent, the creation of an active market for Units.
See "Transferability of Units" under "Summary of the Limited Partnership
Agreement" and "No Public Market for Units and No Right to Redemption" under
"Risk Factors." With respect to uninvested Net Proceeds, the Partnership must
return to the Limited Partners in proportion to their respective Capital
Contributions any Net Proceeds (except for necessary operating capital) not
invested or committed for Investment in Program Assets within two years after
the Effective Date. See "Temporary Investments; Return of Uninvested Net
Proceeds" under "Investment Objectives and Policies." Accordingly, a Limited
Partner may not be able to liquidate his investment in the event of an emergency
or for any other reason.
4. EMPLOYEE BENEFIT PLANS. In the case of an investor who is a trustee
of an employee benefit plan, the net worth standards and the annual gross income
standards are applicable to the trust forming part of such plan or to the
employer sponsoring such plan. In the case of an investor who is investing as a
trustee or custodian of an Individual Retirement Account ("IRA"), the net worth
standards and the annual gross income standards are applicable to the individual
for whose benefit the IRA has been established or, in the case of a spousal IRA,
the employed spouse of the individual for whose benefit the IRA has been
established. Because employee benefit plans and IRAs are fiduciary accounts,
the financial suitability standards must be satisfied by the beneficiaries of
such accounts, except where the donors of funds for investment are the
fiduciaries of the accounts.
5. MINIMUM INVESTMENT. The Minimum number of Units an investor may
purchase is 2 Units ($2,000).
6. ADDITIONAL REQUIREMENTS.
a. Investors who reside in foreign countries (whether U.S. citizens
or non-resident aliens) will not be admitted to the Partnership.
b. Regulatory authorities in the states shown below have established
suitability standards that are stricter or different than those set forth
above. Investors in any of these states will be required to satisfy the
standards described below in addition to the standards
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<PAGE>
established by the Partnership. The laws of certain states may provide that
a Limited Partner may transfer Units only to persons who meet similar
suitability standards. The Partnership may require assurance that such
standards are met.
c. Because of the limited transferability and the relative lack of
liquidity of Units, and because the Limited Partners would be subject to
adverse tax results if the Partnership were treated as publicly traded, the
Partnership requires all investors to represent that the purchase of Units
is for investment purposes and not for resale. The Partnership will rely
upon this representation as evidence that the Partnership is not publicly
traded and as evidence that the investor purchased Units as an investment,
with no intention to resell the Units.
IT SHOULD NOT BE ASSUMED BY REASON OF THE LISTING OF A PARTICULAR STATE
BELOW THAT THE PARTNERSHIP IS AUTHORIZED TO SELL UNITS IN THAT STATE.
CALIFORNIA
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.
In the case of sales to California trusts or other California fiduciary
accounts, including IRA accounts and employee benefit plans, the Partnership's
suitability standards must be met by the beneficiary of the fiduciary account;
except where the donor of funds to such account is the fiduciary of the account,
in which case the standard may be met by the fiduciary.
MINNESOTA
The minimum investment of initial and subsequent investors in the
Partnership shall be 3 Units ($3,000) except that the minimum investment of an
IRA/Keogh Plan shall be 2 Units ($2,000).
NEBRASKA
The minimum investment of initial and subsequent investors in the
Partnership shall be 5 Units ($5,000) except that the minimum investment of an
IRA/Keogh Plan shall be 2 Units ($2,000).
TEXAS
Each Texas investor must have a net worth (or joint net worth with his or
her spouse) (exclusive of home, home furnishings and automobiles) of at least
ten times the amount of his investment. In addition, each Texas investor must
have a net worth (exclusive of home, home furnishings and automobiles)(or joint
net worth with his or her spouse) of $45,000 and current taxable annual income
of $45,000 or a net worth of $150,000 (exclusive of home, home furnishings and
automobiles).
THE SUITABILITY STANDARDS DISCUSSED ABOVE REPRESENT MINIMUM SUITABILITY
STANDARDS FOR PROSPECTIVE INVESTORS. EACH PROSPECTIVE INVESTOR SHOULD
DETERMINE WHETHER AN INVESTMENT IN UNITS IS APPROPRIATE IN SUCH INVESTOR'S
PARTICULAR CIRCUMSTANCES. THE GENERAL PARTNER HAS THE UNCONDITIONAL RIGHT TO
REJECT ANY SUBSCRIPTION.
- -------------------------------------------------------------------------------
ESTIMATED USE OF PROCEEDS
- -------------------------------------------------------------------------------
The following table sets forth the General Partner's best estimate of the
use of proceeds from the sale of the minimum Units ($1,200,000) and the maximum
Units ($25,000,000) offered hereby.
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<PAGE>
The dollar amounts in the table are estimates only. Because the dollar
amounts cannot be precisely calculated at the present time, actual use of the
proceeds may vary from the estimates shown. As shown below, it is projected
that 80.5% of the Gross Proceeds will be used to acquire Program Assets,
assuming 40.0% leverage. See Footnote 3 to the following table.
<TABLE>
<CAPTION>
Estimated Use of Gross Offering Proceeds
--------------------------------------------------
Minimum Offering Maximum Offering
-------------------- -----------------------
Amount Percent(1) Amount Percent(1)
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Gross Proceeds . . . . . . . . . . . . $1,200,000 100.0% $25,000,000 100.0%
Expenses: Managing Sales Agent Fee and
Selected Selling Agents Commissions. ($108,000) (9.0%) ($2,250,000) (9.0%)
Total Organization and Offering Expenses(2)
(other than 9.0% Managing Sales Agent
Fee and Selected Selling Agents
Commissions) . . . . . . . . . . . . ($42,000) (3.5%) ($875,000) (3.5%)
Acquisition Fees Attributable to
Offering Proceeds and borrowings(3). ($72,058) (6.0%) ($1,501,191) (6.0%)
-------- ------ ----------- ------
Public Offering Expense. . . . . . . . ($222,058) (18.5%) ($4,626,191) (18.5%)
Working Capital Reserves(4). . . . . . ($12,000) (1.0%) ($250,000) (1.0%)
Net Proceeds Available for
Investment in Program Assets(5). . . $965,942 80.5% $20,123,809 80.5%
-------- ------ ----------- ------
</TABLE>
- -----------------------
(1) All percentages shown in the table above are percentages of Gross Offering
Proceeds.
(2) The different amounts of expenses at the minimum and maximum levels reflect
that certain expenses incurred by the General Partner will not be paid by
the Partnership if only the minimum offering is sold. See "Plan of
Distribution" and "Organizational and Offering Phase" under "Compensation
of the General Partner and Affiliates.
(3) Acquisition Fees represent 5.0% of the gross amount of Investment in
Program Assets, including the portion of Program Assets acquired with
borrowed funds. The Acquisition Fees included in the table above are
computed on the gross amounts of Investment in Program Assets that could be
purchased using Net Proceeds and 40.0% leverage. For purposes of this
table, bank borrowings are assumed to be equal to 40.0% of the Gross
Proceeds of the Offering less an estimated 1.0% loan origination fee. See
"Acquisition Phase" under "Compensation of the General Partner and
Affiliates. In addition to the Acquisition Fees to be paid upon the
initial purchase of Program Assets using Net Proceeds and borrowed funds,
Acquisition Fees will paid on the initial acquisition of Program Assets
acquired using Cash Flow. Such Acquisition Fees will be paid from Cash
Flow, and are limited. See "Operating and Liquidating Phase" in the
following Table
(4) The General Partner will maintain adequate working capital reserves
estimated to be 1.0% of the Gross Proceeds. See "Working Capital Reserves"
under "Investment Objectives and Policies.
(5) The term "Investment in Program Assets" includes funds (not exceeding 3%)
set aside as working capital reserves. If working capital reserves are
included the amount of Net Proceeds estimated to be available from Gross
Proceeds for Investment in Program Assets then the amounts are $977,942
(81.5%) at the Minimum Offering and $20,373,809 (81.5%) at the Maximum
Offering. The table does not include Acquisition Expenses because the
General Partner will pay all Acquisition Expenses out of its Acquisition
Fee.
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<PAGE>
The investment criteria that the General Partner will employ will remain
the same regardless of the number of Units sold. If the Partnership is unable
to obtain debt financing, only Net Proceeds Available for Program Assets will be
used to purchase Program Assets.
- -------------------------------------------------------------------------------
COMPENSATION OF THE GENERAL PARTNER AND AFFILIATES
- -------------------------------------------------------------------------------
This section describes the types and estimated maximum amounts of
compensation and distributions to be paid by the Partnership to the General
Partner and its Affiliates. Such compensation will not constitute all of the
expenses to be paid by the Partnership. No services will be provided by the
General Partner or its Affiliates to the Partnership for which the Partnership
will compensate the General Partner or its Affiliates other than those listed in
this table.
Compensation and distributions to be paid to the General Partner and its
Affiliates were not determined by, and do not reflect, arm's-length
negotiations. Other than as set forth below, the Partnership Agreement
prohibits the payment to the General Partner or its Affiliates of any fees or
compensation in connection with the formation of the Partnership, the offering
and sale of Units, the operations of the Partnership and the acquisition,
leasing, management, re-leasing and sale of Equipment and Equipment subject to
leases. Where there are ceilings on certain categories of fees or expenses, any
fees which are in excess of the ceilings may not be recovered by reclassifying
them under a different category.
The following table shows in an abbreviated format the estimated amounts
and types of compensation and distribution to be paid to the General Partner and
its Affiliates:
<TABLE>
<CAPTION>
Amount if Amount if
Entity Minimum Maximum
Receiving Type of Percent of Number of Number of
Compensation Compensation Gross Proceeds Units Sold Units Sold
- ------------ ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
Berthel Fisher & Managing Sales Agent 9.0% $108,000 $2,250,000
Company Fee and Selected
Financial Sales Agents
Services, Inc.(1) Commissions
Vendors and Accountable Organization
Service Providers Expenses of the Offering 3.5% $42,000 $875,000
General Partner Acquisition Fee 4.1% $49,429(2)(4) $1,029,762(2)(4)
6.0% $72,058(3)(4) $1,501,191(3)(4)
General Partner Management Fee --- (5) (5)
General Partner Re-Leasing Fee --- (6) (6)
General Partner General Partner Expense
Reimbursement --- (7) (7)
General Partner Partnership Interest --- (8) (8)
General Partner Interest on Loans --- (9) (9)
</TABLE>
-24-
<PAGE>
____________________
(1) Commissions received by the Managing Sales Agent will be reduced by
Selected Sales Agents Commissions paid to other broker dealers that serve
as Selected Sales Agents.
(2) Five percent (5.0%) of the purchase price of Program Assets, if Program
Assets are acquired with proceeds only, using no borrowings.
(3) Five percent (5.0%) of the purchase price of Program Assets if Program
Assets are purchased with proceeds and maximum borrowings of 40.0% of Gross
Proceeds.
(4) It is not possible to estimate Acquisition Fees that will be paid in
connection with reinvestment activities.
(5) Two percent (2.0%) of Gross Rental Payments and loan and other payments
received on account of financing activities. Not determinable at this
time.
(6) Subject to certain limitations, the General Partner will be paid a fee of
2.0% of gross rental payments derived from the re-lease of Equipment. Not
determinable at this time. See "Operating and Liquidating Phase" under
"Compensation of the General Partner and Affiliates."
(7) The lesser of actual expenses or the amount the Partnership would be
required to pay to non-affiliated persons for comparable services in the
same geographical area. Not determinable at this time. Actual General
Partner Expense Reimbursements for the previous public programs sponsored
by the General Partner, including amounts through September 30, 1997 for
TIF IX and TIF X, are shown in the following table. The amount shown for
1998 for TIF XI is the amount proposed to be reimbursed, but there can be
no guarantee that the reimbursement will not be greater than or less than
the amount shown.
TIF IX TIF X TIF XI
1991 $4,200 --- ---
1992 $53,724 --- ---
1993 $72,368 $27,624 ---
1994 $74,988 $92,919 ---
1995 $82,307 $85,800 ---
1996 $74,775 $73,500 ---
1997 $66,822 $66,822 ---
1998 --- --- $84,000
(8) General Partner will receive its share of distributions to Partners to the
extent of its capital contribution. After all Limited Partners have
received return of their original investments plus a return of 9.6% of
Adjusted Capital Contributions per annum during the Operating Phase, and no
less than an 8.0% annual, cumulative, compounded daily, distribution based
on their Adjusted
-25-
<PAGE>
Capital Contribution, the General Partner will receive 20.0% of all
remaining Liquidation Distributions. Not determinable at this time.
(9) The General Partner will receive interest on loans, if any, made by the
General Partner to the Partnership. Not determinable at this time.
The following Table sets forth in narrative fashion the types and estimated
amounts of compensation and distributions to be paid to the General Partner and
its Affiliates:
<TABLE>
<CAPTION>
Entity Receiving Compensation Type and Amount of Compensation
- ----------------------------- -------------------------------
<S> <C>
ORGANIZATION AND OFFERING PHASE
Berthel Fisher & Company
Financial Services, Inc. ("Financial
Services" or the "Managing Sales
Agent"). . . . . . . . . . . . . . . . Managing Sales Agent Fee and Broker-Dealer Commissions. Financial Services, as Managing
Sales Agent, will receive a fee of 9.0% of Gross Proceeds. The Managing Sales Agent
will, in turn, pay the Selected Sales Agent Fee of 6.0% of Gross Proceeds (6.5% to
Selected Sales Agents who sell more than $1,000,000 of Units). It is anticipated that
Units will be sold primarily by Selected Sales Agents. However, if all Units were sold
by the Managing Sales Agent, it would receive $108,000 if the minimum 1,200 Units were
sold and $2,250,000 if the maximum 25,000 Units were sold. Financial Services may
contract with or employ certain registered brokers or dealers 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 be paid by
Financial Services from the Managing Sales Agent Fee, and when added to sales
commissions payable to broker-dealers, will not exceed 9.0% of the gross offering
proceeds.
Financial Services ("Managing
Sales Agent"). . . . . . . . . . . . . Reimbursement of Expenses. The Partnership will pay accountable expenses in connection
with the Offering (up to 3.5% of Gross Proceeds, $42,000 if the minimum 1,200 Units
were sold and $875,000 if the maximum 25,000 Units were sold).
ACQUISITION PHASE
General Partner. . . . . . . . . . . . Acquisition Fee. The General Partner will be compensated for services performed in
connection with the analysis of assets available to the Partnership, the selection of
such assets and the acquisition thereof, including obtaining lessees for the Equipment,
and negotiating and concluding lease agreements, and also for services performed in
connection with the placement of financings by the
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Partnership. As compensation for such services, the General Partner will receive a fee
equal to 5.0% of the purchase price of Equipment acquired by the Partnership, or
Equipment leased to customers by manufacturers, the financing for which is provided by
the Partnership and of the amount of financings placed by the Partnership. This
compensation will not be paid until the Equipment is acquired or the financings
completed. The General Partner will pay all Acquisition Expenses out of its Acquisition
fee. If only Net Proceeds available for the acquisition of Equipment and financings is
utilized, the Acquisition Fee will be approximately $49,429 if the Minimum Units are
sold and $1,029,762 if the Maximum Units are sold. If the maximum amount of loan
proceeds (40.0% of the Gross Proceeds of the Offering) is utilized together with the Net
Proceeds, the Acquisition Fee will be approximately $72,058 if the Minimum Units are
sold and $1,501,191 if the Maximum Units are sold.(1)
OPERATING AND LIQUIDATING PHASE
General Partner. . . . . . . . . . . . Management Fee. As compensation for managing the operations of the Partnership, the
General Partner will receive a fee equal to 2.0% of the Gross Rental Payments, loan
payments and other payments received by the Partnership on account of its leasing and
financing activities. This fee will not be paid on a current basis if the Partnership
has not paid the Limited Partners Operating Distributions equal to 9.6% of Adjusted
Capital Contributions for the year. In such case, the fee will be accrued as a debt of
the Partnership payable out of future revenues.
General Partner. . . . . . . . . . . . General Partner's Expense Reimbursement. To the extent funds are available, the
General Partner will be reimbursed for expenses of the Partnership and for
administrative services necessary for the prudent operation of the Partnership. The
amount of such reimbursement will be the General Partner's cost or the amount the
Partnership would be required to pay to nonaffiliated persons for comparable services
rendered in the same geographical area.(2)
General Partner. . . . . . . . . . . . Partnership Interest. The General Partner will have a present and continuing interest
in each item of income, gain, loss, deduction, credit, tax preference, and
distributions of Cash Available for Distribution based upon the General Partner's
capital contribution of $10,000 (the equivalent of 10 Units). After satisfaction of
Partnership liabilities and after the Limited Partners have received a return of 100.0%
of their original investment in the Partnership (their Adjusted Capital Contributions)
plus a
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9.6% annual return on their Adjusted Capital Contributions during the Operating
Phase and no less than an 8.0% annual, cumulative, compounded daily, distribution based
on their Adjusted Capital Contributions, the General Partner is entitled to receive
20.0% of any remaining Liquidating Distributions of the Partnership. The amount of
such interest is not determinable at this time.
General Partner. . . . . . . . . . . . Re-leasing Services. As compensation for providing re-leasing services to the
Partnership, the General Partner will receive a fee equal to the lesser of the
competitive rate for comparable services for similar equipment or 2.0% of the gross
rental payments derived from the re-lease of such equipment after the time that the
re-lease has been consummated as a result of the efforts of the General Partner. The
General Partner will not be paid for re-leasing services where Equipment is re-leased
to a previous lessee of such Equipment or to an affiliate of such previous lessee. The
General Partner has and will maintain adequate staff to render such re-leasing services
and will render substantial re-leasing service in connection with each re-lease of
Equipment. Such payment for services shall be paid as each rental payment is made over
the term of the lease. This fee will not be paid on a current basis if the Partnership
has not paid the Limited Partners Operating Distributions equal to 9.6% of Adjusted
Capital Contributions for the year. In such case, the fee will be accrued as a debt of
the Partnership payable out of future revenues.
General Partner. . . . . . . . . . . . Interest on Loans to the Partnership. If the General Partner makes loans to the
Partnership in accordance with the Partnership Agreement to enable it to repair,
recondition or reconfigure, and in certain circumstances, acquire Equipment, the
General Partner may be paid interest on such loans at an interest rate which does not
exceed the rate which would be charged by unaffiliated lending institutions on
comparable loans for the same purpose. No points or prepayment penalties will be
charged to the Partnership with respect to any such loans. Loans to the General
Partner or Affiliates from the Partnership are prohibited. The amount of interest
payable to the General Partner is not determinable at this time.
General Partner. . . . . . . . . . . . Acquisition Fee. The General Partner will be paid Acquisition Fees in connection with
the initial acquisition of Program Assets utilizing Cash Flow. For a description of
services performed in connection with the payment of an Acquisition Fee, see
"Acquisition Fee" under "Acquisition Phase" above. Such fee will be equal to 5.0% of
Program Assets acquired by the Partnership utilizing Cash Flow. The amount payable is
not determinable at this time. However,
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the amount of these Acquisition Fees is limited so that the total amount of all
Acquisition Fees paid, together with all of the Front End Fees (other than Acquisition
Fees) paid, does not exceed that percentage of the Gross Proceeds equal to 100% less the
percentage of Capital Contributions the General Partner has committed to Investment in
Program Assets as described in footnote 1, below.(1)
</TABLE>
__________________________-
(1) The Acquisition Fee will be the total of all commissions and fees which, to
the knowledge of the General Partner, will be paid by all parties to all
parties in connection with the initial purchase of Equipment or placement
of financings by the Partnership. The Acquisition Fee will not be paid
until the Equipment is purchased by the Partnership (or by the General
Partner as nominee) or until the completion of financings. Included in the
computation of such fees or commissions will be any commission, selection
fee, nonrecurring management fee, or any fee of a similar nature, however
designated. See "Cash Distributions and Redemptions" and "Conflicts of
Interest." As required by Guidelines promulgated by NASAA, the General
Partner has committed a percentage of Capital Contributions to Investment
in Program Assets which is equal to the greater of (a) 80.0% of the Capital
Contributions reduced by .0625% for each 1.0% of indebtedness encumbering
Program Assets; or (b) 75.0% of Capital Contributions. The percent of
indebtedness encumbering Program Assets is calculated by dividing the
amount of indebtedness by the Purchase Price of Equipment, excluding Front
End Fees. The resulting quotient is then multiplied by .0625% to determine
the percentage to be deducted from 80.0%. The Partnership shall not pay,
directly or indirectly, a commission or fee (except within the limits
stated above) to a Sponsor in connection with the reinvestment or
distribution of Cash Available for Distribution or of the proceeds of the
resale, exchange, or refinancing of Program Assets.
(2) Monthly reimbursement to the General Partner for administrative services to
the Partnership (at the lesser of the cost or the amount the Partnership
would be required to pay to non-affiliated persons for comparable
administrative services in the same geographic area), including but not
limited to salaries paid to employees of the General Partner working on
Partnership business, record keeping, mailings to Limited Partners and an
allocable portion of computer time and expense. Reimbursement for costs of
goods and materials will be only for goods and materials obtained from
independent third parties. The reimbursement will be for expenses which
are necessary for the prudent operation of the Partnership, and will not be
for time expended by Controlling Persons of the General Partner or its
Affiliates. In addition, any general or administrative overhead incurred
by the General Partner in connection with the administration of the
Partnership which is not directly attributable to the rendering of services
authorized by applicable state law shall not be charged to the Partnership.
Such general or administrative overhead includes, but is not limited to,
salaries, travel expenses and other items generally falling under the
category of overhead. No payment will be made for services for which the
General Partner or any of its Affiliates are entitled to compensation by
way of a separate fee. The costs reimbursed to the General Partner and its
Affiliates will be the subject of a Special Report. See "Cash
Distributions and Redemptions."
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CONFLICTS OF INTEREST
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The Partnership is subject to various conflicts of interest arising out of
its relationship with the General Partner and its Affiliates. However, the
General Partner is accountable to the Limited Partners
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and the Partnership as a fiduciary and, therefore, must exercise good faith
and integrity with respect to Partnership affairs. See "Fiduciary
Responsibility of the General Partner." Such conflicts of interest include,
but are not limited to, the following:
1. PREDETERMINED CONDITIONS. Substantially all of the terms of an
investment in Units have been determined by the General Partner prior to the
admission of the Limited Partners into the Partnership and are not the result of
arm's-length negotiations. Such terms include the (i) types of Equipment to be
acquired by the Partnership; (ii) general terms of acquisition of Equipment;
(iii) amount of contributions to the capital of the Partnership by the General
Partner and Limited Partners; (iv) allocation of Partnership profits, losses and
distributions; and (v) compensation to be paid by the Partnership to the General
Partner and its Affiliates. The General Partner has no procedures to resolve
this conflict.
2. EFFECT OF LEVERAGE ON COMPENSATION ARRANGEMENTS. The General Partner
will attempt to finance the purchase price of all Equipment of the Partnership
with Partnership borrowings equal to 40.0% of the Gross Proceeds of the
Offering. Because Acquisition Fees are based upon the purchase price of
Equipment acquired by the Partnership and the amount of financings placed by the
Partnership, it is in the best interest of the General Partner to employ the
maximum amount of debt, even though the increased risks of such debt financing
might not be in the best interests of the Limited Partners. To resolve this
conflict the General Partner will utilize debt financing that has terms that are
reasonable and commensurate with the best interests of the Partnership. If such
financing is not available when financing is sought, leverage will not be used
or will be deferred until such financing is available. The General Partner has
adopted no other procedures to resolve this conflict.
3. TRANSACTIONS WITH THE PARTNERSHIP. The General Partner will perform
various services for the Partnership in connection with the acquisition,
leasing, management, re-leasing and sale of Equipment, and will receive, in
consideration therefor, various forms of compensation. The selection of the
General Partner to perform the services was not a disinterested decision, and
the terms and conditions for the performance of such services and the amount
and terms of such compensation were not determined in arm's-length
negotiations. There are no specific procedures to resolve this conflict.
During the offering of the Units, the General Partner may acquire certain
Equipment on behalf of the Partnership which will be transferred to the
Partnership after the Closing Date of the offering. To resolve this
conflict, the Partnership will acquire Equipment from the General Partner
only at the General Partner's cost, and the Partnership will not acquire
Equipment from the General Partner or its Affiliates, other than Equipment
purchased by the General Partner on a temporary (i.e., generally not in
excess of six months) basis for the Partnership.
The Partnership Agreement imposes various constraints on the General
Partner in its dealings with the Partnership. These constraints include
restrictions which prohibit the General Partner from (i) entering into contracts
with the Partnership which bind the Partnership after expulsion of the General
Partner, (ii) receiving a give-up or rebate from the Partnership, (iii) entering
into leases or sales agreements with the Partnership except as specifically
provided herein (see "Equipment Acquisitions"), (iv) participating in any
reciprocal business arrangement which would circumvent guidelines adopted by
NASAA, or (v) using the funds or assets of the Partnership in any manner except
for the exclusive benefit of the Partnership. See Section 16.3 of Exhibit A,
Agreement of Limited Partnership. Moreover, the General Partner will be subject
to a fiduciary duty to the Partnership in its performance of services and in
evaluating the capabilities, services and compensation of other persons
rendering services to the Partnership. See "Equipment Acquisitions" and
"Fiduciary Responsibility of the General Partner."
Under certain limited circumstances, the Partnership may sell assets to the
General Partner to effect a liquidation of the Partnership. Such a transaction
is governed by and subject to the limitations
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set forth in Section 16.8 of the Partnership Agreement, and will be
consummated in the absence of a secondary market for Program Assets at the
end of the term of the Partnership. The purchase price of such assets will
be the greater of two independent appraisals of the fair market value of the
assets, and the sale must be approved by sixty percent (60%) of the votes
entitled to be cast by the Limited Partners.
4. COMPENSATION PAYABLE TO THE GENERAL PARTNER. The fees payable by the
Partnership to the General Partner have been determined unilaterally by the
General Partner and are not the result of arm's-length negotiations. Because
the General Partner is entitled to receive certain compensation from the
Partnership in connection with the acquisition and management of Equipment and
financings, the interests of the General Partner may at times be inconsistent
with the interests of the Limited Partners. See "Compensation of the General
Partner and Affiliates." For example, it may be in the General Partner's
interest to reinvest available cash in higher-yield (and possibly higher risk)
leases, rather than making early distributions to Limited Partners because the
General Partner has a 20.0% interest in the Liquidating Distributions of the
Partnership. Further, it may be in the General Partner's interest to declare
the commencement of the Liquidating Phase prior to the expiration of five years
for the purpose of reducing the payment of Operating Distributions to the
Limited Partners and decreasing the aggregate amounts that must be paid to
Limited Partners prior to payment of the General Partner's 20.0% interest in
Liquidating Distributions. In such circumstances, the interest of the General
Partner in continuing the Partnership and receiving annual management fees may
conflict with the interests of the Limited Partners in maximizing their
investment returns. Other than the fiduciary duty of the General Partner, there
are no procedures to resolve this conflict.
5. COMPETITION WITH THE GENERAL PARTNER AND AFFILIATES. The General
Partner is engaged directly for its own account in the business of acquiring and
leasing equipment. The General Partner serves as the general partner of
Telecommunications Income Fund IX, L. P. ("TIF IX") and Telecommunications
Income Fund X, L.P. ("TIF X"), publicly owned limited partnerships that are
engaged in the equipment leasing business. All of the net proceeds of TIF IX
and TIF X have been invested in partnership assets.
The General Partner may acquire, lease, finance and sell equipment, and
interests therein for TIF IX, TIF X, for its own account and for unaffiliated
third parties. The General Partner or other Affiliates may operate as general
partners for entities, such as TIF IX or TIF X that are not yet formed. See
"Prior Experience of the General Partner and Affiliates."
The General Partner or its Affiliates may in the future form and sponsor
public and private equipment leasing programs ("Future Programs"), some of which
may have investment objectives that are the same as, or similar to, those of the
Partnership's and which may be in a position to acquire the same equipment at
the same time as the Partnership. In seeking to acquire, lease, re-lease and
sell its Equipment, the Partnership may be in competition with TIF IX, TIF X and
Future Programs.
The Partnership Agreement does not prohibit the General Partner and its
Affiliates from competing with the Partnership for equipment acquisition,
financing, refinancing, leasing and re-leasing opportunities on its or their
behalf. The General Partner is not obligated to present to the Partnership
particular equipment acquisition, financing, leasing and re-leasing
opportunities that come to its attention, even if such opportunities are of a
character that might be suitable for the Partnership.
If the General Partner, TIF IX, TIF X, the Partnership or any Future
Programs advised, managed or controlled by the General Partner have, at the same
time, available for sale or re-lease, equipment (whether or not subject to
existing leases) of a particular type, and the supply of equipment of the type
exceeds the demand, the General Partner will try to arrange for the sale or
re-lease of items of equipment to be made in the order in which the underlying
lease terms expired and the items of
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equipment became available for sale or re-sale, or, if the leases expire
simultaneously, the order in which the leases took effect.
The following guidelines will be utilized by the General Partner to resolve
conflicts regarding the acquisition of Equipment when the General Partner and/or
two or more partnerships (including the Partnership), entities, or transactions
affiliated with or managed by the General Partner have funds available to
acquire and lease the same types of equipment. In such situations, the General
Partner will analyze the equipment already purchased by, and the investment
objectives of, each party involved, and will determine which party will purchase
the equipment or provide the financing based upon such factors, among others, as
(i) the amount of cash available to each party for such acquisition and the
length of time such funds have been available, (ii) the current and long-term
liabilities of each party, (iii) the effect of such acquisition on the
diversification of each party's equipment portfolio, (iv) the estimated income
tax consequences to the investors in each party from such acquisition and their
respective needs, and (v) the cash distribution objectives of each party. 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 party, then the General Partner shall purchase such equipment for the
parties on the basis of rotation with the order of priority determined by the
date each such party was formed. In any event, the General Partner is
accountable to the Partnership as a fiduciary and consequently is under a
fiduciary duty to exercise good faith and integrity in conducting the
Partnership's affairs, and to conduct such affairs in a manner consistent with
the best interest of the Partnership. See "Fiduciary Responsibility of the
General Partner."
The General Partner anticipates that, from the date of this Prospectus
through the end of the period in which the Partnership has funds available for
investment, it may organize one or more Future Programs that will acquire
Equipment for lease to unaffiliated third parties or acquire Equipment subject
to existing leases. In addition, the General Partner anticipates that it and
its Affiliates will enter into agreements to acquire and sell equipment for
their own accounts or for unaffiliated third parties during this period. In
this regard, the General Partner may, for its own account, enter into agreements
to act as an independent equipment manager with respect to lease portfolios
owned by certain unaffiliated limited partnerships and other entities and the
General Partner will receive compensation for such services. The Partnership
may, from time to time during the Operating Phase, acquire all or a portion of
such lease portfolios in accordance with the procedures established by the
General Partner, generally, for acquiring existing lease portfolios. See
"Acquisition Policies and Procedures" under "Investment Objectives and
Policies." Except as specifically set forth above, there are no procedures for
resolving the conflicts described in this section.
6. COMPETITION FOR MANAGEMENT TIME AND SERVICES. The Partnership will
not have separate management, but will rely instead on the General Partner for
the management and administration of the Partnership and its assets. The
General Partner believes that it has or can attract sufficient personnel to
discharge all of its responsibilities to the Partnership. The General Partner
may have conflicts of interest in allocating management time, services or
functions between the Partnership and other entities, including, but not limited
to the General Partner's own business, and other existing and future programs
for which the General Partner may provide services. The officers and directors
of the General Partner will devote such time and will direct their employees to
devote such time to the affairs of the Partnership as the General Partner, in
its sole discretion, determines to be necessary for the conduct of the business
of the Partnership. However, the General Partner has not adopted any procedures
to resolve the conflict described in this Section.
7. OTHER RELATIONSHIPS WITH MANUFACTURERS, LESSEES, LENDERS AND MANAGERS.
The General Partner may have ongoing relationships with manufacturers, lessees,
lessors or managers of Equipment and with brokers, lenders and others. Such
relationships could influence the General Partner to take actions, or forebear
from taking actions, which an independent general partner might not take or
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forebear from taking. An affiliate of the General Partner owns a 6.2% interest
in and the President of the General Partner serves as a director of Intellicall,
Inc., a manufacturer of telecommunications equipment. Accordingly, the General
Partner has a conflict of interest that may result in the General Partner making
credit and leasing decisions to benefit Intellicall, Inc. The General Partner
has not adopted any procedures to resolve the conflict described in this
Section.
8. DETERMINATION OF RESERVES. The amount of distributions from the
Partnership is subject, among other matters, to the discretion of the General
Partner in establishing and maintaining the appropriate level of operating and
working capital reserves for the Partnership. Since the amount of working
capital reserves (estimated to be 1.0% of the Gross Proceeds) will affect the
potential liability of the General Partner to Partnership creditors, the General
Partner may be considered to have a conflict of interest in determining the
allocations to the Partnership's Reserve Account. The General Partner has not
adopted any procedures to resolve the conflict described in this Section.
9. HONORING REDEMPTION REQUESTS. If the General Partner redeems any
Units it intends to use Cash Available for Distribution. A conflict could arise
if sufficient funds exist only to either (i) redeem Units for which redemption
requests have been received and approved or (ii) take its Management Fee in a
given year. The General Partner has not adopted any procedures to resolve the
conflict described in this Section.
10. LACK OF SEPARATE REPRESENTATION. The Partnership, the Initial Limited
Partner and the General Partner are not represented by separate counsel. The
attorneys who perform services for the Partnership will also perform services
for the General Partner, certain of the General Partner's Affiliates, and other
partnerships or ventures that the General Partner or its Affiliates have and may
sponsor. In order to resolve any dispute regarding representation, should a
dispute arise between the Partnership and the General Partner, the General
Partner anticipates it will retain separate attorneys and other experts to
represent the Partnership in such matter.
11. EXCLUSIVE AGREEMENTS. There are no exclusive agreements between the
General Partner and the Partnership, and such agreements are prohibited.
12. DISTRIBUTION OF UNITS; MANAGING SALES AGENT. Berthel Fisher & Company
Financial Services, Inc., the Managing Sales Agent, is an Affiliate of the
General Partner. Because of the Managing Sales Agent's affiliation with the
General Partner, the review and investigation by such firm of the Partnership
and of the information provided in this Prospectus will not have the benefit of
a review and investigation by an independent securities firm in the capacity of
a Managing Sales Agent. No procedures have been followed to address this
conflict.
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FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
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The General Partner is accountable to the Partnership as a fiduciary and,
consequently, must exercise good faith and integrity in conducting the
Partnership's affairs. Some courts have held that a limited partner may
institute legal action on behalf of itself or all other similarly situated
limited partners (a class action) or on behalf of a partnership (a partnership
derivative action) to recover damages from a general partner or from third
parties. Certain cases decided by the federal courts also may be construed to
support the right of a limited partner to bring such actions under SEC Rule
10b-5 for the recovery of damages (including losses incurred in connection with
the purchase or sale of a
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partnership interest) resulting from a breach by a general partner of its
fiduciary duty. Also, where an employee benefit plan has acquired Units,
case law applying the fiduciary duty concepts of ERISA to an insurance
company in connection with a general account insurance contract could be
viewed to apply equally to the General Partner. This is a developing and
changing area of the law. Therefore, Limited Partners who have questions
concerning the fiduciary duties of the General Partner should consult their
own counsel as to the status of the law at such time.
The General Partner has fiduciary responsibility for the safekeeping and
use of all funds and assets of the Partnership, whether or not in its immediate
possession or control, and will not employ, or permit another to employ, such
funds or assets in any manner except for the exclusive benefit of the
Partnership.
The General Partner and its Affiliates performing services for the
Partnership may not be liable to the Partnership or the Limited Partners for
errors in judgment or other acts or omissions which do not amount to fraud,
negligence, breach of fiduciary duty or misconduct. However, in an action by
Limited Partners against the General Partner for breach of fiduciary duty,
courts have held that the General Partner must prove its innocence by clear and
convincing proof that it acted in good faith, with honesty and with full and
fair disclosure of relevant information. If an action for breach of fiduciary
duty was filed against the General Partner, the General Partner would claim as a
defense that its conduct was fair and reasonable, and that there was, in fact,
no breach of fiduciary duty. In certain situations, the General Partner would
claim as a defense that the Limited Partner claiming breach of fiduciary duty
delayed too long in filing a lawsuit. This defense is based upon statutory
provisions limiting the time during which a lawsuit may be filed and upon
certain common law rights that prevent the bringing of old claims.
The Partnership Agreement provides that the General Partner or its
Affiliates performing services for the Partnership will be indemnified by the
Partnership for any liabilities incurred by them arising from acts performed, or
omitted to be performed, by them in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership in
good faith, except for acts or omissions which constitute fraud, negligence,
breach of fiduciary duty or misconduct. See "Summary of the Limited Partnership
Agreement -- Exculpation and Indemnification of the General Partner."
Therefore, the Limited Partners may have a more limited right of action against
the General Partner and its Affiliates than they would have absent such
provisions in the Partnership Agreement. Further, a successful claim for
indemnification could deplete the Partnership's assets and reduce the level of
distributions made to the Limited Partners. Under current law, the General
Partner would not be considered to be an ERISA fiduciary. However, if the
General Partner were considered to be an ERISA fiduciary with respect to the
assets of the Partnership, any exculpation or indemnification provision which
relieves the General Partner from liability for breach of its fiduciary duty
would be void and of no effect. Although the Partnership Agreement provides for
indemnification as discussed in this paragraph, the Partnership Agreement does
not otherwise modify the state law fiduciary duty standards applicable to the
General Partner. INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE REGISTRANT, THE REGISTRANT HAS BEEN INFORMED THAT IN THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR LIABILITIES
ARISING UNDER THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC POLICY AND,
THEREFORE, IS UNENFORCEABLE.
The General Partner or any of its Affiliates, and any person acting as a
broker-dealer, will not be indemnified against any liability, loss or damage
incurred by reason of any act performed or omitted to be performed by them in
good faith in connection with the activities of the Partnership or in dealing
with third parties on behalf of the Partnership, involving allegations that
federal or state securities laws were violated, unless such lawsuits alleging
such claims are successfully defended and a court approves
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indemnification of litigation costs, or unless such lawsuits are dismissed
with prejudice on the merits or unless such lawsuits are settled and a court
approves the settlement and indemnification. The General Partner will
apprise the court of the position of the SEC with respect to indemnification
before seeking court approval for indemnification, whether such claims are
litigated, dismissed or settled.
The Partnership Agreement provides that the Partnership will not incur the
cost of that portion of any insurance that insures any party against any
liability the indemnification for which is prohibited by the Partnership
Agreement.
Notwithstanding the fiduciary relationship, the General Partner has broad
discretionary powers to manage the affairs of the Partnership under the terms of
the Partnership Agreement. 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. See "Summary of the Limited
Partnership Agreement."
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TAX MATTERS
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A. BRIEF SUMMARY OF MATERIAL TAX CONSEQUENCES OF INVESTMENT
The following is a brief summary of some of the major tax consequences
discussed in more detail in this section of this Confidential Memorandum. An
Investor should not rely solely on this brief summary of the tax consequences of
an investment in the Partnership but should review the entire section entitled
"Tax Consequences" and consult with the Investor's own tax advisers and counsel
before making an investment decision.
No ruling has been filed with the Internal Revenue Service (the "IRS")
requesting that the Partnership be classified as a partnership for tax purposes.
The Partnership is relying upon the opinion of Bradley & Riley, P.C.
("Counsel"), 100 First Street, S.W., Cedar Rapids, Iowa, that the Partnership
will be classified as a partnership for tax purposes. If the IRS determines
that the entity is not a partnership for tax purposes, an Investor would
experience a substantial reduction in yield.
If the IRS determines that the Partnership is a "publicly traded
partnership", the Partnership will be treated like a corporation for tax
purposes with the result that the yield to the Investor on his or her investment
will be substantially reduced. Based on representations by the General Partner
and applicable IRS Regulations, Counsel has rendered an opinion that it is more
likely than not that the Partnership will not be treated as a publicly traded
partnership.
Based on the current published Regulations and Rulings by the IRS, it is
the opinion of Counsel that an investment by a Limited Partner in the
Partnership will be considered a passive activity. The result is that if an
individual, trust, estate, personal service corporation or closely held
corporation suffers a loss from an investment in the Partnership, such loss
would only be deducted against passive income.
Investment by employee benefit plans, including individual retirement
accounts or other tax-exempt entities, in the Partnership may result in
additional reporting requirements and may result in the tax exempt entity paying
tax on the income earned from its investment in the Partnership.
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B. TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
for persons considering an investment in the Partnership. This summary is based
upon the Internal Revenue Code (the "Code"), rules and regulations promulgated
thereunder and existing interpretations thereof, which regulations and
interpretations are subject to change at any time. The following summary
discusses the material aspects of the federal income tax consequences that could
affect an investment in the Partnership. No assurance can be provided that any
deductions or other federal income tax advantages that are herein described or
that a prospective Investor in the Partnership may consider available will in
fact be allowed by the IRS.
The tax opinion rendered by Counsel is based upon the facts described in
this Confidential Memorandum and upon the facts as they have been represented by
the General Partner to Counsel or determined by Counsel as of the date of the
opinion. Any alteration of the facts may adversely affect the opinion rendered.
Furthermore, the opinion is based upon existing law and applicable current and
proposed Treasury Regulations, current published administrative positions of the
IRS contained in Revenue Rulings and Revenue Procedures, and judicial decisions,
all of which are subject to change either prospectively or retroactively.
Counsel has not opined as to the characterization of leases as true leases
because the Partnership has not entered into and has not negotiated any leases,
and the determination as to whether a lease is a true lease or some other form
of transaction for tax purposes is dependent upon the terms of each transaction.
Subject to the foregoing and to certain conditions set forth herein, Counsel has
rendered its opinion that all material tax consequences of an investment in the
Partnership more likely than not will be realized.
1. PARTNERSHIP TAX STATUS. The ability of an Investor to realize tax
benefits from investing in a limited partnership depends upon its classification
as a partnership for federal income tax purposes, rather than as an association
taxable as a corporation.
The Partnership is relying upon the opinion of Counsel as to its
partnership tax status. Unlike a tax ruling, an opinion of Counsel represents
only such Counsel's best legal judgment, and has no binding effect or official
status of any kind, and no assurance can be given that the conclusions reached
in said opinion would be sustained by a court if contested.
On December 18, 1996 the IRS issued final regulations under Regulation
Section 301.7701. The regulations allow an entity to elect to be taxed as a
corporation or as a partnership for tax purposes. Under Regulation Section
301.7701-2(c), a business entity with two or more members that is not
classified as a corporation under certain sections of Regulation Section
301.7701-2(b) (for example, an entity organized as a corporation under
Federal or State statutes or a publicly traded partnership under Section 7704
of the Code) will be classified as a partnership. Regulation Section
301.7701-3 provides that an entity can file an election, if it wishes to
select a classification different from the default classification. If the
entity has two or more members and it is not classified as a corporation
under Section 301.7701-2(b), its default classification is a partnership.
Therefore, the effect of the regulation is that the entity should, for tax
purposes, be treated as a partnership for tax purposes provided it is not a
publicly-traded partnership under the Internal Revenue Code. See "Publicly
Traded Partnerships."
It is the opinion of Counsel that, pursuant to existing law and Treasury
Regulations (specifically Sections 301.7701-2 and 301.7701-3) and provided the
Partnership is organized and operated in accordance with the provisions of the
Agreement of Limited Partnership, the Partnership will be treated as a
partnership, as defined in Sections 7701(a)(2) and 761(a) of the Code, for
federal income tax purposes and will not be taxable as a corporation provided
that the Partnership is not classified as a publicly-traded partnership under
Section 7704 of the Code.
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If the Partnership were classified as an association taxable as a
corporation for any reason, including being treated as a publicly traded
partnership, it would be subject to federal income tax on its taxable income at
regular corporate tax rates. The Limited Partners would not be entitled to take
into account their distributive Share of the Partnership's deductions or losses,
if any, and would be subject to tax on their Share of the Partnership's income
to the extent distributed either as dividends from current or accumulated
earnings and profits or, if in excess of the tax basis of their interests, as
capital gain. Classification of the Partnership as an association taxable as a
corporation would result in a substantial reduction in yield and after-tax cash
flow, if any, to a Limited Partner.
2. "PUBLICLY TRADED" PARTNERSHIPS. Although it is the opinion of counsel
the Partnership will be classified as a partnership for federal income tax
purposes under Section 7701 of the Code, the provisions of Section 7704 of the
Code provide rules establishing the circumstances in which a partnership will be
classified as a "publicly traded" partnership ("PTP") and nonetheless treated as
a corporation for federal income tax purposes. There are two (2) sections of
the Code that affect the taxation of PTPs. Section 7704 of the Code contains
provisions that will, if applicable, tax certain "publicly traded" partnerships
as corporations. Section 469(k) of the Code provides that net income from a PTP
will not be considered passive income that can offset passive losses from other
activities. Income from a PTP is treated like portfolio income that cannot be
used to offset losses from passive activities. Each partner who holds an
interest in a PTP must treat any loss from the partnership separately from any
income or loss from other PTPs. Suspended losses from a PTP may be offset only
against future income of that PTP unless and until there has been a complete
disposition of that PTP.
Section 7704(b) and Section 469(k) of the Code define the term "publicly
traded partnership" to mean any partnership if (1) interests in such partnership
are traded on an established securities market, or (2) interests in such
partnership are readily tradable on a secondary market (or the substantial
equivalent thereof).
Under Treasury Regulation section 1.7704-1, an established securities
market means a national securities exchange registered under Section 6 of the
Securities Exchange Act of 1934, national securities exchange exempt under
Section 6 of the Securities Exchange Act of 1934 because of limited volume, a
foreign exchange regulated under requirements analogous to those applicable to
the Securities Exchange Act of 1934, a regional or local exchange or an
interdealer quotation system that regularly disseminates firm buy and sell
quotations by independent brokers. A secondary market (or the substantial
equivalent of a secondary market) will be deemed to exist if, taking into
account all of the facts and circumstances, the partners are readily able to
buy, sell, or exchange their partnership interests in a manner that is
comparable, economically, to trading on an established securities market.
Interests in a partnership are readily tradable on a secondary market or the
substantial equivalent thereof if (i) the interests are regularly quoted by any
person, such as a broker or dealer, making a market in the interests; (ii) any
person regularly makes available to the public bid or offer quotes with respect
to interest in the partnership and stands ready to effect buy or sell
transactions at the quoted prices for itself or on behalf of others; (iii) the
holder of an interest in a partnership has a readily available, regular and
ongoing opportunity to sell or exchange such interest through a public means of
obtaining or providing information of offers to buy, sell or exchange interests;
or (iv) prospective buyers and sellers otherwise have the opportunity to buy,
sell or exchange interests in a time frame and with the regularity and
continuity that is comparable to that described in (i), (ii), or (iii).
Treasury Regulation section 1.7704-1(e), (f), and (g) list certain types of
limited transfers ("Exempt Transfers") that will be disregarded in determining
whether a partnership is publicly traded. In addition to providing for these
Exempt Transfers, the Regulations state that partnership interests will not be
deemed "readily tradable on a secondary market" (or the substantial equivalent
thereof) if the "two percent safe harbor" provided for under Section 1.7704-1(j)
is satisfied. The two percent safe harbor provides that a secondary market or
its equivalent will not exist if the sum of the percentage
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interests in partnership capital or profits transferred (including purchases
by the limited partnership of its own interests) during the partnership's
taxable year does not exceed 2.0% of the total interests in partnership
capital or profits. Exempt Transfers do not count towards the 2.0% ceiling.
The total interest in partnership capital or profits are determined by
reference to all outstanding interests in the partnership unless the General
Partners or any person related to the General Partners own, in the aggregate,
more than ten percent (10%) of the outstanding interests in partnership
capital or profits at any one time during the taxable year, in which event
the total interests in partnership capital or profits are determined without
reference to the interests owned by such persons.
Exempt transfers are (1) private transfers as defined in the regulations;
(2) transfers pursuant to redemptions and repurchase agreements meeting
certain requirements as specified in the regulations; and (3) transfers
pursuant to the qualified matching service as defined under Treasury
Regulation section 1.7704-1(a). The qualified matching service exclusion
will not apply if the sum of the percentage interests in the partnership
capital and profits transferred during the taxable year of the partnership
exceeds 10% of the total interests in the partnership. The regulations
contain certain other conditions to prevent a qualified matching service from
operating on a secondary market or the substantial equivalent thereof. The
Partnership intends that should any trading of interests in the Partnership
occur through a qualified matching service that the Partnership will monitor
Unit trading to attempt to comply with the qualified matching service
provision, and further, the Partnership will apply limitations on the
percentage of Units that can be validly traded under a qualified matching
service.
The General Partner has represented to Counsel that (i) the Partnership
will not list Units for trading or otherwise encourage or condone the
establishment of a market for Units, (ii) the General Partner does not expect
Units to be readily tradeable on a secondary market, based upon its experience
with other limited partnerships, and (iii) the General Partner will not consent
to the assignment, redemption or other disposition of Units if, in the opinion
of Counsel to the Partnership, the sum of the percentage interests in
Partnership capital or profits assigned, redeemed or otherwise disposed of
during a Partnership taxable year after such assignment, redemption or other
disposition exceeds 2.0% of the total interest in Partnership capital or
profits, excluding Exempt Transfers. Based upon these representations, it is
the opinion of Counsel that the Partnership will not be treated as "publicly
traded partnership."
While the General Partner will use its best efforts to limit the type and
number of transfers of Units to those that will allow the Partnership to remain
within the 2.0% safe harbor, the General Partner cannot guarantee that the
Partnership will satisfy this safe harbor during each of its taxable years. It
is conceivable that transfers of Units could occur that would cause the
Partnership to fall outside the safe harbor. No assurances can be offered that
if the amount and type of trading in the Units were to fall outside the safe
harbor, the IRS would not maintain that the Partnership should be treated as a
PTP.
Section 7704(c) of the Code provides that an entity that would otherwise be
treated as a PTP under Section 7704(a) will not be treated as a PTP if more than
90% of the entity's gross income consists of qualifying income. Qualifying
income is defined under Section 7704(d) as including interest, dividends, gains
from the sale or disposition of a capital asset (or property described in
Section 1231(b)) held for the production of income described in subparagraphs of
Paragraph 1 of Section 7704(d). However, Section 7704(c)(3) provides that the
exception for a publicly traded entity having more than 90% of its gross income
as qualifying income does not apply to any partnership that would be a
"regulated investment company" described in Section 851(a) of the Code if such
partnership were a domestic corporation.
Because the Partnership will be engaged in the leasing of personal property
which is not one of the types of qualifying income described under Section
7704(d) of the Code, the exception under Section 7704(c) of the Code would not
appear available to the Partnership.
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Based upon the undertaking of the General Partner to prohibit any transfer
of Units that would cause the Partnership to fall outside the 2.0% safe harbor
provided in the Regulations, Counsel is of the opinion that the Partnership will
not be a "publicly traded partnership" within the meaning of Section 7704, and,
consequently, Section 7704 will not alter the Partnership's treatment as a
partnership, rather than as an association taxable as a corporation, for federal
income tax purposes.
3. GENERAL PRINCIPLES OF PARTNERSHIP TAXATION. A limited partnership is
required to file a Partnership information tax return each year (Form 1065).
The limited partnership as a legal separate entity does not pay income taxes on
its income for federal income tax purposes. Each Limited Partner will report on
that Partner's income tax return their distributive share (as determined under
the Partnership Agreement) of all terms of the Partnership's income, gain, loss,
deduction, credit and tax preferences, whether or not cash is distributed to the
Partner. The amount of any loss currently deductible by a Limited Partner will
be limited to the Partner's adjusted basis for the Partner's Units in the
Partnership and the amount that the Partner is treated as having "at-risk" under
applicable tax rules. See "At-Risk Rules." A Limited Partner may be subject to
tax if the Partnership has income or gain even though a cash distribution is not
made by the Limited Partnership.
As a general rule, the adjusted tax basis for a Limited Partner in Units in
the Partnership will be the Partner's Capital Contribution increased by the
share of Partnership Net Income and gain and other items described in Section
705(a)(1) of the Code and reduced (but not below zero) by the Partner's share of
Partnership distributions of money and other property, expenses, losses, and
other items described in Section 705(a)(2) and (3) of the Code. A Limited
Partner would also be entitled to increase basis by the Partnership's
qualifying nonrecourse liabilities (nonrecourse liabilities would be Partnership
liabilities for which no Partner or person related to a Partner bears the income
risk of such liabilities). However, it is not anticipated that the Partnership
will incur qualifying nonrecourse liabilities and thus Limited Partners should
assume their basis in the Partnership will not be increased by any Partnership
liabilities. Other liabilities (recourse) incurred by the Partnership will not
increase a Limited Partner's basis in the Partnership but will generally
increase the General Partner's basis.
Distributions of money by the Partnership to a Limited Partner will
constitute a return of capital (and not taxable income) to the Limited Partner
to the extent of the Limited Partner's adjusted tax basis in the Units. The
term "money" includes marketable securities, with marketable securities to be
taken into account at fair market value. Marketable securities is broadly
defined under Section 731(c) of the Code and includes common trust funds, a
regulated investment company, a financial instrument that is readily convertible
into money or marketable securities and other investments in entities that hold
marketable securities. A return of capital will reduce a Limited Partner's
adjusted tax basis for the Units in the Partnership. If a Limited Partner's
adjusted tax basis for Units in the Partnership should be reduced to zero, the
Partner's share of any cash distributions for any year will generally be taxable
to the Partner as though it were a gain on the sale or exchange of property.
Nonliquidating distribution of property other than money to a Limited
Partner will reduce the Limited Partner's interest in the basis of the limited
partnership by an amount equal to the limited partnership's basis in such
property provided, however, that the adjusted basis cannot be reduced below
zero. A Limited Partner's tax basis in property distributed will be equal to
the reduction in the Limited Partner's basis in the limited partnership. A
reduction in a Limited Partner's share of indebtedness attributable to Units
held by the limited partnership will be treated as a distribution of money.
Expenses and losses of the Partnership will, subject to the Limited Partner
satisfying the "at-risk" rules, be deductible by a Limited Partner only to the
extent of the adjusted tax basis of the Limited Partner in the Units. Any loss
unavailable as a current deduction because of insufficient tax basis is
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allowed as a deduction at the end of the first succeeding taxable year that
the Limited Partner's tax basis exceeds zero. Further, any losses will most
likely be considered a passive loss and deductible only to the extent of the
Limited Partner's passive income, if any. See "At-Risk Rules" under "Tax
Consequences" and "Limitation on Deductibility of Losses from Passive
Activities" under "Tax Consequences." Further, deductions or losses incurred
by the Limited Partnership and passed through to the Limited Partners are
subject to rules limiting the deduction of such as miscellaneous itemized
deductions. See "Investment Expense" under "Tax Consequences."
4. INCOME AND DISTRIBUTIONS. The Partnership intends to make Operating
Distributions on a monthly basis but only to the extent the Present Value of the
Partnership's Lease Portfolio exceeds the amount of the Net Proceeds of the
offering (less any Liquidating Distributions or distributions of capital to the
Limited Partners). See "Cash Distributions and Redemptions." If distributions
to a Limited Partner for a taxable year are less than the amount of the taxes
payable by such Limited Partner on such Limited Partner's distributive share of
the Partnership's Net Income for that taxable year, the Limited Partner will
still be responsible for the payment of income taxes on such Limited Partner's
distributive share of the Partnership's Net Income. See generally "General
Principles of Partnership Taxation" under "Tax Consequences."
5. AT-RISK RULES. Section 465 of the Code provides that activities
engaged in as a trade or business or for the production of income are subject
to the at-risk rules of Section 465 of the Code. Under Section 465 of the
Code, a Limited Partner's (other than corporations that are not closely held
(i.e., closely held corporations are defined as corporations in which five or
fewer shareholders own directly or indirectly more than 50% of the stock
other than certain leasing companies)) deduction for that Partner's share of
Partnership expenses or losses for a tax year is limited to the amount "at
risk" with respect to the activity as of the close of such year. Except as
discussed below, a Limited Partner is considered to be at risk on the sum of
(i) amounts of money contributed to the Partnership, (ii) the adjusted basis
of other property contributed to the Limited Partnership, (iii) income
generated by the Partnership, and (iv) amounts borrowed by the Limited
Partner or the Limited Partnership where the Limited Partner is personally
liable for repayment. Borrowings by the Partnership, whether recourse or
nonrecourse, will not increase a Partner's amount of risk. A Limited Partner
will be considered to be at risk on borrowings for the purchase of a
Partnership Unit only if and to the extent the Limited Partner is personally
liable for repayment or the borrowings are fully secured by the Limited
Partner's personal assets (other than the Limited Partner's unit in the
Partnership) and subject to the limitation that the borrowings are not
borrowed from a person with an interest in the Partnership or a person
related to such a person.
A Limited Partner's amount at risk will be reduced by losses allowed as
deductions and cash distributions made by the Partnership. Distributions to
a Limited Partner will generally reduce the amount considered at risk. The
"at-risk" rules provide that the amount of any distribution received by a
Limited Partner or any other reduction in the Limited Partner's amount at
risk, after the amount of risk is reduced to zero, will be treated as
ordinary income but only to the extent of losses previously claimed. Thus,
if the Partnership makes a distribution to a Limited Partner that exceeds the
Limited Partner's adjusted basis in the Units in the Partnership, the Limited
Partner will have ordinary income.
If in a year a Limited Partner has a loss from the Partnership, the
effect of Section 465(a) of the Code is to permit deduction of such loss up
to the aggregate amount the Limited Partner has at risk on the last day of
the taxable year. If the amount at risk exceeds the loss, the amount deemed
at risk in subsequent years is reduced under Section 465(b)(5) by the amount
of losses claimed in previous years and increased by additional at-risk
amounts contributed. If the amount of loss exceeds the at-risk amount, the
excess loss is held in a suspense account and treated as a deduction in the
first succeeding taxable year that the taxpayer is at risk. The carryover
loss is then added to the deductions allowable for such year but is limited
at the end of such year by the amount then at risk. Under proposed
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Section 1.465-2(b) of the Regulations there is no limitation on the number of
years to which such deductions may be carried.
In addition to the "at-risk" rules discussed above, Section 704(d)
provides that a Limited Partner's distributive share of loss is allowed as a
deduction only to the extent of the adjusted basis of the Limited Partner at
the end of the year in which the loss is incurred. If a Limited Partner's
distributive Share of loss items exceeds the Limited Partner's basis, as
adjusted for Capital Contributions, distributions, the Limited Partner's
Share of any income items and changes in the Limited Partner's Share of
liabilities, then only a portion of each loss item is allowed, based upon the
portion that each bears to the total of all loss items. Excess losses that
are not currently allowed may be carried forward indefinitely until such
Limited Partner has sufficient basis to permit the deduction.
6. LIMITATION ON DEDUCTIBILITY OF LOSSES FROM PASSIVE ACTIVITIES.
Section 469 of the Code limits the deductibility of losses from "passive
activities" which are incurred by individuals and certain estates and trusts,
personal service corporations or closely held corporations. There is no
limitation on the deductibility of losses from "passive activities" for
corporations taxed under Subchapter C that are not personal service
corporations or closely held corporations.
The passive loss rules under Section 469 generally do not allow
individuals to use losses and credits from "passive activities" to offset
income from nonpassive activities, including wages, salaries, active business
income and portfolio income such as interest, dividends, royalties or gains
from disposition of assets producing "portfolio income" or held for
investment.
Passive activities include investments in entities such as limited
partnerships, business trusts, partnerships and S corporations if the entity
is engaged in the active conduct of a trade or business and the investor does
not materially participate in the operation or activities of the entity. The
general rule is that passive losses or credits may only offset income from
other passive activities unless the investor disposes of his or her entire
investment in the activity at which time the investor may deduct any
suspended passive activity losses against nonpassive income.
Passive activity by definition under the Code includes any rental
activity, except for certain taxpayers engaging in the rental of real estate.
A rental activity means any activity where payments are principally for the
use of tangible property. Because the activity of the Limited Partnership
will be the leasing of tangible personal property, the activity should be
considered a passive activity under Section 469 of the Code. Accordingly,
the Limited Partnership's net income or net loss from the rental activity
would be considered income or loss from a passive activity. Losses
attributable to the Limited Partners may generally be deducted only against
income or gains attributable to other passive activities.
Any interest income earned by the Partnership on escrow accounts or other
money market accounts will be portfolio income allocable to the Limited
Partners based on the provisions of the Partnership Agreement. Any dividends
on stocks acquired by the Partnership would be considered portfolio income as
well as the gains on the sale of those stocks. In addition, to the extent
certain of the leases may not be characterized as true leases for federal tax
purposes, as discussed in "Characterization of Partnership's Leases as Leases
for Federal Income Tax Purposes," a portion of the payments received from
such leases may be considered interest income which would be treated as
portfolio income allocable to the Limited Partners. To the extent such
income is treated as portfolio income, such income will not be offset by
passive losses from the Partnership's passive activities.
The Partnership will be required to allocate expenses, overhead expenses
(including Management Fees and Acquisition Fees) and interest expense between
its passive activities and its portfolio income activities. Any Net Losses
of the Partnership allocable to a Limited Partner arising from rental
activities will be passive losses. These passive losses will be currently
deductible only to the
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extent of a Limited Partner's passive income from other passive activities.
All "passive losses" which are not currently deductible by the Limited
Partner may be carried over to succeeding taxable years and may be applied
against passive income. Passive losses which are not deducted and thus
carried over to a future year may as a general rule be deducted by the
Limited Partner on disposition of the interest in the Partnership. Portfolio
income will not offset losses from a passive activity.
Gain or loss realized by a Limited Partner on disposition of his or her
interest in the Limited Partnership will be treated as passive income or
loss. Upon a fully taxable disposition of a Limited Partner's entire interest
in the Limited Partnership to an unrelated party, the Limited Partner may
deduct any loss incurred on the disposition, any suspended loss from the
Limited Partnership from prior years and current year loss.
7. ALLOCATION OF PARTNERSHIP NET INCOME OR NET LOSS. In general, the
allocation of overall taxable income or loss of the Partnership 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 Section 704(b)(2) of the Code.
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 Limited Partnership, 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 Partner's shares of nonrecourse
Limited Partnership liabilities, if any, includable in the adjusted tax basis
of their Units might be reduced.
The IRS 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) partner's 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. 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 Units in the Limited Partnership 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 Partner's interests in the Limited
Partnership, taking into account all the facts and circumstances.
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 partner's
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
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this rule generally would be similar to those provided in the Partnership
Agreement, although there is no assurance the IRS would not be successful in
reallocating Limited Partnership 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.
It is the opinion of Counsel that the allocation of Net Income or Net
Loss, among the Partners as set forth in the Partnership Agreement more
likely than not will be recognized under the regulations under Section 704(b)
of the Code because the allocation has substantial economic effect or will be
considered to be in accordance with the Partner's interests in the
Partnership under the Regulations. The regulations under Section 704(b) of
the Code provide that the allocation established under the Partnership will
be accepted for tax purposes if certain standards set forth in the
regulations for such distribution are satisfied. If the IRS were to contend
successfully that such allocations have no substantial economic effect, then
the Partnership's Net Income or Net Loss will be allocated among the Partners
on the basis of each Partner's interest in the Partnership, determined by
taking into account all facts and circumstances.
8. ALLOCATIONS AMONG LIMITED PARTNERS. Section 706(d) of the Code
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
allocation of profits, losses and other separable reportable items of the
Partnership will depend on his or her interest in the Partnership and when he
or she became a Limited Partner.
9. CHARACTERIZATION OF PARTNERSHIP'S LEASES AS LEASES FOR FEDERAL
INCOME TAX PURPOSES. The availability to Limited Partners of the tax
benefits associated with the Partnership's ownership of the Equipment,
particularly depreciation, depends upon the Partnership being treated as the
owner of the Equipment for tax purposes and upon the classification of the
Partnership's leases ("Lease" or "Leases") as true leases for tax purposes.
To be treated as the owner of leased Equipment for tax purposes, the
Partnership must possess the benefits and burdens of ownership of the
property and be considered the equitable owner of the property for tax
purposes. If the Partnership's transaction with the other party on the
Equipment is held to be a mere financing arrangement and/or a purchase, the
Partnership would not be deemed the owner of the Equipment for tax purposes
and thus not entitled to the tax benefits of ownership.
The determination of who is the equitable owner is based on many factors.
The characterization of transactions as leases, conditional sales or
financings has been addressed in a number of court decisions. However, the
courts have not identified one factor as being determinative of whether the
lessor or lessee of the property is to be treated as the owner. Judicial
decisions and IRS pronouncements have made it clear that the characterization
of leases for tax purposes is a question which must be decided on the basis
of weighting of many factors.
Counsel is of the opinion that the Limited Partnership should be treated
as the equitable owner 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
Limited Partnership; (ii) the Limited Partnership'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 Limited Partnership will treat such
leases as leases for federal income tax purposes; (v) the rents to be paid
pursuant to such leases will be commercially reasonably; (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 anticipated fair market value on the
option exercise date, and no offset to the exercise price of any
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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. However, as discussed
herein, the characterization of a transaction as a lease or some other type
of ownership is based on many factors that the IRS and the courts may review
and conclude result in the conclusion that the transaction is not a lease for
tax purposes.
Should a lease be characterized as a sale, financing or refinancing
transaction for federal income tax purposes, a portion of the income of the
Partnership in respect of such lease would be ordinary gain or interest
income, without any offset for depreciation deductions. This
characterization would generally result in increased amounts of taxable
income in the initial years of such lease because of the loss of depreciation
deductions. Further, the income or losses from the leases may be treated as
portfolio income or losses under the passive loss rules.
The law governing the characterization of transactions as leases is
complicated and is in a state of change. Furthermore, for federal income tax
purposes, lease characterization is made on a property-by-property basis
based on an analysis of many factors, including lease payments, the lease
purchase option and the fair market value of the property at the time the
opinion is exercised. Accordingly, there can be no assurance that the status
of the Partnership as the owner of the property under the lease for tax
purposes will not be challenged successfully by the IRS.
10. DEPRECIATION DEDUCTIONS ON EQUIPMENT. Under Section 168 of the
Code, the Partnership may claim an annual deduction (called "depreciation")
on property that the Partnership was required to capitalize because the
property had a useful life of more than one year. Under the current
depreciation rules, the system or method of computing the annual depreciation
deduction is called the Modified Accelerated Cost Recovery System ("MACRS").
MACRS authorizes an annual depreciation deduction for the exhaustion, wear
and tear and obsolescence of property used in a trade or business or held for
the production of income. Under MACRS, eligible personal property ("recovery
property") may be depreciated over recovery periods of between 3 and 20
years. A 200.0% declining balance method of depreciation can be used, or, if
the taxpayer elects, the straight-line method of depreciation may be elected.
The 200.0% declining balance method may be used for 3, 5, 7 and 10-year
class property, switching to the straight-line method at that time to
maximize the depreciation allowance. The useful lives of the items of
Equipment that the Partnership intends to purchase and lease will generally
be either five or seven years but may be longer.
The Partnership intends to elect to use the MACRS depreciation method of
depreciation and not the straight-line depreciation method.
Under the provisions of the Code, personal property placed in service or
disposed of during a taxable year is treated as placed in service or disposed
of at the midpoint of such year. The Partnership's first taxable year of
operations may be less than 12 months. In this case, the Partnership's
depreciation deductions for its first year of operations would be reduced to
reflect the number of months of Partnership operations.
Section 168(g) of the Code provides that any tangible property which is
used during the taxable year predominantly outside the United States must be
depreciated by using the straight line method over the property's class life
or 12 years if the property has no class life. While it is not likely, the
Partnership may lease Equipment for use outside the United States by foreign
lessees.
Section 168(g) of the Code provides that, in the case of a lease of
tangible property (other than real property) to the extent such property is
financed by obligations exempt from tax under Section 103 of the Code or
property leased to a tax-exempt entity, depreciation deductions under MACRS are
not available, and depreciation must be computed on a straight-line basis over
the property's class life (as
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used prior to the adoption of MACRS) or 125.0% of the lease term, if longer.
Special rules are provided, however, for "qualified technological equipment."
If a lease of "qualified technological equipment" to a tax-exempt entity has
a term of five years or less, the recovery period is five (5) years.
"Qualified technological equipment" includes "any computer or computer
peripheral equipment," "high-technology telephone station equipment installed
on the customer's premises," and "high-technology medical equipment."
Equipment may be leased to private tax-exempt entities in which case the
depreciation shall be under the alternative depreciation system of Section
168(g). Such Equipment may, however, qualify as "qualified technological
equipment" and be subject to leases of five years or less. In this case,
such Equipment will qualify for depreciation under MACRS.
If during any taxable year, the aggregate basis of property placed in
service by a Limited Partner, directly and indirectly through the Partnership,
during the last three months of such taxable year exceed 40.0% of the aggregate
basis of property placed in service during such taxable year by the Limited
Partner, the mid-quarter convention will be applicable to all property placed in
service during such taxable year by the Limited Partner. The mid-quarter
convention treats all property placed in service during any quarter of a taxable
year (or disposed of during any quarter of a taxable year) as placed in service
(or disposed of) on the midpoint of such quarter.
11. DEDUCTION OF MANAGEMENT AND OTHER FEES TO THE GENERAL PARTNER. The
Partnership will pay fees to the General Partner and others related to the
General Partner for acquiring Equipment, management, administrative and
organizational services performed for the Partnership. Some of these fees and
costs will be payable out of the proceeds of the offering and may be substantial
in amount. The IRS may challenge some or all of the deductions for fees payable
to the General Partner or related parties, or any other party, and may challenge
such deductions based upon the payment being excessive, based upon a
recharacterization of the payment, or based upon the payment being to a Partner
in its capacity as a Partner rather than in some other capacity. Because such
recharacterization depends on various facts and circumstances which may be
viewed subjectively, counsel can give no assurance that the IRS may not
recharacterize certain fees in whole or in part. If the IRS were to
recharacterize such fees, it could result in all or a portion of such fees
having to be amortized over some longer period or being treated as a
nondeductible capital expenditure.
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 Section 195 of the Code 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 Limited
Partnership intends to amortize its start-up costs, if any, over a 60-month
period.
The Limited Partnership's purchase price of Equipment will be capitalized
and recovered through cost recovery deductions. In addition, Acquisition Fees
paid in connection with the Limited Partnership'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 to obtain financing
by the Limited Partnership will be amortized over the term of such financing.
The Partnership may accrue and deduct the Management Fee in a year prior to
its payment. The IRS may contend that the Management Fee should not be deducted
until paid if the liability or amount thereof cannot be determined with
reasonable accuracy. The IRS may challenge the Management Fee as being
excessive or based upon the payment being to a Partner in its capacity as
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a Partner rather than for services rendered. No assurance can be given that
the IRS will not be successful in this contention.
12. ORGANIZATION AND SYNDICATION COSTS. Legal, accounting and other
similar types of start-up expenses have been incurred in the organization of
the Partnership and in the promotion and sale of the Units. Organization
expenses are costs which are incident to the creation of the Partnership,
such as legal and accounting fees for services incident to the organization
of the Partnership and filing fees. Syndication expenses are those connected
with the issuing and marketing of Units, including fees paid as commissions
to brokers selling the Units and legal, accounting and printing costs with
respect to the offering, including the preparation of the offering
memorandum. Organization expenses will be capitalized and amortized over a
60-month period. Syndication expenses must be capitalized (become a
nondeductible capital expenditure) and are not subject to amortization. The
Partnership will be reimbursing the General Partner for certain organization
expenses (those incident to the creation of the Partnership). Based on a
review of the nature of these expenses and consistent with the discussion
hereinbefore stated, it is the opinion of Counsel that such expenses
(organization expenses versus syndication expenses which are nondeductible
capital expenditures) more likely than not will be treated as organization
expenses for income tax purposes and, as such, will be capitalized and
amortized over a five year period. There can be no assurances that the IRS
will not contend that some of the organizational costs will not be deemed to
be syndication costs, thereby rendering such costs nonamortizable.
13. SALE OR OTHER DISPOSITION OF EQUIPMENT. If the Equipment is acquired
and held by the Partnership for more than one year and is not acquired and held
for sale in the ordinary course of a trade or business of the Partnership, any
profit or loss which may be realized by the Partnership on the sale of Equipment
will be treated as "Section 1231" gain or loss under the Code (except to the
extent of depreciation recapture as described below). Section 1231 gain or loss
from the Partnership would be combined with any other Section 1231 gain or loss
incurred by a Limited Partner in that year. Generally, if a taxpayer has a net
Section 1231 gain, it will be treated as a capital gain, and if he has a net
Section 1231 loss, it will be treated as an ordinary loss. However, a
taxpayer's Section 1231 gain is treated as ordinary income to the extent of
"nonrecaptured net Section 1231 losses," if any. Nonrecaptured net Section 1231
losses are defined as the aggregate net Section 1231 losses reported by a
taxpayer as ordinary losses in the five most recent prior years, less the
portion of such losses already taken into account in converting Section 1231
capital gain into ordinary income.
Gain recognized (amount realized over the adjusted basis in the property)
on the disposition of depreciable personal property like the Equipment or, with
respect to a Partner's share of such deduction, upon disposition of the
Partner's Units is generally subject to "recapture" and taxed as ordinary income
(instead of capital gain) under Section 1245 of the Code to the extent of the
depreciation deductions taken with respect to such property. Also amounts
treated as subject to the depreciation recapture rules (to the extent of
realized gain) must be recognized in the year of disposition, even if the
taxpayer has sold the property on an installment sale basis and may not receive
cash for the purchase price of the equipment in the year of sale.
The use of the installment method has been repealed for sellers of personal
property when a seller regularly sells or otherwise disposes of such property on
an installment basis. If the Partnership is determined by the IRS to be engaged
in the regular disposition of personal property, the seller will be required to
report the full gain in the year of sale even though all the actual cash payable
on the sale has not been received. This characterization is possible during the
Liquidating Phase of the Partnership.
14. SECTION 754. Because of the additional administrative
responsibilities caused by allowing an adjustment in basis, the Partnership does
not intend to file an election under Section 754
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of the Code to adjust the basis of the Partnership's Equipment in the case of
a transfer (including death of any Limited Partner) of a Unit or Units,
although the General Partner reserves the right to do so.
15. SALE OR OTHER DISPOSITION OF UNITS. Although no public market for
the Units exists nor is none expected to develop, a Partner who sells his or
her Units will generally realize short-term or long-term capital taxable gain
or loss measured by the difference between the selling price and the adjusted
tax basis of his or her Units. Gain or loss realized on the sale or
redemption of Units by a Limited Partner who is not a "dealer" in securities
and who has held such Units for more than eighteen months, generally will be
long-term capital gain or loss, as the case may be. Under recently passed
tax legislation, the maximum tax rate applicable to long term capital gain is
20.0% for individuals (a 10% rate applies to gains for taxpayers in the 15%
tax bracket). However, the proceeds of a sale or redemption will be taxed at
ordinary income rates to the extent of the portion of potential depreciation
recapture, substantially appreciated inventory, and unrealized receivables
attributable to the Unit.
The amount of gain recognized by a Partner in 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 the sale or disposition. Any excess
tax liability will have to be paid by the Partner from sources other than the
Limited Partnership.
Any Partner selling or exchanging a Unit must notify the Partnership of
the transfer. Any Partner who fails to notify the Limited Partnership will
be subject to penalties. The Limited Partnership will be required to file
annual reports with the IRS describing all such transfers. Once the
Partnership has been so notified, it must report to the IRS, and to the
transferor and transferee of such Unit, certain information relating to the
transfer which the IRS may prescribe by regulations.
A Partner who transfers his or her Units during a taxable year must include
in his or her personal return his or her share of taxable income or loss of the
Limited Partnership for the portion of the taxable year of the Limited
Partnership during which he or she owned the transferred Units.
Under Section 708(b)(1)(B) of the Code, the Partnership would be
considered terminated if, within a 12-month period, there is a sale or
exchange of 50.0% or more of the total interest in Partnership capital and
profits. While this is not expected to occur, if such a termination was to
occur, there could be a loss of certain tax benefits.
16. METHOD OF ACCOUNTING AND TAXABLE YEAR. The Partnership, as required
under the Code, will utilize the accrual method of accounting and its taxable
year will be the calendar year. In general, under the accrual method of
accounting, income is includable for the year in which it is earned and
expenditures are deductible for the year in which the liability for the
expenditure arises. There are, however, a number of exceptions to these
rules that may affect the timing of income or deductions of the Limited
Partnership. Further, the Internal Revenue Service has broad discretion under
Section 446(b) of the Code 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.
17. FOREIGN TAX CREDIT. The Partnership may be subject to foreign taxes
if the Partnership leases Equipment to foreign lessees. Foreign taxes paid
by the Partnership and allocable to a Limited Partner may be creditable
against a Limited Partner's federal income tax liability.
18. INVESTMENT INTEREST. Section 163(d) of the Code limits the
deductibility of interest on Partnerships borrowed to acquire or carry
investment assets ("Investment Interest"). Interest incurred by a taxpayer
is generally deductible only to the extent of net investment income.
However, interest incurred to carry a "passive investment" is treated as a
passive activity expense and not as investment interest.
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Most of the interest, if any, incurred by a Limited Partner to acquire or
carry his Partnership Units will be treated as passive activity expense and
not as investment interest. As a passive activity expense, such interest is
deductible only to the extent of the Limited Partner's passive income from
the Partnership or other passive activities.
19. INVESTMENT EXPENSES. As a general rule, investment expenses and
other miscellaneous itemized deductions of an individual are deductible only
to the extent that such expenses exceed 2.0% of the individual's adjusted
gross income. Investment expenses may be subject to further reduction as an
itemized deduction if an individual's income exceeds certain levels. While
most of the expenses and deductions realized from the Partnership should not
be subject to this limitation since they are attributable to property held
for the production of rent, the Partnership's organization and syndication
expenses could be considered investment expenses that are not attributable to
the production of rent. Depending upon a Limited Partner's individual
circumstances (this total miscellaneous deduction must exceed 2.0% of his
Adjusted Gross Income), a Limited Partner's allocable share of such expenses
could be nondeductible. In any case, such expenses would only provide a
current tax benefit to a Limited Partner who itemizes his deductions.
20. INTEREST RELATING TO TAX EXEMPT INCOME. Section 265(a)(2) of the
Code disallows any deduction for interest on indebtedness of a taxpayer or a
related person incurred to purchase or for the purpose of continuing to carry
a tax exempt investment. The IRS announced in Rev. Proc. 72-18 that the
prescribed purpose will be deemed to exist with respect to indebtedness
incurred to finance a "portfolio investment." The Rev. Proc also provides
that, while a partnership's purpose in incurring indebtedness will be
attributed to its general partner, a limited partnership interest will be
regarded as a "portfolio investment." Thus, in the case of a Limited Partner
owning tax exempt obligations, it is possible that the IRS might take the
position that his allocable portion of any Partnership interest expense, or
any interest expense incurred by him to purchase or carry a Unit or Units,
should be viewed as incurred by him to continue carrying tax exempt
obligations, and that such Limited Partner should not be allowed to deduct
all or a portion of such interest. It is not known whether Rev. Proc. 72-18,
if applicable, would be upheld as valid by the courts.
21. ALTERNATIVE MINIMUM TAX. In addition to the regular income tax, the
Code imposes an alternative minimum tax ("AMT") on both corporate and
noncorporate taxpayers. Each Partner must take into account his or her share
of the Limited Partnership's items in computing his or her AMT. The AMT for
noncorporate taxpayers is equal to the excess (if any) of (i) 26.0% of the
first $175,000 (or $87,500 in the case of married taxpayers filing
separately) of the "alternative minimum taxable income" that exceeds an
"exemption amount" ($33,750 for an individual and $45,000 for a joint return)
and 28% of any additional alternative minimum taxable income over (ii) the
tax computed under the usual method (less certain tax credits). The
"exemption amount" is reduced by 25 cents for each $1 by which alternative
minimum taxable income exceeds $150,000 for a joint return, $112,500 for a
single individual and $75,000 for estates, trusts and married persons filing
separately.
"Alternative minimum taxable income" is the taxpayer's taxable income
computed with certain adjustments and increased by the amount of items of tax
preference. For property placed in service on or prior to December 31, 1998,
for alternative minimum tax purposes, depreciation is computed under the
alternative system of Code Section 168(g), except that depreciation is
computed using the 150.0% declining balance method. The recovery period
under Section 168(g) is the property's class life, which generally will be
longer than the MACRS recovery period. For property placed in service after
December 31, 1998, the alternative minimum tax depreciation will be computed
using the same lives as used for regular tax purposes but with the 150%
declining balance method of depreciation.
Most miscellaneous itemized deductions are not deductible or are limited in
determining alternative minimum taxable income. Losses from nonparticipatory
business activities are not
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deductible. While Investment Interest is deductible only to the extent of
net investment income. Net investment income is computed without regard to
income and expenses from nonparticipatory business activities, such as the
Partnership.
All tax credits, other than foreign tax credits, do not reduce an
individual's alternative minimum tax. Noncorporate Limited Partners with
large investment or other tax credit carryforwards could lose the full
benefit of such credits if the alternative minimum tax exceeds his "regular
tax" as reduced by the credits.
Minimum tax paid in one year may be carried forward (but not back)
indefinitely as a credit against regular tax liability. The credit may not be
used, however, to offset any future minimum tax liability. The credit is the
amount of the taxpayer's adjusted net minimum tax imposed for all prior taxable
years beginning after 1986, over the amount allowable as a credit for all such
prior taxable years. The adjusted net minimum tax is the taxpayer's minimum tax
reduced by the amount that would have been the taxpayer's minimum tax had only
certain preferences been taken into account.
A noncorporate Limited Partner's liability for the alternative minimum tax
is a complex determination and depends on his overall tax situation. For a
noncorporate Limited Partner with substantial tax preferences, the alternative
minimum tax could reduce the after-tax economic benefits of an investment in the
Partnership.
The corporate alternative minimum tax is equal to the excess (if any) of
(i) 20.0% of the amount by which the "alternative minimum taxable income"
exceeds $40,000, over (ii) the tax computed under the usual method (less
certain tax credits). The $40,000 "exemption amount" is reduced by 25 cents
for each $1 by which alternative minimum taxable income exceeds $150,000.
The corporate alternative minimum tax will not apply to small business
corporations for tax years beginning after 1997. A corporation is considered
a small business corporation if it has average gross receipts of no greater
than $5.0 million for three consecutive years, beginning with the taxable
year beginning after December 31, 1994.
The "alternative minimum taxable income" is the corporation's taxable
income computed with certain adjustments and increased by the amount of items
of tax preference. For property placed in service prior to December 31, 1998
for which an election is made to depreciate under the 200.0% declining
balance method, the amount allowed as a deduction in computing alternative
minimum taxable income is the depreciation computed under the 150.0%
declining balance method over the class life of such property or 12 years for
property with no class life. Either of these periods may be longer than the
property's regular tax recovery period. For property placed in service after
December 31, 1998, the 150% declining balance method shall be applicable but
the class life shall be the same class life as used for regular depreciation
purposes.
Minimum tax paid in one year may be carried forward (but not back)
indefinitely as a credit against regular tax liability. The credit may not be
used, however, to offset any future minimum tax liability.
A corporate Limited Partner's liability for the alternative minimum tax
is a complex determination and depends on its overall tax situation. For a
corporate Limited Partner with substantial tax preferences, the alternative
minimum tax could materially reduce the after-tax economic benefits of an
investment in the Partnership.
22. PROFIT MOTIVE. Under Section 183 of the Code, if the Partnership
lacks a profit or income motive (other than tax purposes) in acquiring and
leasing the Equipment, substantially all of a Limited Partner's losses, if any,
attributable to an investment in the Partnership for any year would be
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disallowed as a deduction. There is a presumption under Section 183 of the
Code 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 no certainty that the Partnership will have income sufficient to
entitle it to the benefit of this presumption. Accordingly, the Partnership
(and perhaps each Partner) may have to demonstrate that the Partnership's
activities are engaged in for profit. There is no specific standards
applicable in determining whether the Partnership has the requested profit
objective. The General Partner has represented that the Partnership will be
operated for purposes of providing an economic profit to the Limited Partners
without regard to any tax benefits of an investment in the Partnership.
Based on such representations and the anticipated business activities of the
Partnership, counsel is of the opinion that it is more likely than not that
the Partnership will be able to satisfy the profit motive requirements.
23. TAX PROCEDURES AND PENALTIES. Based on current provisions of the
Code, the tax treatment of items of the Partnership's income and loss will be
determined at the Partnership level and not at the individual level of each
Limited Partner. The tax return of the Partnership may be subject to audit,
which audit would be conducted at the Partnership level. Adjustments
resulting from an audit of the Partnership may result in an audit of an
individual Limited Partner's personal returns and could result in adjustments
not only to the Partnership items but also adjustments to nonpartnership
items. A Limited Partner would be liable for any interest on tax
deficiencies resulting from an adjustment to the Partnership's tax return.
Interest relating to certain items (such as certain deficiencies relating to
valuation overstatements, the at-risk rules, and certain accounting methods
or other matters) accrues at 120.0% of the statutory rate. Interest due on
tax deficiencies is nondeductible. SEE Tax Legislation for recent
developments on audit adjustment.
A penalty will be assessed for each month a fraction thereof (up to a
maximum of five months) that a Partnership return is filed late or
incomplete. The monthly penalty is $50 per partner in the Partnership.
Section 6662 of the Code imposes a civil penalty of 20.0% of any portion of
an underpayment of tax which is attributable to (1) negligence or disregard
of rules or regulations, (2) a substantial understatement of income tax, (3)
a substantial valuation overstatement, (4) a substantial overstatement of
pension liabilities, and (5) a substantial estate or gift tax valuation
understatement and valuation misstatements in connection with Section 482
transactions. Interest from the tax return filing date will accrue on this
penalty where it is applied. In particular, a substantial understatement of
income tax will exist if the amount of the understatement exceeds the greater
of 10.0% of the correct amount of tax or $5,000 ($10,000 in the case of most
corporations). The penalty will not apply to a substantial understatement
with respect to an item if (i) substantial authority supported the taxpayer's
treatment of such item, (ii) the relevant facts concerning the treatment of
the item were adequately disclosed on the taxpayer's return, or (iii) the IRS
waives the penalty where there was reasonable cause for the understatement,
and the taxpayer acted in good faith. However, in the case of any item
attributable to a "tax shelter," exception (i) above will be available only
if, in addition to meeting the requirements of that exception, the taxpayer
reasonably believed that his treatment was more likely than not the proper
treatment, and exception (ii) is not available at all. The definition of
"tax shelter" for this purpose includes a plan or arrangement the principal
purpose of which is the avoidance or evasion of federal income tax. The
General Partner does not expect the Partnership will be considered a "tax
shelter."
24. INVESTMENT BY EMPLOYEE BENEFIT PLANS AND OTHER TAX EXEMPT ENTITIES.
Each otherwise tax-exempt Limited Partner (i.e., Employee Benefit Plan) is
subject to tax on its unrelated business income, and must file a tax return
reporting such income. To the extent a tax-exempt Limited Partner is allocated
unrelated business income from the Partnership, it generally will be subject to
the same provisions as taxable Limited Partners with respect to reporting and
paying tax (including estimated tax) on such income. If the tax-exempt Limited
Partner is a trust (such as a profit-sharing trust, plan for a self-employed
individual or IRA), the tax rates would be the rates applicable to trusts
(including
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alternative minimum tax). If the tax-exempt Limited Partner is not a trust,
it would be subject to corporate tax rates (including alternative minimum
tax).
"Unrelated business income" is the gross income derived by an exempt
organization from any unrelated trade or business regularly carried on by it
or by a partnership of which it is a member. Specific deductions which are
directly connected with the carrying on of such trade or business, computed
with modifications, are allowed. Since the Partnership carries on a trade or
business, a tax-exempt Limited Partner will be considered to be regularly
carrying on the trade or business of the Partnership and any income produced
by the Partnership will be unrelated business income to the tax-exempt
Limited Partners to which it is allocated, unless such income is specifically
exempted from such classification.
The Partnership will be engaged in leasing tangible personal property.
Income from leasing personal property is not specifically exempted from being
characterized as "unrelated business income." Thus, each tax-exempt Limited
Partner's distributive share of Partnership Net Income from the Partnership
Leases will constitute "unrelated business income." A portion of any
additional gain on the disposition of the Equipment may be "unrelated
business income" if such Equipment were disposed of within the 12 months
prior to the repayment of any loan or financing incurred to finance the
repair or reconditioning of such Equipment. The General Partner anticipates
that most of the Partnership's Net Income allocable to a tax-exempt Limited
Partner will be "unrelated business income."
Each tax-exempt Limited Partner is allowed, in the aggregate, a $1,000
annual exemption from tax on its unrelated business income.
The receipt of unrelated business income by a tax-exempt entity generally
has no effect on that entity's tax-exempt status or on the exemption from tax of
its other income. However, for certain types of tax-exempt entities, the
receipt of any unrelated business income may have extremely adverse
consequences. For example, for charitable remainder trusts (defined under Code
Section 664), the receipt of any such taxable income during a taxable year will
result in the taxation of all of the trust's income from all sources for such
year. Accordingly, for these and other reasons, each prospective tax-exempt
Limited Partner is urged to consult its own advisor regarding the possible
repercussions of an investment in the Partnership.
Tax-exempt Limited Partners may also generally be subject to state and
local taxation on their unrelated business income. Tax-exempt Limited Partners
should consult with their own tax advisors concerning the applicability and
impact of state and local tax laws.
25. PARTNERSHIP WILL NOT REGISTER AS A TAX SHELTER WITH THE INTERNAL
REVENUE SERVICE. Persons responsible for organizing certain defined investments
(the General Partner) are required to register their promotions with the IRS,
whether or not considered "abusive," if considered a "tax shelter" under IRS
guidelines.
Temporary regulations under Section 6111 of the Code define a "tax
shelter" for tax shelter registration purposes as an investment (1) with
respect to which a person could reasonably infer that the tax shelter ratio
for any investor may be greater than two to one as of the close of any of the
first five (5) years ending after the date on which the investment is offered
for sale and (2) that is either (a) required to be registered under a federal
or state law regarding securities, (b) sold pursuant to an
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exemption from registration requiring the filing of a notice with a federal
or state agency regulating the offering or sale of securities or, (c) a
"substantial investment," defined as an investment whose aggregate amount
offered for sale to investors exceeds $250,000 and that five (5) or more
investors are expected. Based upon these regulations, the Partnership will
not register as a tax shelter.
26. TAX LEGISLATION. It is impossible to predict with any degree of
certainty what new tax proposals may be forthcoming, whether any such proposals
are likely to have an effect upon the income tax treatment presently associated
with an investment in the Partnership, or what the effective date might be of
any legislation that may be derived from such proposals. Potential investors
are urged to consider ongoing developments in this uncertain area and to consult
their own tax advisors in assessing the risks of investment in the Partnership.
27 STATE INCOME TAX CONSEQUENCES. In addition to the federal income
tax consequences described above, prospective Limited Partners should
consider potential state and local tax consequences of an investment in the
Equipment. The Partnership itself may be subject to state income taxes in
states in which the Partnership owns Equipment or is engaged in business.
Moreover, a Limited Partner's share of Net Income or Net Loss attributable to
his investment in the Equipment generally will be required to be included in
determining his reportable income for state or local tax purposes in the
jurisdiction in which he is a resident. In addition, certain other states in
which the Equipment is leased may impose a tax on nonresident Limited
Partners determined with reference to their pro rata shares of income derived
from such state. To the extent that a nonresident Limited Partner pays tax
to a state by virtue of Equipment owned within that state, he may be entitled
to a deduction or credit against tax owed to his state of residence with
respect to the same income. In sum, a Limited Partner may be subject to
income, estate or inheritance tax, or both, and may be required to file tax
returns in states and localities where Equipment is leased, as well as in the
state or
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locality of his residence. It is possible that some states or localities
where the leased property will be located will require that the Partnership
withhold state or local taxes on the income allocated (or distributions made)
to Limited Partners. The Partnership is authorized to withhold from amounts
otherwise distributed to Limited Partners such amounts as the General Partner
determines is necessary or appropriate to satisfy the Partnership's state or
local tax obligations.
Congress has recently passed and the President has signed the Taxpayer
Relief Act of 1997 (TRA of 1997). The new tax legislation contains many new
provisions that affect an investment in the Partnership, including the
provisions described in tax materials on the new capital gains tax provisions
and revisions in the alternative minimum tax computation. The TRA of 1997
allows a large partnership (partnerships that had 100 or more partners in the
preceding year) to elect special simplified tax reporting rules in
determining the treatment of a large number of distribution items from the
partnership level. Also, under the TRA of 1997, partnership adjustments for
electing large partnerships resulting from an audit generally will take
effect and flow through to the partners for the year in which the adjustment
takes place rather than going back to any prior year. The Partnership, in
lieu of flowing through the adjustment to the Partners, may elect to pay an
imputed underpayment on the net adjustment at the highest tax rate for the
taxable years under audit. The Partnership is responsible for interest and
penalties that result from a partnership adjustment and any payment made by
the Partnership is nondeductible. These provisions are effective for tax
years beginning after December 31, 1997. Because the new partnership
provisions have only been enacted and no regulations have been issued, the
Partnership has not determined whether the election should be made by the
Partnership.
Limited Partners should consult their own tax advisors as to the state and
local tax consequences of an investment in the Partnership. No opinion has been
or will be rendered by Tax Counsel on matters of state or local tax law.
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EMPLOYEE BENEFIT PLANS
- -------------------------------------------------------------------------------
Qualified retirement plans, pension, profit-sharing and stock bonus plans
(including Keogh plans) and individual retirement accounts (collectively,
"Retirement Plans") are generally exempt from federal income taxation.
However, if these Retirement Plans have "unrelated business taxable income"
(determined in accordance with Sections 511-514 of the Code) that exceeds
$1,000 during any taxable year, the amount in excess of $1,000 for a year is
taxable. A Retirement Plan that invests in the Partnership will constitute
an unrelated trade or business for the retirement plan. Because the
Partnership's business will primarily consist of leasing personal property,
each investment by a Retirement Plan in the Partnership will cause the
Retirement Plan to have unrelated business taxable income, which will include
(1) the Plan's share of the Partnership's taxable income from rents under the
Equipment leases; and (2) the gain, if any, on disposition of the Equipment,
but only to the extent the Equipment is "debt-financed" during the 12 month
period preceding its sale or is deemed to be held primarily for sale to
customers in the ordinary course of business. See "Sale or Other Disposition
of Equipment" under "Tax Consequences." In calculating its unrelated
business taxable income, however, a Retirement Plan may also take into
account its share of the Partnership's deductions, including depreciation,
applicable to leased Equipment.
Fiduciaries of Retirement Plans must also consider whether underlying
assets of the Partnership will be deemed to be assets of any Retirement Plan
which invests in the Partnership ("plan assets"). If the assets of the
Partnership were to be classified as "plan assets," the General Partner would
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become a fiduciary to any investing Retirement Plan and, among other things,
would be subject to all of the conditions, restrictions and prohibitions set
forth in Part IV, Subtitle B, Title I, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Code.
Under ERISA, when a Retirement Plan invests in securities (within the
meaning of ERISA Section 3(20)) of a corporation or partnership, the
Retirement Plan's assets will generally include only the securities it
acquires and does not solely by reason of such investment, include the
underlying assets of the corporation or partnership. On November 13, 1986,
the Department of Labor promulgated a regulation at 29 C.F.R. 2510.3-101 (the
"Regulation") which stated the above rule and set out several categories of
exceptions to the rule, i.e., categories of entities, or interests therein,
with respect to which certain Retirement Plan investments would create "plan
assets." The General Partner believes that the Regulation's exceptions do
not apply to the Partnership and that, consequently, the general rule applies
so that, when a Retirement Plan purchases one or more Units in the
Partnership, the Retirement Plan's assets will not include the assets of the
Partnership.
The Regulation provides that, where a Retirement Plan invests in a
security that is a "publicly offered security," the underlying assets of the
issuer will not be deemed to be "plan assets" of the investing Retirement
Plan solely on account of the Retirement Plan's investment. The Regulation
provides generally that a security will be deemed to be a "publicly offered
security" if it is (1) part of a class of securities that is widely held; (2)
freely transferable; and (3) either (a) part of a class of securities
registered under the Securities Exchange Act of 1934, or (b) sold to a
Retirement Plan as part of a public offering registered under the Securities
Act of 1933 and part of a class of securities registered under the Securities
Exchange Act of 1934 within 120 days after the end of the fiscal year of the
issuer in which the public offering occurred.
Based on the information from the representations of the General Partner
discussed below, it is the opinion of Counsel to the Partnership that the
Partnership's Units should constitute "publicly offered securities." First, the
General Partner has represented that it is highly likely that substantially more
than 100 independent investors will purchase and hold Units in the Partnership,
and the Regulation states that, when 100 or more investors independent of the
issuer and of one another purchase a class of securities, the class will be
deemed to be widely held. Second, the General Partner has represented that the
Partnership's offering of Units is or will be registered under the Securities
Act of 1933, and that the General Partner intends to register the Units in the
Partnership under the Securities Exchange Act of 1934 within 120 days after the
end of the fiscal year of the Partnership in which its offering of Units
terminates. Third, although whether a security is freely transferable is a
factual determination, the limitations on the assignment of Units and
substitution of Limited Partners contained in Article XIII of the Partnership
Agreement, with the possible exception discussed below, fall within the scope of
certain restrictions enumerated in the Regulation that ordinarily will not
affect a determination that securities are freely transferable when the minimum
investment is $10,000 or less. Section 13.1.4 of the Partnership Agreement
contains a provision (the "PTP Restriction") that prohibits the assignment or
other transfer of Units without the General Partner's written consent if the
General Partner determines in good faith that (1) such transfer might result in
a change in the status of the Partnership to a publicly traded partnership
within the meaning of Section 7704 of the Code, as currently or hereafter
interpreted by the Internal Revenue Service in rulings, regulations or other
publications, or by the courts, and (2) such status would have a material
adverse impact on the Limited Partners or their assignees. In order to prevent
the Partnership from being classified as a publicly traded partnership, the
General Partner has represented that it intends to prohibit transfers of Units
to the extent necessary to comply with the safe harbors contained in IRS Notice
88-75, under which certain levels of trading are permissible. See "'Publicly
Traded' Partnerships" under "Tax Consequences." Section (b)(4)(iii) of the
Regulation permits restrictions that prohibit any transfer or assignment that
would result in a reclassification of the entity for federal income tax
purposes. In Advisory Opinion 89-14A dated August 2, 1989, the Department of
Labor expressed its opinion that a restriction against
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transfer of partnership interests that is drafted to avoid reclassification
of a partnership as a publicly traded partnership would qualify as the type
of restriction contemplated by that Section of the Regulation. Therefore,
the PTP Restriction should not, absent unusual circumstances, affect the
Units being freely transferable within the meaning of the Regulation.
Notwithstanding the above, because of ERISA a Retirement Plan fiduciary
deciding whether to invest in the Partnership, in addition to other factors,
should consider (1) whether the investment satisfies the diversification
requirements of ERISA Section 404(a)(1)(C); (2) whether the investment is
prudent (considering the compensation structure of the Partnership, that the
Partnership's Equipment investments have not been selected as of the date of
this Prospectus, and that there may never be a market in which the Retirement
Plan can sell or otherwise dispose of Units); (3) whether the investment is
made solely in the interest of the Retirement Plan's participants; (4)
whether the investment complies with the Retirement Plan's needs for
liquidity; and (5) whether the investment would constitute a transaction
prohibited under ERISA Section 406 and Section 4975 of the Code.
Because of possible violation of prohibited transaction rules under ERISA
and the Code, the fiduciaries of a Retirement Plan should never purchase
Units with assets of a Retirement Plan if the General Partner, the Managing
Sales Agent, any Selected Sales Agents or any of their Affiliates perform or
have any such investment powers with respect to those assets, unless an
exemption from the prohibited transaction rules applies with respect to such
purchase.
ERISA and, in some cases, the Code require that the assets of a Retirement
Plan be valued at their fair market value as of the close of each Plan year. It
may not be possible to value the Units adequately from year to year, since there
may not be a market for them and appreciation or depreciation of Partnership
Equipment may not be independently shown in the value of the Units until the
Partnership sells or otherwise disposes of the Equipment.
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MANAGEMENT
- -------------------------------------------------------------------------------
THE PARTNERSHIP
The Partnership is an Iowa limited partnership formed on August 26, 1997.
THE GENERAL PARTNER AND ITS AFFILIATES
The General Partner of the Partnership is Berthel Fisher & Company
Leasing, Inc., an Iowa corporation that has been in operation since 1988.
Its business and executive offices are located at 100 Second Street, SE,
Cedar Rapids, Iowa 52401, telephone (319) 365-2506. More than 99% of the
voting stock of the General Partner is owned by Berthel Fisher & Company
("Berthel Fisher"). Berthel Fisher, a financial services holding company, was
formed in 1985 as an Iowa corporation to hold the stock of Berthel Fisher &
Company Financial Services, Inc. ("Financial Services"), a broker-dealer
registered with the National Association of Securities Dealers, Inc.
Financial Services, an affiliate of the General Partner, will act as the
Managing Sales Agent for this Offering.
The General Partner was formed as a subsidiary of Berthel Fisher in 1988
to engage in the business of acquiring, financing, leasing and selling
equipment, primarily in the telecommunications and pay telephone industry.
Other operations of the General Partner include lease brokerage activities and
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lease financing services. Since 1988, the General Partner has expanded its
leasing activities to other types of equipment. The General Partner also
serves as general partner for Telecommunications Income Fund IX, L. P. ("TIF
IX") and Telecommunications Income Fund X, L.P. ("TIF X"), and it has been
active in the leasing business for its own account. The General Partner
provided and negotiated leases sold to eight other partnerships ("Private
Programs"), the general partners of which were subsidiary corporations of
Berthel Fisher. All of the Private Programs have completed operations and
distributed their assets. See "Financial Statements of the Partnership and
the General Partner."
Since its inception, over $147,000,000 of lease and finance transactions
have been originated by the General Partner for its own portfolio and for the
portfolios of its Affiliates. Financial Services, as managing dealer, has
sold and placed approximately $46,689,250 of participation in equipment
leasing programs to both individual and institutional investors through two
publicly offered limited partnerships and eight Private Programs. The
General Partner and/or its Affiliates are currently managing the equipment
and leases placed in the two publicly offered limited partnerships and its
own portfolio of leases. See "Information Regarding Certain Private Programs"
under "Prior Experience of the General Partner and Affiliates." Please refer
to "Exhibit C -- Tabular Information Concerning Prior Transactions."
The General Partner will have day-to-day operating responsibility for the
Partnership and will make all decisions regarding acquisition, financing,
refinancing, leasing and sale of Equipment and other Program Assets. The day
to day affairs of the General Partner are handled by Nancy Lowenberg, Vice
President and Chief Operating Officer of the General Partner, with active
involvement of the Board of Directors. Each Director has been elected by the
General Partner's parent company, Berthel Fisher. The current members of the
Board of Directors are Thomas J. Berthel, Ronald O. Brendengen, Nancy
Lowenberg, Emmett J. Scherrman, Von Elbert and James W. Noyce. Berthel
Fisher provides certain management services to Leasing. Members of the
General Partner's Board of Directors have had experience in various phases of
acquiring, financing, leasing and selling equipment, and in managing and
advising investment programs with objectives similar to those of the
Partnership.
Under the Partnership Agreement, the Limited Partners owning a majority
of the outstanding Units have the right to admit a successor general partner
upon the withdrawal, resignation, removal, bankruptcy, dissolution or
liquidation of the General Partner. See "Summary of the Limited Partnership
Agreement."
The services and functions to be performed by the General Partner for the
Partnership include locating, evaluating and negotiating the terms of
Equipment leases and financings; negotiating and servicing Partnership debt
obligations; invoicing and collecting lease revenues from lessees; inspecting
the Equipment; maintaining liaison with and general supervision of lessees;
administration of leases to assure that Equipment is being properly operated
and maintained; supervising maintenance to be performed by third parties;
monitoring performance by the Partnership and by lessees of their obligations
under Equipment leases; maintaining liaison and communication with the
Limited Partners and providing them with reports as described under "Reports
to Limited Partners"; and all administrative functions associated with the
operations of the Partnership. The General Partner will also arrange for and
oversee the marketing of Units through the Managing Sales Agent and the
Selected Sales Agents. The General Partner will be reimbursed by the
Partnership for organizational and offering expenses. In addition, the
Partnership will reimburse the General Partner for certain out-of-pocket
costs and expenses. See "Compensation of the General Partner and Affiliates."
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The officers and directors of the General Partner are:
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Thomas J. Berthel (age 45) -- Mr. Berthel is the President and a director
of the General Partner. He served as President from 1988 to 1993, and was
re-elected as President in 1996. He has been a director since 1988. Mr.
Berthel also serves as the President and a Director of Berthel Fisher &
Company, a financial services holding company formed in 1985 as an Iowa
corporation to hold the stock of Berthel Fisher & Company Financial Services,
Inc. ("Financial Services"), the Managing Sales Agent. He has held both of
those positions since 1985. Mr. Berthel served as President of Financial
Services until June, 1993. He presently serves as Chief Executive Officer and
as a Director of Financial Services and Leasing. Mr. Berthel is also
President and a Director of Berthel Fisher & Company Management Corp. (a real
estate holding company), T. J. Berthel Enterprises, Inc. (general partner of
a limited partnership that invests in securities) and Berthel Fisher &
Company Planning Inc. ("Planning") (a registered investment advisor).
Planning is the trust advisor of Berthel Growth & Income Trust I, a business
development organized under the Investment Company Act of 1940. In November,
1995, Mr. Berthel was elected a director of Intellicall, Inc., a publicly
traded company.
Mr. Berthel holds a bachelor's degree from St. Ambrose College in
Davenport, Iowa (1974). He also holds a Master's degree in Business
Administration from the University of Iowa in Iowa City, Iowa (1993). From
1974 to 1982, Mr. Berthel was President and majority shareholder of Insurance
Planning Services Corporation in Maquoketa, Iowa, which was engaged in the
operation of a securities and insurance business. Mr. Berthel holds a
Financial and Operation Principal license issued by the National Association
of Securities Dealers, Inc. He is also a Certified Life Underwriter.
Nancy Lowenberg (age 38) -- Ms. Lowenberg is Vice President and Chief
Operating Officer of the General Partner, a position she has held since
January 2, 1997. From 1982 to December 1996, Ms. Lowenberg was employed by
Firstar Bank Iowa, N.A., in Cedar Rapids, since 1986 as Vice President
Commercial Loans for Iowa. As Vice President Commercial Loans, she served as
relationship manager of 62 accounts with approximately $70,000,000 of
committed credit, with responsibility for annual review and maintenance of
existing accounts and business development. Ms. Lowenberg received her
Bachelor of Science Agricultural Business with a minor in Finance in 1981
from Iowa State University, Ames, Iowa.
Ronald O. Brendengen (age 43) -- Mr. Brendengen is the Treasurer, Chief
Financial Officer and a Director (1988 to present) of the General Partner.
He was elected to his current offices in October, 1996. He has previously
served as Secretary (1994-March, 1995), Treasurer (1988-August, 1995) and
Chief Financial Officer (1994-August, 1995) of the General Partner. He
served as Controller (1985-1993), Treasurer (1987-present), Chief Financial
Officer, Secretary and a Director (1987-present) of Berthel Fisher & Company,
the parent company of the General Partner. Mr. Brendengen serves as the
Treasurer, Chief Financial Officer and a Director of Berthel Fisher & Company
Planning, Inc. He also serves in various offices and as a Director of each
subsidiary of Berthel Fisher & Company. Mr. Brendengen holds a certified
public accounting certificate and worked in public accounting during 1984 and
1985. Mr. Brendengen attended the University of Iowa before receiving a
bachelor's degree in Accounting and Business Administration with a minor in
Economics from Mt. Mercy College, Cedar Rapids, Iowa, in 1978.
Leslie D. Smith (age 49) is the Secretary (March, 1995-present) of the
General Partner. Mr. Smith serves as the Secretary and a Director of Berthel
Fisher & Company Planning, Inc., the trust advisor of Berthel Growth & Income
Trust I. In 1994 Mr. Smith was named General Counsel of Berthel Fisher &
Company, parent company of the General Partner. Mr. Smith was awarded his B.A.
in Economics in 1976 from Iowa Wesleyan College, Mount Pleasant, Iowa, and his
J.D. in 1980 from the University of Dayton School of Law, Dayton, Ohio. Mr.
Smith was employed as an Associate Attorney and as a Senior Attorney for Life
Investors Inc., Cedar Rapids, Iowa, from 1981 through 1985. At Life Investors
Inc., Mr. Smith was responsible for managing mortgage and real estate
transactions. From 1985 to 1990 Mr. Smith was General Counsel for LeaseAmerica
Corporation, Cedar Rapids, Iowa. In
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that capacity, Mr. Smith performed all duties generally associated with the
position of General Counsel. From 1990 to 1992, Mr. Smith was Operations
Counsel for General Electric Capital Corporation, and was responsible for
managing the legal department of a GECC division located in Cedar Rapids,
Iowa. From 1993 to 1994, Mr. Smith was employed as Associate General Counsel
for Gateway 2000, Inc., in North Sioux City, South Dakota.
DIRECTORS OF THE GENERAL PARTNER
The Directors of the General Partner are elected annually. Thomas J.
Berthel, Nancy Lowenberg and Ronald O. Brendengen, who are executive officers
of the General Partner, also serve as directors of the General Partner.
Biographical information with respect to each of them is set forth above.
The remaining directors of the General Partner are listed below, together
with certain pertinent information concerning each of them.
Emmett J. Scherrman (age 65) was elected a Director of the General
Partner in August, 1995. Mr. Scherrman graduated in 1953 from Loras College
with a B.A. in accounting, and served at the U.S. Army Finance School, Fr.
Benjamin Harrison, from 1953 to 1955. Mr. Scherrman served as President
(1977 to 1987) and Chairman of the Board and Chief Executive Officer (1987 to
1990) of LeaseAmerica Corporation, Cedar Rapids, Iowa. Since his retirement
from LeaseAmerica Corporation in 1990, Mr. Scherrman has served as a
consultant to Brenton Bank and Trust Company, Cedar Rapids, Iowa, from 1992
to present. Mr. Scherrman currently serves as a Director of Brenton Bank
and Trust Company; Treasurer and Director of Oak Hill Engineering, Inc;
Chairman, Board of Trustees, Mount Mercy College; and Treasurer and Member of
the Board of Trustees, Mercy Medical Center.
Von Elbert (age 58) was elected Director of the General Partner in
October, 1996. He has served as a Director of Berthel Fisher & Company, the
parent of the General Partner, since May, 1991. From 1978 to 1988, Mr.
Elbert was the President of TLS, Co., a data processing company. From 1988
to 1996, Mr. Elbert served as the Vice President, Treasurer and Chief
Financial Officer of Galt Sand Company, a manufacturer of wearing apparel.
Mr Elbert also serves as a director of Hawkeye Bank of Cedar Rapids. Mr.
Elbert received his BBA degree from the University of Iowa in 1962.
James W. Noyce (age 42) was elected Director of the General Partner in
September, 1997. Mr. Noyce has been employed by FBL Financial Group, Inc.
since 1985. He presently serves as Chief Financial Officer of FBL Financial
Group, Inc. (and its affiliates, including Farm Bureau Life Insurance
Company), a position he has held since December, 1995. Prior to December,
1995, he served FBL Financial Group, Inc. in various capacities, including,
from 1991 to December, 1995, as Vice President and Controller. Mr. Noyce
graduated in 1978 with a Bachelor of Science and Business Administration
(BSBA) in Actuarial Science and Accounting from Drake University College of
Business.
OPERATION OF THE GENERAL PARTNER
As of September 30, 1997, the General Partner employed seven persons. The
General Partner receives management and consulting services from its Officers
and Directors and from employees of Berthel Fisher & Company, the General
Partner's parent. The General Partner will hire additional employees as the
need arises. During the fiscal years ended December 31, 1995, and December 31,
1996, the revenue from no one customer of the General Partner accounted for
greater than 10.0% of total revenue.
The General Partner is the lessee with respect to office space that it
vacated in early 1997. The General Partner will continue to be responsible for
payment of rent on this space of approximately
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$4,500 per month until December 31, 2000. Although the General Partner is
seeking to sub-lease the space to a third party, it has been unsuccessful to
date. The General Partner's offices are now located in Cedar Rapids, Iowa,
in premises containing approximately 700 square feet. The premises are
leased by the General Partner from an Affiliate, which has agreed to permit
the General Partner to use the space until it has found a sub-lessee for the
space it previously occupied. After the General Partner sub-leases the
previous space, the Affiliate will begin charging rental of not more than
$2,000 per month.
As of the date of this prospectus, the General Partner is not engaged in
litigation other than litigation in the normal course of its business.
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PRIOR EXPERIENCE OF THE GENERAL PARTNER AND AFFILIATES
- -------------------------------------------------------------------------------
GENERAL
The General Partner currently serves as the general partner of two public
programs, Telecommunications Income Fund IX, L. P. ("TIF IX") and
Telecommunications Income Fund X, L.P. ("TIF X"). Affiliates of the General
Partner have served as general partners of Telecommunications Limited
Partnerships No. 1-No. 8 (the "Private Programs"). All of the Private Programs
are now terminated. The General Partner and all of its affiliates who served as
general partners of the Private Programs are all subsidiaries of Berthel Fisher
& Company ("Berthel Fisher"). The General Partner and the affiliates who served
as general partners of the Private Programs are referred to collectively as the
"Leasing Affiliates."
The Leasing Affiliates are (or were, in the case of the terminated
Private Programs) engaged primarily in the business of acquiring and leasing
capital assets, primarily telecommunications equipment. The General Partner
has been in operation since 1988. The Leasing Affiliates have been engaged
in business beginning at various dates since 1986. Berthel Fisher has two
other subsidiaries that are engaged in the business of securities brokerage
and real estate ownership and management. Another subsidiary is registered
with the Securities and Exchange Commission as an investment advisor and with
the Commodities Futures Trading Association as a commodity trader and now
serves as the investment advisor to Berthel Growth & Income Trust I, a
publicly held business development company. All of the subsidiaries of
Berthel Fisher are Iowa corporations.
Substantially all of the current business of TIF IX and TIF X is conducted,
and substantially all of the other Leasing Affiliates' business was conducted,
on a full payout lease basis, in which the non-cancelable rental payments due
during the initial term of the lease are sufficient to recover the Purchase
Price of Equipment. Many of the lease contracts of TIF IX and TIF X have fair
market value purchase options that grant the underlying lessees the right to
purchase the equipment at the end of the lease contracts.
Mr. Thomas J. Berthel also served as a general partner of each of the
Private Programs. The General Partner did not act as the general partner for
any of the Private Programs. The General Partner did, however, earn management
fees and/or sales commissions from certain of the Private Programs.
The Private Programs raised a total of $7,070,000 of equity from 447
investors and purchased equipment costing $9,514,000. TIF IX raised a total of
$17,001,750 of equity from 1,211 investors
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and has purchased equipment costing $47,778,000. TIF X raised a total of
$22,617,500 of equity from 1,639 investors and has purchased equipment
costing $41,376,000.
The following table sets forth information regarding the eight Private
Programs and the two publicly offered programs organized by the Leasing
Affiliates to date.
<TABLE>
<CAPTION>
Original
Equipment Date Date
Name of Transaction Cost Started Terminated
- ------------------- ---------- -------- ----------
<S> <C> <C> <C>
Telecommunications Limited
Partnership No. 1. . . . . . . . . . $1,249,000 12/31/86 10/31/94
Telecommunications Limited
Partnership No. 2. . . . . . . . . . 1,856,000 12/31/87 09/30/94
Telecommunications Limited
Partnership No. 3. . . . . . . . . . 552,000 03/04/88 09/04/92
Telecommunications Limited
Partnership No. 4. . . . . . . . . . 527,000 05/03/88 10/20/92
Telecommunications Limited
Partnership No. 5. . . . . . . . . . 1,372,000 02/28/89 12/31/94
Telecommunications Limited
Partnership No. 6. . . . . . . . . . 805,000 07/14/89 12/31/94
Telecommunications Limited
Partnership No. 7. . . . . . . . . . 1,325,000 02/21/90 09/30/94
Telecommunications Limited
Partnership No. 8. . . . . . . . . . 1,828,000 02/07/91 09/30/94
Telecommunications Income
Fund IX, L.P. . . . . . . . . . . . 16,554,266 10/30/91
Telecommunications Income
Fund X, L.P. . . . . . . . . . . . . 26,316,015 08/27/93
</TABLE>
All of the Private Programs are terminated. TIF IX and TIF X are
currently in operation and have fully utilized all investor funds to acquire
equipment. Information as to cash distributions to investors made by the
Private Programs, TIF IX and TIF X and certain additional information
concerning the Private Programs, TIF IX and TIF X may be found in "Exhibit
'C' - Tabular Information Concerning Prior Transactions." As noted in Table
III of Exhibit C, certain of the Private Programs show deficiencies at year
end after cash distributions and special items. These deficiencies were
funded with prior year's cash flow or from reserves, as noted in footnotes to
Table III of Exhibit C. Persons who invest in Units in the Partnership will
not have any ownership interest in any of the Private Programs, TIF IX or TIF
X as a result of such investment.
DIFFERENCES BETWEEN THE PARTNERSHIP AND OTHER PUBLIC AND PRIVATE PROGRAMS
In each of the Private Programs, cash flow in excess of working capital
reserves was distributed to investors instead of being reinvested in
Equipment. This differs significantly from the Partnership's plan for
distribution. See "Plan of Distribution." In other respects, except as
stated in this section and in "Information Regarding Certain Private
Programs" under "Prior Experience of the General Partner and Affiliates," the
investment objectives of the Private Programs are not significantly different
from the investment objectives of the Partnership. The investment objectives
of TIF IX and TIF X are very similar to those of the Partnership. See
"Investment Objectives and Policies."
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Like the Partnership, the Private Programs, TIF IX and TIF X invested
primarily in equipment that was leased pursuant to Full Payout Leases. Unlike
the Partnership, however, the Private Programs provide for distributions to
investors to include a return of principal and interest, as if the investment
had been amortized over the life of the Private Program. The intention of the
Partnership is not to return capital during the Operating Phase.
INFORMATION REGARDING PRIVATE PROGRAMS
The Private Programs used straight line depreciation with asset lives of
seven to ten years. Most of the Private Programs were intended to be liquidated
after approximately five years, which is a shorter period than the period
selected for depreciation of assets. Since the Private Programs utilized Full
Payout Leases, at the expiration of leases the Private Programs had recovered
through rentals the cost of equipment that had been subject to a lease. Upon
the sale of equipment at the end of a lease, the Private Programs received a
nominal price, usually less than ten percent (10.0%) of the cost of the
equipment. Since depreciation in the Private Programs was taken over a longer
period (7 to 10 years) than the life of the lease (3 to 5 years), the residual
value of the equipment at the expiration of a lease was generally less than the
adjusted basis of the equipment. Accordingly, upon the sale of equipment at the
end of a lease, the Private Programs experienced a loss for tax purposes. These
losses were generally ordinary losses, not capital losses. Utilization by the
Private Programs of straight line depreciation over seven to ten years resulted
in increasing the taxable operating results of the Private Programs, which
resulted in increasing the limited partners' tax liability during the years of
operation. Generally, in the year of termination and liquidation of a Private
Program, the operating results generated passive tax losses to be used by a
limited partner to offset passive income, and to the extent such losses exceeded
passive income, to offset (to the extent of a limited partner's basis) other
income of the limited partner.
THE UNAUDITED INFORMATION PRESENTED IN THIS SECTION AND IN THE TABLES
INCLUDED AS EXHIBIT C REPRESENTS THE HISTORICAL EXPERIENCE OF THE PRIVATE
PROGRAMS. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY THE INVESTORS IN
ANY PRIVATE PROGRAM.
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INVESTMENT OBJECTIVES AND POLICIES
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GENERAL
The Partnership intends to use the Net Proceeds from the sale of Units
primarily to purchase Equipment for lease to creditworthy third parties. The
Partnership will not operate the Equipment. The Partnership will acquire a
variety of types of capital equipment, but it will emphasize the acquisition of
telecommunications equipment. Telecommunications equipment acquired by the
Partnership may consist primarily of pay telephones, call processing systems and
related equipment
The principal investment objective of the Partnership is to obtain the
maximum available economic return from its Investment in Program Assets. Except
when the General Partner acquires Equipment in its own name for the benefit of
the Partnership, the Partnership will not acquire Equipment from or lease
Equipment to Affiliates. Accordingly, the Partnership intends to purchase
Equipment, to lease such Equipment to unaffiliated third parties and to sell (or
re-lease) such Equipment, all with a view toward:
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a. generating Cash Flow during its Operating Phase, in order to make
distributions to Limited Partners of ongoing Operating Distributions (See
"Cash Distributions and Redemptions"), which, to the extent available, will
be made on a monthly basis;
b. during the Operating Phase, reinvesting undistributed Cash Flow
from operations in additional Equipment for lease to increase the amount of
Partnership assets; and
c. maximizing the residual values of Equipment upon sale and
providing cash distributions to the Partners from sales as Liquidating
Distributions.
The General Partner shall commit a percentage of Capital Contributions to
Investment in Program Assets which is equal to the greater of (a) 80.0% of the
Capital Contributions reduced by .0625% for each 1.0% of indebtedness
encumbering Program Assets; or (b) 75.0% of Capital Contributions. The percent
of indebtedness encumbering Program Assets 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 80.0%. AFTER DEDUCTION OF ALL FRONT END FEES
TO BE PAID FROM GROSS PROCEEDS, ESTABLISHING A RESERVE AND ASSUMING THE
PARTNERSHIP BORROWS THE MAXIMUM (40.0% OF GROSS PROCEEDS), IT IS ESTIMATED
THAT 80.5% OF THE LIMITED PARTNERS' INVESTMENT WILL BE AVAILABLE AS NET
PROCEEDS FOR INVESTMENT BY THE PARTNERSHIP. SEE "ESTIMATED USE OF PROCEEDS."
To facilitate leasing arrangements, the Partnership may enter into lease
commitments with third parties prior to entering into actual leases so that
appropriate and adequate security filings can be completed and to enable such
third parties to plan for equipment installation. These commitments may involve
the taking by the Partnership of security interests in property other than the
Equipment. The Partnership may collect commitment fees in connection with the
giving of lease commitments. Lease commitments will operate in much the same
way as loan commitments, with the Partnership committing to a third party to
lease equipment having certain maximum values.
In addition to acquiring Equipment to be leased, the Partnership will also
acquire Equipment subject to existing leases, in which case the Partnership will
acquire title to the Equipment and the lessor's interest in the lease. In
limited circumstances, the Partnership will enter into financing arrangements
which will involve making secured loans to or other debt arrangements with
unaffiliated third parties. These financings will be completed only if such
financings are advantageous to the Partnership and will include cases where
lease transactions with those third parties would result in unfavorable tax
treatment. Such loans will generally be securitized with a first security
interest in equipment. Both the number and size of such financings will be
limited.
Leases entered into by the Partnership contain provisions requiring lessees
to remove Equipment and ship it to the Partnership at the end of the lease.
Accordingly, the Equipment generally has more value to the Lessee than to others
in the secondary market. Residual values of Equipment will be maximized by
endeavoring to sell the Equipment to the Lessee at the highest possible price.
If a Lessee does not purchase the Equipment, the Partnership generally will sell
the Equipment on the secondary market to buyers who customarily acquire used
Equipment.
The General Partner does not have the power to amend the investment
objectives of the Partnership without the vote of the Limited Partners.
The Partnership does not intend to acquire Equipment in transactions which
would enable Limited Partners to defer from taxation income from sources other
than the Partnership.
THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC LEVEL OF CASH DISTRIBUTIONS OR
ANY OTHER OF THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP CAN OR WILL BE
ATTAINED.
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TYPES OF EQUIPMENT TO BE ACQUIRED
1. TELECOMMUNICATIONS EQUIPMENT. The Partnership intends to utilize a
significant portion of available funds to acquire telecommunications Equipment
from a variety of manufacturers. Similar Equipment will be purchased from third
parties in sale and lease-back arrangements.
Telecommunications Equipment acquired by the Partnership will consist
primarily of advanced technology pay telephones and call processing systems used
in such facilities as hotels, hospitals, colleges and universities, and
correctional institutions.
The pay telephones to be acquired by the Partnership have the built-in
capability to perform electronic functions associated with placing a pay
telephone call, using advanced microprocessor technology located within the
telephone housing. Both the pay telephones and the call processing systems that
the Partnership will acquire utilize systems designed to provide private pay
telephone operators with access to certain non-coin pay telephone revenues,
which constitute the majority of pay telephone revenues. These systems are also
utilized in call processing systems to allow hotels and other owners to
participate in revenues from users' calls that are billed to calling cards or
credit cards.
2. OTHER CAPITAL EQUIPMENT. Although the Partnership will concentrate
its equipment acquisitions in telecommunications equipment it will also
acquire other types of equipment that meet the investment objectives of the
Partnership. Such equipment may include, without limitation, medical
equipment, office equipment and computers. The Partnership will only obtain
Equipment that the General Partner has experience in leasing. The General
Partner anticipates that Equipment other than telecommunications Equipment
will make up less than a majority of the Partnership's lease portfolio.
Generally, the General Partner will acquire Equipment other than
telecommunications Equipment only if lease opportunities for
telecommunications Equipment which meet the Partnership's criteria are not
available or if the General Partner believes that a particular leasing
opportunity for other capital Equipment will enhance the Partnership's lease
portfolio.
There can be no assurance as to the ultimate composition of the
Partnership's actual portfolio, as there is no way of anticipating what types of
leasing opportunities will be available on reasonable terms at the times the
Partnership is ready to invest its funds. The General Partner may, in
accordance with its best business judgment, vary the Partnership's lease
portfolio. The Partnership may acquire both new and used Equipment. The
Partnership intends to expend a greater portion of its funds on new Equipment,
although no assurance can be given that such an objective will be achieved.
3. SECURED TRANSACTIONS; VENDOR LEASING PROGRAMS. Although the General
Partner does not anticipate that it will occur frequently, from time to time the
General Partner may find it to be more advantageous to the Partnership to enter
into a secured sales transaction rather than a lease. In such cases the
Partnership will purchase Equipment for resale to a third party on a secured
basis. Further, the Partnership may participate in a manufacturer's vendor
leasing program, pursuant to which the Partnership would provide financing with
respect to Equipment leased directly by the manufacturer to third parties.
TELECOMMUNICATIONS INDUSTRY IN GENERAL
The General Partner intends to lease a significant portion of the
Partnership's assets to businesses involved in the private pay telephone
industry. This industry was spurred in 1984 by the decision of the Federal
Communications Commission to authorize the private ownership of pay telephones
and the regulation of private pay telephones by states. State regulation
permits private pay telephones to be placed in public areas and commercial
establishments such as hotels, airports, stores, shopping centers and service
stations. The owners of private pay telephones collect all monies
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deposited in the telephones, pay line charges and are responsible for
installation, maintenance and repair.
The General Partner also intends to place a significant portion of the
Partnership's assets in call processing systems that will be installed in hotels
and similar businesses. The use of call processing systems permits hotels and
other similar facilities to own telephone equipment and participate in credit
card and calling card revenues. Such systems give the owner control over all
forms of call rating and provides consolidated reporting on call activity. The
call processing systems that the Partnership will acquire utilize built-in
operator systems designed to allow hotels and other owners to participate in
revenues from users' calls billed to calling cards or credit cards.
TELECOMMUNICATIONS EQUIPMENT MARKET FACTORS
The General Partner anticipates that most of the Partnership's leasing
activity for telecommunications Equipment will consist of leasing new Equipment
to first users and remarketing such Equipment to such users after the term of
the initial lease.
Because a specific configuration of pay telephone equipment or call
processing equipment may to some extent be most useful to the initial user and
the cost of remarketing such Equipment as used Equipment may be substantial, the
Partnership will endeavor to renegotiate the terms of any expiring lease. The
Partnership's leases will generally provide for the lessee to bear the expense
of removal of Equipment at the end of the lease term and the expense of shipment
of the Equipment to the Partnership. In addition to these costs, lessees
analyzing the cost of replacing Equipment would normally consider the cost of
purchasing new equipment and the cost of installing new equipment. Accordingly,
the General Partner expects lessees to desire to renegotiate leases because to
do so will generally be in the best interest of the lessee. This is
particularly true since the telecommunications equipment to be leased by the
Partnership can be upgraded to take advantage of most technological advances.
The General Partner believes that leases can be renegotiated on terms that are
generally favorable to the Partnership. If leases cannot be renegotiated, the
General Partner will remarket the used Equipment through conventional means and
by utilizing its contacts with others in the industry.
TELECOMMUNICATIONS EQUIPMENT RESIDUAL VALUES
The market value of pay telephones and call processing systems at the end
of a lease term (their "residual value") will depend upon many factors,
including the rate of Equipment obsolescence, technological advances, regulatory
and telecommunications industry standards, general business conditions and
intervening inflation or deflation.
Telecommunications technology and the integration of computer components
into and with telecommunications equipment has developed rapidly in recent years
and is expected to continue to do so. Technological advances and the
introduction of foreign-manufactured telephone equipment have resulted in
reductions in the cost of telecommunications equipment, and such reductions may
continue. See "The General Partner May Be Unable to Obtain Significant Residual
Value for the Partnership Equipment" under "Risk Factors" and "Changes in
Technology May Result in Obsolescence of Equipment" under "Risk Factors."
Prospective lessees of telecommunications Equipment choose specific
Equipment based primarily on its price relative to its performance and their
particular requirements. The introduction of improved models, the broadening of
user applications and the need for greater flexibility of usage and capacity
have resulted in upgrading of Equipment. The General Partner cannot predict
whether or not a secondary market will develop for pay telephones and call
processing systems.
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Physical deterioration has not been a significant factor affecting the
value of used pay telephones or call processing systems. However, a significant
factor which may affect the residual value of Equipment owned by the Partnership
is the condition of the Equipment at the time of re-lease or sale, which depends
in part upon the proper maintenance of the Equipment while in service. The
General Partner will endeavor to lease Equipment owned by the Partnership to
lessees that will maintain it in such a manner that the condition of the
Equipment at the end of the lease will be comparable to Equipment of comparable
usage in the industry.
It is impossible to predict the extent to which developments during the
next ten years in the technology and pricing of telecommunications equipment
will cause erosion in the value of existing models of such Equipment.
ACQUISITION POLICIES AND PROCEDURES
The Partnership will generally invest only in Equipment that lessees have
committed to lease from the Partnership, or that is subject to existing
leases to third parties. Consequently, in most cases the selection of
Equipment will be determined by the requirements of the potential lessee.
See "Leases" below.
There is no limitation on the amount which the Partnership may invest in
any one Equipment transaction. Consequently, it would be possible for the
Partnership to invest all of its available funds in a single transaction. The
General Partner, however, does not intend for the Partnership to do so. Because
there can be no assurance as to the number of Units to be sold in the
Partnership, or the availability of lease opportunities to the Partnership, the
General Partner cannot predict what diversity of leases will ultimately be
obtained by the Partnership. Moreover, during the Operating Phase the General
Partner intends to reinvest most undistributed Partnership Cash Flow in
additional Equipment.
In order to reduce the effect of changes in the business conditions of
specific lessees, the Partnership will seek to diversify its lease portfolio by
leasing to a variety of lessees in various locations throughout the United
States and, to a limited degree, to lessees organized and based in the United
States who may have Equipment located outside the United States. The
Partnership's ability to achieve such diversification will be dependent, in
part, on the number of Units sold.
Used Equipment purchased by the Partnership will likely be acquired from
current users (which may be the proposed lessees) at a price that will not
exceed the fair market value of such Equipment. New Equipment purchased by the
Partnership will likely be acquired from manufacturers, authorized dealers, or
the proposed lessees, either by contracting with them directly or by purchasing
rights under previously existing purchase agreements.
The Partnership will acquire Equipment with varying degrees of warranty
protection. Used Equipment may no longer have warranty protection by the time
it is acquired by the Partnership. New Equipment normally will carry the
standard warranties offered by the manufacturer.
When necessary, the General Partner intends to arrange through the
manufacturers or through various service organizations to provide for the
installation, maintenance, modification and removal of Equipment.
The General Partner may purchase Equipment on behalf of the Partnership in
its own name for the purpose of facilitating the acquisition and ownership of
such Equipment by the Partnership. The General Partner may hold title to such
Equipment on a temporary basis, which will generally be six months or less.
Equipment acquired from the General Partner is subject to the following
restrictions:
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a. The price payable by the Partnership to the General Partner for
Equipment may not exceed the sum of the price originally paid by the
General Partner and the amount of all out-of-pocket costs incurred by the
General Partner (including interest paid on any funds borrowed to finance
the acquisition of such Equipment) in connection with the acquisition and
ownership of the Equipment;
b. The General Partner will not receive any benefit from the sale of
Equipment to the Partnership other than the amounts set forth in paragraph
(a) above; and
c. The transaction must be in the best interests of the Partnership.
Any Equipment purchased by the General Partner on behalf of the Partnership
shall be acquired in the manner and subject to the restrictions described in the
preceding paragraphs. Except for the Acquisition Fees described in
"Compensation of the General Partner and Affiliates," no commission of any kind
will be paid to the General Partner or its Affiliates in connection with the
acquisition of such Equipment.
Although the General Partner does not now anticipate doing so, the General
Partner may invest in a joint venture between the Partnership and the seller of
Equipment or another third party. The joint venture would own and lease the
Equipment. Before entering into such a transaction, the General Partner will
consider various factors, including, without limitation:
a. The economic stability of the co-venturer, and the possibility
that the co-venturer would become bankrupt or experience other financial
difficulties;
b. The possibility that the co-venturer may have economic or
business interests or goals inconsistent with those of the Partnership;
c. The possibility of an impasse if no co-venturer has controlling
interest;
d. Whether or not the Partnership has controlling interest, and if
not, what safeguards exist to limit the risk of loss to the Partnership.
In addition, the General Partner will consider all of the factors normally
considered when making a decision regarding leases.
TEMPORARY INVESTMENTS; RETURN OF UNINVESTED NET PROCEEDS
All Net Proceeds from the sale of Units in the Partnership will be
temporarily invested in (and undistributed Cash Flow may be invested in) United
States government securities (including, but not limited to, short-term Treasury
Bills and Treasury Notes), securities issued or guaranteed by United States
government agencies, certificates of deposit and time or demand deposits in
state or national banks, money market funds, securities issued or guaranteed by
states or municipalities, bank repurchase agreements, bankers' acceptances,
savings and loan association deposits, commercial paper, secured equipment lease
lines of credit, and other investments with appropriately scheduled maturities
or other similar types of investments which will be held by the Partnership for
a period generally not exceeding one year from the date of purchase and will be
available for the general use of the Partnership. See "Estimated Use of
Proceeds." The foregoing notwithstanding, the Partnership does not intend to
pursue a policy which would make it subject to the Investment Company Act of
1940, and the Partnership's temporary investments as described above will be
limited accordingly. Although the Net Proceeds from the sale of Units may be
used for any Partnership purpose, Net
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Proceeds will not be used to pay operating expenses of the Partnership unless
all available revenues from the operation of the Partnership have first been
applied to pay such expenses.
Any Net Proceeds (except for necessary operating capital) not invested or
committed for Investment in Program Assets within two years after the Effective
Date will be returned, without interest, to the Limited Partners in proportion
to their respective Capital Contributions. Any such funds will include a return
of the proportionate share of the Organization and Offering Expenses and of any
Selling Commissions paid to Affiliates of the General Partner. Interest earned
on such funds will be retained for the benefit of the Partnership, not for the
benefit of the General Partner. The following categories of Net Proceeds will
be deemed to be "invested or committed for investment": (i) funds previously
expended or set aside as reserves in connection with the acquisition of
Equipment or for other Partnership purposes, and (ii) funds to be disbursed in
the future under the provisions of agreements relating to the acquisition of
Equipment or other Partnership matters.
LEASES
1. GENERAL INFORMATION. The specific provisions of the leases to be
entered into by the Partnership will depend upon a variety of factors, including
(i) the type and intended use of the Equipment covered by the lease, (ii) the
business, operations and creditworthiness of the lessee, (iii) regulatory
considerations, (iv) the tax consequences of given lease provisions, and (v) the
accounting treatment of the lease sought by the lessee.
While the General Partner anticipates that most Equipment acquired by the
Partnership will be leased to lessees located in the United States, the
Partnership may enter into leases with United States companies for equipment
located in a foreign country. The General Partner has not determined whether
or not it will enter into leases for equipment located outside of the United
States. It's consideration of a policy in this regard is very preliminary.
If the Partnership were to enter into leases of Equipment located in foreign
countries, it would do so only after careful consideration of such factors as
concentration of leases outside of the United States, the financial strength
of prospective lessees, whether or not the General Partner has previous
satisfactory business relationships with the prospective lessee, the laws of
such foreign country and the stability of business and government structures
in the particular foreign country.
The leases the Partnership will generally acquire or enter into will be
leases with terms between 36 and 60 months, with noncancellable rental payments
due during the initial term of the lease sufficient to recover the Purchase
Price of the subject Equipment ("Full Payout Leases"). Generally, the Equipment
purchased for lease will be leased pursuant to or subject to leases which are
Full Payout Leases. The General Partner expects the Full Payout Leases to
produce Gross Rental Payments sufficient to recover any overhead and financing
costs associated with the acquisition of Equipment and to provide the
Partnership with a return on its investment.
The return to the Partnership under a given lease will depend upon several
factors, such as the amount of the rental and other payments required to be made
by the lessee under the lease, the expenses required to be borne by the lessee
under the lease and the value of the leased Equipment (for re-lease or sale) at
the expiration of the lease term.
The General Partner anticipates that its leases generally will provide that
the lessee will: (i) pay rent and other payments without deduction or offset of
any kind, (ii) bear the risk of loss of the leased Equipment, (iii) pay sales,
property, use or similar taxes relating to the lease or use of the Equipment,
(iv) indemnify the Partnership against any liability resulting from any act or
omission of the lessee or its agents, (v) maintain the Equipment in good working
condition during the term of the lease, and (vi) not assign or sublease the
Equipment without the prior written consent of the General Partner.
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Most leases will grant to the lessee an option to purchase the leased
equipment at the end of the term at fair market value.
The General Partner anticipates that the Partnership's leases will
generally require lessees to maintain (i) casualty insurance in an amount equal
to the market value of the leased Equipment or a specified amount set forth in
the lease (which at times may be less than the market value of the Equipment),
and (ii) liability insurance (naming the Partnership as an additional insured)
in an amount consistent with industry standards.
Following the expiration of a lease entered into by the Partnership, the
Partnership may modify, extend or renew the lease with the existing lessee,
lease the Equipment to a new lessee, or sell the Equipment.
The terms and conditions of each lease will be determined by negotiation
and may impose substantial obligations upon the Partnership. Although the
Partnership will normally require the lessee to install the Equipment,
installation expenses will generally be included in the cost of Equipment.
Furthermore, the obligation to install Equipment may in some cases be assumed by
the Partnership. In such cases, the Partnership will enter into separate
agreements with manufacturers or independent organizations to provide
installation services, and the cost of installation will be considered by the
Partnership when determining the lease rate. All leases will require lessees to
maintain the Equipment.
2. LEASE AND LESSEE REVIEW PROCEDURES. The General Partner has
established standards and procedures for the review of potential lessees.
Following a thorough review, a credit decision will be made by the General
Partner. If the decision is positive, the General Partner will prepare lease
documents to be forwarded to the applicant. The Partnership will generally make
direct payment for the leased Equipment to the manufacturer or vendor. The
Partnership may obtain personal guarantees or other forms of credit
enhancements.
3. PORTFOLIO ACQUISITIONS. Although it is unlikely, the Partnership may
acquire existing lease portfolios for investment. Before acquiring a lease
portfolio the General Partner will conduct a thorough financial and documentary
review.
The General Partner may require personal and/or corporate guarantees from
the vendor of the portfolio. Occasionally, as additional collateral, the
General Partner may require that the leases and underlying Equipment be
purchased with full recourse to the vendor of the lease portfolio. The General
Partner may also require credit enhancements which could include, among other
items, certificates of deposit, letters of credit, mortgages on real estate or
liens on other property.
FINANCING
The Partnership expects to incur debt to finance the purchase of a
substantial portion of its Equipment, and, in so doing, expects to be able to
acquire Equipment having values substantially in excess of the Limited Partners'
investment. Such leveraging will permit the Partnership to increase the
aggregate amount of its depreciable assets, and, as a result, should increase
both its lease revenues and its federal income tax deductions above what they
would be without such leveraging. However, such tax deductions may be subject
to "at risk" and other limitations described under "Tax Consequences."
The General Partner presently anticipates that aggregate borrowings of
the Partnership will be approximately 40.0% of the Gross Proceeds of the
Offering. The aggregate amount of the Partnership's outstanding debt will not
exceed, at any time, 40.0% of the Gross Proceeds of the Offering. If 40.0%
of Gross Proceeds is borrowed, borrowings will equal approximately 49.1% of
Net Proceeds. This amount of borrowings will enhance the Partnership's
ability to make Operating
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Distributions, provided that (i) the funds can be borrowed on reasonable
terms, and (ii) equipment can be leased on terms sufficiently favorable to
permit a reasonable profit to be made after servicing the debt. However, this
amount of borrowing may negatively impact the Partnership's ability to make
Operating Distributions if lessees default on leases and the Partnership is
unable to re-lease the Equipment in a timely manner on favorable terms. See
"There May Be Insufficient Revenue to Meet Debt Service When Leverage is
Used" under "Risk Factors."
Although there is no limit on the amount of debt that may be incurred in
connection with the acquisition of any single item of Equipment the Partnership
intends to limit the amount of such debt to the extent necessary to maintain its
status as owner of such Equipment for federal income tax purposes. The amount
borrowed by the Partnership will depend in part upon the type of lease, the
lease term, the type of Equipment, the credit of the lessee, the availability of
financing, prevailing interest rates, and acquisition costs incurred by the
Partnership. The Partnership intends to be flexible in the degree of leverage
it employs and anticipates that it will employ less leverage at times when
prevailing interest rates are relatively high and more leverage at times when
prevailing interest rates are relatively low. To the extent that such a
strategy is successful, it would serve to maximize the return to the Partners.
There can be no assurance that credit will at all times be available to the
Partnership in the amount desired or on terms considered reasonable by the
General Partner.
The Partnership may purchase Equipment without incurring any debt. If
the Partnership purchases an item of Equipment without leverage and
thereafter suitable financing becomes available, it may finance such
Equipment at any time. The Partnership intends to take such action to the
extent practicable and, through the fifth anniversary of the Partnership's
Closing Date, to invest up to 100.0% of the proceeds from such financings in
additional items of Equipment.
To the extent practicable, the Partnership will borrow funds at interest
rates fixed at the time of borrowing. However, the Partnership is likely to
borrow substantial funds at rates which vary with the "prime" or "base" rate,
particularly when borrowing on an interim basis or when interest rates are
trending downward. Since base rentals under most leases will be fixed during
the terms of such leases, a rise in the "prime" or "base" rate would increase
borrowing costs and reduce the amount of the Partnership's income and cash
available for distribution.
The General Partner anticipates that the interest rates on any loans keyed
to the "prime" or "base" rate will range from one-half of 1.0% to 3.0% over the
"prime" or "base" rate, depending on a number of factors, including the
creditworthiness of the lessee, whether the debt is recourse or non-recourse,
the terms of the lease and the amount borrowed as a percentage of the Purchase
Price of the subject Equipment.
The General Partner anticipates that borrowings by the Partnership will
generally be secured by the grant of a security interest in Equipment and in
rental income.
Financing for the Partnership will generally be obtained on a recourse
basis. Recourse debt means, in the context of the business to be conducted by
the Partnership, that the lender can look to the general credit and all of the
assets of the Partnership (including all Equipment to the extent not subject to
a prior encumbrance) and the assets of the General Partner, but may not look for
repayment to any Limited Partner's assets other than his interest in the
Partnership. To the extent recourse debt is incurred, no increase in the
Limited Partners' tax basis would be achieved, because liability for recourse
debt is attributable only to the General Partner.
Although the exact terms and conditions of Partnership borrowings cannot be
predicted, the General Partner anticipates that the due date of such loan would
be accelerated upon default by the lessee with respect to the lease securing a
lease-specific loan obligation or upon default by the Partnership with respect
to the related indebtedness. In the event of acceleration, the lender would be
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in a position to foreclose upon the Equipment securing the loan unless the
Partnership repaid the entire unpaid balance, which the Partnership is unlikely
to be able to do unless it could promptly (i) cure the lease default with other
revenues or reserve funds, (ii) obtain possession of and re-lease the related
Equipment and refinance the accelerated obligation, or (iii) obtain interim
financing until such re-lease and refinancing could be arranged. Foreclosure by
a lender or premature sale of Equipment may result in financial loss to the
Partnership and adverse tax consequences to its Limited Partners, including
recapture of all depreciation deductions previously claimed. If any portion of
Partnership debt is cross-collateralized, the lender may, in the event of
default, be in a position to accelerate the debt secured by all the
cross-collateralized Equipment. See "There May Be Insufficient Revenue to Meet
Debt Service When Leverage is Used" and "Default by Lessee May Affect
Partnership's Loans" under "Risk Factors" for a discussion of this and other
risks of Partnership borrowings.
Loan agreements may require that the Partnership maintain certain reserves
or compensating balances and may impose other obligations upon the Partnership.
Moreover, because a significant proportion of the Partnership's revenues from
the leasing and sale of Equipment will be reserved for repayment of debt, the
use of financing may reduce the cash otherwise available for Partnership
distributions until the debt has been repaid, and may reduce total cash flow
over a substantial portion of the Partnership's operating life.
To obtain funds for working capital purposes, the Partnership may establish
a line of credit with a bank or other lender or borrow on a temporary basis from
the General Partner or its Affiliates.
Although not required to do so, the General Partner and any of its
Affiliates may make loans to the Partnership on a short-term basis in order to
facilitate Equipment acquisitions. If the General Partner or one of its
Affiliates borrows money for the specific purpose of making a short-term loan to
the Partnership, the General Partner or the Affiliate may not charge interest to
the Partnership in excess of its own interest cost on such borrowing. If the
General Partner or an Affiliate makes a short-term loan to the Partnership
without making a specific borrowing for the purpose, the General Partner or the
Affiliate may not charge interest at a rate greater than the interest rate
charged by unrelated lenders on a comparable loan for the same purpose in the
same geographic area, without reference to the General Partner's or any
Affiliate's financial abilities or guarantees. In no event will the Partnership
be required to pay interest on any such loan at an annual rate more than 3.0%
over the base rate on corporate loans posted by at least 75% of the nation's 30
largest banks, published as the prime rate in the Wall Street Journal.
All payments of principal and interest on any financing provided by the
General Partner or any of its Affiliates shall be due and payable within 12
months after the date of the loan.
Neither the General Partner nor any Affiliate may receive points or other
financial charges or fees in any amount in respect of any loans to the
Partnership, although the General Partner's compensation (specifically,
Acquisition Fees and Management Fee) may be increased as an indirect result of
such loans being used to acquire additional Equipment.
If the General Partner or any of its Affiliates purchases Equipment in its
own name and with its own funds in order to facilitate ultimate purchase by the
Partnership, the purchaser will be entitled to receive interest on the funds
expended for such purpose on behalf of the Partnership. Interest on any such
temporary purchases will not be in excess of the interest rates charged (without
reference to the General Partner's or such Affiliate's financial abilities or
guarantees) by unrelated lenders on a comparable loan for the same purpose in
the same geographic area and will not exceed the General Partner's or Affiliates
cost of funds.
Any borrowings from the General Partner or its Affiliates incurred for
Partnership organization and offering expenses will be non-interest bearing and
will be repaid out of offering proceeds (but not
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in excess of amounts permitted as described in this Prospectus) if the
Partnership's minimum offering of Units is successfully completed.
The Partnership may at any time borrow funds to acquire Equipment or to
repair, recondition or reconfigure the Equipment, if the General Partner, in its
sole discretion, deems such repair, reconditioning or reconfiguration necessary
or desirable to enable the Partnership to re-lease or sell such Equipment. The
General Partner and its Affiliates are prohibited from borrowing from the
Partnership.
WORKING CAPITAL RESERVES
The General Partner anticipates that the Partnership will establish and
maintain minimum working capital reserves for the Partnership in the amount of
1.0% of Gross Proceeds, or at a higher level if the General Partner deems
appropriate. Such working capital reserves will be augmented from revenues
derived from Partnership operations. Funds allocated to such reserves will be
available for operating and maintenance expenses, capital expenditures, repairs,
replacements, contingencies, lessee defaults and other costs and expenditures
relating to Equipment.
SALES OF LEASE RECEIVABLES AND RESIDUAL VALUES
From time to time, the General Partner may receive offers from persons
desiring to purchase the future rental income under certain of the leases in the
Partnership's Lease Portfolio ("lease receivables"). If the General Partner
decides to accept such an offer on behalf of the Partnership, the Partnership
will sell the lease receivables to unaffiliated third parties that may include
institutional investors. The sale price of the lease receivable will be
determined on the basis of the aggregate present value of all rent payments to
become due under the subject leases discounted at a discount rate as negotiated
by the parties. The proceeds from such sales will generally be reinvested in
Equipment if the transaction occurs during the Operating Phase, but the General
Partner may decide, in its sole discretion, to distribute all or a portion of
such proceeds to the Limited Partners as Liquidating Distributions; provided,
however, that in such case sufficient cash will be distributed to the Limited
Partners to pay state and federal income tax, if any, created by such sale.
The General Partner may also sell the residual values of the Equipment or a
portion thereof to unaffiliated third parties. The General Partner will
determine the residual values of the Equipment, which will be discounted to its
present value at the time of sale. The entire sales proceeds (less the expenses
incurred by the General Partner relating to such sale) will be invested in
additional Equipment or the General Partner may decide, in its sole discretion,
to distribute all or a portion of such sales proceeds to the Limited Partners as
Liquidating Distributions; provided, however, that sufficient cash will be
distributed to the Limited Partners to pay state and federal income tax, if any,
created by such sale.
SALE OF EQUIPMENT
The General Partner will have the authority to sell, exchange or otherwise
dispose of Equipment on behalf of the Partnership. In considering whether to
hold or sell particular Equipment, the General Partner will evaluate, among
other things (i) the current and potential Partnership earnings from the
Equipment, (ii) conditions in the market for lease and sale of the Equipment and
the future outlook for such market, and (iii) the tax consequences of selling
rather than continuing to lease the Equipment. See "Reduced Revenues May Result
From Possible Lack of Demand for Equipment" under "Risk Factors" and
"Telecommunications Equipment Residual Values" above.
In general, the General Partner anticipates that the Partnership will hold
Equipment for approximately three and one-half to five years from the date of
acquisition. However, unforeseen circumstances might cause the General Partner
to elect to sell certain Equipment at an earlier or later
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time. Subject to prevailing market conditions and other factors, the General
Partner will have complete discretion in determining the time, terms and
conditions of the sale of Equipment by the Partnership in the ordinary course
of business, including in connection with the Partnership's liquidation. See
"Competition with the General Partner and Affiliates" and " Transactions with
the Partnership" under "Conflicts of Interest." Payment of resale fees on
liquidation of Equipment is prohibited.
If any income results from the sale of Equipment, the General Partner will
make a diligent effort to generate cash for distribution so that Limited
Partners are able to pay state and federal income tax on their share of income
resulting from such sale (assuming a combined federal and state income tax rate
for Limited Partners of 40.0% in 1997 and the years thereafter).
The General Partner anticipates that most sales of Equipment will be for
cash, although it may determine that it is in the best interests of the
Partnership to make an installment sale or to provide other purchase-money
financing. The terms of such purchase-money financing will require payment in
full in no more than twelve months. The proceeds of any sale or other
disposition of Equipment (including any disposition resulting from the total or
partial destruction of Equipment) will first be used or set aside by the General
Partner to pay all expenses related to the disposition, including leasing
commissions. The remaining proceeds may be used or set aside for such other
Partnership purposes as the General Partner deems appropriate. The Partnership
may invest available Partnership cash in additional Equipment at any time during
the Partnership's Operating Phase (up to five years from the Closing Date).
Partnership receipts from operations will be distributed as described under
"Cash Distributions and Redemptions."
DEMAND FOR EQUIPMENT
The economic return from an investment in the Partnership will depend in
large part upon the future demand for Equipment acquired by the Partnership.
This future demand will affect the future lease rates for Equipment, the
availability of financing and the prices at which the Partnership will
ultimately be able to sell Equipment.
The demand for Equipment in general, and used Equipment in particular, may
be affected by a number of factors, including such factors as general business
conditions, conditions in the credit markets, market conditions which may reduce
or increase the supply of new Equipment, technological developments,
improvements by manufacturers, and legislative and regulatory changes affecting
the costs and benefits of owning or operating Equipment.
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EQUIPMENT ACQUISITIONS
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Before and during the offering of the Units, the General Partner, on behalf
of the Partnership, may acquire and lease Equipment or enter into agreements to
acquire and lease Equipment.
After the Initial Admission Date, the General Partner will transfer to the
Partnership such acquired Equipment, if any, and all of its rights and
obligations under all leases concerning such acquired Equipment. The
consideration for such transfer shall be the payment by the Partnership to the
General Partner of an amount equal to the General Partner's cost of the
Equipment, which shall include the reasonable, necessary and actual expenses
incurred by the General Partner, as determined in accordance with generally
accepted accounting principles, in holding title to equipment on a
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temporary or interim basis. The General Partner will receive and hold for
the benefit of the Partnership all lease payments made on Equipment leases
during the period from the acquisition of the acquired Equipment until its
transfer to the Partnership. Any lease payments made to the General Partner
during the holding period on such acquired Equipment ultimately transferred
to the Partnership will be offset by the General Partner's cost plus carrying
charges, and then remitted to the Partnership. Equipment acquired by the
General Partner for transfer to the Partnership will generally not be held by
the General Partner for more than six months.
For convenience in the acquisition of Equipment, during the offering of the
Units and during the organization phase the General Partner may continue to
acquire and lease Equipment for the benefit of the Partnership. Such Equipment
will be transferred to the Partnership on the same terms as set forth in the
preceding paragraph.
The Partnership shall not acquire equipment from a limited or general
partnership, joint venture, unincorporated association or similar organization
in which the General Partner has an interest, other than the General Partner.
The Partnership may not acquire Equipment in exchange for Units.
See "Investment Objectives and Policies," "Conflicts of Interest" and
"Fiduciary Responsibility of the General Partner" for a discussion of some
concerns relating to the Partnership's purchase of Equipment.
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SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
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The rights and obligations of the Partners in the Partnership will be
governed by a limited partnership agreement ("Partnership Agreement") in the
form attached to this Prospectus as Exhibit A.
Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to compensation to be paid to the
General Partner, see "Compensation of the General Partner and Affiliates;" with
regard to various transactions and relationships between the Partnership and the
General Partner, see "Conflicts of Interest;" with regard to the management of
the Partnership, see "Management;" with regard to reports to be furnished to
Limited Partners, see "Reports to Limited Partners;" and with regard to
distributions of cash to the Partners and the rules governing redemption of
Units by the Partnership, see "Cash Distributions and Redemptions."
The Limited Partners do not have a right to receive appraisal or
dissenters' rights.
The following briefly summarizes all material provisions of the Partnership
Agreement which are not referred to below as being described elsewhere in this
Prospectus. All statements made below and elsewhere in this Prospectus relating
to the Partnership Agreement do not purport to be complete and are qualified in
their entirety by reference to the form of Partnership Agreement attached to
this Prospectus as Exhibit A.
PARTNERSHIP CAPITAL
Capital Contributions by Partners to the Partnership will consist of: (i)
the $10,000 contributed by the General Partner, which will be treated as if the
General Partner had purchased 10 Units; and (ii) the sums to be contributed by
the Limited Partners for their Units in the Partnership ($1,000 per Unit).
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Except for interest earned on a Limited Partner's subscription monies held in
escrow which will be paid to the Limited Partner at the time of the first
distribution to the Limited Partner), no Limited Partner will be entitled to
interest on his Capital Contribution or on his Capital Account. Except as
described under "Temporary Investments; Return of Uninvested Net Proceeds"
under "Investment Objectives and Policies" and "Cash Distributions and
Redemptions," no Limited Partner will have the right to withdraw or to
receive any return of his Capital Contribution, and no Limited Partner is
entitled to receive property other than cash in return for a Capital
Contribution. The price of $1,000 per Unit was arbitrarily set by the
General Partner.
PARTNERSHIP ALLOCATIONS
1. GENERAL. Payments of Operating Distributions and allocations of Net
Income and Net Loss will be governed by the provisions of Articles XI and XII of
the Partnership Agreement. These provisions are complex and should be reviewed
with care by prospective investors. See "Cash Distributions and Redemptions."
2. ALLOCATION OF NET LOSS AND NET INCOME. Any Partnership Net Loss at
the end of a taxable year will be allocated to the Partners to the extent of
their positive Capital Accounts. Any additional Partnership Net Loss will be
allocated to the General Partner. Any Partnership Net Income will first be
allocated to Partners with negative Capital Accounts in proportion to, and to
the extent of, such negative Capital Accounts. Except as provided below, any
Partnership Net Income will then be allocated to the Partners. During the
Liquidating Phase of the Partnership, Net Income earned that results in
Partnership assets to be distributed 80.0% to the Limited Partners and 20.0% to
the General Partner will be allocated 80.0% to the Limited Partners and 20.0% to
the General Partner.
Net Income or Net Loss allocated to the Limited Partners (and to the
General Partner to the extent of its $10,000 contribution (10 Units)) will be
apportioned among them based on the number of Units held and on the number of
days within the fiscal year that they were Limited Partners.
VOTING RIGHTS OF LIMITED PARTNERS
The Limited Partners will not be able to participate in the management or
control of the Partnership. However, Limited Partners holding a majority of the
outstanding Units of the Partnership, without the necessity of concurrence by
the General Partner, may vote to (i) amend the Partnership Agreement,
(ii) remove the General Partner and elect a successor, (iii) dissolve the
Partnership, and (iv) approve or disapprove any proposal by the General Partner
to sell all or substantially all of the assets of the Partnership outside the
ordinary course of the Partnership's business. A sale of substantially all of
the Partnership's assets will be considered to be a sale of "all or
substantially all of the assets of the Partnership outside the ordinary course
of the Partnership's business" if the Equipment being sold is being sold other
than as part of the orderly liquidation and winding up of the Partnership, but
this definition does not include a sale of lease receivables or residual values
unless the sale at issue constitutes all or substantially all of the
Partnership's assets.
Any amendment to the Partnership Agreement that modifies the compensation
or distributions to which the General Partner is entitled, or which increases
the duties of the General Partner, requires the consent of the General Partner.
In addition, no amendment may be made to the Partnership Agreement which alters
the rights of a Terminated Partner to receive fees and payments, or adversely
affects the status of the Partnership as a partnership for federal tax purposes.
Without the concurrence of Partners holding a majority of the outstanding
Units, the General Partner may not (i) amend the Partnership Agreement, except
for those amendments that do not affect the rights of the Limited Partners, (ii)
withdraw as General Partner, (iii) appoint a new general partner,
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(iv) sell all or substantially all of the assets of the Partnership outside
the ordinary course of the Partnership's business, (v) dissolve the
Partnership other than in accordance with the provisions of the Partnership
Agreement, or (vi) transfer the General Partner's interest in the Partnership
except as provided in the Partnership Agreement.
The Partnership Agreement provides that Limited Partners owning 10.0% of
the Units may call a meeting to propose a vote on matters on which the Limited
Partners may vote. A majority of the votes entitled to be cast will be required
to pass any such proposal.
Limited Partners and their designated representatives will be permitted
access to all records of the Partners at the principal place of business of the
Partnership upon reasonable notice and during reasonable business hours, and
will have the right to make copies thereof at their own expense. Upon written
request, without restriction, a Limited Partner may, in person or by mail,
obtain a list of the names and addresses of all of the Limited Partners of the
Partnership for any purpose.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be liable for all general obligations of the
Partnership to the extent not paid by the Partnership. However, the General
Partner may provide in any Partnership contract that the General Partner will
have no individual liability for Partnership obligations (i.e., that such
obligations are to be "non-recourse" obligations).
The Partnership Agreement provides that, except as provided by law, no
Limited Partner will be personally liable for the obligations of the Partnership
beyond the amount committed by such Limited Partner to the capital of the
Partnership. However, there is a risk that the Limited Partners may become
personally liable for certain Partnership obligations if they act so as to take
part in the control of the Partnership business. Moreover, if the Partnership
is unable to meet its obligations, the Limited Partners might be obligated to
return, with interest, certain cash distributions previously received by them.
See "Limited Partners May Have an Obligation to Repay Certain Distributions"
under "Risk Factors."
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner or its
Affiliates performing services on behalf of the Partnership will not be liable
to the Partnership or the Limited Partners for any act performed or omitted to
be performed by them in connection with the activities of the Partnership or in
dealing with third parties on behalf of the Partnership if the General Partner,
in good faith, determined that such course of conduct was in the best interest
of the Partnership, and such act or omission does not constitute fraud,
negligence, breach of fiduciary duty or misconduct. The Partnership Agreement
provides that the General Partner, or its Affiliates performing services on
behalf of the Partnership will be indemnified by the Partnership for any
liabilities incurred by them arising from acts performed or omitted to be
performed by them that were determined in good faith by the General Partner to
have been in the best interest of the Partnership in connection with the
activities of the Partnership or in dealing with third parties on behalf of the
Partnership. The indemnification shall include attorneys' fees (which may be
paid as incurred subject to certain restrictions) and any amounts expended in
the investigation or settlement of any claims, except for claims with respect to
acts or omissions which constitute fraud, negligence, breach of fiduciary duty
or misconduct.
The General Partner or any of its Affiliates and any person acting as a
broker-dealer who performs services on behalf of the Partnership, or in
connection with its business, will not be indemnified against any liability,
loss or damage incurred by them in connection with any claim or settlement
alleging federal or state securities law violations, unless such lawsuits
alleging such claims are successfully defended and a court approves
indemnification of litigation costs, or unless such
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lawsuits are dismissed with prejudice on the merits, or unless such lawsuits
are settled and a court approves the settlement and the indemnification. The
General Partner will apprise the court of the positions of the SEC and State
Administrators with respect to indemnification before seeking court approval
for indemnification, whether such claims are litigated, dismissed or settled.
Advances of attorneys' fees and costs will not be permitted for
indemnification suits unless the action relates to the performance of duties or
services by the General Partner or its Affiliates on behalf of the Partnership,
or in connection with the Partnership's business, the claim against which
indemnification is sought is not made by a Limited Partner and the indemnified
party undertakes to repay within 90 days the advanced funds to the Partnership
in cases in which they would not be entitled to indemnification. Advances of
attorneys' fees will not be permitted for an indemnification suit unless, prior
to receiving such advances, the General Partner obtains an opinion of
independent legal counsel that indemnification will be appropriate. If it is
later determined that indemnification was not appropriate, the General Partner
must repay any advances received by it, with interest.
The Partnership Agreement provides that the Partnership will not incur the
cost of that portion of any insurance which insures any party against any
liability, the indemnification of which is prohibited by the Partnership
Agreement.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
Article XVII of the Partnership Agreement grants Limited Partners the right
to remove the General Partner and elect a successor General Partner, provided
the successor General Partner is admitted to the Partnership effective
immediately prior to the effective date of the removal of the General Partner.
Such action may be taken without concurrence by the General Partner as long as
approval is obtained from Limited Partners owning a majority of the outstanding
Units. Also, Limited Partners owning a majority of the outstanding Units may
admit a successor general partner upon the resignation or withdrawal of the
General Partner.
DISSOLUTION AND LIQUIDATION
The Partnership will be dissolved on December 31, 2012, or earlier upon the
occurrence of any of the following events: (i) the vote by Limited Partners
holding a majority of the Units then outstanding in favor of any proposal to
dissolve the Partnership in accordance with the Partnership Agreement; (ii) the
withdrawal, bankruptcy, or dissolution and liquidation or other cessation to
exist as a legal entity of the General Partner (unless any successor General
Partner elected in accordance with the provisions of the Partnership Agreement
elects to continue the business of the Partnership); (iii) the final
distribution of all Liquidating Distributions among the Limited Partners
pursuant to the Partnership Agreement; or (iv) the other sale or disposition of
all or substantially all of the assets of the Partnership without the subsequent
use of disposition proceeds for Investment in Program Assets.
Upon the dissolution of the Partnership, the General Partner will liquidate
the Partnership's assets and distribute the proceeds thereof in accordance with
the provisions of the Partnership Agreement.
AMENDMENT
Subject to the voting rights granted to the Limited Partners in paragraph
17.2 of the Partnership Agreement, and the restrictions on the General Partner's
voting rights in Paragraph 16.3.20 of the Partnership Agreement, the General
Partner may amend the Partnership Agreement without the consent or vote of any
of the Limited Partners (i) to reflect the addition or substitution of Limited
Partners or the reduction of the Capital Accounts upon the return of capital to
Partners, (ii) to add to the
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representations, duties or obligations of the General Partner or its
Affiliates, or surrender any right or power granted to the General Partner or
its Affiliates therein, for the benefit of the Limited Partners, (iii) to
cure any ambiguity, correct or supplement any provision therein, or add any
other provisions with respect to matters or questions arising under the
Partnership Agreement which will not be inconsistent with the provisions of
the Partnership Agreement, (iv) to delete or add any provision from or to the
Partnership Agreement requested to be so deleted or added by the staff of the
SEC or by a state regulatory agency, the deletion or addition of which
provision is deemed by such staff or regulatory agency to be for the benefit
or protection of the Limited Partners, (v) to modify any provision of the
Partnership Agreement, if, in the opinion of counsel to the Partnership and
the General Partner, such modification is necessary to cause the allocations
contained in Article XII of the Partnership Agreement to have "substantial
economic effect" in accordance with any regulations relating to Section 704
of the Code or any other statutory provision or regulation relating to such
allocations, and (vi) to modify any provision of the Partnership Agreement,
if, in the opinion of counsel to the Partnership and General Partner, such
modification is necessary to cause the Partnership not to be characterized as
a "publicly traded" partnership for federal income tax purposes. The General
Partner may not under Paragraph 16.1.12 of the Partnership Agreement amend
the Partnership Agreement to modify voting rights of the Limited Partners.
APPOINTMENT OF THE GENERAL PARTNER AS ATTORNEY-IN-FACT
Each purchaser of Units will irrevocably constitute and appoint the General
Partner his true and lawful attorney-in-fact, with power and authority to act in
his name and on his behalf to execute, acknowledge and file such instruments as
the General Partner determines to be necessary or appropriate to implement the
provisions of the Partnership Agreement.
PRINCIPAL OFFICE OF THE PARTNERSHIP
The principal business office of the Partnership is located at 100 Second
Street, SE, Cedar Rapids, Iowa 52401, (319) 365-2506, unless changed by the
General Partner. The business of the Partnership also may be conducted at such
additional places as the General Partner may determine.
APPLICABLE LAW
The Partnership Agreement will be construed and enforced in accordance with
the laws of the State of Iowa.
TRANSFERABILITY OF UNITS
Limited Partners will have the right to assign one or more Units by a duly
executed written instrument of assignment in a form satisfactory to the General
Partner in accordance with the provisions of the Partnership Agreement. See, in
particular, Article XIII of the Partnership Agreement.
As a result of adverse tax consequences that would result if the
Partnership were characterized as "publicly traded" (see "Tax Consequences"),
the General Partner will not allow transfers of Units if, in the opinion of
Counsel to the Partnership, such transfer would result in the Partnership being
characterized as a "publicly traded" partnership for federal income tax
purposes.
In addition, the General Partner will not allow transfers of Units if, in
the opinion of Counsel to the Partnership, such transfer would result in the
assets of the Partnership being considered by law to be assets of employee
benefit plans investing in Units and therefore subjecting those assets to the
fiduciary standards of ERISA. Further, as a general rule, the General Partner
will not permit transfers except in infrequent and compelling situations as
determined in its sole and absolute discretion, and
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only if following such transfer at least 75.0% of the outstanding Units are
held by persons who are not either Employee Benefit Plans or IRAs.
In those circumstances where the General Partner allows a transfer, an
Assignee will be entitled to receive distributions from the Partnership
attributable to the Units acquired by reason of an assignment from and after the
effective date of the assignment of such Units to him. Moreover, the
Partnership and the General Partner will be entitled to treat the assignor of
such Units as the absolute owner thereof in all respects and will incur no
liability for allocations of income, loss or distributions, or transmittal of
reports and notices required to be given to Limited Partners or their assignees
hereunder, which are made in good faith to such assignor, until such time as the
written instrument of assignment has been received by the Partnership and the
effective date of the assignment of Units has passed. Unless the General
Partner, the assignor and the Assignee otherwise agree, the effective date of an
assignment of Units will be the later of the first day of the month next
succeeding the date on which the Partnership obtains the instrument of
assignment that complies with the requirements of the Partnership Agreement,
provided the other conditions to such assignment becoming effective are
satisfied.
Any assignment of Units must be in compliance with all applicable rules of
governmental authorities, including the registration and suitability provisions
of applicable state securities laws. Any assignment of Units in contravention
of any of the provisions of the Partnership Agreement will be void and
ineffectual and will not bind or be recognized by the Partnership.
An Assignee of Units may become a Substitute Limited Partner in the place
of the assignor upon compliance with the requirements of Article XIV of the
Partnership Agreement. Any Substitute Limited Partner must agree to be bound by
the provisions of the Partnership Agreement. The General Partner will cause the
Partnership Agreement to be amended to reflect the substitution of Limited
Partners at least once each calendar quarter.
All costs and expenses incurred by the Partnership in connection with an
assignment of Units, including a transfer fee to the General Partner, are
required to be paid by the assigning Limited Partner provided that such transfer
fee will not exceed the lesser of $150 or the actual, necessary and reasonable
expenses of such transfer.
The General Partner may buy and sell Units in the Partnership for its own
account, provided that any Units purchased by the General Partner will not be
purchased with a view toward resale and will not be counted in determining
whether the Partnership has raised the minimum Gross Proceeds of $1,200,000.
There is no maximum number of Units the General Partner may purchase. Except
as provided in Paragraph 18.5 of the Partnership Agreement, which limits the
voting rights of the General Partner as to Units owned by the General
Partner, the General Partner will, with respect to any Units owned by it,
enjoy all of the rights and be subject to all of the obligations and duties
of a Limited Partner. See "Cash Distributions and Redemptions -- Redemption
of Units." Neither the General Partner nor the Partnership may be required
to purchase or redeem Units.
ROLL-UP PROTECTION
The Partnership (and the General Partner) has no intent to engage in any
transaction involving the acquisition, merger, conversion into a corporation or
other form of business organization or consolidation, either directly or
indirectly, of the Partnership with any other entity ("Roll-Up"). The
Partnership Agreement sets forth certain restrictions in regard to a Roll-Up.
Initially, the Partnership Agreement requires that an appraisal of all
Partnership assets shall be obtained from an Independent Expert in connection
with a proposed Roll-Up. Additionally, the Partnership Agreement provides
certain rights to Limited Partners who vote "no" in connection with a proposed
Roll-Up that provides such
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Limited Partners the choice of: (i) accepting the securities of the Roll-Up
Entity offered in the proposed Roll-Up; or (ii) one of the following: (a)
remaining as Limited Partners in the Partnership and preserving their
interests therein on the same terms and conditions as existed previously (If
a significant number of Limited Partners elect to accept the securities of
the Roll-Up Entity, the effect on investors who elect to remain as Limited
Partners may be a substantial dilution of their claim to assets and their
voting rights.); or (b) receiving cash in an amount equal to such Limited
Partners' pro-rata share of the appraised value of the net assets of the
Partnership. The Partnership Agreement also restricts the ability of the
Partnership to engage in a Roll-Up that would adversely affect the democracy
rights and voting rights of the Limited Partners or that would materially
frustrate the accumulation of shares by any purchaser of the securities of a
Roll-Up Entity. The Partnership Agreement also restricts the ability of the
Partnership to participate in a proposed Roll-Up in which the Limited
Partners' rights of access to records would be less than currently provided
under the Partnership Agreement, or that would require the Partnership to
bear the costs of a proposed Roll-Up that is not approved by the Limited
Partners.
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CASH DISTRIBUTIONS AND REDEMPTIONS
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CASH DISTRIBUTIONS
1. ALLOCATION OF DISTRIBUTIONS, PROFITS AND LOSSES. A Partner's share
of profits, losses and Operating Distributions to Partners (distributions of
up to 9.6% annually made during the Operating Phase) will be based upon the
amount of each Partner's Adjusted Capital Contribution (a Partner's Capital
Contribution, reduced by all payments to the Partner that qualify as a
Liquidating Distribution or return of capital) and each Limited Partner's
Admission Date (the date a Limited Partner is admitted to the Partnership).
Separate Capital Accounts (accounts for record and income tax purposes) will
be kept for each Partner. Accordingly, Limited Partners who invest the same
amount in the Partnership but make such investments on different dates will
be allocated different shares of Partnership profits and losses and receive
different amounts of cash distributions.
2. OPERATING DISTRIBUTIONS. To the extent there is Cash Flow (generally,
cash provided from operations less cash used to pay expenses and debt payments,
to establish reserves or to pay for capital improvements and replacements), the
Partnership intends to make Operating Distributions during the Operating Phase
(the period beginning with the date the Partnership's registration statement is
effective with the SEC and ending with the date the Partnership commences
liquidation). Operating Distributions will be made monthly during the Operating
Phase and, to the extent made, will be in the following order of priority:
a. GENERAL PARTNER'S EXPENSE REIMBURSEMENT. The General Partner
shall be reimbursed on a monthly basis for the administrative services it
provides to the Partnership. The expenses reimbursed shall be the lesser
of the General Partner's cost or the amount the Partnership would be
required to pay for comparable administrative services provided in the same
geographic area by persons who are not Affiliates of the General Partner.
The expenses reimbursement shall include, but not be limited to, salaries
paid to employees of the General Partner working on Partnership business,
record keeping, mailings to Limited Partners and an allocable portion of
computer time and expense, telephone and supplies. Reimbursement for costs
of goods and materials will be only for goods and materials obtained from
independent
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third parties. The reimbursement will be for expenses which are
necessary for the prudent operation of the Partnership. There is no
dollar limitation on the amount of expenses that may be reimbursed to the
General Partner. There will be no reimbursement for time expended by
Controlling Persons of the General Partner or its Affiliates. The costs
reimbursed to the General Partner and its Affiliates will be the subject
of a "Special Report" prepared by independent certified public
accountants;
b. OPERATING DISTRIBUTION. To the extent there is additional Cash
Flow, Partners will receive Operating Distributions to Partners during the
Operating Phase only. Such distributions will be up to 9.6% annually
(payable in monthly distributions of up to .8% to each Partner), calculated
on the Partner's Adjusted Capital Contribution (a Partner's Capital
Contribution, reduced by all payments to the Partner that qualify as a
Liquidating Distribution or return of capital); and
c. MANAGEMENT FEE. Of the Gross Rental Payments, loan payments and
other payments received by the Partnership each year on account of its
leasing and financing activities, 2.0% will be paid to the General Partner
as a Management Fee (the management fee paid to the General Partner, see
"Compensation of the General Partner and Affiliates"). The fee will be
payable on a monthly basis, subject to reduction in certain circumstances,
as described below. The fee will not be paid on a current basis (but will
accrue and accumulate) if the Partnership has not (i) made Operating
Distributions to the Limited Partners equal to 9.6% annually of their
Adjusted Capital Contributions for the portion of the year to the date of
the proposed payment, and (ii) paid the General Partner's expenses (amounts
paid to cover the General Partner's expenses, see "Cash Distributions and
Redemption") for the year.
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To the extent funds are not distributed to the Partners during the
Operating Phase, the Partnership will reinvest funds received by it in
additional Equipment for lease, which is expected to increase the Partnership's
portfolio of assets. Reinvestment of proceeds resulting from the sale or
refinancing of Equipment may take place only if sufficient cash will be
distributed to pay state and federal income tax (assuming Partners are in a
40.0% tax bracket) created by the sale or refinancing of such Equipment. There
can be no assurance, however, that Limited Partners will receive the return of
their full investment at the time all Equipment is sold and the Partnership is
terminated. See "Conflicts of Interest."
All Partnership Cash Available for Distribution not distributed as
Operating Distributions will be reinvested in Program Assets unless the General
Partner decides to make an earlier distribution of Partnership Cash Flow (which,
if made to Limited Partners, would then be treated as Liquidating Distributions
if such distribution were in excess of the 9.6% return discussed above).
Payment by the Partnership of commissions on any such distribution is
prohibited.
3. DISTRIBUTIONS ON LIQUIDATION AND WINDING UP. The Partnership will
cease reinvesting in Program Assets and will not enter into additional leases
during the Liquidating Phase. The Liquidating Phase shall begin at any time
after three and one-half years following the Closing Date (or earlier if the
General Partner determines it to be in the Partnership's best interest), but no
later than the fifth anniversary of the Closing Date of the offering. During
the Liquidating Phase, the Partnership will proceed with all due and deliberate
speed and care to wind up the Partnership's affairs and to convert all of the
Partnership's assets into cash. Operating Distributions will not be paid during
the Liquidating Phase.
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During the Liquidating Phase, amounts available to be distributed among the
Partners after satisfaction of all Partnership liabilities and obligations
and/or the provision of reserves for future or contingent Partnership
liabilities will be distributed in order of priority as follows (and, with
respect to items "Third" and "Sixth", will constitute "Liquidating
Distributions"):
First, payment of the General Partner's expense reimbursement;
Second, payment to the Partners, to the extent necessary to pay to the
Partners during the term of their investment in the Partnership, Operating
Distributions of 8.0% annually (on a cumulative, compounded daily basis) on
their Adjusted Capital Contributions. The computation of each Partner's
8.0% annual cumulative return is illustrated by the following example: On a
Partner's $2,500 investment, a $250 distribution in year one would result
in a $50 reduction in the Partner's Adjusted Capital Contribution, leaving
an Adjusted Capital Contribution of $2,450 upon which the 8.0% return would
be calculated in year two. The $50 reduction consists of $50 in
distributions in excess of that required to satisfy the 8.0% cumulative
return requirement. A $250 distribution in year two would result in a $54
reduction in the Partner's Adjusted Capital Contribution, leaving an
Adjusted Capital Contribution of $2,396 upon which the 8.0% return would be
calculated in year three;
Third, payment to the Partners of 100.0% of their Adjusted Capital
Contributions to the Partnership;
Fourth, payment to the Partners to the extent they have not received,
during the term of their investment in the Partnership, distributions
totaling 9.6% annually (calculated only through the end of the Operating
Phase), non-compounded, on their Adjusted Capital Contributions (as
calculated from time to time);
Fifth, payment to the General Partner of any unpaid arrearages in its
Management Fee subject to reduction in certain circumstances as described
herein; and
Sixth, payment of any remaining amounts will be made 80.0% to the
Limited Partners and 20.0% to the General Partner; provided, however, the
General Partner will not receive its share of these remaining amounts until
such time as the Limited Partners have received Operating Distributions and
Liquidating Distributions equal to their Capital Contributions plus 9.6%
annually (calculated only through the end of the Operating Phase)
non-compounded, on their Adjusted Capital Contributions.
For a more complete description of the cash payments which may be made to
the Limited Partners, see Article XI of the Partnership Agreement.
4. OTHER IMPORTANT INFORMATION REGARDING DISTRIBUTIONS. Investors should
take note of the following:
a. EXPENSE REIMBURSEMENTS. Direct Partnership administrative
expenses will be paid directly by the Partnership. Expenses incurred by
the General Partner that are properly allocable to the Partnership and
direct expenses advanced by the General Partner on behalf of the
Partnership will be reimbursed by the Partnership to the General Partner.
See "Compensation of the General Partner and Affiliates."
b. NO EQUIPMENT ACQUIRED. The Partnership has not acquired any
Equipment or leases as of the date of this Prospectus. Accordingly, no
assurance may be given that the Limited Partners will realize the returns
discussed above.
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c. DISTRIBUTIONS MAY BE TREATED EITHER AS A RETURN "ON" INVESTORS'
CAPITAL OR AS A RETURN "OF" INVESTORS' CAPITAL. The General Partner plans
to pay Operating Distributions monthly during the Operating Phase.
Operating Distributions will equal 9.6% of each Partner's Adjusted Capital
Contributions annually to the extent the Partnership has Cash Flow for such
purposes, as described in 2(b) above. The General Partner intends that
Operating Distributions will normally be a return "on" Partners' capital
and will treat them as such. Distributions during the Operating Phase will
exceed 9.6% annually only if the General Partner determines that the
Partnership has funds that the General Partner believes cannot prudently be
invested either in additional Equipment for lease or in financings, in
which case such excess will be treated as a return "of" the Partners'
original investment. It is possible, but not likely, that such excess
distributions will occur. Generally, the General Partner intends that a
return "of" Partners' original investment will occur only during the
Liquidation Phase and only after Partners have received the distributions
discussed in the Second and Fourth paragraphs under section 3, above.
Ultimately, however, Partners will not know whether they have received a
return "of" their investment and/or a return "on" their investment until
the Partnership is finally liquidated. Partners will have received a
return "of" their Capital Contributions only when they have received
distributions equal to their Capital Contributions. Any distributions in
excess of each Partner's Capital Contribution will be a return "on"
capital.
d. NO IN KIND DISTRIBUTIONS. The Partnership will not make distributions
in kind to any Partner.
e. CONTINUED MANAGEMENT FEES. If the Partnership sells lease receivables
to an unaffiliated third party, the purchasing party may request or require
that the Partnership continue to manage those leases and Equipment as a
condition to the sale, and such party will pay fees to the Partnership for
such management. See "Sale of Lease Receivables and Residual Values" under
"Investment Objectives and Policies." Fees paid to the Partnership by such
party shall be the property of the Partnership. However, if the General
Partner continues to provide the Partnership with services with respect to
the Equipment underlying such lease receivables sold, the General Partner
will continue to receive from the Partnership its Management Fee as a
percentage of the Gross Rental Payments on such lease receivables sold.
Notwithstanding the foregoing, the General Partner will not receive a
Management Fee on an annual basis in an amount greater than the amount the
General Partner is entitled to receive as a percentage of Gross Rental
Payments on the Equipment leases under the terms of the Partnership
Agreement.
REDEMPTION OF UNITS
At anytime after December 31, 1999, a Limited Partner or his successor has
the right to make a written request to the Partnership for redemption of all or
any portion of the Limited Partner's Units. However, a Limited Partner must
request the redemption of all of his Units if he will retain fewer than two
Units. The redemption will only be made to the extent permitted by applicable
laws and regulations and if, in the opinion of the General Partner it is in the
best interest of the Partnership. The General Partner will redeem Units (if at
all) only in extenuating circumstances. The Partnership Agreement prohibits the
General Partner from redeeming over the life of the Partnership more than 5.0%
of the total Units initially issued, or in any given year more than 1.0% of the
total Units initially issued. The General Partner will not allow redemptions of
Partnership Units if, in the opinion of counsel to the Partnership, such
redemptions could result in the Partnership being characterized as a "publicly
traded" partnership. See "Publicly Traded Partnerships" under "Tax
Consequences."
The General Partner will, in its sole discretion, decide whether a
redemption is in the best interest of the Partnership and whether the
circumstances surrounding the redemption are extenuating. The General Partner
is not required to provide any reason for the denial of a redemption request. To
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the extent the General Partner determines to honor any requests, the General
Partner will honor acceptable requests for redemptions in the order received by
the General Partner per quarter. Any requests denied may be resubmitted in a
later quarter. Only in extenuating circumstances will a later request be
honored over an earlier one received in a quarter. The General Partner must
accept or deny a written request for redemption of Units within a reasonable
time after receipt of the request. If such request is accepted by the General
Partner, the General Partner will provide written notice of its acceptance of
the request for redemption. Such notice will state the redemption price
determined by the General Partner.
The redemption price per Unit will equal the Redemption Value of Investor's
Units tendered by the Limited Partners as determined under the Partnership
Agreement as of the last day of the fiscal quarter prior to the quarter during
which the redemption request is received. The Redemption Value of Investor's
Units means the investor's Capital Account valued by the General Partner as of
the last day of the fiscal quarter prior to the quarter during which the
redemption request is received. Upon receipt of such notice, the Limited
Partner must immediately tender the Units and the Partnership will pay the
redemption price for the tendered Units within 60 days after the end of the
quarter in which the redemption request was received by the Partnership,
provided that a Limited Partner may withdraw its request for redemption of its
Units within 30 days of its receipt of written notice of the General Partner's
acceptance of its request for redemption.
The General Partner intends to use excess Cash Flow as the source of funds
for any redemptions. The Partnership will not maintain reserves for the
redemption of Units. Therefore, the ability of the Partnership at any time to
redeem Units will depend upon, among other things, the availability of excess
Cash Available for Distribution, the number of Limited Partners requesting
redemption, the potential dilution of the remaining Limited Partners, and the
potential adverse tax consequences to the Partnership. See "Conflicts of
Interest." Accordingly, no assurance may be given that the Limited Partners
will be able to participate in the redemption program.
Upon any redemption or repurchase by the Partnership, the tendered Units
will be canceled and will no longer be deemed to represent interests in the
Partnership, and the interests of the Limited Partners (including the person
whose Units were redeemed) will thereupon be adjusted accordingly. Neither the
General Partner nor any of its Affiliates may participate in this redemption
program.
Gain or loss realized on the redemption of Units by a Limited Partner who
is not a "dealer" in securities and who has held such Units for more than one
year, generally will be long-term capital gain or loss, as the case may be,
under present tax laws. However, the proceeds of a sale or redemption will be
taxed at ordinary income rates to the extent of the portion of potential
depreciation recapture, substantially appreciated inventory and unrealized
receivables attributable to the Unit.
LIQUIDATION POLICIES
Subject to prevailing market conditions and other factors, the General
Partner intends to cause the Partnership to begin to dispose of all of its
Program Assets no sooner than three and one-half years and no later than five
years after the Closing Date. During the Operating Phase, the General Partner
may sell the residual values of the Equipment or a portion thereof. Upon such
sale, the General Partner may reinvest the sales proceeds therefrom (less the
expenses incurred by the General Partner relating to such sale) in additional
Program Assets or, in its sole discretion, distribute all or a portion of such
sales proceeds to the Limited Partners as Operating Distributions; provided,
however, that in either case, sufficient cash is distributed to the Limited
Partners to pay state and federal income tax, if any, created by such sale of
the Equipment. See "Sales of Lease Receivables and Residual Values" under
"Investment Objectives and Policies." Program Assets may be sold at any time
if sold in the ordinary course of business, or, if not in the ordinary course
of business, if in the judgment of the General
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Partner and of the holders of a majority of the outstanding Units, it is in the
best interests of the Partnership to do so. However, the General Partner may
at any time cause the Partnership to dispose of all or substantially all of its
Program Assets in connection with the winding up and liquidation of the
Partnership. The determination of whether particular Program Assets should be
sold or otherwise disposed of will be made after consideration of relevant
factors (including, but not limited to, prevailing general economic conditions,
lessee demand, the General Partner's views of current and future market
conditions, the cash requirements of the Partnership, potential capital
appreciation, cash flow, and federal income tax considerations) with a view
toward achieving the principal investment objectives of the Partnership.
As partial payment for Equipment sold, the Partnership may receive purchase
money obligations secured by liens on such Equipment. Except in the case of
sales in the ordinary course of business, no purchase money arrangement shall
have a term in excess of twelve months. The amount of such obligations will
not constitute funds available for distribution to Partners until and to the
extent the obligations are converted into cash, sold or disposed of in some
other manner. See also "Tax Consequences" for a discussion of the tax
treatment of any such purchase money obligations.
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REPORTS TO LIMITED PARTNERS
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The General Partner will mail to each Limited Partner the following reports
pertaining to Partnership operation during each fiscal year:
a QUARTERLY REPORT. A report of Equipment acquisitions made during
each quarter shall be sent to all Limited Partners within sixty (60) days
following the end of each quarter, until the proceeds of the offering are
fully invested or returned to the Limited Partners. Such reports shall
include, by way of illustration and not limitation, a statement of the
actual purchase price of Equipment, including terms of the purchase, a
statement of the total amount of cash expended by the Partnership to
acquire such items of Equipment (including and itemizing all commissions,
fees, expenses and the name of each payee), and a statement of the amount
of proceeds in the Partnership which remain unexpended or uncommitted.
b TAX INFORMATION. Within 75 days after the end of each fiscal
year, all financial information regarding the Partnership necessary for use
by the Limited Partners in preparing their federal income tax returns; and
c ANNUAL REPORT. Within one hundred twenty (120) days after the
end of each fiscal year, an annual report containing: (i) a balance sheet
as of the end of the fiscal year and statements of income, partners'
equity, and a cash flow statement, for the year then ended, all of which
shall be prepared in accordance with generally accepted accounting
principles and accompanied by a report of independent auditor, and (ii) a
breakdown of distributions to Limited Partners for the period covered
thereby separately identifying distributions from: (1) cash flow from
operations during the period (2) cash flow from operations during a prior
period which had been held as reserves, (3) proceeds from disposition of
Program Assets, and (4) reserves from the gross proceeds of the offering
originally obtained from the Limited Partners.
For each piece of equipment acquired by the Partnership that
individually represents at least ten percent (10.0%) of the Partnership's
total Investment in Program Assets, the General
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Partner shall include a status report as part of the annual report, which
status report shall indicate: (i) condition of the Equipment, (ii) how the
Equipment is being utilized as of the end of year (leased, operated, held
for lease, repair or sale), (iii) remaining term of leases, (iv) projected
use of the Equipment for next year (renew lease, lease, retire, or sell),
and (v) such other information relevant to the value or utilization of the
Equipment as the General Partner deems appropriate. The status report shall
describe the method used or basis for valuation.
Financial information contained in all reports to Limited Partners will be
prepared on an accrual basis of accounting in accordance with generally
accepted accounting principles and will include, where applicable, a
reconciliation to the information furnished to Limited Partners for federal
income tax purposes. The audited financial statements contained in the annual
report will be accompanied by a report of the firm of independent public
accountants selected by the General Partner.
Each annual and quarterly report will also contain a special report on
Equipment acquisitions made during the period covered by the report, including
(1) a description of each item of Equipment purchased, (2) a description of any
lease arrangements made with respect thereto and of each lessee, (3) the actual
purchase price and terms, (4) the amount of cash expended from Capital
Contributions to acquire each item of Equipment, and (5) the amount of Capital
Contributions which then remains unexpended, if any, stated in terms of both
dollar amount and percentage of the total amount of Capital Contributions
derived from the sale of the Partnership's Units. Similar reports will be
included for any additional Equipment acquired through reinvestment of
Partnership cash.
The General Partner will retain copies of all reports distributed to
Limited Partners. The Limited Partners will be permitted to examine all
records of the Partnership at the General Partner's offices upon reasonable
notice during reasonable business hours, and may make copies of such records at
their own expense.
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MAINTENANCE OF RECORDS
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The General Partner will maintain a record of any information it obtains
that indicates a Limited Partner meets the suitability standards employed in
connection with the offer and sale of Units and a representation of the Limited
Partner that he is purchasing for his own account. Such information will be
obtained from Limited Partners through the use of the Subscription Agreement
signed by each Limited Partner, which sets forth the prescribed suitability
standards in full and in which the Limited Partner represents that he meets
such suitability standards and is purchasing for his own account. However,
Subscription Agreements will not be the exclusive method of determining
investor suitability. Where the General Partner, the Managing Sales Agent or
any Selected Sales Agent has reason to believe that a Subscription Agreement
does not assure investor suitability, other methods of determining such
suitability will be employed.
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CAPITALIZATION
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The capitalization of the Partnership as of the date of this Prospectus and
as adjusted to give effect to the sale of the minimum and maximum number of
Units available for sale is as follows:
As Adjusted As Adjusted
As of Date of for 1,200 for 25,000
Prospectus Units Sold Units Sold
------------- ----------- -----------
Long-Term Indebtedness:
Equipment Debt. . . . . . . . -- (1) (1)
General Partner's Capital
Contribution. . . . . . . . . $10,000 $10,000 $10,000
Limited Partners'
Capital Contributions
($1,000 per Unit)(2)(3) . . . $1,000 $1,200,000 $25,000,000
- --------------------
(1) In addition to the Capital Contributions of the Partners, the Partnership
intends to obtain additional funds for Investment in Program Assets through
incurring substantial secured indebtedness in connection with the
acquisition of Equipment. The principal amount of such indebtedness cannot
now be determined, but is limited to 40.0% of the Gross Proceeds of the
Offering. See "Investment Objectives and Policies."
(2) The amounts given are at $1,000 per Unit and before deduction of Front End
Fees.
(3) The amounts given include one Unit ($1,000) which has been purchased by the
Partnership's Initial Limited Partner in connection with the Partnership's
organization.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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The following discussion and analysis provides information the General
Partner believes is relevant to an assessment and understanding of the
Partnership's operations and financial condition. This discussion should be
read in conjunction with the financial statement and related notes of the
Partnership appearing elsewhere in this Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
As reflected under "Capitalization," the Partnership currently has limited
funds, since the capital anticipated to be raised by the Partnership through
its public offering of Units was not available on the date of this Prospectus.
The Partnership plans to raise funds from investors by means of this offering
of Units. Upon the sale of the minimum number of Units offered hereby (1,200
Units), the Partnership will invest the funds from the sale of such Units, as
well as funds raised from sales of additional Units, together with proceeds of
bank loans, in Program Assets. The application of funds toward the acquisition
of Program Assets will result in a decrease in cash. The effect of the
decrease in the Partnership's cash will, in the General Partner's view, be
offset by the income expected to be produced
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by Program Assets, including the leasing of Equipment and the anticipated
residual value of Equipment upon sale. The General Partner anticipates that
Partnership revenue sufficient to pay operating expenses and provide cash
distributions to Limited Partners will be derived from the lease payments paid
to the Partnership by Equipment lessees. There is no assurance the Partnership
will actually realize rental income or the residual value of Equipment upon
sale. In addition to borrowing to finance the acquisition of Equipment, the
Partnership may borrow funds for the purpose of repairing, reconditioning and
reconfiguring Equipment.
The General Partner plans to borrow an amount equal to up to 40.0% of the
Gross Proceeds of the Offering to finance Program Assets acquisition. The use
of borrowed funds will increase the capital resources available to the
Partnership and the amount of Program Assets the Partnership can acquire. The
General Partner anticipates borrowing funds at an interest rate lower than the
effective yield on leases. The use of borrowed funds to acquire Program Assets
will result in interest charges, which the General Partner believes will be
offset by the income expected to be produced by leasing the Equipment.
The Partnership does not have a commitment from a lender, and it is likely
that some Equipment will be acquired prior to obtaining loans. Although it is
likely that borrowed funds will be available to the Partnership, it is possible
that the interest rates available to the Partnership will not be attractive.
In that case, the Partnership may be precluded from borrowing funds or it may
be required to borrow at higher than anticipated rates. In either case, the
result will be a negative effect on the Partnership's cashflow, profitability,
and distributions.
The Partnership intends to establish initial working capital reserves of no
less than 1.0% of the Gross Proceeds, an amount which the General Partner
anticipates to be sufficient to satisfy general liquidity requirements to cover
operating costs of Equipment and the maintenance and refurbishment of
Equipment. See "Estimated Use of Proceeds." Thereafter, the General Partner
intends to maintain working capital reserves at a level it deems appropriate
(but not below 1.0% of Gross Proceeds) from revenues derived from Partnership
operations. See "Financing" under "Investment Objectives and Policies."
As of the date of this Prospectus, the Partnership has not acquired any
Equipment and has not made any commitments to acquire Equipment. As a result,
the Partnership has no commitment for capital expenditures except the expenses
of this offering. The Partnership's capital needs are expected to undergo
major changes during its initial two years of operations as a result of the
completion of its public offering of Units and the acquisition of Equipment.
Thereafter, except for reinvestment of cash in additional Program Assets, the
Partnership's capital needs and resources are expected to be relatively stable
over the Partnership's operating period.
For financial information with respect to the Partnership and the General
Partner, see "Financial Statements of the Partnership and the General Partner."
OPERATIONS
The Partnership has not yet commenced operations in accordance with the
investment objectives and policies described herein. See "Investment
Objectives and Policies." During the period of ownership of Equipment, the
Partnership's operations will consist principally of the ownership and leasing
of Equipment. After acquiring Equipment, the most significant events which will
have an impact on the Partnership's revenues will be those associated with the
changes in demand for the types of Equipment acquired by the Partnership and
other economic risks associated with the ownership and operation of Equipment.
These risks include decreases in the interest rates charged to potential
lessees
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for the acquisition of capital equipment, which may decrease the availability
of leasing opportunities. For a more detailed description of such
uncertainties, see "Risk Factors."
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PLAN OF DISTRIBUTION
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INTRODUCTION
Subject to the conditions set forth in this Prospectus, the Partnership is
offering an aggregate of up to 25,000 Units of limited partnership interest. A
minimum of 1,200 Units ($1,200,000) in the Partnership is being offered, with a
maximum of 25,000 Units ($25,000,000). Units are offered at a price of $1,000
per Unit. The minimum investment by a Limited Partner is two Units ($2,000).
Additional Units may be purchased in increments of $1,000. The General Partner
will not accept any subscription for a fractional interest in a Unit. The
General Partner may terminate the offering at any time for any reason.
BROKER-DEALERS AND THE SELLING AGREEMENTS
Units are being offered for sale by certain broker-dealers (the Managing
Sales Agent and Selected Sales Agents), all of whom are members of the NASD.
The broker-dealers are not obligated to purchase any Units, but are required
only to do their best to offer and sell Units on behalf of the Partnership.
There is no assurance that any of the Units will be sold. The offering will be
managed by the Managing Sales Agent (Berthel Fisher & Company Financial
Services, Inc.), an Affiliate of the General Partner. If the Partnership's
minimum offering is successfully completed, the Partnership will pay to the
Managing Sales Agent a Selling Commission of 9.0% of the total Units sold. The
Managing Sales Agent will in turn pay Selling Commissions to each Selected
Sales Agent of 6.0% of the Units sold through them (6.5% to Selected Sales
Agents who sell more than $1,000,000). The Partnership will pay accountable
Organization and Offering Expenses not to exceed 3.5% of Gross Proceeds.
The Managing Sales Agent may reallow from its Selling Commission to certain
Selected Sales Agents reimbursements for certain expenses incurred in their
selling efforts.
The total amount of all items of compensation from whatever source payable
to underwriters, broker/dealers, or affiliates thereof, which are deemed to be
in connection with or related to the distribution of the offering shall not
exceed 10.0% of the Gross Proceeds. Mr. Berthel, the President of the parent
company of both the General Partner and the Managing Sales Agent (an Affiliate
of the General Partner), and certain employees of the Managing Sales Agent,
will participate in the activities related to the distribution of the Offering,
and will be paid from the Managing Sales Agent's sales commissions.
The Managing Sales Agent may offer desk-top gift items not exceeding $50 in
value as a sales incentive to registered representatives who sell a certain
number of Units. The Managing Sales Agent intends to comply with the
provisions of Rule 2810(b)(4)(E) of the Conduct Rules of the NASD with respect
to any incentive sales and bonus programs.
The Selling Agreement provides that the General Partner and the Partnership
shall indemnify the participating broker/dealers against any losses, claims,
damages or liabilities arising out of (i) any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus, any supplemental
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literature or any blue sky application; or (ii) the omission or alleged
omission to state in the Prospectus or in any supplemental literature or in any
blue sky application a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The Selling Agreement further provides that the
participating broker-dealers shall indemnify the General Partner and the
Partnership to the extent provided above and in addition, for the failure of
the participating broker-dealers to comply with the provisions of the Selling
Agreement which relate to the manner in which the Units are sold by such
participating broker-dealers.
Notwithstanding the foregoing, the Selling Agreement provides that the
participating broker-dealers will not be indemnified by the Partnership against
any liability, loss or damage incurred by them in connection with any claim or
settlement alleging federal or state securities law violations, unless such
lawsuits alleging such claims are successfully defended and a court approves
indemnification of litigation costs, or unless such lawsuits are dismissed with
prejudice on the merits, or unless such lawsuits are settled and a court
approves the settlement and the indemnification. The General Partner will
apprise the court of the positions of the SEC with respect to indemnification
before seeking court approval for indemnification, whether such claims are
litigated, dismissed or settled. Furthermore, the Selling Agreement provides
that the General Partner and Partnership shall not be required to indemnify the
participating broker/dealer, and the participating broker/dealer shall not be
required to indemnify the General Partner and the Partnership to the extent
such loss, claim, damage or liability arises out of or is based upon an alleged
untrue statement or alleged omission based upon written information furnished
by one party to another party.
THE OFFERING OF UNITS
The offering of Units in the Partnership will commence as soon as
practicable after the Effective Date, and will terminate on the Closing Date
(unless terminated earlier at the election of the General Partner or upon the
sale of all Units available for sale). The Closing Date is initially
designated to be one year from the Effective Date. However, if the Minimum
Offering is achieved and the General Partner renews registration with the SEC
and with the various state agencies, the offering period may be extended for up
to an additional year.
ADMISSION OF LIMITED PARTNERS
If, at any time within one year after the date of this Prospectus,
acceptable subscriptions for at least 1,200 Units have been received on behalf
of the Partnership, the General Partner may (but is not required to) arrange
for the Partnership to commence admitting subscribers as Limited Partners of
the Partnership, as of the Initial Admission Date. The Initial Admission Date
shall be a date not later than fifteen (15) days after the release by the
Escrow Agent of the proceeds of the sale of Units. The General Partner
anticipates that the Initial Admission Date will not be later than one year
after the Effective Date of this Prospectus, assuming at least 1,200 Units have
been sold by that date. After the Initial Admission Date, subscribers will be
admitted to the Partnership on a daily basis until the Closing Date. Each day
that the General Partner admits subscribers after the Initial Admission Date
will be an Admission Date. To be admitted to the Partnership, an investor's
completed Subscription Agreement, together with subscription funds, must be
received by the General Partner and approved by the General Partner.
Prior to the Initial Admission Date an investor will receive interest on
his subscription from the date his subscription funds clear until the date he
is admitted as a Limited Partner at the rate earned on the funds held by the
Escrow Agent. Such interest will be payable by the Partnership at the time the
first monthly distribution is made to such newly admitted Limited Partner.
Subscription funds will be paid directly to the Partnership after the Initial
Admission Date. An investor will be allocated distributions, if any, and
income or loss from the Partnership, as of the date of such investor's
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admission into the Partnership. Investors will not be admitted into the
Partnership unless and until the Minimum Offering is achieved and there is a
release of funds in the escrow account to the Partnership. Any proceeds of the
offering not invested or committed for investment within two years from the
Effective Date (except for necessary operating capital) will be distributed pro
rata to the Limited Partners as return of Capital Contributions. Any such
returned proceeds will include a return of the proportionate share of the
Organization and Offering Expenses, and of any Selling Commissions paid to
Affiliates of the General Partner.
CANCELLATION OF OFFERING
The offering of Units in the Partnership will be canceled automatically if
acceptable subscriptions for at least 1,200 Units are not received on behalf of
the Partnership within one year after the Effective Date. In addition, the
General Partner may, in its discretion, cancel the offering of Units at any
time prior to the Initial Admission Date, even if subscriptions for 1,200 or
more Units have already been received on behalf of the Partnership, and may
cancel the offering as to any then unsold Units at any time after the Initial
Admission Date.
If the offering of Units in the Partnership is canceled, no remaining
unsold Units in the Partnership will be sold, and all subscription payments
received from subscribers who have not been admitted as Limited Partners will
be promptly returned to them. See "Payment for Units" below.
SUBSCRIPTION FOR UNITS
Each prospective investor who meets the qualifications described under
"Investor Suitability Standards" must deliver to the Managing Sales Agent a
completed, dated and executed copy of the Subscription Agreement included with
this Prospectus, and a check made out as set forth in the Subscription
Agreement in the amount of $1,000 for each Unit to be purchased. Until the
Minimum number of Units has been sold, Subscribers' checks will be transmitted
by the Managing Sales Agent directly to the Escrow Agent within the time
constraints provided for in the Managing Sales Agent Agreement and the Selected
Sales Agent Agreement. Thereafter, checks will be delivered by the Managing
Sales Agent directly to the General Partner.
Prospective investors that are not natural persons may be required to
deliver evidence of their authority to subscribe for Units or opinions of
counsel as to their authority to subscribe for Units and the binding effect of
their subscriptions. Investors who submit subscriptions will not be permitted
to terminate or withdraw their subscriptions without the prior consent of the
General Partner.
Additional execution copies of the Subscription Agreement are available
from the Managing Sales Agent.
The General Partner has the right to reject an investor's subscription for
any reason whatsoever, including but not limited to the investor's failure to
satisfy the suitability standards described under "Investor Suitability
Standards." If a prospective investor's subscription is rejected by the
General Partner, the General Partner generally will notify him of that fact
within 30 days after receiving his subscription. Any subscription not so
rejected will be accepted, subject to the right of the General Partner in its
discretion to cancel or terminate the offering of Units at any time. Amounts
paid by an investor whose subscription is rejected will be returned promptly to
him without any interest thereon.
The Managing Sales Agent or Select Sales Agent shall send each Investor a
confirmation of his or her purchase. A sale of Units to an Investor may not be
completed until at least five business days after the date a prospective
Investor receives a final prospectus. All prospective Investors shall have the
right to receive a refund of their investment for a period of five business
days after the date the
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<PAGE>
prospective Investor receives a final prospectus. A request for a refund may
be made in any fashion but, if made other than in an originally signed and
written communication, must be confirmed with such a communication within 15
business days after the date a final prospectus is received.
Each Limited Partner will be entitled, with respect to each Unit sold to
him by the Partnership, to the same distributive share of income and loss and
cash distributions as all other Limited Partners admitted on the same Admission
Date as such Limited Partner, without regard to the date on which he subscribed
for the purchase of Units or the date on which his subscription payment was
received. Investors who purchase Units earlier will generally receive a
greater allocation of income, loss and distributions for the year in which they
invest than persons who purchase Units later in such year. See "Partnership
Allocations" under "Summary of the Partnership Agreement."
The General Partner and its Affiliates may purchase Units. However, such
Units will not be included for purposes of determining whether the Minimum
Offering has been reached. Any purchase of Units by the General Partner and
its Affiliates will be for investment purposes only and such purchases will not
be made with a view toward resale.
PAYMENT FOR UNITS
By executing and delivering a Subscription Agreement, each investor who
subscribes for the purchase of Units will agree to make a Capital Contribution
of $1,000 for each Unit subscribed for. At the time the Subscription Agreement
is executed and delivered, such investor must deliver with the Subscription
Agreement a check in the full amount of the required payment for the Units for
which such investor is subscribing.
Until the minimum Gross Proceeds of $1,200,000 have been raised, payments
made by subscribers will be deposited directly into an interest-bearing escrow
account with First National Bank Iowa, Cedar Rapids, Iowa, (the "Escrow
Agent"). If the offering is terminated before the Closing Date or if the
minimum number of Units is not sold, subscription payments received from
subscribers will be promptly returned to them, together with any interest
earned thereon. Once submitted, subscriptions may not be terminated or
withdrawn by subscribers without the prior written consent of the General
Partner, which will be granted or withheld in its sole discretion.
Prior to use as provided in this Prospectus, the Net Proceeds of the
offering will be temporarily invested in (and undistributed Cash Flow may be
invested in) United States government securities (including, but not limited
to, short-term Treasury Bills and Treasury Notes), securities issued or
guaranteed by United States government agencies, certificates of deposit and
time or demand deposits in state or national banks, money market funds,
securities issued or guaranteed by states or municipalities, bank repurchase
agreements, bankers' acceptances, savings and loan association deposits,
deposits with members of the Federal Home Loan Bank System or the Federal
Savings and Loan Insurance Corporation, commercial paper, secured equipment,
lease lines of credit, or other similar types of investments which will be held
by the Partnership generally not exceeding one year from the date of purchase,
and other investments with appropriately scheduled maturities. The foregoing
notwithstanding, the Partnership does not intend to pursue a policy which would
make it subject to the Investment Company Act of 1940, and the Partnership's
investments prior to the use of Net Proceeds as described above will be limited
accordingly.
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- --------------------------------------------------------------------------------
SUMMARY OF PROMOTIONAL AND SALES MATERIAL
- --------------------------------------------------------------------------------
In addition to and apart from this Prospectus, the Partnership will utilize
certain supplemental sales material in connection with its offering of Units
except in states that do not permit the use of such supplemental materials.
This material will include an investor brochure describing Telecommunications
Income Fund XI, L.P. and certain features of this Offering. The General
Partner, Managing Sales Agent and Selected Sales Agents will also respond to
questions from prospective investors. A question-and-answer booklet, a speech
for public seminars, an invitation to attend public seminars, letters to
prospective investors, mailing cards, public advertisements and audio-visual
materials may be used by the General Partner, Managing Sales Agent and Selected
Sales Agents. Other materials relating to the offering may be made available
by the Partnership to the Managing Sales Agent and Selected Sales Agents for
their internal use.
The offering of Units is made only by means of this Prospectus. Except as
described in the preceding paragraph, the Partnership has not authorized the
use of any other supplemental materials in connection with this Offering.
Although the information contained in the sales material to be used in
connection with this Offering does not conflict with any of the information
contained in this Prospectus, such materials do not purport to be complete, and
should not be considered as part of this Prospectus or the Registration
Statement of which this Prospectus is a part, or as incorporated in this
Prospectus or said Registration Statement by reference, or as forming the basis
of the Offering of the Units which are offered hereby.
- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The balance sheet of Telecommunications Income Fund XI, L.P. at August 27,
1997, appearing in this Prospectus and Registration Statement has been audited
by Deloitte & Touche 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 sheet of Berthel Fisher & Company Leasing, Inc., the General
Partner, at December 31, 1996, appearing in this Prospectus and Registration
Statement has been audited by Deloitte & Touche 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.
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- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
The legality of the Units offered hereby will be passed upon for the
Partnership by Bradley & Riley, P.C., 100 First Street, SW, Cedar Rapids, Iowa,
counsel for the Partnership, the General Partner and the Managing Sales Agent.
Bradley & Riley, P.C. has acted and will act as general counsel to the
Partnership and the General Partner and its Affiliates in connection with other
matters. See "Conflicts of Interest."
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits relating thereto that the Partnership
has filed with the SEC in Washington, D.C., under the Securities Act, and to
which reference is hereby made. Certain parts of the Registration Statement
and Exhibits are omitted from this Prospectus in accordance with the rules and
regulations of the SEC. The Registration Statement (and the exhibits and
schedules thereto), as well as such reports and other information filed by the
Company with the Commission, may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007 and
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, NW, Washington, D.C. 20549 at prescribed rates. Such information can
also be reviewed through the Commission's Electronic Data Gathering, Analysis
and Retrieval System ("EDGAR") which is publicly available through the
Commission's Web Site on the Internet (http:\\www.sec.gov).
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- --------------------------------------------------------------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
FINANCIAL STATEMENTS OF THE
PARTNERSHIP AND THE GENERAL PARTNER
- --------------------------------------------------------------------------------
-95-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PAGE
TELECOMMUNICATIONS INCOME FUND XI, L.P.:
Independent Auditors' Report 93
Balance Sheet as of August 27, 1997 94
Notes to Balance Sheet 95
BERTHEL FISHER & COMPANY LEASING, INC. (GENERAL PARTNER):
Independent Auditors' Report 96
Balance Sheet as of December 31, 1996 97
Notes to Balance Sheet 98
Balance Sheet as of September 30, 1997 (unaudited) 112
Notes to Balance Sheet (unaudited) 113
Note: A potential investor will not be purchasing any interest in Berthel
Fisher & Company Leasing, Inc. (the "General Partner") if such investor
chooses to invest in Telecommunications Income Fund XI, L.P.
-96-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Telecommunications Income Fund XI, L.P.
We have audited the accompanying balance sheet of Telecommunications Income
Fund XI, L.P. (an Iowa limited partnership) as of August 27, 1997. 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 Telecommunications Income Fund
XI, L.P. at August 27, 1997, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
September 4, 1997
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<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
(AN IOWA LIMITED PARTNERSHIP)
BALANCE SHEET
AUGUST 27,1997
- --------------------------------------------------------------------------------
ASSETS - Cash $11,000
-------
-------
COMMITMENTS (Note 2)
PARTNERS' EQUITY (Note 3):
Partners' equity - 25,010 units authorized
General Partner - 10 units issued and outstanding $10,000
Initial limited partner - 1 unit issued and outstanding 1,000
-------
$11,000
-------
-------
See notes to balance sheet.
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<PAGE>
TELECOMMUNICATIONS INCOME FUND XI, L.P.
(AN IOWA LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
AUGUST 27, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND PROPOSED OPERATIONS
Telecommunications Income Fund XI, L.P. (the "Partnership") was formed on
August 26, 1997 under the Iowa Limited Partnership Act. The General
Partner of the Partnership is Berthel Fisher & Company Leasing, Inc. (the
"General Partner"), an Iowa corporation. The Partnership intends to offer
for sale a minimum of 1,200 and a maximum of 25,000 units of limited
partnership interest ("Units") at a price per unit of $1,000.
Upon completion of the offering described above, the Partnership intends to
acquire primarily telecommunications equipment for lease to unaffiliated
third parties. No later than five years after the closing date of the
offering (or earlier if the General Partner determines it to be in the
Partnership's best interest), the Partnership will cease reinvestment in
equipment and leases and will begin the orderly liquidation of Partnership
assets. The Partnership must dissolve on December 31, 2012, or earlier
upon the occurrence of certain events.
As of August 27, 1997, the Partnership had no operations. Partners' equity
consists of initial capital contributions made by the General Partner and
the initial limited partner.
2. COMMITMENTS
The accompanying balance sheet does not include legal, accounting and other
organizational and offering costs which will become liabilities of the
Partnership when at least the minimum number of Units are sold. Such
amounts are limited to 3.5% of the gross offering proceeds under the
partnership agreement with the General Partner.
3. AGREEMENT OF LIMITED PARTNERSHIP
The Partnership was formed pursuant to an Agreement of Limited Partnership
dated as of August 26, 1997 (the "Agreement"). The Agreement outlines
capital contributions to be made by the partners and the allocation of cash
distributions, net income and net loss to the partners. Capital
contributions by the partners to the Partnership will consist of the
$10,000 contributed by the General Partner and the amounts contributed by
limited partners for the purchase of their Units ($1,000 per unit).
4. RELATED PARTY TRANSACTIONS
It is anticipated that the Partnership will enter into certain agreements
and transactions with related parties, primarily the General Partner and
its affiliates, including, but not limited to, sales commissions, offering
expenses, equipment acquisition fees, management fees, and operating
expense reimbursements.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Berthel Fisher & Company Leasing, Inc.
We have audited the accompanying consolidated balance sheet of Berthel Fisher
& Company Leasing, Inc. (a wholly-owned subsidiary of Berthel Fisher &
Company, Inc.) as of December 31, 1996. This balance sheet is the
responsibility of the Company'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 Berthel Fisher & Company
Leasing, Inc. at December 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 18, 1997
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<PAGE>
<TABLE>
<CAPTION>
BERTHEL FISHER & COMPANY LEASING, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,1996
- --------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS (Note 5):
Cash and cash equivalents $ 342,726
Notes receivable (Note 2) 6,530,354
Net investment in direct financing leases (Note 2) 9,850,360
Allowance for possible loan and lease losses (Note 3) (412,916)
-----------
Notes receivable and direct financing leases, net 15,967,798
Equipment under operating leases, less accumulated depreciation of $50,517 277,964
Due from affiliates 30,930
Investments in:
Limited partnerships (Notes 4 and 12) 153,771
Not readily marketable securities, at cost 250,477
Furniture and equipment, less accumulated depreciation of $120,200 222,853
Deferred income taxes (Note 6) 515,911
Deferred costs, less accumulated amortization of $158,924 (Notes 5 and 11) 635,194
Other assets 331,702
-----------
TOTAL $18,729,326
-----------
-----------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDER'S EQUITY (DEFICIT)
LIABILITIES:
Line-of-credit agreement (Note 5) $ 9,276,031
Trade accounts payable 158,227
Due to affiliates 102,038
Accrued expenses 228,014
Lease security deposits 374,876
Notes payable (Note 5) 2,310,805
Subordinated debentures (Note 5) 725,000
Subordinated notes payable (Note 5) 2,995,522
Subordinated debenture payable to parent (Note 5) 2,000,000
-----------
Total liabilities 18,170,513
-----------
COMMITMENTS AND CONTINGENCIES (Note 12)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (Note 7) 722,905
-----------
STOCKHOLDER'S EQUITY (DEFICIT):
Series A preferred stock, no par value - authorized
shares, issued and outstanding 30,341 shares (Note 8) ($424,774 liquidation
value, convertible into 26,548 shares of Class A common stock) 422,835
Class A common stock, no par value-authorized 1,000,000
shares, issued and outstanding 400,000 shares 1,000
Common stock warrants (Note 9) 66,694
Accumulated deficit (654,611)
-----------
Total stockholder's equity (deficit) (164,092)
-----------
TOTAL $18,729,326
-----------
-----------
</TABLE>
See notes to consolidated balance sheet.
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<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS - Berthel Fisher & Company Leasing,
Inc. (the "Company") is a wholly-owned subsidiary of Berthel Fisher &
Company, Inc. The Company finances, through direct financing leases or
notes receivables, telecommunications, agricultural, and general equipment
throughout the United States. The financing agreements with individual
customers can be large in relation to the portfolio as a whole and certain
agreements exceed 10% of the Company's direct financing lease and note
receivable portfolio (see Note 2). The leases may be sold to other entities
or retained by the Company for its own portfolio.
During 1994, the Company formed a wholly-owned subsidiary, Communications
Finance Corporation. All of the assets and liabilities of Communications
Finance Corporation have been assumed by the Company. The Company intends
to keep Communications Finance Corporation as a shell for use in future
financing transactions.
BASIS OF PRESENTATION - The accompanying balance sheet has been prepared
on the basis that the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The balance sheet does
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
During the years ended December 31, 1995 and 1996, the Company incurred
net losses of $393,720 and $836,556, respectively. Also, the Company's
line of credit agreement is cancelable upon 90 day notice from the
lender. The Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to meet its obligations on
a timely basis, to obtain refinancing as may be required, and ultimately
to attain profitable operations. The Company anticipates that existing
capital resources, cash flows from operations, and financing from the
Company's parent, will be adequate to satisfy the Company's minimum
capital requirements for the next twelve months.
The Company's plans and forecasts for future growth and profitability,
however, anticipate the need for additional capital through a preferred
equity financing and the sponsorship of another public limited
partnership from which the Company will generate fee income. See Note
14 as to the Company's current preferred stock offering. No assurance
can be provided that such offerings will be completed as planned.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All
significant intercompany balances and transactions have been eliminated
in consolidation.
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<PAGE>
USE OF ESTIMATES - 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 significantly from those estimated. Material estimates
that are particularly susceptible to significant change in the near-term
relate to the determination of the allowance for possible loan and lease
losses and the estimated unguaranteed residual values of the Company's
leased equipment.
Most of the Company's leases and finance contracts are with customers
that are in the entrepreneurial stage and, therefore, are highly
leveraged and require lease or other financing in place of or to
supplement financing from banks. Although the Company attempts to
mitigate its credit risk through the use of a variety of commercial
credit reporting agencies when processing the applications of its
customers, failure of the Company's customers to make scheduled payments
under their equipment leases and finance contracts could have a material
near-term impact on the allowance for possible lease and loan losses.
Realization of residual values depends on many factors, several of which
are not within the Company's control, including general market
conditions at the time of the original lease contract's expiration,
whether there has been unusual wear and tear on, or use of, the
equipment, the cost of comparable new equipment, the extent, if any, to
which the equipment has become technologically or economically obsolete
during the contract term and the effects of any additional or amended
government regulations. These factors, among others, could have a
material near-term impact on the estimated unguaranteed residual values.
CERTAIN RISK CONCENTRATIONS - The Company's direct financing leases and
notes receivables are concentrated in the telecommunications industry,
primarily pay telephones, representing approximately 42% of the
Company's direct finance lease and notes receivable portfolio at
December 31, 1996. During 1996, the Company also significantly expanded
its financing in the ATM industry which represents approximately 22% of
the Company's direct finance lease and notes receivable portfolio at
December 31, 1996.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
NOTES RECEIVABLE - Notes receivable are carried at the principal balance
outstanding. Interest income on notes receivable is accrued based on
principal amounts outstanding.
NET INVESTMENT IN DIRECT FINANCING LEASES - The Company's primary
activity consists of leasing telecommunications and other types of
equipment, under direct financing leases, generally over a period of
three to five years. At the time of closing a direct financing lease,
the Company records the gross lease contract receivable, an estimated
unguaranteed residual value and unearned lease income. The unearned
lease income represents the excess of the gross lease receivable plus
the estimated unguaranteed residual value over the carrying value of the
equipment leased. In addition, the Company capitalizes all initial
direct costs associated with originating the direct financing lease.
The unearned income and initial direct costs are amortized to income
over the lease term so as to produce a constant periodic rate of return
on the net investment in the lease. Lessees are responsible for all
taxes, insurance and maintenance costs.
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<PAGE>
The realization of the estimated unguaranteed residual value of leased
equipment depends on the value of the leased equipment at the end of the
lease term and is not a part of the contractual agreement with the
lessee. Estimated unguaranteed residual values are based on estimates of
amounts historically realized by the Company for similar equipment and
are periodically reviewed by management for possible impairment.
Certain of the Company's leases are accounted for as operating leases
for income tax purposes.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES - The Company performs
credit evaluations prior to approval of a lease or finance contract. As
with all direct financing leases, the Company continues to own the
equipment under lease. The Company will generally obtain a security
interest in future revenues generated from each site in which the
equipment is physically located and in the equipment under a finance
contract. Subsequently, the creditworthiness of the customer and the
value of the underlying assets are monitored on an ongoing basis. The
Company maintains an allowance for possible loan and lease losses which
could arise should customers become unable to discharge their
obligations under the agreements. The allowance for possible loan and
lease losses is maintained at a level deemed appropriate by management
to provide for known and inherent risks in the portfolio. The allowance
is based upon a continuing review of past loan and lease loss
experience, current economic conditions, and the underlying asset value.
The consideration of such future potential losses also includes an
evaluation for other than temporary declines in value of the underlying
leased assets. Leases and notes receivable which are deemed
uncollectible are charged off and deducted from the allowance. The
provision for possible loan and lease losses and recoveries are added to
the allowance.
EQUIPMENT UNDER OPERATING LEASES - Equipment leased under operating
leases is stated at cost less accumulated depreciation. The equipment
is depreciated using the straight-line method over the estimated useful
lives of the assets (five years) to the estimated residual value of the
equipment at the end of the lease term. Estimated residual values are
based on estimates of amounts historically realized by the Company for
similar equipment and are periodically reviewed by management for
possible impairment.
INVESTMENTS - The Company accounts for its general partnership interests
in Telecommunications Income Fund IX, L.P. ("TIF IX") and
Telecommunications Income Fund X, L.P. ("TIF X") under the equity method
of accounting. Under the equity method of accounting, the Company
initially records its investment at cost and subsequently adjusts the
carrying value of its investments for its pro rata share of earnings or
losses.
The Company also owns equity interests in two entities over which it
does not have the ability to exert significant influence over the
operations of such entities; therefore, such investments are accounted
for at cost.
Should these investments experience a decline in value that is other
than temporary, the Company will recognize a loss in its consolidated
statements of operations to reflect such a decline. As these
investments are not readily marketable, no market value can be readily
determined.
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<PAGE>
FURNITURE AND EQUIPMENT - Furniture and equipment are stated at cost
less accumulated depreciation. For financial reporting purposes,
depreciation is computed by the straight-line method over the estimated
useful lives of the assets (generally five to ten years). The Company
uses accelerated methods in computing depreciation for income tax
purposes.
DEFERRED INCOME TAXES - The provision for deferred income taxes is based
on an asset and liability approach. Deferred tax assets or liabilities
are computed based on the difference between the financial statement and
income tax bases of assets and liabilities using the enacted marginal
tax rate. Deferred income tax expense or credit is based on the changes
in the asset or liability from period to period including the effect of
enacted tax rate changes.
DEFERRED COSTS - Deferred costs consist of organization costs incurred
with the formation of Security Finance Corporation and financing costs
incurred in connection with the issuance of subordinated debentures and
notes payable and certain other long-term debt. Deferred organization
costs were amortized over a five-year period. Deferred financing costs
are being amortized over the life of the related obligation, which
ranges from three to eight years.
STOCK ISSUANCE COSTS - The costs incurred in connection with the
issuance of redeemable Class B nonvoting convertible stock have been
deducted from the proceeds. Such amounts are being amortized by a
charge to retained earnings over a period of ten years, at which time
the carrying value of stock will be equal to its cash redemption value
(see Note 7).
SALE OF DIRECT FINANCE LEASES - The Company at times sells future direct
financing lease payments, on a limited recourse basis, to lenders in
return for a cash payment. In the case of default by the lessee, the
lender has a first lien on the underlying leased equipment. In the
event the sale or re-lease proceeds from the underlying equipment do not
satisfy the remaining lessee's obligation to the lender, the Company is
responsible for a predetermined amount of that obligation. When the
sale of direct finance leases occurs, proceeds from the sale, less the
net book value of direct finance leases sold and an estimated loss
allowance, are recorded as a component of gain on early termination of
leases.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS - In 1996 the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" related to Berthel Fisher &
Company, Inc.'s stock option plans. This standard establishes a fair
value method for accounting for stock-based compensation plans either
through recognition or disclosure. The Company adopted the disclosure
option under this standard and continues to recognize stock-based
compensation to employees under the intrinsic value method. The
adoption of this standard did not impact results of operations,
financial position or cash flows.
The Company will adopt SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" for
transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996. SFAS No. 125 provides
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings based on whether
control has been transferred. The adoption of this standard is not
expected to have a material impact on results of operations, financial
position, or cash flows.
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<PAGE>
2. NOTES RECEIVABLE AND DIRECT FINANCING LEASES
Notes receivable are comprised of the following:
DECEMBER 31,
1996
Notes receivable, collateralized primarily by telephone
equipment and related site agreements, 13.9% to 16.5%,
maturing through December 2000 $6,530,354
----------
----------
The Company's net investment in direct financing leases consists of the
following:
DECEMBER 31,
1996
Minimum lease payments receivable $11,526,828
Estimated unguaranteed residual values 954,502
Unamortized initial direct costs 236,910
Unearned income (2,867,880)
-----------
Net investment in direct financing leases $ 9,850,360
-----------
-----------
The balance of direct financing leases sold with recourse that remain
uncollected at December 31, 1996 was $4,269,468.
At December 31, 1996, future minimum lease payments to be received under the
direct financing leases and the estimated unguaranteed residuals to be
realized at the expiration of the direct financing leases are as follows:
MINIMUM ESTIMATED
LEASE PAYMENTS UNGUARANTEED
RECEIVABLE RESIDUAL VALUES
Year ending December 31:
1997 $ 3,887,957 $ 36,354
1998 2,702,486 240,887
1999 2,150,673 76,055
2000 1,828,501 167,010
2001 957,211 434,196
----------- -----------
$11,526,828 $ 954,502
----------- -----------
----------- -----------
The Company and certain affiliates purchase a substantial portion of
telecommunications equipment for lease from Intellicall, Inc., a
publicly-held company. The Company's parent is an investor in a limited
partnership which owns approximately 7% of the outstanding common stock
of Intellicall, Inc. In addition, a principal stockholder of the
Company's parent is also an investor in this limited partnership.
-106-
<PAGE>
The Company leases equipment to certain companies for which Berthel
Fisher & Company Financial Services, Inc., an affiliate, provides
financing and investment advisory services or for which the Company or
its affiliates have an ownership interest. The Company also leases
equipment to certain companies in which certain directors own a
controlling interest. The Company's net investment in direct financing
leases with these companies approximated $1,253,000 at December 31, 1996.
3. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The allowance for loan and lease losses consisted of a specific
allowance for a lease of $100,000 at December 31, 1996 and a general
unallocated allowance of $312,916 at December 31, 1996.
On May 6, 1996, a lessee of the Company, United Tele-Systems of
Virginia, Inc. ("UTS") filed a Voluntary Petition for Relief under
Chapter 11 of the Bankruptcy Code. This bankruptcy petition was
dismissed on May 22, 1996 and, in connection therewith, the Company
exercised its right to manage the assets leased to UTS. The net
investment in the leases at the time the assets were repossessed was
approximately $432,000. This equipment is currently being operated for
the Company under a short-term management agreement. The Company, TIF
IX, TIF X and UTS have also been named in a lawsuit, filed by another
creditor of UTS. The creditor is claiming $360,000 in compensatory
damages and $350,000 in punitive damages. Management believes the
lawsuit is without merit and intends to vigorously defend it. Based on
offers to purchase the pay telephone equipment and an expected
settlement offer related to the lawsuit to avoid protracted litigation
costs, the Company expects to incur a loss upon the sale or re-lease of
this equipment. Management has charged $324,000 to the provision for
possible loan and lease losses for the expected loss. Due to the
uncertainty of the fair market value of the equipment and the outcome of
the litigation, there can be no assurances that the ultimate loss will
not exceed $324,000. The Company's net investment in the equipment, net
of the specific allowance, has been reclassified to equipment under
operating leases pending its ultimate sale or re-lease under a direct
finance lease.
On October 31, 1996, a lessee of the Company, Soil Recovery Services,
Inc. ("SRS"), had an involuntary Petition for Relief under Chapter 7 of
the U.S. Bankruptcy Code filed against it. This was converted to a
voluntary Chapter 11 on November 25, 1996. At the time the first
petition was filed, SRS had various leases with the Company that had a
net investment totaling $256,500 and represented 1.4% of the Company's
total net investment in leases and finance contracts. A specific
allowance for losses of $100,000 has been established through a charge
to the provision for possible loan and lease losses based on estimates
of the fair value of the equipment under lease.
During the fourth quarter of 1996, management of the Company provided a
specific allowance for a lease with a certain customer for which the
Company had not been receiving lease payments. Management is actively
working with such customer to arrange for a sale of the assets under
lease. A charge of $50,000 was recorded to the provision for possible
loan and lease losses representing management's best estimate of the
loss on the expected sale of the equipment. Also, due to the
uncertainty as to the timing and amount of future payments from such
customer and as to the sale of the assets under lease, the Company
reclassified its net investment in the lease at December 31, 1996 of
$144,972, net of the specific allowance, to equipment leased under
operating leases.
-107-
<PAGE>
4. INVESTMENTS IN LIMITED PARTNERSHIPS
The Company is the general partner of Telecommunications Income Fund IX,
L.P. ("TIF IX"). TIF IX is a limited partnership which raised
approximately $17 million through a best-efforts public offering of its
limited partnership units. At December 31, 1996, the Company's
investment in TIF IX consisted of its allocated general partnership
interest, unreimbursed costs incurred by the Company in connection with
the public offering and temporary loans made to the partnership.
Pursuant to the partnership agreement, TIF IX reimbursed the Company for
offering and promotional expenses incurred up to 4% of the capital
raised. The unreimbursed costs are being amortized on a straight-line
basis over a 55-month period which approximates the period of
anticipated future revenues from TIF IX. As of December 31, 1996, the
unamortized balance of these unreimbursed costs aggregated $33,482.
The Company is the general partner of Telecommunications Income Fund X,
L.P. ("TIF X"). TIF X is a limited partnership which raised
approximately $22.6 million through a best-efforts public offering of
its limited partnership units. At December 31, 1996, the Company's
investment in TIF X consisted of its allocated general partnership
interest, unreimbursed costs incurred by the Company in connection with
the public offering and temporary loans made to the partnership.
Pursuant to the partnership agreement, TIF X will reimburse the Company
for offering and promotional expenses incurred up to 4% of the capital
raised. As of December 31, 1996, there were no unreimbursed costs.
Combined summarized financial information for TIF IX and TIF X is as
follows:
DECEMBER 31,
1996
Assets:
Net investment in direct financing leases $33,330,000
Other assets 3,573,000
-----------
Total assets $36,903,000
-----------
-----------
Liabilities and partners' equity
Liabilities:
Notes payable, guaranteed by the Company (Note 12) $5,900,000
Other liabilities 1,485,000
-----------
Total liabilities 7,385,000
-----------
Partners' equity:
General partner 22,000
Limited partners 29,559,000
Other equity (63,000)
-----------
Total partners' equity 29,518,000
-----------
Total liabilities and partners' equity $36,903,000
-----------
-----------
-108-
<PAGE>
YEAR ENDED
DECEMBER 31,
1996
Income from direct financing leases $ 6,070,000
Other revenue 924,000
Provision for possible losses (1,671,000)
Impairment loss on equipment (971,000)
Expenses (3,148,000)
-----------
Net income $ 1,204,000
-----------
-----------
Income allowable to the Company $ 680
-----------
-----------
Net income per partnership unit:
TIF IX $ 14.83
TIF X $ 2.17
The Company receives a management fee equal to 5% of the amount of gross
rental payments received by TIF IX and TIF X. During the year ended
December 31, 1996, gross fees aggregated $702,266. The Company, in
turn, pays 50% of these fees to its parent. In addition, the Company is
reimbursed for certain other costs under administrative services
agreements. Amounts received by the Company pursuant to these
agreements amounted to $147,000, for the year ended December 31, 1996.
TIF IX leases equipment to certain companies for which Berthel Fisher &
Company Financial Services, Inc., an affiliate of the Company, provides
financing and investment advisory services. TIF IX's net investment in
direct financing leases with these companies approximated $447,000 at
December 31, 1996.
TIF X leases equipment to certain companies for which Berthel Fisher &
Company Financial Services, Inc., an affiliate of the Company, provides
financing and investment advisory services. TIF X's net investment in
direct financing leases with these companies approximated $2,815,000 at
December 31, 1996.
5. CREDIT ARRANGEMENTS
The Company obtains a portion of its financing under a line-of-credit
agreement with a bank. The amount available to borrow under the
line-of-credit is limited to 75% of its qualified accounts, as defined
in the agreement (primarily leases and notes receivable), but, in no
case, can exceed $11 million. The line-of-credit bears interest at
prime plus 1.7% and is collateralized by substantially all of the
Company's assets. The line-of-credit agreement is guaranteed by the
Company's parent and a major stockholder of the Company's parent. The
agreement expires on November 30, 1997 and management expects, based on
discussions with the lender, to renew the agreement. The agreement is
also cancelable by the lender after giving a 90-day notice. The average
interest rate on amounts outstanding at December 31, 1996 under the
line-of-credit agreement was 9.95%.
-109-
<PAGE>
The loan agreement contains various restrictive covenants which, among
others, restrict dividend payments except to Class B shareholders and
Series A preferred shareholders and requires the Company to maintain
certain financial ratios including a total liabilities to tangible net
worth ratio of not greater than 3.0, a minimum tangible net worth of
$650,000 and an interest coverage ratio of 1.1. As of December 31, 1996
the Company was in violation of its minimum tangible net worth and
interest coverage ratio. The Company has obtained amendments to such
covenants from the lender for 1996 which permits compliance. The
covenants for 1997 are a leverage ratio of not greater than 2.5, a
minimum stockholders' equity (including redeemable stock) of $490,000
plus the net proceeds of any equity offering and an interest coverage
ratio of 1.2. As discussed in Note 14, the Company plans to sell up to
$2 million of preferred stock in 1997 through an exempt offering. The
Company also has plans to sponsor another limited partnership in 1997
which is expected to generate fee income to the Company. As such, the
Company expects to be in compliance with the covenants throughout 1997.
The Company does not anticipate any problems with the sale of these
securities in 1997, however, an alternative plan is in place should any
problems occur with respect to the sale of these securities. The
alternative plan is to reduce the management fees paid to the parent to
maintain compliance with the Company's covenants.
Notes payable consists of the following:
DECEMBER 31,
1996
Collateral trust bonds issued by Berthel Fisher & Company
Leasing, Inc., 9% to 12%, due through 1997 $ 20,017
Installment loan agreements with banks, 7.75 % to 11%,
maturing through 2000 with subjective acceleration
clauses,collateralized by net investment in certain
direct financing leases, certain agreements are also
guaranteed by the Company's parent 2,273,632
Capital lease obligations, 5.37%, due through 2000 17,156
----------
Notes payable $2,310,805
----------
----------
Subordinated debt consists of the following:
DECEMBER 31,
1996
Uncollateralized subordinated debenture payable to
parent, floating interest rate, maturing in 2005 $2,000,000
Uncollateralized subordinated notes payable, 9.5% to 10%,
maturing in 2001 and 2004 2,995,522
Uncollateralized subordinated debentures, 11% to 12%,
maturing through 1998 725,000
----------
Total subordinated debt $5,720,522
----------
----------
-110-
<PAGE>
The collateral trust bonds issued by Berthel Fisher & Company Leasing,
Inc. are collateralized by certain equipment leases and are redeemable
by the bond holder at any time after one year from the date of issuance
subject to certain limitations as defined in the agreements, including a
maximum redemption in any one year of 5% of the total principal balance
outstanding.
The subordinated note payable and debenture to parent bear interest at
prime plus 3% (11.5% at December 31, 1996), adjusted semi-annually, with
a minimum interest rate of 6% and a maximum rate of 12%. In October
1995, the Company and its parent restructured $2,000,000 of the
subordinated note payable to the Company's parent into a subordinated
debenture. Under the restructured debenture, the maturity date was
extended to December 31, 2005; the debenture was contractually
subordinated to the subordinated notes payable and to collateralized
debt; and the Company's parent was issued warrants for the purchase of
118,875 shares of common stock of the Company at $16.82 per share,
exercisable through October 5, 2000. No value was attributed to the
warrant by the Company since the warrant's exercise price was equal to
the estimated fair value of the Company's common stock at date of
issuance.
The annual maturities of notes payable and subordinated debt at December
31, 1996 are as follows:
Year ending December 31:
1997 $1,089,509
1998 1,206,943
1999 338,019
2000 330,088
2001 2,111,246
Thereafter 2,955,522
----------
Total $8,031,327
----------
----------
6. INCOME TAXES
The results of the Company's operations are included in the consolidated
tax returns of Berthel Fisher & Company, Inc. The entities included in
the consolidated returns have adopted the policy of allocating income
tax expense or benefit based upon the pro rata contribution of taxable
operating income or losses. Generally, this allocation results in
profitable companies recognizing a tax provision as if the individual
company filed a separate return and loss companies recognizing benefits
to the extent their losses contribute to reduce consolidated taxes.
Deferred income taxes have been established by each member of the
consolidated group based upon the temporary differences within the
entity. In certain states, the Company files separate income tax
returns. Based on the parent's consolidated tax position, management
believes it is more likely than not that the Company's deferred income
tax asset will be recoverable.
-111-
<PAGE>
The tax effect of temporary differences giving rise to the Company's net
deferred income tax asset are as follows:
DECEMBER 31,
1996
Gross deferred income tax liabilities:
Direct financing leases $ (500,000)
Unamortized costs associated with limited
partnerships (25,000)
Furniture and equipment 0
----------
Total (525,000)
----------
----------
Gross deferred income tax assets:
Alternative minimum tax carryforward 84,000
Allowance for possible loan and lease losses 149,000
Net operating loss carryforward 800,000
Other 7,911
----------
Total 1,040,911
----------
Net deferred income tax asset $ 515,911
----------
----------
At December 31, 1996, the Company's net operating loss carryforward
aggregates $2,250,000 and expires in 2010.
7. REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before
taxes each year, up to a maximum of $1.20 per share. The Class B
nonvoting convertible stock is convertible on a one-for-one basis up to
a maximum of 20% of the Class A common stock of the Company after
conversion. The stock is redeemable at $10 per share for a 30-day
period after the tenth anniversary of the issuance date (April, 1990 to
September, 1991) at the option of the holder. Shares which are not
redeemed during that time are automatically converted to Class A common
stock on a one-for-one basis. The following summarizes the amounts
pertaining to the Class B nonvoting convertible stock:
DECEMBER 31,
1996
Redeemable Class B nonvoting convertible stock (no par
value-authorized 100,000 shares, issued and outstanding
75,500 shares), at redemption or liquidation value $755,000
Unamortized stock issuance costs (32,095)
--------
Class B nonvoting convertible stock $722,905
--------
--------
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<PAGE>
8. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative
annual dividends of 8% payable, if as and when declared by the Board of
Directors, quarterly. Unpaid dividends will accumulate and be payable
prior to the payment of dividends on the Company's Class A common stock.
The preferred stock is redeemable at any time at the option of the
Company, on not less than 30 days written notice to registered holders.
The redemption price shall be $14.70 per share if redeemed during 1997,
$14.56 per share if redeemed during 1998, $14.42 per share if redeemed
during 1999, $14.28 per share if redeemed during 2000, $14.14 per share
if redeemed during 2001, and $14.00 per share if redeemed thereafter,
plus, in each case, accumulated unpaid dividends. Unless previously
redeemed by the Company, the holders of the preferred stock are entitled
at any time to convert each share into .875 shares of Class A common
stock. The preferred stock is not entitled to vote on any matter except
where the Iowa Corporation Act requires voting as a class, in which case
each share of stock shall be entitled to one vote per share on those
matters where the preferred stock is voting as a class. The preferred
stock is entitled to a preference on liquidation equal to $14.00 per
share, plus accumulated unpaid dividends.
9. COMMON STOCK WARRANTS
The Company's common stock warrant activity is summarized as follows:
<TABLE>
<CAPTION>
EXPIRATION EXERCISE NUMBER
DATE PRICE OUTSTANDING
<S> <C> <C> <C>
Issued to the parent in 1995 in connection
with the subordinated note payable
restructuring 2000 $16.82 118,875
Issued in 1996 in connection with the
subordinated notes payable offering 2001-2004 16.00 33,011
Issued in 1996 in connection with the preferred
stock/warrant offering:
A Warrant 1998 12.00 30,341
B Warrant 1999 14.00 30,341
-------
Balance at December 31, 1996 212,568
-------
-------
</TABLE>
10. PROFIT SHARING PLAN
The Company participates in a qualified profit sharing plan under
Internal Revenue Code Section 401(a), including a qualified cash or
deferred arrangement under Section 401(k), sponsored by Berthel Fisher &
Company Financial Services, Inc. Under the terms of the plan, each
participant may elect to defer compensation from 2% to 15%. A matching
contribution equal to 50% of the deferred compensation of all eligible
participants will be made by the employer up to 4% of each participant's
total compensation. The employee contributions to the plan are fully
vested and employer contributions vest over five years. The Company's
contribution for the year ended December 31, 1996, aggregated $14,927.
-113-
<PAGE>
11. MANAGEMENT AND SERVICES AGREEMENTS
In addition to the agreements described in Note 4, the Company also has
an unwritten, month-to-month agreement with its parent in which the
Company's parent provides management services at a monthly rate of
$17,500 during 1996. In addition, during 1993, the Company paid its
parent $50,000 to provide consulting services relating to TIF X for such
items as lease documentation, lease approvals, debt structuring and
portfolio liquidation. This payment is being amortized to expense over
five years, the estimated life of the operating phase of TIF X.
The Company, from time to time, will engage the services of Berthel
Fisher & Company Financial Services, Inc., a broker-dealer wholly owned
by the Company's parent. In addition, the Company reimburses Berthel
Fisher & Company Financial Services, Inc. for operating expenses
incurred on its behalf, including certain expenses related to the
administrative services agreements discussed in Note 4. The Company
also enters into other arrangements with the parent or its affiliates.
Following are the amounts paid by the Company to Berthel Fisher &
Company or its affiliates related to these arrangements:
YEAR ENDED
DECEMBER 31,
1996
Issuance costs paid (and capitalized) in connection with
subordinated notes payable offering $223,070
Operating expense reimbursements 50,173
12. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for all debts of TIF IX and X as the
general partner.
The Company also has guaranteed amounts outstanding under a
line-of-credit agreement with a bank of TIF IX. The line-of-credit
agreement allows TIF IX to borrow the lesser of $6.25 million, or 32% of
its qualified accounts, as defined in the agreement. The balance
outstanding under this line-of-credit was $1,060,490 at December 31,
1996. The agreement matures on November 30, 1997, is cancelable by the
lender after giving a 90-day notice and is collateralized by
substantially all assets of TIF IX. The note is also guaranteed by the
Company's parent and a principal stockholder of the Company's parent.
The Company also has guaranteed amounts outstanding under a
line-of-credit agreement with a bank of TIF X. The line-of-credit
agreement allows TIF X to borrow the lesser of $7.25 million, or 32%
(40% as of November 1996) of its qualified accounts, as defined in the
agreement. The balance outstanding under this line-of-credit was
$2,607,911 at December 31, 1996. The agreement matures on November 30,
1997, is cancelable by the lender after giving a 90-day notice and is
collateralized by substantially all assets of TIF X. The note is also
guaranteed by the Company's parent and a principal stockholder of the
Company's parent.
The Company also has guaranteed amounts outstanding under installment
loan agreements of TIF IX and TIF X totaling $2,231,510 at December 31,
1996. The agreements are collateralized by certain direct financing
leases and a second interest in all assets of TIF IX and TIF X.
-114-
<PAGE>
In December 1995 the Company entered into a lease agreement for office
space. The lease term began January 1, 1996 and expires December 30,
2000. Rent is $58,368 per year under the agreement.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value amounts disclosed below are based on estimates prepared
by the Company based on valuation methods appropriate in the
circumstances. Generally accepted accounting principles do not require
disclosure for lease contracts. The carrying amount for financial
instruments included among cash and cash equivalents, due from
affiliates, line-of-credit agreement, and other short-term payables
approximates their fair value because of the short maturity of those
instruments or the variable interest rate feature of the instruments.
The estimated fair value of other significant financial instruments are
based principally on discounted future cash flows at rates commensurate
with the credit, interest rate and prepayment risk involved.
The estimated fair values of the Company's other significant financial
instruments are as follows:
DECEMBER 31,
1996
-----------------------------
CARRYING FAIR
AMOUNT VALUE
Notes receivable $6,530,354 $6,489,812
Notes payable 2,310,805 2,284,873
Subordinated debt 5,720,522 5,945,762
14. CURRENT OFFERING
The Company has a private placement best efforts offering in process at
December 31, 1996 for the issuance of $2 million of Class A preferred
stock and warrants. The Company issued $424,774 of preferred stock and
$60,682 of warrants to its parent at December 31, 1996 in exchange for
the conversion of the subordinated note payable to parent of $264,980
and the contribution of restricted stock of a public company with an
estimated fair value of $220,477. There can be no assurance that the
Company will complete the sale of these securities.
* * * * *
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<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1997
ASSETS:
Cash and cash equivalents $2,871
Notes receivable 4,930,226
Net investment in direct financing leases (Note 3) 8,296,247
Allowance for possible loan and lease losses (Note 4) (380,087)
-----------
Notes receivable and direct financing leases, net $12,846,368
Equipment under operating lease, less accumulated
depreciation of $23,352 706,009
Due from affiliates 38,512
Investments in:
Limited partnerships (Note 5) 123,650
Not readily marketable securities, at cost 975,482
Furniture and equipment, less accumulated
depreciation of $153,162 211,330
Deferred income taxes 602,555
Deferred costs, less accumulated amortization of $274,815 519,217
Other assets 444,393
-----------
TOTAL $16,470,405
-----------
-----------
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDER'S EQUITY
LIABILITIES:
Line of credit agreement (Note 6) $ 6,647,582
Due to affiliates 67,362
Accrued expenses 197,790
Dividends payable 29,277
Lease security deposits 387,656
Notes payable (Note 6) 1,669,590
Subordinated debentures (Note 6) 725,000
Subordinated notes payable (Note 6) 2,996,303
Subordinated debenture payable to parent (Note 6) 2,000,000
-----------
Total Liabilities $14,720,560
-----------
COMMITMENTS AND CONTINGENCIES (Note 7)
REDEEMABLE CLASS B NONVOTING CONVERTIBLE STOCK (Note 8) 728,923
-----------
STOCKHOLDER'S EQUITY:
Series A preferred stock, no par value-authorized
125,000 shares, issued and outstanding
125,000 shares (Note 9) ($1,750,000 liquidation value,
convertible into 109,375 shares of Class A common stock) 1,603,080
Class A common stock, no par value-authorized
3,000,000 shares, issued and outstanding
403,900 shares 63,400
Common stock warrants 256,002
Retained earnings (accumulated deficit) (901,560)
-----------
Total stockholder's equity 1,020,922
-----------
TOTAL $16,470,405
-----------
-----------
SEE ACCOMPANYING NOTES.
-116-
<PAGE>
BERTHEL FISHER & COMPANY LEASING, INC.
NOTES TO BALANCE SHEET
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited balance sheet has been prepared in accordance
with generally accepted accounting principles for interim financial
information and with Article 10 and Regulation S-X. Accordingly, it does not
include all of the information and footnotes required by generally accepted
accounting principle for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. For further
information, refer to the balance sheet and footnotes thereto as of December
31, 1996. This balance sheet should be read in conjunction with the
Company's annual report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended December 31, 1996.
2. ORGANIZATION
Berthel Fisher & Company Leasing, Inc. (the "Company") is a wholly-owned
subsidiary of Berthel Fisher & Company, (the "Parent"). During the year
ended December 31, 1994, the Company formed a wholly-owned subsidiary,
Communications Finance Corporation. All of the assets and liabilities of
Communications Finance Corporation have been assumed by the Company. The
Company intends to keep Communications Finance Corporation as a shell for use
in future financing transactions.
The Company is the general partner in two limited partnerships,
Telecommunications Income Fund IX, L.P. ("TIF IX") and Telecommunications
Income Fund X, L.P. ("TIF X"). The Company accounts for its general
partnership interests in TIF IX and TIF X under the equity method of
accounting. (See Note 5).
3. NET INVESTMENT IN DIRECT FINANCING LEASES
The Company's net investment in direct financing leases at September 30,
1997 consists of:
Minimum lease payments receivable $ 9,260,716
Estimated unguaranteed residual values 987,243
Unamortorized initial direct costs 206,073
Unearned income (2,157,785)
-----------
$ 8,296,247
4. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The change in the allowance for possible loan and lease losses for the
nine months ended September 30, 1997 is as follows:
Balance at beginning of year $412,916
Provision 41,002
Charge offs (81,208)
Recoveries 7,377
--------
$380,087
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<PAGE>
The allowance for loan and lease losses consists of a specific
allowance for a lease of $100,000 and a general unallocated allowance of
$280,087 at September 30, 1997. The general unallocated allowance for
possible loan and lease losses expressed as a percent of the total portfolio
is as follows:
September 30, 1997 December 31, 1996 September 30, 1996
------------------ ----------------- ------------------
2.1% 1.9% 2.4%
The Company has obtained the right to repossess the equipment under lease
with Soil Recovery Services ("SRS") which lease represents the specific
reserve at September 30, 1997. Management has received an indication of
interest from a third party to purchase the equipment associated with the SRS
lease. At December, 1996, this equipment was valued at $156,000.
Management's best current estimate of the re-sale value of this equipment is
$156,000.
On May 6, 1996, a lessee of the company, United Tele-Systems of Virginia,
Inc. ("UTS") filed a Voluntary Petition for Relief under Chapter 11 of the
Bankruptcy Code. This petition was dismissed on May 22, 1996, and, in
connection therewith, the Company exercised its right to manage the assets
leased to UTS. The Company had also been named in a lawsuit filed by another
creditor of UTS. Due to the uncertainty of the fair market value of the
equipment and the outcome of the litigation, management charged $324,000 to
the provision for loan and lease losses in 1996. The equipment has been sold
with no further loss to the Company. The Company negotiated a settlement
with the creditor and the suit has been dismissed. As a part of the
settlement, the Company has agreed to bear the cost of an audit of the
equipment and management of the equipment from May, 1996, through February,
1997. As of September, 1997, the audit has not been completed, however the
Company does not anticipate any further loss or cost associated with the
equipment.
In March, 1997, the Company foreclosed on a lease with Coastal
Communications. The net investment in this lease ($545,189) has been
reclassified as equipment under operating lease. The Company entered into a
management agreement with a pay phone operator to manage the equipment with
the intent to purchase. The Company has not yet reached a definitive
agreement regarding the purchase. Until all negotiations are finalized, it
is not possible to determine what amount of loss, if any, will be incurred.
Management believes the Company's loss reserve is sufficient to cover any
potential loss with respect to the equipment.
5. INVESTMENT IN LIMITED PARTNERSHIPS
Combined summarized income statement information for TIF IX and TIF X is
as follows:
Nine months ended September 30
------------------------------
1997 1996
---- ----
Income from direct financing leases $ 3,905,657 $ 4,601,900
Other revenue 663,589 422,784
Provision for possible losses (124,288) (989,097)
Expenses (1,898,018) (2,409,052)
----------- -----------
Net income $ 2,546,940 $ 1,626,535
----------- -----------
----------- -----------
Net income per partnership unit:
TIF IX $19.46 $15.03
TIF X $13.61 $ 6.68
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<PAGE>
6. CREDIT ARRANGEMENTS
The Company has a note payable consisting of a line-of-credit agreement
with a bank. The amount available to borrow under the line-of-credit is
limited to 75% of its qualified accounts (primarily leases and notes
receivable), but in no case can exceed $11 million. The line-of-credit bears
interest at prime plus 1.76% and is collateralized by substantially all of
the Company's assets. The line-of-credit agreement is guaranteed by the
Company's Parent and a major stockholder of the Company's Parent. The
agreement originally expired on November 30, 1997, and has been extended to
April 30, 1998, and is cancelable by the lender after giving a 90 day notice.
The loan agreement contains various restrictive covenants including, among
others, covenants that restrict dividend payments except to Class B and
Series A preferred stockholders and requires the Company to maintain certain
financial ratios including a total liabilities to tangible net worth ratio,
as defined in the agreement, of not greater than 2.5, a minimum stockholders'
equity (including redeemable stock) of $1,050,000, plus the net proceeds of
any equity offering and an annual interest coverage ratio of 1.2. As of
September 30, 1997, the Company was in compliance with all covenant
requirements. The Company, however, expects to be in violation of the annual
interest coverage ratio at year end and expects to obtain a waiver of the
requirement from the lender based on the recent renewal of the agreement with
the lender.
Notes payable at September 30, 1997, consists of:
Installment loan agreements with banks,
7.75% to 11%, maturing through 2000
with subjective acceleration clauses,
collateralized by net investment in certain
direct financing leases, certain agreements
are also guaranteed by the Company's Parent $1,655,855
Capital lease obligations, 5.37%, due through 2000 13,735
----------
Notes payable $1,669,590
Subordinated debt consists of the following:
Uncollateralized subordinated debenture payable to
Parent, floating interest rate, maturing in 2005 $2,000,000
Uncollateralized subordinated notes payable, 9.5%
to 10%, maturing in 2001 and 2004 2,996,303
Uncollateralized subordinated debentures, 11%
to 12% maturing through 1998 725,000
----------
Total subordinated debt $5,721,303
----------
----------
7. COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for all debts of TIF IX and TIF X as
the general partner.
The Company also has guaranteed amounts outstanding under a
line-of-credit agreement with a bank of TIF IX. The line-of-credit agreement
allows TIF IX to borrow the lesser of $6.25 million or 32% of its qualified
accounts, as defined in the agreement. The balance outstanding under this
line-of-credit was $683,418 at September 30, 1997. The agreement is
collateralized by substantially all assets of TIF IX. The note is also
guaranteed by the Company's Parent and a principal stockholder of the
Company's Parent. The Partnership has extended the agreement with the lender
through April 30, 1998. The agreement was amended with the bank and reduced
the line-of-credit to the lesser of $2.0 million, or 32% of the Partnership's
Qualified Accounts. The minimum interest charge was also reduced to $3,000
per month.
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The Company also has guaranteed amounts outstanding under a
line-of-credit agreement with a bank of TIF X. The line-of-credit agreement
allows TIF X to borrow the lesser of $7.25 million or 40% of its qualified
accounts, as defined in the agreement. The balance outstanding under this
line-of-credit was $4,022,792 at September 30, 1997. The agreement is
collateralized by substantially all assets of TIF X. The note is also
guaranteed by the Company's Parent and a principal stockholder of the
Company's Parent. The Partnership has extended the agreement through April
30, 1998. The only modification was to reduce the borrowing amount to the
lesser of $6 million, or 40% of the Partnership's Qualified Accounts, as
defined by the agreement.
The Company has also guaranteed amounts outstanding under installment
loan agreements of TIF X totaling $790,865 at September 30, 1997. The
agreements are collateralized by certain direct financing leases and a second
interest in all assets of TIF X.
8. CLASS B NONVOTING CONVERTIBLE STOCK
The Company's Class B nonvoting convertible stock carries a 12%
noncumulative dividend limited to 25% of the Company's income before taxes
each year, up to a maximum of $1.20 per share. The Class B nonvoting
convertible is convertible on a one-for-one basis up to a maximum of 20% of
the Class A common stock of the Company after conversion. The stock is
redeemable at $10 per share for a 30-day period after the tenth anniversary
of the issuance date (April, 1990 to September, 1991) at the option of the
holder. Shares which are not redeemed during that time are automatically
converted to Class A common stock on a one-for-one basis.
The following summarizes the amounts pertaining to the Class B nonvoting
convertible stock as set forth in the balance sheets at September 30, 1997:
Class B nonvoting convertible stock (no par value-authorized
100,000 shares, issued and outstanding 75,500 shares) at
redemption or liquidation value $ 755,000
Unamortized stock issuance costs (26,077)
---------
$ 728,923
9. PREFERRED STOCK
Each share of the Series A preferred stock is entitled to cumulative
annual dividends of 8% payable, if as and when declared by the Board of
Directors, quarterly. Unpaid dividends will accumulate and be payable prior
to the payment of dividends on the Company's Class A common stock. The
preferred stock is callable at any time at the option of the Company, on not
less than 30 days written notice to registered holders. The redemption price
shall be $14.70 per share if redeemed during 1997, $14.56 per share if
redeemed during 1998, $14.42 per share if redeemed during 1999, $14.28 per
share if redeemed during 2000, $14.14 per share if redeemed during 2001, and
$14.00 per share if redeemed thereafter, plus, in each case, accumulated
unpaid dividends. Unless previously redeemed by the Company, the holders of
the preferred stock are entitled at any time to convert each share into .875
shares of Class A common stock. The preferred stock is not entitled to vote
on any matter except where the Iowa Corporation Act requires voting as a
class, in which case each share of stock shall be entitled to one vote per
share on those matters where the preferred stock is voting as a class. The
preferred stock is entitled to a preference on liquidation equal to $14.00
per share, plus accumulated unpaid dividends. The Company has sold
$2,000,000 of this offering at September 30, 1997, out of a total offered
amount of $2,000,000.
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<PAGE>
- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
As used in this Prospectus, the following definitions of terms are
applicable:
"Acquisition Expenses" means expenses including, but not limited to, legal
fees and expenses, travel and communication expenses, costs of appraisals,
accounting fees and expenses, and miscellaneous expenses relating to selection
and acquisition of Program Assets, whether or not the Program Assets are
acquired.
"Acquisition Fee" means the total of all fees and commissions paid by any
party in connection with the initial purchase or manufacture of Equipment
acquired by or financings placed by the Partnership. 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. See Paragraph 9.2.4 of the
Partnership Agreement.
"Adjusted Capital Contribution" of a Limited Partner as of any date means
the Capital Contribution of the Limited Partner, less the total amount of all
payments made as Liquidating Distribution or as a return of capital to the
Limited Partner and to prior holders of such Limited Partner's Units prior to
or on such date pursuant to Paragraphs 11.4.3 or 11.5 of the Partnership
Agreement.
"Admission Date" means any date on which subscribers for Units offered
pursuant to this Prospectus are admitted to the Partnership as Limited Partners.
"Affiliate" means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10.0% or more of the outstanding voting securities of
such other person, (iii) any officer, director or partner of such person, and
(iv) if such other person is an officer, director or partner, any company for
which such person acts in such capacity.
"Assignee" means a person who is shown in the Partnership's records as
having acquired a beneficial interest in one or more Units by assignment from a
Limited Partner.
"Book Value of the Partnership" means the book value of the Partnership's
assets less liabilities, as computed for federal income tax purposes.
"Capital Account" means the account established and maintained for each
Partner in accordance with federal income tax accounting principles, including
specifically Section 704 of the Code and the regulations thereunder.
"Capital Contribution" means with respect to the General Partner, the
$10,000 contributed by it to the capital of the Partnership. With respect to
each Limited Partner, Capital Contribution means the cash contributed to the
capital of the Partnership by such Limited Partner for the Units ($1,000 per
Unit) sold or issued to him by the Partnership, which amount will be attributed
to, and will be considered to be a Capital Contribution of any subsequent
Assignee of such Units.
"Cash Available for Distribution" means Cash Flow plus cash funds available
for distribution from Partnership reserves, less amounts set aside for
restoration or creation of reserves as determined by the General Partner in its
sole discretion.
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<PAGE>
"Cash Flow" means all cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
expenses and debt payments or pay for capital improvements and replacements
(other than cash funds withdrawn from reserves).
"Closing Date" means the date upon which the offering of Units terminates,
which is intended to be no later than one year after the Effective Date;
provided that if the Minimum Offering has been achieved and registration is
renewed with the applicable federal and state agencies, the General Partner may
extend the offering period and postpone the Closing Date for up to an
additional year (i.e., two years) from the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of equipment which is
reasonable, customary and competitive in light of the size, type and location
of the equipment.
"Controlling Person" means any officer, director, executive manager, senior
manager or equity holder of 5.0% or more of the General Partner or its
Affiliates, or any person having the power to direct or cause direction of the
General Partner or its Affiliates, whether through the ownership of voting
securities, by contract, or otherwise.
"Effective Date" means the date on which the offering is declared effective
by the SEC.
"Equipment" includes all types of equipment and other personal property
that may be purchased directly or indirectly by the Partnership, as generally
described in the Prospectus under the caption "Investment Objectives and
Policies," and includes property which is rehabilitated or reconfigured for
re-lease or sale.
"Escrow Agent" means First National Bank Iowa, Cedar Rapids, Iowa, or any
banking institution that serves as escrow agent for the Capital Contributions
prior to the Partnership achieving the Minimum Offering.
"Front End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase
including Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated. 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 employees are Affiliates of
the General Partner.
"Full Payout Lease" means, with respect to Equipment, a lease under which
the non-cancelable rental payments due during the initial term of the lease
(excluding any option periods) are sufficient to recover the Purchase Price of
Equipment.
"General Partner" means Berthel Fisher & Company Leasing, Inc., an Iowa
corporation, or any additional or successor general partner of the Partnership.
"Gross Proceeds" means the aggregate amount of the original Capital
Contributions of all Limited Partners.
"Gross Rental Payments" received by the Partnership means the aggregate
amount of gross lease payments received by the Partnership, including receipts
classified as contract receivable payments in accordance with generally
accepted accounting principles.
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<PAGE>
"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 Partnership, and who is qualified to perform such
work.
"Initial Admission Date" means the date on which subscribers for the
minimum (1,200 Units) have been first admitted to the Partnership as Limited
Partners, which date shall be not later than fifteen (15) days after the
release by the Escrow Agent of the proceeds of the sale of Units.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits, including fees, to which such Partner may be entitled under
the terms of the Partnership Agreement together with the obligations of such
Partner to comply with the terms of this Partnership Agreement.
"Investment in Program Assets" means the amount of Capital Contributions
actually paid or allocated to the purchase, manufacture or renovation of
Equipment or other Program Assets acquired by the Partnership, including the
purchase of Equipment, working capital reserves allocable thereto (except that
working capital reserves in excess of 3.0% shall not be included), and other
cash payments such as interest and taxes but excluding Front End Fees.
"IRS" means the Internal Revenue Service.
"Lease Portfolio" includes all Partnership cash and cash equivalents, all
Equipment and leases thereof, all financing transactions, and all other
Partnership assets and securities.
"Limited Partner" refers to any person who is admitted to the Partnership
as a Limited Partner or a Substitute Limited Partner.
"Liquidating Distributions" means distributions to the Partners which, with
respect to any year, are in excess of the Operating Distributions for such
year, and distributions pursuant to Section 11.4 of the Partnership Agreement.
"Liquidating Phase" of the Partnership means the period beginning no later
than the fifth anniversary of the Closing Date, or such earlier time as the
General Partner determines is in the best interests of the Limited Partners,
and continuing until the assets of the Partnership are liquidated, the
liabilities of the Partnership are satisfied and the distribution of the
Liquidating Distributions to the Partners is completed.
"Management Fee" means the fee paid to the General Partner for managing the
operations of the Partnership. The Management Fee will be paid, of course,
only if the General Partner actually serves in the capacity of General Partner
and performs the services required to be performed by the General Partner.
"Minimum Offering" consists of subscriptions for 1,200 Units accepted by
the General Partner, and payment received by the Escrow Agent of $1,200,000 for
such Units.
"NASAA" means the North American Securities Administrators Association, Inc.
"NASD" means the National Association of Securities Dealers, Inc.
"Net Disposition Proceeds" means the proceeds realized by the Partnership
from the sale, refinancing or other disposition of Program Assets, including
insurance proceeds or lessee indemnity payments arising from the loss or
destruction of Equipment, less all Partnership liabilities.
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"Net Income" or "Net Loss" means the net income or net loss of the
Partnership, as determined for federal income tax purposes under the accrual
method of accounting.
"Net Proceeds" means the total of Gross Proceeds reduced by Organization
and Offering Expenses, Selling Commissions and Acquisition Fees payable by the
Partnership.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of deprecation relative to
any particular asset may be added to the depreciated cost of such asset to
compute total assets. The amount of depreciation may be added only to the
extent that the amount resulting after adding such depreciation does not exceed
the fair market value of such asset.
"1986 Tax Act" means the Tax Reform Act of 1986.
"1987 Tax Act" means the Revenue Act of 1987.
"Operating Distributions" means those distributions during the Operating
Phase described under the caption "Cash Distributions and Redemptions."
"Operating Distributions to Partners" consists of that component of
Operating Distributions equal to an annual distribution of up to 9.6% (payable
in monthly distributions of up to approximately .8% to each Partner) calculated
on each Partner's Adjusted Capital Contribution based upon the number of months
that such Partner was admitted to the Partnership.
"Operating Phase" of the Partnership means the period beginning on the
Effective Date and ending upon the commencement of the Liquidating Phase.
"Organization and Offering Expenses" means expenses incurred in connection
with formation of the Partnership and preparing the Partnership for
registration and subsequently offering and distributing it to the public,
including sales commissions paid to brokers or dealers in connection with the
distribution of Interests and all advertising expenses except advertising
expenses related to the leasing of Equipment. See Paragraph 9.2.3 of the
Partnership Agreement.
"Partners" refers collectively to the General Partner and the Limited
Partners. Reference to a "Partner" refers to any one of the Partners.
"Partnership" refers to the limited partnership governed by the Partnership
Agreement.
"Partnership Agreement" means the Agreement of Limited Partnership of
Telecommunications Income Fund XI, L.P., as it may be amended from time to time.
"Person" means any natural person, partnership, corporation, association or
other legal entity.
"Present Value of the Partnership's Lease Portfolio" includes all
Partnership noncancellable lease payments receivable on all existing
Partnership leases (considered without regard to any renewals or extensions
thereof) discounted to their present value at an interest rate of 8.0% plus all
Partnership cash and the fair market value of all other Partnership securities
or assets. The Present Value of the Partnership's Lease Portfolio will be
determined annually by an independent accounting firm.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in equipment. The Partnership is a Program.
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"Program Interest" means the limited partnership unit or other indicia of
ownership in a Program.
"Program Assets" means Equipment and other tangible and intangible assets,
including, without limitation, secured loans and other financings, furniture,
fixtures and leasehold improvements, directly or indirectly acquired, owned,
leased, sold or financed by the Program.
"Prospectus" means the final prospectus in the Registration Statement filed
with the SEC on Form S-1, as amended, with respect to the Units offered for
sale, as such Prospectus may be supplemented from time to time.
"Purchase Price of Equipment" means the price paid upon the purchase or
sale of a particular item of Equipment, including the amount of Acquisition
Fees and all liens and mortgages on the Equipment, but excluding points and
prepaid interest.
"Redemption Value of Investor's Units" means the investor's Capital Account
valued by the General Partner as of the last day of the fiscal quarter prior to
the quarter during which a redemption request is received.
"Roll Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not include:
(a) a transaction involving securities of a Program that have been
for at least twelve months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Partnership if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(1) Limited Partners' voting rights;
(2) the term of existence of the Partnership;
(3) Sponsor compensation; or
(4) The Partnership's investment objectives.
"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.
"SEC" mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Commission" means any commission paid by the Partnership to the
Managing Sales Agent and Selected Sales Agents for their services in marketing
Units as described in "Compensation of the General Partner and Affiliates."
"Special Report" means that report required by the NASAA Equipment Leasing
Guidelines, Section V.G.1.(c), as in effect on the date hereof, which is an
annual report by independent certified public accountants of the breakdown and
allocation of the costs reimbursed to the General Partner or its Affiliates.
Such report shall at a minimum provide a review of the time records of
individual employees, the costs of whose services were reimbursed, and a review
of the specific nature of the work performed by each such employee. The
information required by such report may be contained in the annual report sent
to Limited Partners by the Partnership.
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"Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any person who will manage or
participate in the management of the Partnership and any Affiliate of any such
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 for
professional services rendered in connection with the offering of Program
interests.
"Substitute Limited Partner" means any person who complies with the
requirements of the Partnership Agreement to become a Substitute Limited
Partner of the Partnership and is admitted to the Partnership as a Limited
Partner.
"Terminated Partner" means a General Partner who withdraws, is removed,
becomes bankrupt, is dissolved and liquidated or otherwise ceases to exist.
"Unit" means a Limited Partner's interest attributable to each Capital
Contribution of $1,000 to the Partnership.
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EXHIBIT A
- --------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
TELECOMMUNICATIONS INCOME FUND XI, L.P.
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX TO PARTNERSHIP AGREEMENT
ARTICLE PAGE
- ------- ----
I DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
II NAME OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . A-6
III TERM OF PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . A-6
IV BUSINESS AND PURPOSES . . . . . . . . . . . . . . . . . . . . . . . A-6
V PRINCIPAL PLACE OF BUSINESS . . . . . . . . . . . . . . . . . . . . A-7
VI NAMES AND ADDRESSES OF PARTNERS . . . . . . . . . . . . . . . . . . A-7
VII CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . A-8
VIII STATUS OF LIMITED PARTNERS. . . . . . . . . . . . . . . . . . . . . A-9
IX COMPENSATION TO THE GENERAL PARTNER AND SELLING COMMISSIONS TO
THE BROKER-DEALERS. . . . . . . . . . . . . . . . . . . . . . . . .A-10
X PARTNERSHIP EXPENSES. . . . . . . . . . . . . . . . . . . . . . . .A-12
XI DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .A-13
XII ALLOCATIONS OF INCOME OR LOSS . . . . . . . . . . . . . . . . . . .A-16
XIII ASSIGNMENT OF PARTNERSHIP UNITS . . . . . . . . . . . . . . . . . .A-17
XIV SUBSTITUTE LIMITED PARTNERS . . . . . . . . . . . . . . . . . . . .A-18
XV BOOKS, RECORDS, ACCOUNTING AND REPORTS. . . . . . . . . . . . . . .A-19
XVI RIGHTS, AUTHORITY AND POWERS OF THE GENERAL PARTNER . . . . . . . .A-21
XVII RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS. . . . . .A-31
A-i
<PAGE>
XVIII WITHDRAWAL, REMOVAL, BANKRUPTCY OR DISSOLUTION AND
LIQUIDATION OF GENERAL PARTNER AND TRANSFER OF GENERAL
PARTNER'S INTERESTS . . . . . . . . . . . . . . . . . . . . . . . .A-33
XIX REDEMPTION OF PARTNERSHIP UNITS . . . . . . . . . . . . . . . . . .A-34
XX CERTAIN TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . .A-35
XXI DISSOLUTION AND TERMINATION OF THE PARTNERSHIP. . . . . . . . . . .A-35
XXII SPECIAL POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . .A-36
XXIII EXCULPATION AND INDEMNIFICATION . . . . . . . . . . . . . . . . . .A-37
XXIV MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .A-38
A-ii
<PAGE>
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
("Agreement") dated October 27, 1997, by and among BERTHEL FISHER & COMPANY
LEASING, INC., an Iowa corporation, as General Partner ("General Partner"),
THOMAS J. BERTHEL, an individual, as the initial limited partner ("Initial
Limited Partner") and the Limited Partners admitted to the Partnership pursuant
to Articles VII and XIV, to establish and form a partnership (the
"Partnership") under the Iowa Limited Partnership Act. The parties hereto agree
as follows:
ARTICLE I
DEFINED TERMS
As used herein, the following terms will have the following meanings:
"Acquisition Expenses" means expenses including, but not limited to,
legal fees and expenses, travel and communication expenses, costs of
appraisals, accounting fees and expenses, and miscellaneous expenses
relating to selection and acquisition of Program Assets, whether or not the
Program Assets are acquired.
"Acquisition Fee" means the total of all fees and commissions paid by
any party in connection with the initial purchase or manufacture of
Equipment acquired by or financings placed by the Partnership. 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. See
Section 9.2.4 hereof.
"Adjusted Capital Contribution" of a Partner as of any date means the
Capital Contribution of the Partner, less the total amount of all payments
made as Liquidating Distribution or as a return of capital to the Partner
and to prior holders of such Partner's partnership interest prior to or on
such date pursuant to Sections 11.4.3 or 11.5 hereof.
"Admission Date" means any date on which subscribers for Units offered
pursuant to this Prospectus are admitted to the Partnership as Limited
Partners.
"Affiliate" means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 10.0% or more of the outstanding voting securities of
such other person, (iii) any officer, director or partner of such person,
and (iv) if such other person is an officer, director or partner, any
company for which such person acts in such capacity.
"Assignee" means a person who is shown in the Partnership's records as
having acquired a beneficial interest in one or more Units by assignment
from a Limited Partner.
"Book Value of the Partnership" means the book value of the
Partnership's assets less liabilities, as computed for federal income tax
purposes.
"Capital Account" means the account established and maintained for
each Partner in accordance with federal income tax accounting principles,
including specifically Section 704 of the Code and the regulations
thereunder.
"Capital Contribution" means with respect to the General Partner, the
$10,000 contributed by it to the capital of the Partnership. With respect
to each Limited Partner, Capital Contribution means the cash contributed to
the capital of the Partnership by such Limited Partner for the Units
($1,000 per
A-1
<PAGE>
Unit) sold or issued to him by the Partnership, which amount will be
attributed to, and will be considered to be a Capital Contribution of any
subsequent Assignee of such Units.
"Cash Available for Distribution" means Cash Flow plus cash funds available
for distribution from Partnership reserves, less amounts set aside for
restoration or creation of reserves as determined by the General Partner in its
sole discretion.
"Cash Flow" means all cash funds provided from operations, without
deduction for depreciation, but after deducting cash funds used to pay all
expenses and debt payments or pay for capital improvements and replacements
(other than cash funds withdrawn from reserves).
"Closing Date" means the date upon which the offering of Units terminates,
which is intended to be no later than one year after the Effective Date;
provided that if the Minimum Offering has been achieved and registration is
renewed with the applicable federal and state agencies, the General Partner may
extend the offering period and postpone the Closing Date for up to an
additional year (i.e., two years) from the Effective Date.
"Code" means the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent revenue laws.
"Competitive Equipment Sale Commission" means that brokerage fee paid for
services rendered in connection with the purchase or sale of equipment which is
reasonable, customary and competitive in light of the size, type and location
of the equipment.
"Controlling Person" means any officer, director, executive manager, senior
manager or equity holder of 5.0% or more of the General Partner or its
Affiliates, or any person having the power to direct or cause direction of the
General Partner or its Affiliates, whether through the ownership of voting
securities, by contract, or otherwise.
"Effective Date" means the date on which the offering is declared effective
by the SEC.
"Equipment" includes all types of equipment and other personal property
that may be purchased directly or indirectly by the Partnership, as generally
described in the Prospectus under the caption "Investment Objectives and
Policies," and includes property which is rehabilitated or reconfigured for
re-lease or sale.
"Escrow Agent" means First National Bank Iowa, Cedar Rapids, Iowa or any
other banking institution that serves as escrow agent for the Capital
Contributions prior to the Partnership achieving the Minimum Offering.
"Front End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase
including Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated. 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 employees are Affiliates of
the General Partner.
"Full Payout Lease" means, with respect to Equipment, a lease under which
the non-cancelable rental payments due during the initial term of the lease
(excluding any option periods) are sufficient to recover the Purchase Price of
Equipment.
"General Partner" means Berthel Fisher & Company Leasing, Inc., an Iowa
corporation, or any additional or successor general partner of the Partnership.
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"Gross Proceeds" means the aggregate amount of the original Capital
Contributions of all Limited Partners.
"Gross Rental Payments" received by the Partnership means the aggregate
amount of gross lease payments received by the Partnership, including receipts
classified as contract receivable payments in accordance with generally
accepted accounting principles.
"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 Partnership, and who is qualified to perform
such work.
"Initial Admission Date" means the date on which subscribers for the
minimum (1,200 Units) have been first admitted to the Partnership as
Limited Partners, which date shall be not later than fifteen (15) days
after the release by the Escrow Agent of the proceeds of the sale of Units.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits, including fees, to which such Partner may be entitled under
the terms of this Partnership Agreement together with the obligations of such
Partner to comply with the terms of this Partnership Agreement.
"Investment in Program Assets" means the amount of Capital Contributions
actually paid or allocated to the purchase, manufacture or renovation of
Equipment or other Program Assets acquired by the Partnership, including the
purchase of Equipment, working capital reserves allocable thereto (except that
working capital reserves in excess of 3.0% shall not be included), and other
cash payments such as interest and taxes but excluding Front End Fees.
"IRS" means the Internal Revenue Service.
"Lease Portfolio" includes all Partnership cash and cash equivalents, all
Equipment and leases thereof, all financing transactions, and all other
Partnership assets and securities.
"Limited Partner" refers to any person who is admitted to the Partnership
as a Limited Partner or a Substitute Limited Partner.
"Liquidating Distributions" means distributions to the Partners which, with
respect to any year, are in excess of the Operating Distributions for such
year, and distributions pursuant to Section 11.4 hereof.
"Liquidating Phase" of the Partnership means the period beginning no later
than the fifth anniversary of the Closing Date, or such earlier time as the
General Partner determines is in the best interests of the Limited Partners,
and continuing until the assets of the Partnership are liquidated, the
liabilities of the Partnership are satisfied and the distribution of the
Liquidating Distributions to the Partners is completed.
"Management Fee" means the fee paid to the General Partner for managing the
operations of the Partnership. The Management Fee will be paid, of course,
only if the General Partner actually serves in the capacity of General Partner
and performs the services required to be performed by the General Partner.
"Minimum Offering" consists of subscriptions for 1,200 Units accepted by
the General Partner, and payment received by the Escrow Agent of $1,200,000 for
such Units.
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"NASAA" means the North American Securities Administrators Association, Inc.
"NASD" means the National Association of Securities Dealers, Inc.
"Net Disposition Proceeds" means the proceeds realized by the Partnership
from the sale, refinancing or other disposition of Program Assets, including
insurance proceeds or lessee indemnity payments arising from the loss or
destruction of Equipment, less all Partnership liabilities.
"Net Income" or "Net Loss" means the net income or net loss of the
Partnership, as determined for federal income tax purposes under the accrual
method of accounting.
"Net Proceeds" means the total of Gross Proceeds reduced by Organization
and Offering Expenses, Selling Commissions and Acquisition Fees payable by the
Partnership.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of deprecation relative to
any particular asset may be added to the depreciated cost of such asset to
compute total assets. The amount of depreciation may be added only to the
extent that the amount resulting after adding such depreciation does not exceed
the fair market value of such asset.
"Operating Distributions" means those distributions during the Operating
Phase described under the caption "Cash Distributions and Redemptions."
"Operating Phase" of the Partnership means the period beginning on the
Effective Date and ending upon the commencement of the Liquidating Phase.
"Operating Distributions to Partners" consists of that component of
Operating Distributions equal to an annual distribution of up to 9.6% (payable
in monthly distributions of up to approximately .8% to each Partner) calculated
on each Partner's Adjusted Capital Contribution based upon the number of months
that such Partner was admitted to the Partnership.
"Organization and Offering Expenses" means expenses incurred in connection
with formation of the Partnership and preparing the Partnership for
registration and subsequently offering and distributing it to the public,
including sales commissions paid to brokers or dealers in connection with the
distribution of Interests and all advertising expenses except advertising
expenses related to the leasing of Equipment. See Section 9.2.3 hereof.
"Partners" refers collectively to the General Partner and the Limited
Partners. Reference to a "Partner" refers to any one of the Partners.
"Partnership" refers to the limited partnership governed by this
Partnership Agreement.
"Partnership Agreement" means this Agreement of Limited Partnership of
Telecommunications Income Fund XI, L.P., as it may be amended or amended and
restated from time to time.
"Person" means any natural person, partnership, corporation, association or
other legal entity.
"Present Value of the Partnership's Lease Portfolio" includes all
Partnership noncancellable lease payments receivable on all existing
Partnership leases (considered without regard to any renewals or extensions
thereof) discounted to their present value at an interest rate of 8.0% plus all
Partnership cash and the fair market value of all other Partnership securities
or assets. The Present Value of the Partnership's Lease Portfolio will be
determined annually by an independent accounting firm.
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"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in equipment. The Partnership is a Program.
"Program Assets" means Equipment and other tangible and intangible assets,
including, without limitation, secured loans and other financings, furniture,
fixtures and leasehold improvements, directly or indirectly acquired, owned,
leased, sold or financed by the Program.
"Program Interest" means the limited partnership unit or other indicia of
ownership in a Program.
"Prospectus" means the final prospectus in the Registration Statement filed
with the SEC on Form S-1, as amended, with respect to the Units offered for
sale, as such Prospectus may be supplemented from time to time.
"Purchase Price of Equipment" means the price paid upon the purchase or
sale of a particular item of Equipment, including the amount of Acquisition
Fees and all liens and mortgages on the Equipment, but excluding points and
prepaid interest.
"Redemption Value of Investor's Units" means the investor's Capital Account
valued by the General Partner as of the last day of the fiscal quarter prior to
the quarter during which a redemption request is received.
"Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not include:
(a) a transaction involving securities of a Program that have
been for at least twelve months listed on a national securities
exchange or traded through the National Association of Securities
Dealers Automated Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust
or association form of only the Partnership if, as a consequence of
the transaction, there will be no significant adverse change in any of
the following:
(1) Limited Partners' voting rights;
(2) the term of existence of the Partnership;
(3) Sponsor compensation; or
(4) The Partnership's investment objectives.
"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.
"SEC" mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Commission" means any commission paid by the Partnership to the
Managing Sales Agent and Selected Sales Agents for their services in marketing
Units as described in "Compensation of the General Partner and Affiliates."
"Special Report" means that report required by the NASAA Equipment Leasing
Guidelines, Section V.G.1.(c), as in effect on the date hereof, which is an
annual report by independent certified
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public accountants of the breakdown and allocation of the costs reimbursed to
the General Partner or its Affiliates. Such report shall at a minimum provide a
review of the time records of individual employees, the costs of whose services
were reimbursed, and a review of the specific nature of the work performed by
each such employee. The information required by such report may be contained
in the annual report sent to Limited Partners by the Partnership.
"Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any person who will manage or
participate in the management of the Partnership and any Affiliate of any such
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 for
professional services rendered in connection with the offering of Program
interests.
"Substitute Limited Partner" means any person who complies with the
requirements of the Partnership Agreement to become a Substitute Limited
Partner of the Partnership and is admitted to the Partnership as a Limited
Partner.
"Terminated Partner" means a General Partner who withdraws, is removed,
becomes bankrupt, is dissolved and liquidated or otherwise ceases to exist.
"Unit" means a Limited Partner's interest attributable to each Capital
Contribution of $1,000 to the Partnership.
ARTICLE II
NAME OF PARTNERSHIP
The name of the Partnership is TELECOMMUNICATIONS INCOME FUND XI, L.P. The
General Partner may, in its sole discretion, change the name of the Partnership
and, in the event of any such change, the General Partner will notify the
Limited Partners in writing within thirty (30) days after any such change. In
addition, the General Partner may adopt such trade or fictitious names as it
may deem appropriate.
ARTICLE III
TERM OF PARTNERSHIP
The Partnership commences at the time of the filing of the Certificate of
Limited Partnership in the office of the Secretary of State of the State of
Iowa, and will continue until December 31, 2012, unless sooner dissolved and
terminated as provided herein.
ARTICLE IV
BUSINESS AND PURPOSES
4.1 BUSINESS ACTIVITY. The primary purpose of the Partnership is to
acquire, own, operate, manage, lease, sell, convey, assign, exchange and
dispose of Equipment or interests therein, either in its own name, or in the
name or names of one or more nominees of the Partnership. The Partnership may
enter into financing arrangements which will involve making secured loans to or
other debt arrangements with unaffiliated third parties. These financings will
be completed only if such financings are advantageous to the Partnership, and
will include cases where lease transactions with those third parties would
result in unfavorable tax treatment. Such loans will generally be securitized
with a first
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security interest in equipment. In addition, the Partnership may engage in any
other business or do any and all acts and things necessary, incidental or
convenient to carry on the Partnership purposes and business as specified in
this section. Notwithstanding the foregoing, the Partnership shall only
acquire that type of Equipment that the General Partner is experienced in
acquiring and leasing. For purposes of this Partnership Agreement, any
Equipment acquired and held by one or more nominees for the benefit of the
Partnership will be deemed to have been acquired by and to be owned by the
Partnership itself. The Partnership shall not acquire equipment from a limited
or general partnership, joint venture, unincorporated association or similar
organization in which the General Partner has an interest, other than the
General Partner. The Partnership may not acquire Equipment in exchange for
Units. The Partnership may not invest as a limited partner in other leasing
programs, as defined by guidelines promulgated by NASAA.
4.2 OPERATING PHASE OF THE PARTNERSHIP. During the Operating Phase of the
Partnership, the Partnership will make payments pursuant to the terms of
Article XI hereof. During the Operating Phase, any portion of the
Partnership's cash or cash equivalents the General Partner believes are in
excess of amounts required for working capital or other reserves necessary for
the operation of the Partnership will either, in the discretion of the General
Partner, be distributed as Operating Distributions, reinvested in Equipment, or
distributed as Liquidating Distributions (provided there is no cumulative
deficiency in Operating Distributions).
4.3 WINDING-UP OF PARTNERSHIP BUSINESS. Beginning no later than the fifth
anniversary of the Closing Date, the Partnership will cease to reinvest in
Equipment and the General Partner will begin the orderly liquidation of all
Partnership assets. The Liquidation Phase shall begin at an earlier date if
the General Partner determines that it is in the best interest of the
Partnership to cease reinvesting all of the Partnership assets in Equipment.
The General Partner may, if it determines that it is in the best interests of
the Limited Partners, not reinvest a portion of the Partnership assets in
Equipment at a time prior to the fifth anniversary of the Closing Date, without
commencing the Liquidating Phase.
4.4 LIQUIDATION AND DISTRIBUTION OF PARTNERSHIP PROCEEDS. During the
Liquidating Phase of the Partnership, the General Partner will: (i) liquidate
the assets of the Partnership for cash, (ii) satisfy all Partnership
liabilities, (iii) set aside sufficient reserves to provide for future or
contingent Partnership liabilities, and (iv) make quarterly distributions of
the Partnership's remaining Cash Available for Distribution to all Partners
according to the terms of Article XI hereof.
ARTICLE V
PRINCIPAL PLACE OF BUSINESS
The principal place of business of the Partnership is located at 100 Second
Street, SE, Cedar Rapids, Iowa 52401. The General Partner may from time to
time change the principal place of business of the Partnership, and in the
event of any such change, it will notify the Limited Partners in writing within
thirty (30) days after such change. The General Partner may also establish
such additional places of business for the Partnership as it may deem
appropriate. The name and address of the registered agent for the Partnership
is Thomas J. Berthel, 100 Second Street, SE, Cedar Rapids, Iowa 52401.
ARTICLE VI
NAMES AND ADDRESSES OF PARTNERS
6.1 GENERAL PARTNER. The General Partner of the Partnership is Berthel
Fisher & Company Leasing, Inc., an Iowa corporation, the address of which is
100 Second Street, S.E., Cedar Rapids, Iowa 52401.
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6.2 LIMITED PARTNERS. The names, addresses and Capital Contributions of
the Limited Partners are set forth on Exhibit I attached hereto, which exhibit
will be maintained at the principal place of business of the Partnership.
ARTICLE VII
CAPITAL CONTRIBUTIONS
7.1 GENERAL PARTNER. Berthel Fisher & Company Leasing, Inc., as the
General Partner, has contributed Ten Thousand Dollars ($10,000.00) in cash to
the capital of the Partnership and has received an Interest as General Partner,
which is the equivalent of ten (10) Units and which has the same rights and
entitlements as if the General Partner owned 10 Units. The General Partner may
contribute additional amounts to the Partnership to purchase Units. In
addition, the General Partner will be entitled to receive an interest in the
Partnership and its cash distributions and Net Income and Net Loss according to
the provisions of Articles XI and XII. With respect to the ownership of Units,
the General Partner or any Affiliate will have the same rights and entitlements
as all other Limited Partners.
7.2 LIMITED PARTNER AT FORMATION. Thomas J. Berthel, as Initial Limited
Partner, has acquired an initial Unit in return for $1,000. Upon the admission
of Limited Partners pursuant to Section 7.4, the Partnership shall return those
funds to the Initial Limited Partner and shall reacquire his Unit, and the
Initial Limited Partner shall cease to be a Limited Partner in the Partnership.
7.3 LIMITED PARTNERS. Except as otherwise provided in this Partnership
Agreement, the Partnership intends to sell and issue to Limited Partners not
less than 1,200 Units nor more than 25,000 Units and to admit as Limited
Partners the persons who contribute cash to the capital of the Partnership for
such Units.
7.3.1 Each person who acquires Units will be eligible to
become a Limited Partner in the Partnership at such time as he has (i)
purchased two or more Units, (ii) contributed the sum of $1,000 in
cash for each Unit purchased, (iii) executed and filed with the
Partnership a Subscription Agreement in the form attached to the
Prospectus as Exhibit B, which sets forth an intention to become a
Limited Partner and requests admission to the Partnership in that
capacity, together with such other instruments as the General Partner
may deem necessary or desirable to effect such admission, including
the written acceptance and adoption by such person of the provisions
of this Partnership Agreement, and the execution and delivery to the
General Partner of a special power of attorney, the form, style and
content of which are more fully described herein, and (iv) obtained
the consent of the General Partner to such initial admission, the
granting or denial of which will be within the absolute discretion of
the General Partner.
7.3.2 Until Units in an aggregate amount of $1,200,000 have
been sold to Limited Partners other than the General Partner and the
Initial Limited Partner, which shall occur prior to the expiration of
one year following the effective date of the offering, all funds
received from subscribers for Units will be received by the
Partnership in trust and will be deposited in an interest bearing
escrow account of the Escrow Agent, or any other banking institution
designated by the General Partner as escrow holder for such funds.
Upon receipt of a minimum of $1,200,000 from subscribers for Units
together with subscription agreements acceptable to the General
Partner, the funds (including the interest, if any, earned on such
funds) will be released from the escrow account to the Partnership on
such date as the General Partner shall determine, and the Partnership
will admit such purchasers into the Partnership as Limited Partners on
the Initial Admission Date.
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7.3.3 After the Initial Admission Date, the General Partner
will admit Limited Partners on a daily basis. Subject to Section 7.3,
a Limited Partner will be deemed admitted into the Partnership on a
particular date only if as of that date his subscription funds are
received and the General Partner has accepted the subscription
agreement. The General Partner will generally accept or reject
applications to become Limited Partners which are made in accordance
with the provisions of Section 7.3 no later than thirty (30) days
after the receipt of such applications. Subscription amounts of
rejected applicants will be returned to such applicants immediately
upon rejection. The General Partner will amend this Partnership
Agreement or certificate as and to the extent required by Iowa law to
reflect the admission of a person as a Limited Partner.
Notwithstanding the foregoing, however, a Limited Partner will be
deemed to have been admitted to the Partnership on a different date if
the General Partner determines that such arrangement is required or
advisable under applicable law, including applicable tax law and
regulations.
7.3.4 Only after the Minimum Offering is achieved can the
Partnership receive subscription amounts directly and apply such funds
to the purposes of the Partnership. Any proceeds of the offering
available for investment in Program Assets that have not been invested
or committed to investment in Program Assets within 24 months after
the Effective Date will be distributed by the Partnership pro rata to
the Limited Partners as a return of capital.
7.3.5 No Partner will be entitled to interest on his Capital
Contribution or on his Capital Account. Except as expressly provided
herein, no Partner will have the right to withdraw or to receive any
return of his Capital Contribution, and no Partner will have the right
to receive property other than cash in return of his Capital
Contribution.
7.4 CAPITAL ACCOUNTS. A Capital Account will be established and
maintained for each Partner in accordance with federal income tax accounting
principles and specifically the provisions of Section 704 of the Code and the
regulations thereunder. The Capital Account of each Partner (i) will be
credited with (a) the amount of cash contributed by such Partner to the
Partnership and (b) such Partner's distributive share of Partnership Net Income
(including income exempt from tax) and (ii) will be debited with (a) the amount
of cash and the fair market value of property distributed to such Partner (net
of liabilities assumed by such Partner and liabilities to which such
distributed property is subject), (b) such Partner's distributive share of
expenditures of the Partnership described in Code Section 705(a)(2)(B) (which
share will be determined in accordance with such Partner's interest in the
Partnership), and (c) such Partner's distributive share of Partnership Net
Loss. The transferee of all or a portion of a Partner's Units will succeed to
that portion of the Partner's Capital Account which is allocable to the portion
of the Units transferred.
ARTICLE VIII
STATUS OF LIMITED PARTNERS
Pursuant to the Iowa Limited Partnership Act no Limited Partner shall be
bound by, or be personally liable for, the expenses, liabilities or obligations
of the Partnership except as provided by law, unless the Limited Partner, in
addition to the exercise of the Limited Partner's rights and powers as a
Limited Partner, participates in the control of the business. Each Unit will
be fully paid and, except as provided by law, nonassessable. However, Limited
Partners understand and agree that they may be required under the Iowa Limited
Partnership Act (the "Iowa Act") to repay to the Partnership, with interest,
any return of their Capital Contributions previously made by the Partnership to
the extent necessary to discharge the Partnership's liabilities to creditors
who extended credit to the Partnership during the period the contribution was
held by the Partnership. In addition, if a Limited Partner receives a return
of his Capital Contribution in violation of this Partnership Agreement or of
the Iowa Act, such
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Limited Partner may be liable for up to six (6) years for the amount of the
Capital Contribution wrongfully returned.
ARTICLE IX
COMPENSATION TO THE GENERAL PARTNER AND
SELLING COMMISSIONS TO THE BROKER-DEALERS
9.1 The General Partner and its Affiliates and the selling broker-dealers
will receive compensation from the Partnership only as specified by this
Partnership Agreement. For a description of the General Partner's interest in
allocations of Net Income and Net Loss, and Partnership distributions, see
Articles X, XI and XII hereof. The General Partner and its Affiliates will not
be compensated for any services other than those described in this Partnership
Agreement.
9.2 OFFERING AND ACQUISITION PHASE.
9.2.1 LIMITATION ON FRONT END FEES. The General Partner will
commit a percentage of Capital Contributions to Investment in Program
Assets which is equal to the greater of (a) 80.0% of the Capital
Contributions reduced by .0625% for each 1.0% of indebtedness
encumbering Program Assets; or (b) 75.0% of Capital Contributions.
The percent of indebtedness encumbering Program Assets 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 80.0%. The General Partner will bear all Front End Fees which in
the aggregate exceed that percentageof Gross Proceeds determined by
subtracting from 100% the percentage amount determined by application
of the foregoing formula.
9.2.2 SELLING COMMISSIONS. The Managing Sales Agent shall be
Berthel Fisher & Company Financial Services, Inc., an affiliate of the
General Partner. The Partnership will pay a Managing Sales Agent Fee
to the Managing Sales Agent equal to 9.0% of the Gross Proceeds. From
such amount, the Managing Sales Agent will pay commissions to Selected
Sales Agents of 6.0% of the selling price of the Units sold through
them, provided that for all Selected Sales Agents who sell more than
$1,000,000 of Units, the commission rate shall be 6.5% of the selling
price of the Units sold through them.
9.2.3 ORGANIZATION AND OFFERING EXPENSES. The Partnership
will pay a maximum of three and one-half percent (3.5%) of Gross
Proceeds of the offering for actual expenses incurred by the General
Partner in connection with the formation of the Partnership, and in
qualifying Units under applicable federal and state law and any other
expenses actually incurred and directly related to the qualification,
registration, advertising, offering and sale of Units. Such expenses
include (i) fees and expenses paid by the Partnership to any counsel
or accountants, (ii) registration fees, filing fees and taxes,
(iii) the costs of printing, amending, supplementing and distributing
the Prospectus and Registration Statement, (iv) the costs of
producing, qualifying, printing and distributing advertising and sales
materials used in connection with the issuance of Units, (v) the costs
of "due diligence" activities (including meetings and seminars), and
(vi) accounting and legal fees incurred in connection with any of the
foregoing, but does not include Acquisition Fees. The total of
Organization and Offering Expenses plus the nine percent (9.0%)
Selling Commission will not exceed twelve and one-half
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percent (12.5%) of the Gross Proceeds. The twelve and one-half
percent (12.5%) limitation is without recourse to, or reimbursement by,
the Partnership.
9.2.4 ACQUISITION FEE AND ACQUISITION EXPENSES. The General
Partner will receive an Acquisition Fee for rendering of its services
in connection with the research, evaluation and negotiation of
available acquisition and financing opportunities. The Acquisition
Fee shall be in an amount equal to five percent (5%) of the cost of
Equipment purchased by the Partnership, all or a portion of which will
be payable when the Equipment is purchased by the Partnership (or the
General Partner as nominee) and five percent (5%) of the amount of
financings placed by the Partnership, payable upon the closing of a
financing transaction. The total Acquisition Fee including all fees
and commissions paid by all parties to all parties in connection with
the initial acquisition or manufacturer of Equipment will not exceed
the lesser of five percent (5%) of the cost of Equipment purchased by
the Partnership and financings placed by the Partnership, or an amount
which is competitive with that charged for Affiliates of the General
Partner. Included in such fee will be any leasing commission,
selection fee, construction supervision fee, financing fee,
remarketing fee, nonrecurring management fee, or any fee of a similar
nature, however designated. The Partnership shall not pay, directly
or indirectly, a commission or fee (except to the extent permitted as
set forth in 9.2.1) to a Sponsor in connection with the reinvestment
or distribution of Cash Available for Distribution or of the proceeds
of the resale, exchange, or refinancing of Program Assets. The
General Partner shall pay all Acquisition Expenses out of its
Acquisition Fee.
9.3 OPERATING AND LIQUIDATING PHASES.
9.3.1 GENERAL PARTNER DISTRIBUTIONS. During the Operating
Phase and Liquidating Phase of the Partnership, the General Partner is
entitled to receive, to the extent available, (i) the General
Partner's Expense Allowance, (ii) the Management Fee, (iii) twenty
percent (20%) of certain Liquidating Distributions, as provided in
Articles XI and XII hereof, (iv) its distributions as owner of the
General Partner interest (equivalent to 10 Units), and (v) the
Re-Leasing fee described in Section 9.3.2.
9.3.2 RE-LEASING FEE. As compensation for providing
re-leasing services to the Partnership, the General Partner will receive
a fee equal to the lesser of the competitive rate for comparable
services for similar equipment or 2.0% of the gross rental payments
derived from the re-lease of such equipment after the time that the
re-lease has been consummated as a result of the efforts of the
General Partner. The General Partner will not be paid for re-leasing
services where Equipment is re-leased to a previous lessee of such
Equipment or to an affiliate of such previous lessee. The General
Partner has and will maintain adequate staff to render such re-leasing
services and will render substantial re-leasing services in connection
with each re-lease of Equipment. Payment for re-leasing services
shall be paid as each rental payment is made over the term of the
re-lease. This fee will not be paid on a current basis if the Partnership
has not paid the Limited Partners Operating Distributions equal to
9.6% of Adjusted Capital Contributions for the year. In such case,
the fee will be accrued as a debt of the Partnership payable out of
future revenues.
9.4 INTEREST. The General Partner may make loans to the Partnership and
will be entitled to receive repayment of such loans and to receive interest on
loans made to the Partnership, subject to the provisions of Section 16.1.20.
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9.5 WITHDRAWAL OF GENERAL PARTNER. Should the General Partner
withdraw, be removed, become bankrupt or dissolve and liquidate or
otherwise cease to exist as provided in Article XVIII, any portion of any
fee or commission payable to the General Partner pursuant to the provisions
of this Article IX, which is then accrued and due, but not yet paid, will
be paid by the Partnership to the General Partner in accordance with
Section 18.2.
ARTICLE X
PARTNERSHIP EXPENSES
10.1 The Partnership will not reimburse the General Partner or its
Affiliates, except for (i) Organization and Offering Expenses reimbursed
pursuant to Section 9.2.3; (ii) loans made pursuant to Section 9.4; (iii) the
actual cost to the General Partner or its Affiliates of goods and materials
used for or by the Partnership and obtained from persons who are not
Affiliates of the General Partner; (iv) expenses incurred by the General
Partner or its Affiliates related to the purchase, operations, financing and
acquisition of Equipment incurred prior to the time that the Partnership has
funds available to pay such expenses directly; and (v) administrative
services provided by the General Partner or any of its Affiliates, such as
legal, accounting, computer, transfer agent, mailings to Limited Partners and
other similar services. However, reimbursement for administrative expenses
will be at the lesser of cost or the competitive rate that is charged by
persons who are not Affiliates of the General Partner for comparable
administrative services in the same geographic area.
The reimbursement for administrative expenses will be for administrative
expenses that are necessary for the prudent operation of the Partnership, and
will not be for time expended by Controlling Persons of the General Partner
or its Affiliates, or for salaries, fringe benefits, travel expenses, and
other administrative items incurred or allocated to any Controlling Person of
a Sponsor. No general or administrative overhead incurred by the General
Partner in connection with the administration of the Partnership will be
charged to the Partnership. Such general or administrative overhead
includes, but is not limited to, salaries, rent, travel expenses, utilities,
capital expenditures and other items generally falling under the category of
overhead. No payment will be made for services to which the General Partner
or its Affiliates are entitled by way of a separate fee.
10.2 Subject to Section 10.1, the Partnership shall pay all expenses
of the Partnership, which expenses shall be billed directly to the
Partnership from unrelated third parties and not from the General Partner
and may include, but are not limited to: (i) all costs (excluding rent,
depreciation, utilities, capital equipment and other overhead items) of
personnel employed full or part-time by the Partnership and involved in the
business of the Partnership, and such personnel may include employees of
the General Partner or its Affiliates (other than Controlling Persons);
(ii) all costs of borrowed money, taxes and assessments on Equipment and
other taxes applicable to the Partnership; (iii) legal, audit, accounting,
data processing, programming, brokerage and other fees; (iv) printing,
engraving and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, registration and recording of documents
evidencing ownership of an interest in the Partnership or in connection
with the business of the Partnership; (v) fees and expenses paid to
independent contractors, bankers, brokers and servicers, consultants and
other Equipment management personnel, insurance brokers and other agents;
(vi) expenses in connection with the disposition, replacement, alteration,
repair, refurbishment, leasing, re-leasing, financing, refinancing and
operation of Equipment (including the costs and expenses of insurance
premiums and of maintenance of such Equipment); (vii) expenses of
organizing, revising, amending, converting, modifying or terminating the
Partnership; (viii) expenses in connection with distributions made by the
Partnership to, and communications, bookkeeping and clerical work necessary
in maintaining relations with its Limited Partners, including the costs of
printing and mailing to such persons any evidence of ownership of Units and
reports of meetings of the Limited Partners, and of preparation of proxy
statements and solicitations of proxies in connection therewith;
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(ix) expenses in connection with preparing and mailing reports required to be
furnished to Limited Partners for investor, tax reporting or other purposes,
and reports which the General Partner deems to be in the best interests of
the Partnership to furnish to the Limited Partners; (x) any accounting,
computer (including, but not limited to, terminals, controllers, leased
lines, and CPUs), statistical, data processing, programming or bookkeeping
costs necessary for the maintenance of the books and records of the
Partnership (including an allocable portion of the General Partner's costs of
acquiring and owning computer equipment primarily used in connection with the
operations and reporting activities of the Partnership and any other
investment entities sponsored or administered by the General Partner of any
of its Affiliates), and (xi) the cost of preparation and dissemination of the
informational material and documentation relating to the potential lease,
re-lease, sale, financing or other disposition of Equipment.
10.3 ACQUISITION EXPENSES. The General Partner shall pay all
Acquisition Expenses out of its Acquisition Fee. No expenses that are
Acquisition Expenses shall be reimbursed to the General Partner pursuant to
Sections 10.1 or 10.2.
ARTICLE XI
DISTRIBUTIONS
11.1 OPERATING DISTRIBUTIONS. Subject to the further provisions of
this Article XI, the Partnership will make certain distributions to
Partners to the extent it has Cash Flow after reinvesting Cash Flow in
additional Equipment and financings to the extent determined by the General
Partner to be in the Limited Partners' best interests, which distributions
will be made during the Operating Phase, in order of priority as follows:
11.1.1 GENERAL PARTNER'S EXPENSE ALLOWANCE. The General
Partner shall be reimbursed in accordance with Section 10.1 hereof for
the administrative services it provides to the Partnership. The costs
reimbursed to the General Partner and its Affiliates under the General
Partner's Expense Allowance will be the subject of a Special Report.
11.1.2 OPERATING DISTRIBUTION TO PARTNERS. To the extent
there is additional Cash Flow, an Operating Distribution of up to nine
and six-tenths percent (9.6%) annually (payable in monthly
distributions of up to approximately eight tenths percent (.8%) to
each Partner with respect to the Units and with respect to the general
partner Interest) during the Operating Phase, said distributions
calculated on each Partner's Adjusted Capital Contribution, as
adjusted from time to time, and based on the number of days that each
Partner is a Partner. Operating Distributions will not continue
during the Liquidating Phase.
11.1.3 MANAGEMENT FEE. A Management Fee payable to the General
Partner equal to two percent (2%) per year of the Gross Rental Payments
received by the Partnership and loan payments and other payments received
on account of financing activities of the Partnership, subject to
reduction as described below. This fee will not be paid on a current
basis (but will accrue and accumulate) if the Partnership has not paid
the Limited Partners an annual nine and six-tenths percent (9.6%)
Operating Distribution and the General Partner's Expense Allowance for
the year.
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11.1.4 LIMITATION ON BORROWING. The General Partner shall not
borrow for the purpose of making Operating Distributions, except to
the extent necessary to make distributions to pay taxes, as provided
in Section 11.4.2.
11.2 LIMITATION ON OPERATING DISTRIBUTIONS. The payment of Operating
Distributions during the Operating Phase will be made monthly, within ten
(10) days after the end of each month of distribution.
11.3 PAYMENT OF OPERATING DISTRIBUTIONS.
11.3.1 Payments of Operating Distributions may be suspended
if, at any time, in the determination of the General Partner, the
Partnership is receiving nominal amounts of yield on Equipment and
leases.
11.3.2 There is no assurance that the Cash Flow will be at a
level sufficient to make payments of Operating Distributions. Any
portion of the Partnership's Cash Flow not paid out in the form of
Operating Distributions will be reinvested or distributed as
contemplated by Article IV hereof.
11.3.3 Operating Distributions that are made to Limited
Partners will be apportioned among them based on the number of Units
held.
11.3.4 The Partnership will not make distributions in kind to
any party.
11.4 LIQUIDATING DISTRIBUTIONS.
11.4.1 During the Liquidating Phase of the Partnership, the
General Partner will proceed with the orderly liquidation of all
Partnership assets. Out of the amounts received by the Partnership
pursuant to such liquidation, the General Partner will satisfy all
liabilities of the Partnership and will set aside reserves to provide
for future or contingent Partnership liabilities. No Operating
Distributions will be made during the Liquidating Phase. The amounts
remaining after such payments and reserves will be distributed in
accordance with Sections 11.4.2 and 11.4.3 hereof. During the
Liquidating Phase, Liquidating Distributions will be made quarterly to
all Partners to the extent available, and will be paid within five (5)
days after the end of each such quarter.
11.4.2 During the Operating Phase, the General Partner may
sell a portion of the Equipment, including lease receivables, the
residual value of the Equipment, and other assets, and reinvest the
proceeds in additional Equipment, or in the General Partner's sole
discretion, distribute the proceeds (less amounts to pay expenses or
set aside for other Partnership purposes as determined by the General
Partner) to the Limited Partners as Liquidating Distributions in the
manner described in Section 11.4.3. Reinvestment of proceeds
resulting from the sale or refinancing of Equipment may take place
only if sufficient cash will be distributed to pay state and federal
income tax, if any, (assuming Limited Partners are in a 40% [combined
state and federal] tax bracket) created by the sale or refinancing of
such Equipment. Although 11.1.4 permits borrowing to make
distributions to pay state and federal income tax, no such borrowings
will be made if the proceeds resulting from the sale or refinancing of
Equipment, if distributed, would be sufficient to satisfy the
requirement to make distributions to pay state and federal income tax.
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11.4.3 The Liquidating Distributions of the Partnership will
be paid in order of priority as follows:
11.4.3.1 First, payment of the General Partner's Expense
Allowance;
11.4.3.2 Second, payment to the Partners to the extent they
have not received, during the term of their investment in the
Partnership, distributions totaling eight percent (8%) (on a
cumulative compounded daily basis) on their Adjusted Capital
Contributions;
11.4.3.3 Third, payment to the Partners of one hundred
percent (100%) of their Adjusted Capital Contributions to the
Partnership;
11.4.3.4 Fourth, payment to the Partners to the extent they
have not received, during the term of their investment in the
Partnership, distributions totaling nine and six-tenths percent
(9.6%) annually (calculated only through the end of the Operating
Phase), non-compounded, on their Adjusted Capital Contributions
(as calculated from time to time).
11.4.3.5 Fifth, payment to the General Partner of any
unpaid arrearages in its Management Fee, subject to the
limitations set forth in Section 11.1.3; and
11.4.3.6 Sixth, payment of any remaining amounts will be
paid eighty percent (80%) to the Limited Partners and twenty
percent (20%) to the General Partner; provided, however, the
General Partner will not receive its share of these remaining
amounts until such time as the Limited Partners have received
Operating Distributions and Liquidating Distributions equal to
their Capital Contributions plus a cumulative return of eight
percent (8%) annually, compounded daily, on their Adjusted
Capital Contributions (as calculated from time to time).
11.4.4 Any payments of Liquidating Distributions to the
Limited Partners pursuant to Section 11.4.3.6 hereof will be allocated
among them on the basis of the positive Capital Account balance of
each Limited Partner or, if zero, on the basis of the number of Units
held.
11.4.5 When all of the assets of the Partners have been
liquidated and, in the determination of the General Partner the
Partnership's remaining assets constitute approximately twenty percent
(20%) of the aggregate Liquidating Distributions, the General Partner
will cause an audit of the Partnership to be made by an independent
firm of certified public accountants, the cost of which audit will be
borne by the Partnership. The General Partner will distribute the
remaining Liquidating Distributions after completion of the audit and
in reliance thereon, pursuant to the terms of Section 11.4.3.
11.5 RETURN OF UNINVESTED NET PROCEEDS. Any Net Proceeds not invested
or committed for Investment in Program Assets or leases within two (2)
years after the Effective Date will be returned (without interest) to the
Limited Partners in proportion to their respective number of Units owned.
Any such funds returned will include, in addition, a return of a
proportionate share of Organization and Offering Expenses and Selling
Commissions. Interest earned on such funds will be retained for the
benefit of the Partnership.
The following categories of Net Proceeds will be deemed to be
"invested or committed for investment" in Equipment: (i) funds previously
expended in connection with the acquisition of Equipment or for other
Partnership purposes, (ii) funds to be disbursed in the future under the
provisions
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of agreements relating to the acquisition of Equipment or other Partnership
matters, and (iii) funds reserved or set aside as a condition to obtaining
financing such as compensating balances, special reserves, and funds subject
to escrow or similar arrangements. Any Net Proceeds which are so "invested
or committed for investment" in Equipment two (2) years after the Effective
Date but which are not thereafter utilized by the Partnership also will be
returned (without interest) to the Limited Partners, in accordance with this
Section 11.5. The amount of each Limited Partner's Adjusted Capital
Contribution will be reduced by its share of any such distributions.
11.6 RESTRICTIONS ON DISTRIBUTIONS. The Partnership may be restricted
from making payments to Partners under the terms of notes, mortgages or
other types of debt obligations it may issue, incur or assume in
conjunction with borrowed funds. Any payments also may be restricted or
suspended in circumstances where the General Partner determines, in its
absolute discretion, that such action is in the best interests of the
Partnership. Commissions on distributions are prohibited. Resale fees on
liquidation of Equipment are prohibited.
11.7 DISTRIBUTIONS SUBJECT TO PARTNERSHIP EXPENSES. All payments to
Partners are subject to the payment of Partnership expenses, as set forth
in Section 10.2, and to the maintenance of reasonable reserves for
alteration, improvement, or repair of Equipment and for other Partnership
purposes.
ARTICLE XII
ALLOCATIONS OF INCOME OR LOSS
12.1 ALLOCATIONS OF NET INCOME AND NET LOSS AMONG LIMITED PARTNERS.
12.1.1 That portion of Net Income and Net Loss of the
Partnership allocated to Limited Partners and to the General Partner
with respect to its General Partner Interest (equivalent to 10 Units)
for any fiscal year will be apportioned among them based on the number
of Units (equivalent Units in the case of the General Partner) held
and on the number of days within the fiscal year that they were
Partners beginning with the day on which they were admitted as
Partners, subject to the condition that the Partnership net income
shall first be allocated to Partners with negative capital account
balances.
12.1.2 For purposes of the allocations referred to in this
Section 12.1 and distributions referred to in Section 11.3.3, a
Limited Partner is deemed to have been admitted as a Limited Partner
as follows: if a Limited Partner, on the day on which he was admitted
to the Partnership under Section 7.3, or if an Assignee, on the date
on which the assignment of Units to him is effective. If a Limited
Partner becomes an assignor of Units in accordance with the provisions
of Article XIII, or if his Units are repurchased by the Partnership in
accordance with the provisions of Article XIX, he will be deemed to
have ceased being a Limited Partner with respect to the Units assigned
or repurchased on the day preceding the effective date of the
assignment or repurchase.
12.2 ALLOCATIONS OF NET INCOME AND NET LOSS. Any Partnership Net Loss
at the end of a taxable year will be allocated to the Limited Partners to
the extent of their positive Capital Accounts. Any additional Partnership
Net Loss would be allocated to the General Partner. Partnership Net Income
will initially be allocated to Partners with negative Capital Accounts in
proportion to and to the extent of such negative Capital Accounts so as to
reduce such deficit capital account balances to zero as quickly as
possible. Except as provided below, any Partnership Net Income will then
be allocated to the Limited Partners. During the Liquidating Phase of the
Partnership, Net Income earned from the sale of the Partnership's assets
shall be allocated to each Partner in proportion to such Partner's share of
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Liquidating Distributions pursuant to Section 11.4 hereof. For purposes of
these allocations, the General Partner will be characterized as a Limited
Partner to the extent of its General Partner Interest, which is equivalent to
10 Units.
12.3 CONSENT TO ALLOCATION BY LIMITED PARTNERS. The methods set forth
above by which payments to Limited Partners and allocations of Net Income
and Net Loss are made and apportioned are hereby expressly consented to by
each Limited Partner as an express condition to becoming a Limited Partner.
ARTICLE XIII
ASSIGNMENT OF PARTNERSHIP UNITS
13.1 Subject to Sections 13.1.4 and 13.1.5 below, a Limited Partner
may assign the whole or any part of his Units in the Partnership. A
Limited Partner other than the Initial Limited Partner may make an
assignment only in whole Units or, if simultaneously assigning the whole of
his interest in the Partnership, in whole and partial Units. Such
assignment shall confer upon the Assignee the right to become a Limited
Partner in the following manner and subject to the following conditions and
the provisions of Article XIV hereof:
13.1.1 An instrument of assignment executed by both the
assignor and the Assignee of the Units satisfactory in form to the
General Partner shall be delivered to the General Partner;
13.1.2 The assignor or Assignee shall have paid a transfer
fee, as requested by the General Partner, not in excess of the lesser
of One Hundred Fifty Dollars ($150.00) or the Partnership's actual,
necessary and reasonable expenses to cover all reasonable fees and
filing costs in connection with such transfer;
13.1.3 No assignment shall be effective until the last day of
the month in which the General Partner actually receives the
instrument of assignment complying with the requirements of Section
13.1.1 above;
13.1.4 No assignment shall be effective if such assignment
might, in the opinion of counsel to the Partnership or the General
Partner, result in (i) the termination of the Partnership for purposes
of the then applicable provisions of the Code, or (ii) the
characterization of the Partnership as publicly traded for federal
income tax purposes, or (iii) the assets of the Partnership being
considered by law to be assets of employee benefit plans investing in
Units and therefore subjecting those assets to the fiduciary standard
of the Employee Retirement Income Security Act of 1974 (provided,
however, that until such time as there is clear authority on these
issues, the General Partner will not permit a transfer of Units except
in infrequent and compelling circumstances, as determined in its sole
and absolute discretion, and only if immediately following such
transfer at least seventy-five percent (75%) of the outstanding Units
are held by persons who are not either employee benefit plans or
Individual Retirement Accounts);
13.1.5 No assignment shall be effective if the assignment
would, to the knowledge of the General Partner, violate the provisions
of any applicable federal or state securities laws; and
13.1.6 No assignment to a minor or incompetent shall be
effective in any respect.
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13.2 An Assignee of Units will be entitled to receive all payments to
Limited Partners of whatever character attributable to the Units assigned
from and after the effective date of the assignment of such Units to him;
however, anything herein to the contrary notwithstanding, the Partnership and
the General Partner will be entitled to treat the assignor of such Units as
the absolute owner thereof in all respects and will incur no liability for
allocations of Net Income or Net Loss or distributions, or transmittal of
reports and notices required to be given to Limited Partners hereunder, which
are made in good faith to such assignor, until such time as the written
instrument of assignment has been received by the Partnership and recorded on
its books and the effective date of the assignment has passed. Unless
otherwise agreed by the General Partner, Assignee and assignor, any Assignee
of Units shall, for the purposes of Articles XI and XII, be recognized as an
Assignee and the assignment will be effective as of the first day of the
month next succeeding the month in which the General Partner actually
receives the instrument of assignment that complied with the requirements of
Section 13.1.1, subject to and conditioned upon satisfaction of the other
provisions of Section 13.1.
13.3 Any attempted or purported assignment of Units in contravention
of any of the provisions of this Article XIII will be void and ineffectual
and will not bind or be recognized by the Partnership.
ARTICLE XIV
SUBSTITUTE LIMITED PARTNERS
14.1 No Assignee will have the right to become a Substitute Limited
Partner in place of his assignor unless the assignment is effective in
accordance with Article XIII hereof and all of the following conditions
will first have been satisfied:
14.1.1 A duly executed and acknowledged written instrument
sets forth the intention of the assignor that the Assignee succeed to
the assignor's interest in the assigned Units as a Substitute Limited
Partner in his place, and gives the Assignee the right to succeed to
the assignor's interest in the assigned Units as a Substitute Limited
Partner, all in accordance with the provisions of this Article;
14.1.2 The assignor and Assignee will have executed and
acknowledged such other instruments as the General Partner may deem
necessary or desirable to effect such substitution, including a
written acceptance and adoption by the Assignee of the provisions of
this Agreement, as amended, and a special power of attorney, the form
and content of which are described in Article XXII of this Partnership
Agreement; and
14.1.3 A reasonable transfer fee to be determined by the
General Partner, which will not exceed the lesser of One Hundred Fifty
Dollars ($150.00) or the actual, necessary and reasonable expenses of
said substitution, will be paid to the Partnership plus an additional
amount to cover all reasonable costs and expenses connected with such
substitution.
14.2 By executing or adopting this Agreement, each Limited Partner
hereby consents to the admission of Substitute Limited Partners by the
Partnership and to any Assignee of his Units becoming a Substitute Limited
Partner.
14.3 The General Partner shall cause the Partnership's records to be
amended at least once each calendar quarter to effect the substitution of
Substituted Limited Partners, but notwithstanding the dates of such
amendment all substitutions will be given effect in accordance with the
provisions of Article XIII and Section 14.1 hereof.
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ARTICLE XV
BOOKS, RECORDS, ACCOUNTING AND REPORTS
15.1 The fiscal year of the Partnership will end on December 31 of
each year.
15.2 The General Partner will keep, or cause to be kept, full and
accurate records of all transactions of the Partnership.
15.3 Access by Limited Partners to records and Partnership information
shall be governed by the following:
15.3.1 Any Limited Partner and any designated representative
thereof shall be permitted access to all records of the Partnership at
all reasonable times, and may inspect and copy any of them. A
reasonable charge for copy work may be charged by the Partnership.
15.3.2 An alphabetical list of the names, addresses, and
business telephone numbers of the Limited Partners of the Partnership
along with the number of Units held by each of them (the "Limited
Partner List") shall be maintained as a part of the books and records
of the Partnership and shall be available for inspection by any
Limited Partner or its designated agent at the home office of the
Partnership upon the request of the Limited Partner.
15.3.3 The Limited Partner List shall be updated at least
quarterly to reflect changes in the information contained therein.
15.3.4 A copy of the Limited Partner List shall be mailed to
any Limited Partner requesting the Limited Partner List within ten
days of the request. The copy of the Limited Partner List shall be
printed in alphabetical order, on white paper, and in a readily
readable type size (in no event smaller than 10-point type). A
reasonable charge for copy work may be charged by the Partnership.
15.3.5 The purposes for which a Limited Partner may request a
copy of the Limited Partner List include, without limitation, matters
relating to Limited Partners' voting rights under this Partnership
Agreement, and the exercise of Limited Partners' rights under federal
proxy laws.
15.3.6 If the Sponsor of the Partnership neglects or refuses
to exhibit, produce, or mail a copy of the Limited Partner List as
requested, the Sponsor shall be liable to any Limited Partner
requesting the list for the costs, including attorneys' fees, incurred
by that Limited Partner for compelling the production of the Limited
Partner List, and for actual damages suffered by any Limited Partner
by reason of such refusal or neglect. It shall be a defense that the
actual purpose and reason for the requests for inspection or for a
copy of the Limited Partner List is to secure such list of Limited
Partners 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 Partnership. The Sponsor may require the Limited
Partner requesting the Limited Partner List to represent that the list
is not requested for a commercial purpose unrelated to the Limited
Partner's interest in the Partnership. The remedies provided
hereunder to Limited Partners requesting copies of the Limited Partner
List are in addition to, and shall not in any way limit, other
remedies available to Limited Partners under federal law or the laws
of any state.
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15.4 The General Partner will cause to be prepared and will distribute to
the Limited Partners, within sixty (60) days after the end of each fiscal
quarter, a report containing (i) the unaudited financial information included
in the Partnership's report on Form 10-Q for such quarter (if such report is
required to be filed with the Securities and Exchange Commission on behalf of
the Partnership for such quarter, and if such report is not required to be
filed, information similar to that which would be included in the Form 10-Q),
(ii) the Present Value of the Partnership's Lease Portfolio as of the end of
such quarter, (iii) the information contained in any report on Form 8-K filed
with the Securities and Exchange Commission on behalf of the Partnership
during such quarter with respect to the proposed acquisition of any Equipment
by the Partnership, (iv) a description of any Equipment acquired by the
Partnership during such quarter; (v) a statement setting forth the amount of
the fees received by the General Partner from the Partnership during such
quarter and identifying the services to which such fees relate; and (vi) in
the appropriate quarterly report, notification that the General Partner has
commenced the Liquidation Phase of the Partnership.
15.5 The General Partner will cause to be compiled and will distribute
to the Limited Partners, within seventy-five (75) days after the end of
each fiscal year, all financial information regarding the Partnership that
is necessary for the preparation of the Limited Partners' federal income
tax returns.
15.6 The General Partner will cause to be prepared and will distribute
to the Limited Partners the following:
15.6.1 a report of equipment acquisitions made during each
quarter shall be sent to all Limited Partners within sixty (60) days
following the end of each quarter, until the proceeds of the offering
are fully invested or, if not invested, returned to the Limited
Partners. Such reports shall include, by way of illustration and not
limitation, a statement of the actual purchase price of equipment,
including terms of the purchase, a statement of the total amount of
cash expended by the Partnership to acquire such items of Equipment
(including and itemizing all commissions, fees, expenses and the name
of each payee), and a statement of the amount of proceeds in the
Partnership which remain unexpended or uncommitted; and
15.6.2 within one hundred twenty (120) days after the end of
each fiscal year, an annual report containing: (i) a balance sheet as
of the end of the fiscal year and statements of income, partners'
equity, and a cash flow statement, for the year then ended, all of
which shall be prepared in accordance with generally accepted
accounting principles and accompanied by a report of independent
auditor, and (ii) a breakdown of distributions to Limited Partners for
the period covered thereby separately identifying distributions from:
(1) cash flow from operations during the period (2) cash flow from
operations during a prior period which had been held as reserves, (3)
proceeds from disposition of Equipment and investments, and
(4) reserves from the gross proceeds of the offering originally
obtained from the Limited Partners.
For each piece of equipment acquired by the Partnership
individually representing at least ten percent (10%) of the
Partnership's total Investment in Program Assets, the General Partner
shall include a status report as part of the annual report, which
status report shall indicate: (i) condition of Equipment, (ii) how
Equipment is being utilized as of the end of year (leased, operated,
held for lease, repair or sale), (iii) remaining term of leases, (iv)
projected use of Equipment for next year (renew lease, lease, retire,
or sell), and (v) such other information relevant to the value or
utilization of the Equipment as the General Partner deems appropriate.
The status report shall describe the method used or basis for
valuation.
15.6.3 Within sixty (60) days after the end of the first six
(6) months of each fiscal year, a report, prepared on the same
accounting basis to be utilized in the annual reports, containing:
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a. a condensed balance sheet, which may be unaudited;
b. a condensed statement of income for the period then
ended, which may be unaudited;
c. a cash flow statement for the period then ended, which
may be unaudited; and
d. other pertinent material regarding the Partnership and
its activities during the period covered by the report.
15.6.4 If any Sponsor receives fees for services, it shall,
within sixty (60) days of the end of each quarter wherein such fees
were received, send to each Limited Partner a detailed statement
setting forth the services rendered, or to be rended by such Sponsor
and the amount of the fees received. This requirement may not be
circumvented by lump-sum payments to management companies or other
entities who then disburse the funds.
15.7 The General Partner will cause to be prepared federal and state
income tax returns for the Partnership and will further cause such returns
to be timely filed with the appropriate authorities.
15.8 The General Partner will cause to be prepared and timely filed
with appropriate federal and state regulatory and administrative
authorities, all reports required to be filed with such authorities under
applicable laws, rules and regulations. Any Limited Partner will be
provided with a copy of such report upon request and without expense to
him.
15.9 The General Partner will bear the expenses of preparation and
distribution of the reports described in this Article XV, other than the
costs of any audit of the Partnership's records or any other expenses which
are to be borne by the Partnership pursuant to Section 10.2. Any expenses
borne by the General Partner hereunder will be included in the
reimbursement to the General Partner out of, and to the extent of, the
General Partner's Expense Allowance, as provided in Section 11.1.1.
15.10 The General Partner will maintain, for a period of six (6) years
following the Initial Admission Date, a record of the information obtained to
indicate that each Limited Partner meets the suitability standards employed
in connection with the offer and sale of its Units and a representation of
each Limited Partner that he is purchasing for his own account, or in lieu of
such representation, information indicating that each Limited Partner for
whose account the purchase is made meets such suitability standards. Such
information will be obtained from each Limited Partner through the use of the
Subscription Agreement signed by each Limited Partner which sets forth the
prescribed suitability standards in full and in which he represents that he
meets such suitability standards and is purchasing for his own account.
ARTICLE XVI
RIGHTS, AUTHORITY AND POWERS OF THE GENERAL PARTNER
16.1 Subject to Sections 16.2 and 16.3, the General Partner will have
all rights, authority and powers as provided under the Iowa Act and as
otherwise provided by law, and those required or appropriate to the
management of the Partnership business which, by way of illustration but
not by way of limitation, will include the right, authority and power:
16.1.1 To cause the Partnership to (a) acquire, operate,
lease, develop, improve, maintain, hold, exchange, trade, sell or
otherwise dispose of Equipment (including interests
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therein, appurtenances thereof and personal or mixed property connected
therewith) either in the name of the Partnership or in the name or
names of one or more nominees or trustees for the benefit of the
Partnership, upon such terms and for such consideration (including
cash, securities and other property); and (b) enter into financing
arrangements which will involve making secured loans to or other debt
arrangements with unaffiliated third parties in cases where such
financings are advantageous to the Partnership, are an attractive
alternative to leases, and the General Partner, in its sole
discretion, deems such financing to be in the best interests of the
Partnership;
16.1.2 To cause the Partnership to borrow money up to Ten
Million Dollars ($10,000,000.00) in the aggregate at any one time
outstanding for the purpose of rehabilitating or reconfiguring
Equipment for sale or re-lease, and acquiring Equipment, and if
security is required therefor, to mortgage any Partnership assets or
subject any such assets to any other security device, to obtain
replacements of any mortgage or other security device, and to prepay,
in whole or in part, refinance, increase, modify, consolidate or
extend any borrowings or any mortgage or other security device, all at
such times as the General Partner, in its sole discretion, deems to be
in the best interests of the Partnership;
16.1.3 To place record title to, or the right to use,
Partnership assets in the name or names of one or more nominees or
trustees for any purpose convenient or beneficial to the Partnership;
16.1.4 To acquire and enter into any contract of insurance the
General Partner deems necessary or appropriate for the protection of
the Partnership and the General Partner, for the conservation of
Partnership assets or for any purpose convenient or beneficial to the
Partnership, provided the Partnership will not incur the portion of
the cost of any liability insurance policies covering the General
Partner or any of its Affiliates attributable to insuring the General
Partner or any of its Affiliates against liabilities as to which the
General Partner and its Affiliates are not entitled to be indemnified
by the Partnership;
16.1.5 To cause the Partnership to employ, at the expense of
the Partnership, employees, agents, independent contractors, brokers,
attorneys, accountants and other persons, including the General
Partner, Affiliates and employees thereof, to perform such services
specified in this Agreement and for such compensation as the General
Partner will determine in accordance with this Agreement, and to
dismiss such persons from employment;
16.1.6 To prepare or cause to be prepared reports, statements
and other relevant information for distribution to Limited Partners;
16.1.7 To open accounts and deposit and maintain funds in the
name of the Partnership in banks or savings and loan associations not
affiliated with the General Partner or its Affiliates; provided,
however, the Partnership's funds will not be commingled with the funds
of any other persons, except as permitted by this Agreement;
16.1.8 To cause the Partnership to make or revoke any of the
elections provided under the Code;
16.1.9 To select the Partnership's accounting year;
16.1.10 To determine the appropriate accounting method or
methods to be used by the Partnership;
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16.1.11 To cause the Partnership to offer and sell Units to the
public through selected broker-dealers and to employ personnel, agents
and dealers for such purpose;
16.1.12 Notwithstanding anything herein to the contrary, and
subject to the rights granted to the Limited Partners under Section
17.2 herein, to amend this Agreement: (i) to reflect the addition or
substitution of Limited Partners or the reduction of the Capital
Accounts under the refund of capital to Partners, (ii) to add to the
representations, duties or obligations of the General Partner, or
surrender any right or power granted to the General Partner, herein,
for the benefit of the Limited Partners, (iii) to cure any ambiguity,
to correct or supplement any provision herein that may be inconsistent
with any other provision herein, or to add any other provisions with
respect to matters or questions arising under this Agreement that will
not be inconsistent with the provisions of this Agreement, (iv) to
delete or add any provision from or to this Agreement requested to be
so deleted or added by the staff of the Securities and Exchange
Commission or by a state regulatory agency, the deletion or addition
of which provision is deemed by such staff or such regulatory agency
to be for the benefit or protection of the Limited Partners, (v) to
modify any provision of this Agreement, if, in the opinion of counsel
to the Partnership and the General Partner, such modification is
necessary to cause the Partnership not to be characterized as a
"publicly traded" partnership for federal income tax purposes, and
(vi) to modify any provision of this Agreement, if, in the opinion of
counsel to the Partnership and the General Partner, such modification
is necessary to cause the allocations contained in Article XII to have
substantial economic effect in accordance with the final regulations
relating to Section 704 of the Code or any other statutory provision
or regulation relating to such allocations; provided, however, that no
amendment will be made pursuant to this section to amend the voting
rights of the Limited Partners;
16.1.13 To require in any or all Partnership contracts that the
General Partner will not have any personal liability thereon and that
the person or entity contracting with the Partnership is to look
solely to the Partnership or its assets for satisfaction, and to
require the satisfaction of contracts on which the General Partner has
personal liability prior to contracts on which it has no such personal
liability;
16.1.14 To execute, acknowledge and deliver any and all
instruments on behalf of the Partnership or otherwise, that it deems
necessary or appropriate to effectuate the rights, authority and power
of the General Partner, and take all such action in connection
therewith as it in its discretion deems necessary or appropriate;
16.1.15 To cause the Partnership to reinvest or make a
commitment to reinvest all or any portion of the Partnership assets in
Equipment at any time up to the fifth anniversary from the Closing
Date, and to temporarily invest the Net Proceeds of the Offering (and
undistributed Cash Flow) in United States government securities
(including, but not limited to, short-term Treasury Bills and Treasury
Notes), securities issued or guaranteed by states or municipalities,
bank repurchase agreements, money market accounts, bankers'
acceptances, savings and loan association deposits, deposits with
members of The Federal Home Loan Bank System or The Federal Savings
and Loan Insurance Corporation, commercial paper, secured equipment
lease lines of credit, and other investments with appropriate
scheduled maturities or similar investments which will be held by the
Partnership generally not exceeding one (1) year from the date of
purchase. The foregoing notwithstanding, the Partnership does not
intend to pursue a policy which would make it subject to the
Investment Company Act of 1940, and the Partnership's external
investment prior to the use of Net Proceeds as described above will be
limited accordingly;
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16.1.16 To purchase Equipment in its own name or in the name of
a nominee, a trust or otherwise (and assume loans in connection
therewith) or to enter into agreements to purchase or to obtain an
option or right of first refusal to purchase Equipment from persons
other than the General Partner and its Affiliates and, in any case, to
temporarily hold title to such Equipment, for the purpose of
facilitating the acquisition of such Equipment by the Partnership, the
borrowing of money or the obtaining of financing by the Partnership,
or for any other purpose related to the business of the Partnership,
provided that (i) the price payable by the Partnership to the General
partner for any Equipment may not exceed the cost to the General
Partner ("cost" for this purpose shall mean the reasonable, necessary
and actual expenses incurred by the General Partner or its Affiliates,
as determined in accordance with generally accepted accounting
principles, in holding title to Equipment on a temporary basis)
provided, however, that all revenues from such Equipment will be
received by the Partnership; (ii) the General Partner will not receive
any benefit from such sale other than as set forth in subsection (i)
of this Section 16.1.16; (iii) such transaction is in the best
interest of the Partnership; (iv) there will be no difference in
interest terms of any loans secured by the Equipment at the time
acquired by the General partner and at the time acquired by the
Partnership; and (v) any Equipment purchased by the General Partner on
behalf of the Partnership with the intent to transfer such Equipment
to the Partnership will generally not be held for more than six (6)
months;
16.1.17 To prepare, file and publish any and all instruments or
documents necessary to enable the Partnership to transact business or
otherwise to exist, operate and be recognized as a limited partnership
in jurisdictions outside Iowa;
16.1.18 To cause the Partnership to endeavor to maintain
Equipment owned by it and, upon the liquidation of Partnership assets,
maintain a cash reserve from revenues for normal repairs, replacements
and any other contingencies in any amount which the General Partner
deems reasonable;
16.1.19 To cause the Partnership to enter into joint ventures
with entities that are not Affiliates of or formed by the Sponsor for
the acquisition, ownership and leasing of Equipment, provided that (i)
the Partnership and such co-venturers have substantially identical
investment objectives; (ii) there are no duplicate fees; (iii) the
sponsor compensation from the Partnership is substantially identical
to the sponsor compensation from such co-venturers; (iv) the
investment of the Partnership and such co-venturers is on
substantially the same terms and conditions; (v) the agreement or
other instrument establishing such venture will not authorize the
Partnership to do anything, in its capacity as co-venturer in such
venture, that the Partnership could not do directly because of the
policies set forth in this Agreement; (vi) the agreement or other
instrument establishing such venture gives the Partnership a right of
first refusal to buy out the interest of the other participant in the
venture if such other participant seeks to have the joint venture sell
its interest; and (vii) the joint venture is formed either for the
purpose of effecting appropriate diversification of the Partnership's
investments or for the purpose of effecting a transaction described in
Section 16.1.16, except that investments in limited partnership
interests of another program shall be prohibited; however, nothing
herein shall preclude the investment in general partnerships or
ventures that own and operate specific equipment, provided the
Partnership acquires a controlling interest in such other ventures or
general partnerships and the noncontrolling interest is owned by a
nonaffiliate. In such event, duplicate fees shall not be permitted;
16.1.20 To make loans to the Partnership in an aggregate amount
not to exceed (including other Partnership borrowings) Five Hundred
Thousand Dollars ($500,000) at any time. Any interest charged to the
Partnership on such loans will be the lower of (i) the rate
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which would be charged to the Partnership by unrelated lending
institutions, or (ii) the cost of funds to the General Partner. No points
or prepayment penalty would be charged to the Partnership with respect to
any such loan;
16.1.21 To elect in writing, subject to approval of the Limited
Partners holding a majority of the then outstanding Units, to have the
Partnership governed by laws made effective subsequent to the date the
Partnership was formed, and, upon such election, to supplement or
amend this Agreement or any other instrument or document filed by the
Partnership, including any certificates of limited partnership, and to
take such other actions as it may deem necessary or desirable in
connection therewith;
16.1.22 To commence the orderly liquidation of all or a portion
of the assets of the Partnership, beginning on the fifth anniversary
of the Closing Date or such earlier date as the General Partner may
select, and to distribute among the Partners and other according to
the terms of this Agreement amounts received as a result thereof; and
16.1.23 To continue to manage any of the Partnership's leases
that relate to lease receivables sold to unaffiliated third parties;
provided, however, the General Partner will: (i) manage any such
leases for only a portion of the fee that any third party purchaser
would pay to the Partnership, (ii) receive no more than two percent
(2%) in Management Fees relating to such transactions, (iii) only
enter into an agreement with a third party purchaser to continue to
manage the leases in order to facilitate the Partnership's ability to
sell the receivables, and (iv) enter into such an arrangements only if
doing so would benefit the Partnership.
16.1.24 The General Partner may perform services for the
Partnership, if necessary, other than those specifically provided for
herein.
a. At a minimum, such self-dealing arrangements must meet
the following criteria:
(i) The compensation, price or fee charged for
providing such services must be comparable and
competitive with the compensation, price or fee of
any other Person who is rendering comparable
services or selling or leasing comparable goods
and materials that could reasonably be made
available to the Partnership, and
(ii) The fees and other terms of the contract shall be
fully disclosed, and
(iii) The General Partner must be independently
engaged in the business of providing such
services to other than Affiliates and at
least 75% of the Person's gross revenue from
providing such services must be derived from
other than the General Partner.
b. Further, the General Partner may not provide such goods
and services to the Partnership unless all of the
following conditions are also satisfied:
(i) The goods or services are necessary to the prudent
operation of the Partnership,
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(ii) The goods or services must be provided at a price
which does not exceed the lesser of the actual
cost of such goods and services to the General
Partner or ninety percent (90%) of the
compensation, price or fee charged by unaffiliated
persons in the same geographic location,
(iii) The goods or services for which the General
Partner is to receive compensation shall be
embodied in a written contract, fully
disclosed in the Prospectus, which precisely
describes the goods or services to be
provided and all compensation to be paid.
Such contract may only be modified in any
material respect by the vote of a majority in
interest of limited partners and shall be
terminable without penalty on sixty (60)
days' notice, and
(iv) The Sponsor must be previously engaged in the
business of rendering such services, or providing
such goods, independently of the program and as an
ordinary and ongoing business.
For purposes of the foregoing subsections b(i) through
b(iv), the actual cost of services means the pro rata cost of
personnel, including an allocation of overhead directly
attributable to such personnel, based on the amount of time the
personnel spent on such services or other method of allocation
acceptable to the Partnership's certified public accountant. The
actual cost of goods includes the price of goods and materials
paid to unaffiliated persons, and direct costs incurred by the
General Partner in the transaction, including an allocation of
overhead directly attributable to the transaction. Actual cost
shall exclude (i) salaries, fringe benefits, travel expenses, and
other administrative items incurred or allocated to any
controlling person of the General Partner, and (ii) rent or
depreciation, utilities, capital equipment, and other
administrative items generally falling under the category of
overhead, to the extent the items set forth in (i) and (ii) are
not directly attributable to the rendering of such services.
16.1.25 To call a meeting of the Partners for any lawful
purpose.
16.1.26 At the termination of the Partnership, to establish a
liquidating trust on such terms as the General Partner deems necessary and
prudent for the purpose of holding and distributing assets of the
Partnership for which there is no ready market at the termination of the
Partnership or for the purpose of facilitating the liquidation and
distribution of Partnership assets.
16.2 The General Partner will, except as otherwise provided in this
Agreement, have all the rights and powers and will be subject to all the
restrictions and liabilities of a general partner under the limited
partnership law of the State of Iowa. In addition, the General Partner
will be the "tax matters partner" of the Partnership as that term is
defined in Section 6231(a)(7) of the Code.
16.3 The General Partner or Affiliates will not have the authority to:
16.3.1 Except as otherwise provided in this Partnership
Agreement, enter into contracts with the Partnership other than
equipment leases in the ordinary course of the Partnership's business
which would bind the Partnership after the expulsion of the General
Partner, or continue the business with Partnership assets after the
occurrence of such event;
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16.3.2 Alter the primary purpose of the Partnership as set
forth in Article IV;
16.3.3 Receive a rebate or give up or participate in any
reciprocal business arrangements which would enable them to do so
(Specifically, no rebates or give-ups may be received by the General
Partner nor may the General Partner participate in any reciprocal
business arrangements which would circumvent Guidelines promulgated by
NASAA. Furthermore, the General Partner is prohibited from engaging
in reciprocal business arrangements which would circumvent the
restrictions against dealing with Affiliates);
16.3.4 Except as provided in Sections 16.1.16 and 16.1.19 and
otherwise herein, permit the Partnership to enter into any joint
venture, partnership or other form of indirect ownership of Equipment;
16.3.5 Purchase or lease Equipment from the Partnership, or
lease or sell Equipment to the Partnership, except as provided in
Section 16.1.16 and 16.8;
16.3.6 Cause the Partnership to exchange Units for Equipment;
16.3.7 Make loans to the Partnership, except as provided in
Section 16.1.20; provided, however, that the term of any loan by the
General Partner in accordance with Section 16.1.20 shall not exceed
twelve (12) months;
16.3.8 Do any act in contravention of this Partnership
Agreement or which would make it impossible to carry on the ordinary
business of the Partnership;
16.3.9 Possess any Equipment owned by the Partnership or
assign the rights of the Partnership in specific Equipment for other
than a Partnership purpose;
16.3.10 Admit a person as a General Partner except with the
consent of the Limited Partners as provided for in this Agreement:
16.3.11 Perform any act (other than an act required by this
Agreement or any act performed in good faith reliance upon counsel's
opinion) which would, at the time such act occurs, subject any Limited
Partner to liability as a general partner in any jurisdiction;
16.3.12 Unless the General Partner otherwise determines it to
be in the best interest of the Partnership and it is in connection
with the orderly liquidation of the Partnership's assets use
Partnership assets after the fifth anniversary of the Closing Date to
acquire additional Equipment, or reinvest Partnership assets in
additional Equipment;
16.3.13 Commingle, or cause the Partnership to commingle,
Partnership funds with those of any other person or entity;
16.3.14 Employ the funds or assets of the Partnership in any
manner except for the exclusive benefit of the Partnership;
16.3.15 Except as otherwise provided herein, cause the
Partnership to enter into any transactions with the General Partner or
its Affiliates or any other partnership in which the General Partner
has any interest, involving the sale or lease of any Equipment to or
by the Partnership, the rendering of services to or by the
Partnership, or the lending of any monies or other property to or by
the Partnership;
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16.3.16 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
advise the purchaser regarding the purchase of Units; provided,
however, that the General Partner will not be prohibited from paying
Selling Commissions or other normal commissions payable to registered
broker-dealers (including Berthel Fisher & Company Financial Services,
Inc.) or other properly licensed persons for selling Units;
16.3.17 Cause the Partnership to incur indebtedness, the
principal amount of which exceeds forty percent (40%) of Gross
Proceeds;
16.3.18 Borrow from the Partnership;
16.3.19 Enter into any exclusive agreements with the
Partnership;
16.3.20 Without the concurrence of Limited Partners holding a
majority of the outstanding Units:
16.3.20.1 Amend this Partnership Agreement (except for those
amendments which do not alter the rights of the Limited Partners
and except as permitted pursuant to Section 16.1.12);
16.3.20.2 Withdraw as General Partner;
16.3.20.3 Appoint an additional general partner;
16.3.20.4 Sell all or substantially all of the assets of the
Partners, except as provided in Section 16.1.22 hereof;
16.3.20.5 Dissolve the Partnership, except in accordance
with Sections 21.1.4 or 21.1.5 in the ordinary course of the
Partnership's business; or
16.3.20.6 Transfer the General Partner's Interest, except as
provided in Section 21.4.
16.3.21 Except as specifically provided herein in 9.2.4, cause
the Partnership to pay a commission or fee in connection with the
reinvestment or distribution of Cash Available for Distribution or of
the proceeds of the resale, exchange or refinancing of Equipment.
16.3.22 Acquire, for its own account, Equipment suitable for
acquisition by the Partnership or by the General Partner on behalf of
the Partnership until the Net Proceeds have been fully invested in
Equipment.
16.3.23 Without the amendment of this Partnership Agreement and
the prior concurrence of Limited Partners holding a majority of the
outstanding Units, merge the Partnership with or engage in any
combination with any other partnership or entity.
16.3.24 Operate the Partnership in such a manner as to have the
Partnership classified as an "investment company" for purposes of the
Investment Company Act of 1940.
16.4 Although nothing herein will require the General Partner to
devote full time to the Partnership, the General Partner hereby agrees to
use its best efforts in connection with the purposes of the Partnership and
to devote to such purposes such of its time and activity during normal
business
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days and hours as it, in its discretion, will deem necessary for the
management of the affairs of the Partnership. The General Partner agrees
that it will not offer for sale interests in partnerships to be formed in the
future until the interests in this Partnership have been sold, unless such
future partnership has objectives different than those of this Partnership.
In addition, the General Partner will have the fiduciary responsibility for
the safekeeping and use of all funds and assets of the Partnership, whether
or not in its immediate possession or control, and it will not employ, or
permit another to employ such funds or assets in any manner except for the
exclusive benefit to the Partnership. Furthermore, the General Partner may
not contract away its fiduciary duty owed to the Partnership under the common
law. In the event of a conflict between the interests of the Limited
Partners and the General Partner, the General Partner will be obligated by
its fiduciary duty to give priority to the interests of the Limited Partners.
16.5 Within ninety (90) days after the Limited Partners have voted to
expel the General Partner under Article XVIII, the General Partner will have
prepared, at an expense equally borne by the General Partner and the
Partnership, financial statements (balance sheet and statements of income or
loss, partners' equity and cash flows) prepared in accordance with generally
accepted accounting principles and accompanied by a report thereon containing
an opinion of an independent certified public accounting firm of recognized
standing, and will cause such statement to be mailed to the Limited Partners
as soon as possible after receipt thereof.
16.6 The General Partner will have no personal liability for the
repayment of the Capital Contribution of any Limited Partner.
16.7
16.7.1 In connection with a proposed Roll-Up, an appraisal of
all Partnership assets shall be obtained from a competent Independent
Expert. 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 SEC and the states as an Exhibit to the Registration
Statement for the offering. Accordingly, an issuer using the
appraisal shall be subject to liability for violation of Section 11 of
the Securities Act of 1933 and comparable provisions under state laws
for any material misrepresentations or material omissions in the
appraisal. Partnership assets shall be appraised on a consistent
basis. The appraisal shall be based on an evaluation of all relevant
information, and shall indicate the value of the Partnership'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 Partnership assets over a twelve month period. The
terms of the engagement of the Independent Expert shall clearly state
that the engagement is for the benefit of the Partnership and its
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.
16.7.2 In connection with a proposed Roll-Up, the Person
sponsoring the Roll-Up shall offer to Limited Partners who vote "no"
on the proposal the choice of:
a. accepting the securities of the Roll-Up Entity offered
in the proposed Roll-Up; or
b. one of the following:
(i) remaining as Limited Partners in the Partnership,
and preserving their interests therein on the same
terms and conditions as existed previously; or
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(ii) receiving cash in an amount equal to the Limited
Partners' pro-rata share of the appraised value of
the net assets of the Partnership.
16.7.3 The Partnership shall not participate in any proposed
Roll-Up which would result in Limited Partners having democracy rights
in the Roll-Up Entity which are less than those provided for under
Sections VI.A. and VI.B. of the Equipment Program Guidelines adopted
by NASAA. If the Roll-Up Entity is a corporation, the voting rights
of Limited Partners shall correspond to the voting rights provided for
in said Guidelines to the greatest extent possible.
16.7.4 The Partnership shall not participate in any proposed
Roll-Up that includes provisions that 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
Partnership shall not participate in any proposed Roll-Up Entity which
would limit the ability of a Limited Partner to exercise the voting
rights of its securities of the Roll-Up Entity on the basis of the
number of Program Interests held by that Limited Partner.
16.7.5 The Partnership shall not participate in any proposed
Roll-Up in which Limited Partners' rights of access to the records of
the Roll-Up Entity will be less than those provided for under Section
VI.D. of said Guidelines.
16.7.6 The Partnership shall not participate in any proposed
Roll-Up in which any of the costs of the transaction would be borne by
the Partnership if the Roll-Up is not approved by the Limited
Partners.
16.8 In the absence of a secondary market for Program Assets at the end
of the term of the Partnership, the Partnership may sell assets to the
General Partner or any Affiliate of the General Partner for cash on a
one-time basis only, to effect a liquidation of the Partnership's assets if
all of the following have been met:
16.8.1 The Partnership has obtained two independent appraisals
of the fair market value of the assets to be sold to the General
Partner;
16.8.2 The sale price of the assets is at the greater of the
two appraisals;
16.8.3 Such sale to the General Partner is in the best
interests of the Limited Partners;
16.8.4 The General Partner or its Affiliates do not sell such
assets to another limited partnership sponsored by the General Partner
or its Affiliates; and
16.8.5 The Limited Partners approve the sale by a vote of at
least sixty percent (60%) of the votes entitled to be cast.
ARTICLE XVII
RIGHTS, POWERS AND VOTING RIGHTS OF THE LIMITED PARTNERS
17.1 Limited Partners will not interfere in any manner with the
control, conduct or operation of the Partnership and will have no right or
authority to act for or bind the Partnership. The Limited Partners will
not take part, in any manner, in the conduct or operation of the
Partnership. The Limited
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Partners shall have the right to at least fifteen (15) days notice prior to
the casting of any vote or prior to any meeting referred to herein.
17.2 Limited Partners owning a majority of the outstanding Units may,
subject to and in accordance with the provisions of this Article XVII,
without concurrence by the General Partner, vote to:
17.2.1 Amend this Partnership Agreement;
17.2.2 Dissolve the Partnership;
17.2.3 Remove the General Partner (and elect a successor
general partner, provided that the successor general partner is
admitted to the Partnership effective immediately prior to the removal
of the General Partner becoming effective);
17.2.4 Approve or disapprove the sale of all or substantially
all of the assets of the Partnership outside the ordinary course of
the Partnership's business; and
17.2.5 Admit a successor general partner in the event of the
resignation or withdrawal of the General Partner, provided that the
successor is admitted to the Partnership effective immediately prior
to the resignation or withdrawal of the General Partner becoming
effective.
17.3 If the General Partner desires to withdraw from the Partnership,
it must furnish notice of its intent to do so and solicit the consent by
majority vote of the Limited Partners at least ninety (90) days prior to
the effective date of such withdrawal. The General Partner will be deemed
to have withdrawn from the Partnership upon the assignment for the benefit
of creditors or adjudication of bankruptcy of the General Partner or
appointment of a receiver for seizure by a judgment creditor of the General
Partner's interest in the Partnership. Prior to the effective date of such
withdrawal, or within ninety (90) days after any such other deemed
withdrawal, the Limited Partners will elect a replacement general partner
or may elect to discontinue the business of the Partnership by a vote of
Limited Partners holding at least a majority of the Units then outstanding.
Notwithstanding anything contained herein to the contrary, a withdrawal
pursuant to this Section 17.3 will not constitute a breach of this
Partnership Agreement (except in the event that no successor General
Partner has been elected or approved by the Limited Partners) and the
Partnership may not recover damages from the withdrawing General Partner,
and it may not offset damages against the amount otherwise distributable to
the withdrawing General Partner.
17.4 Except as otherwise provided herein, no Limited Partner will have
the right or power to (i) withdraw or reduce his Capital Contribution,
except as otherwise provided by law, (ii) bring an action for partition
against the Partnership or any other Partner, (iii) cause the dissolution
and termination of the Partnership by court decree or otherwise, or (iv)
demand or receive property other than cash in return for his Capital
Contribution. Except as provided in Article XIX (a) no Limited Partner
will have priority over any other Limited Partner either as to the return
of Capital Contributions or as to allocations of Net Income, Net Loss or
any other payments to Limited Partners, and (b) other than upon the
dissolution and termination of the Partnership as provided in this
Partnership Agreement, there has been no time agreed upon when the Capital
Contribution of each Limited Partner may be refunded.
17.5 This Agreement may not be amended without the consent of the
Partners to be adversely affected by an amendment that:
17.5.1 Converts a Limited Partner into a general partner;
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17.5.2 Modifies the limited liability of a Limited Partner;
17.5.3 Alters the interest of the General Partner (except an
amendment which alters the interest of the General Partner by way of
effectuating Sections 17.2.2 through 17.2.5) or the Limited Partners
in Net Income, Net Loss or Distributions, or other fees from the
Partnership;
17.5.4 Alters the General Partner's rights, powers or
increases the General Partner's duties (except an amendment which
alters the rights, powers or duties of the General Partner by way of
effectuating Sections 17.2.2 through 17.2.5) or alters the rights of a
Terminated Partner to receive fees and payments in accordance with
Section 18.2; or
17.5.5 Adversely affects the status of the Partnership as a
partnership for federal income tax purposes.
17.6 Upon the written request of a Limited Partner, the General
Partner will furnish such Limited Partner or his representative by mail or
in person, at such Limited Partner's expense, a list containing the names
and addresses of and Units held of record by all Limited Partners.
17.7 The Limited Partners owning ten percent (10%) of the Units may
call a meeting to propose for vote any matters on which the Limited
Partners may vote. A majority of the votes entitled to be cast will be
required to pass any such proposal, except as otherwise required below.
Upon receipt of a written request, either in person or by registered mail,
stating the purpose(s) of the meeting, the General Partner shall provide
all Limited Partners within ten (10) days after receipt of said request,
written notice (either in person or by certified mail) of a meeting and the
purpose(s) of such meeting to be held on a date not less than fifteen (15)
nor more than sixty (60) days after distribution of such notice, at the
time and place specified in the request, or if none, at a time and place
convenient to Limited Partners.
17.8 Any contract between the Partnership and the General Partner or
Affiliates will be subject to termination by majority vote or consent of
the Limited Partners following sixty (60) days prior notice thereof to the
Limited Partners.
ARTICLE XVIII
WITHDRAWAL, REMOVAL, BANKRUPTCY OR DISSOLUTION
AND LIQUIDATION OF GENERAL PARTNER AND
TRANSFER OF GENERAL PARTNER'S INTERESTS
18.1 Upon the withdrawal, removal, bankruptcy or dissolution and
liquidation or other cessation to exist of the General Partner, the
Interests of the Terminated Partner will be purchased by the Partnership
for a purchase price determined according to the provisions of Section
18.2.
18.2 A Terminated Partner will be entitled to receive from the
Partnership the then present fair market value of its Interests to be
acquired pursuant to Section 18.1. Fair market value and payment terms
will be determined by agreement between the Terminated Partner and the
Partnership, or, if they cannot agree, by arbitration in accordance with
the then current rules of the American Arbitration Association: the
Terminated Partner will choose one arbitrator, the Partnership will choose
an arbitrator, and the two arbitrators so chosen will choose a third
arbitrator. The decision of a majority of such arbitrators shall be final
and binding and may be enforced by legal proceedings. The Terminated
Partner and the Partnership shall each compensate the arbitrator appointed
by it, and the compensation of the third arbitrator shall be borne equally
by such parties. Where termination is
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<PAGE>
voluntary, payment will be made by a non-interest bearing, unsecured
promissory note, with principal payable, if at all, from distributions which
the Terminated Partner otherwise would have received under this Partnership
Agreement had the General Partner not terminated. Where termination is
involuntary, payment will be made by a note coming due in not less than five
(5) years (with equal installments each year), bearing interest at an annual
rate equal to one hundred ten percent (110%) of the applicable federal rate
from time to time as defined in Code Section 1274 on the unpaid principal
amount of the promissory note.
18.3 Should a successor general partner be elected under Sections
17.2.3 or 17.2.5, such successor general partner ("Acquiring Partner") may
purchase from the Partnership, within sixty (60) days of its election, any
portion of the Interests the Partnership purchased from the Terminated
Partner pursuant to Section 18.2. For such Interests, the Acquiring
Partner will pay the amount determined pursuant to Section 18.2 to be the
fair market value of such Interests. Payments may be made as agreed by the
Acquiring Partner and the Limited Partners.
18.4 Subject to the rights of the Limited Partners provided at Section
16.3.20.6, any entity or person to which the entire interest of the General
Partner in the Partnership is assigned will be substituted, by the filing
of appropriate amendments to this Partnership Agreement and the
Partnership's certificate of limited partnership, as a successor general
partner of the Partnership.
18.5 Notwithstanding the provisions of Section 17.2, with respect to
any Units owned by the General Partner, the General Partner may not vote or
consent on matters submitted to the Limited Partners regarding the removal
of the General Partner or regarding any transaction between the Partnership
and the General Partner. In determining the requisite percentage in
interest of Units necessary to approve a matter on which the General
Partner may not vote or consent, any Units owned by the General Partner
shall not be included.
ARTICLE XIX
REDEMPTION OF PARTNERSHIP UNITS
19.1 At any time after December 31, 1999, a Limited Partner may
request that the Partnership redeem all or any number of whole Units
(provided, however, that a Limited Partner must request the Partnership to
redeem all of his Units if he will retain fewer than two (2) Units) by
submitting a written request to the General Partner. At the sole
discretion of the General Partner, to the extent permitted by applicable
laws and regulations, only in extenuating circumstances and if, in the
opinion of the General Partner, it is in the best interest of the
Partnership, the Partnership will redeem Units from a Limited Partner who
so requests. The General Partner will not maintain reserves for
redemption.
The General Partner will not permit a Unit to be redeemed under any
circumstances if, in the opinion of counsel to the Partnership, such
redemption might result in either of the following: (i) the Partnership
being characterized as "publicly traded" for federal income tax purposes;
or (ii) the assets of the Partnership being considered by law to be assets
of employee benefit plans investing in Units and therefore subjecting those
assets to the fiduciary standards of the Employee Retirement Income
Security Act of 1974. Until such time as there is clear authority on this
issue, the General Partner will only allow redemptions of Units if
immediately following such redemption at least seventy-five percent (75%)
of the outstanding Units are held by persons who are not either employee
benefit plans or Individual Retirement Accounts.
19.2 The General Partner will honor the acceptable requests for
redemption by postmark on a first-come, first-served per quarter basis.
Any requests denied may be resubmitted in a later quarter.
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<PAGE>
Within a reasonable time, the General Partner will accept or deny a
written request for the redemption of Units. The General Partner will, in
its sole discretion, decide whether a redemption is in the best interest of
the Partnership and will not be required to provide any reason for the denial
of a redemption request.
19.3 The redemption price for redeemed Units will be determined by the
General Partner as of the last day of the fiscal quarter preceding the
quarter during which such request was received. The redemption price per
Unit will equal the Book Value of Investor's Unit; however, in no event
will the redemption price exceed the then-current fair market value per
Unit as determined in good faith by the General Partner.
19.4 The Limited Partner will tender the redeemed Units upon the
acceptance of the redemption request by the General Partner and the
Partnership will pay the redemption price for the tendered Units within
sixty (60) days after the end of the fiscal quarter during which the
request was received, provided that a Limited Partner may withdraw its
request for redemption of its Units within thirty (30) days of its receipt
of written notice of the General Partner's acceptance of its request for
redemption, which notice will state the redemption price determined by the
General Partner.
19.5 Upon the redemption or repurchase of any Units by the
Partnership, the tendered Units will be canceled and will no longer be
deemed to represent an interest in the Partnership.
19.6 The General Partner will cause this Partnership Agreement to be
amended from time to time to reflect the change in the interests of the
Limited Partners (including the person whose Units were redeemed or
repurchased) in the Net Income, Net Loss and distributions of the
Partnership.
19.7 The General Partner may not request the Partnership to redeem or
repurchase any Units owned by it.
19.8 The General Partner may not redeem over the life of the
Partnership more than five percent (5%) of the Units issued by the
Partnership, nor more than one percent (1%) in any given year. No reserves
will be maintained for the redemption of Units.
ARTICLE XX
CERTAIN TRANSACTIONS
The General Partner, each Limited Partner, each shareholder, officer,
director, employee or other Affiliate thereof, and each person owning a
legal or beneficial interest therein, may engage in or possess an interest
in any other business or venture of every nature and description,
independently or with others, including, but not limited to, the ownership,
financing, leasing, operation, management and brokerage of equipment.
ARTICLE XXI
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
21.1 The Partnership will be dissolved and terminated upon the
earliest to occur of the following:
21.1.1 The resignation, removal, or withdrawal of the last
remaining general partner, if no successor general partner is elected
pursuant to Sections 17.2.3 or 17.2.5;
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<PAGE>
21.1.2 A vote of the Limited Partners holding a majority of
the Units then outstanding in favor of any proposal by the General
Partner for the dissolution and termination of the Partnership;
21.1.3 The expiration of the term of the Partnership;
21.1.4 The final distribution of all Partnership liquidation
proceeds among the Partners pursuant to Article XI hereof after the
orderly liquidation of the assets of the Partnership during the
Liquidation Phase of the Partnership or otherwise; or
21.1.5 The other sale or disposition of all Equipment and
other assets of the Partnership without the subsequent reinvestment of
available Partnership cash in Equipment.
21.2 Upon the dissolution of the Partnership for any reason, the
General Partner will take full account of the Partnership assets and
liabilities, will wind up the Partnership business and liquidate the assets
as promptly as is consistent with obtaining the fair value thereof, and
will apply and distribute the proceeds therefrom in the following order:
21.2.1 To the payment of creditors of the Partnership, but
excluding secured creditors whose obligations will be assumed or
otherwise transferred on the liquidation of Partnership assets;
21.2.2 To the repayment of any outstanding loans made by the
General Partner to the Partnership;
21.2.3 To the General Partner and Limited Partners pursuant to
the provisions of Article XI.
21.3 Subject to Section 21.4, until the dissolution and cancellation
of the Partnership, the General Partner will not, without the consent of
the majority of outstanding Units, retire or withdraw from the Partnership
or take any voluntary steps to dissolve and liquidate itself.
21.4 Nothing in this Agreement will be deemed to prevent the merger,
consolidation or reorganization of the General Partner into or with any
other corporation, or the transfer of all the capital stock of the General
Partner to another corporation, or the assumption of the rights and duties
of the General Partner by another corporation in connection with any such
transaction in the case where the resulting successor General Partner
consists of substantially the same senior management as the General Partner
and there is no material reduction in the net worth of the successor
General Partner.
21.5 Nothing in this Agreement will be deemed to prevent the
establishment of a liquidating trust to hold and distribute assets of the
Partnership for which there is no ready market at the termination of the
Partnership or to facilitate the liquidation and distribution of
Partnership assets.
ARTICLE XXII
SPECIAL POWER OF ATTORNEY
22.1 By executing this Agreement, or the Subscription Agreement for
Units provided with the Prospectus as Exhibit B, each Limited Partner
grants to the General Partner a special power of attorney irrevocably
making, constituting and appointing the General Partner with full power of
substitution, as the true and lawful attorney-in-fact for such Limited
Partner, with power and authority to act in his name and on his behalf to
make, execute, deliver, acknowledge, swear to, file and/or
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<PAGE>
record all documents the General Partner may deem necessary or desirable to
carry out the provisions of this Agreement, which will include, by way of
illustration but not limitation, the following:
22.1.1 Any separate certificates of limited partnership, as
well as any amendments to the Agreement or such certificates which,
under the laws of the State of Iowa or the laws of any other state,
are required to be made or filed or which the General Partner deems to
be advisable to make or file;
22.1.2 Any other instrument or document required to be
executed or filed by the Partnership under the laws of any state or by
any other governmental authority; and
22.1.3 Any instrument or document required to effect the
continuation of the Partnership, the admission of a Limited Partner or
Substitute Limited Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
reflect any reductions in the amounts of contributions of Partners.
22.2 The special power of attorney being granted hereby by each
Limited Partner:
22.2.1 Is a special power of attorney coupled with an
interest, is irrevocable and will survive the death, legal incapacity,
insolvency or dissolution of the granting Limited Partner;
22.2.2 May be exercised by the General Partner (i) acting for
each Limited Partner individually by a signature of one of the
officers of the General Partner acting on the General Partner's
behalf, (ii) listing all of the Limited Partners executing any
instrument and having one of the General Partner's officers sign such
instrument on the General Partner's behalf in the General Partner's
capacity as attorney-in-fact for such Limited Partners, or
(iii) utilizing any other method authorized by law; and
22.2.3 Will survive an assignment by a Limited Partner of any
or all of his Units except that, where an Assignee of all of the Units
owned by a Limited Partner has been approved by the General Partner
for admission to the Partnership as a Substitute Limited Partner, the
special power of attorney will survive such assignment for the sole
purpose of enabling the General Partner to execute, acknowledge and
file any instrument or document necessary to effect such substitution.
ARTICLE XXIII
EXCULPATION AND INDEMNIFICATION
23.1 The General Partner or any of its Affiliates actually performing
services on behalf of the Partnership within the scope of the General
Partner's authority will not be liable to the Partnership or to the Limited
Partners for any loss or damage incurred by reason of any act performed or
omitted to be performed by them in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership,
if the General Partner, in good faith, determined that such course of
conduct was in the best interest of the Partnership, the General Partner
was acting on behalf of or performing services for the Partnership, and
such act or omission does not constitute fraud, negligence, breach of
fiduciary duty or misconduct. Subject to Sections 23.2 and 23.3 hereof,
the Partnership, and any receiver or trustee appointed to administer the
business or assets of the Partnership, will indemnify and pay all judgments
and claims against the General Partner and any of its Affiliates actually
performing services on behalf of the Partnership within the scope of the
General Partner's authority, and save the same harmless from any liability,
loss or damage incurred by them or by the Partnership
A-36
<PAGE>
by reason of any act performed or omitted to be performed by them that was
determined in good faith by the General Partner to have been in the best
interest of the Partnership in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership,
including costs and attorneys' fees (which attorneys' fees may be paid as
incurred pursuant to Section 23.3 below) and any amounts expended in the
investigation or settlement of any claims of liability, loss or damage,
provided that such act or omission does not constitute fraud, negligence,
breach of fiduciary duty or misconduct. Any indemnification or agreement to
hold harmless provided for herein is recoverable only out of the assets of
the Partnership and not from Limited Partners.
23.2 Notwithstanding the foregoing Section 23.1, the General Partner
and any of its Affiliates, and any person acting as a broker-dealer,
engaged in the performance of services on behalf of the Partnership or in
connection with its business, will not be indemnified against any
liability, loss or damage imposed by judgment, and costs associated
therewith, including attorneys' fees, arising from or out of a violation of
state or federal securities laws or rules. The General Partner and such
Affiliates will be indemnified for settlements and related expenses of
lawsuits alleging securities law violations, and for expenses incurred in
successfully defending such lawsuits, or if such lawsuits are dismissed
with prejudice on the merits, provided that a court either:
23.2.1 approves the settlement and finds that indemnification
of the settlement and related costs should be made, or
23.2.2 approves indemnification of litigation costs if a
successful defense is made.
Any amounts payable to the General Partner or its Affiliates pursuant
to the foregoing are recoverable only out of the assets of the Partnership
and not from the Limited Partners.
23.3 Advances of Partnership Funds for Indemnification Expenses.
Every application for registration of Units shall contain an undertaking
that the parties seeking indemnification will apprise the court of the
positions of the Securities and Exchange Commission and State
Administrators with respect to indemnification of securities laws
violations, before seeking approval for indemnification.
23.3.1 Advances of Partnership funds to the General Partner or
its Affiliates for legal expenses and other costs incurred as a result
of legal action initiated against the General Partner or its
Affiliates by a Limited Partner are prohibited.
23.3.2 Advances of Partnership funds to the General Partner or
its Affiliates for legal expenses and other costs incurred as a result
of legal action initiated against the General Partner or its
Affiliates by anyone other than a Limited Partner will be made if:
23.3.2.1 the legal action relates to the performance of
duties or services by the General Partner or its Affiliates on
behalf of, or in connection with, the Partnership's business;
23.3.2.2 the legal action is initiated by a third party who
is not a Limited Partner;
23.3.2.3 the General Partner or its Affiliates undertake to
repay within ninety (90) days the advanced funds with interest to
the Partnership in cases in which they would not be entitled to
indemnification; and
23.3.2.4 the General Partner has, prior to receiving such
advances, obtained an opinion of independent legal counsel that
indemnification will be
A-37
<PAGE>
appropriate, and if it is later determined that indemnification
was not appropriate, the General Partner must repay any advances
received by it, with interest.
23.4 The Partnership will not pay for any insurance covering liability
of the General Partner and its Affiliates for actions or omissions for
which indemnification is not permitted hereunder; provided, however, that
nothing contained herein will preclude the Partnership from purchasing and
paying for such types of insurance, including extended coverage liability
and casualty and workers' compensation, as would be customary for any
person owning comparable assets and engaged in a similar business, or from
naming the General Partner and its Affiliates as additional insured parties
thereunder, provided that such addition does not add to the premiums
payable by the Partnership. Nothing contained herein will constitute a
waiver by any Limited Partner of any right which he may have against any
party under federal or state securities laws.
ARTICLE XXIV
MISCELLANEOUS
24.1 This Agreement may be executed in several counterparts and all so
executed will constitute one (1) Partnership Agreement, binding on all of
the parties hereto, notwithstanding that all of the parties are not
signatory to the same counterpart.
24.2 Except as otherwise provided herein, the terms and provisions of
this Agreement will be binding upon and will inure to the benefit of the
successors and permitted assigns of the respective parties.
24.3 If any sentence or section of this Partnership Agreement is
declared by a court of competent jurisdiction to be void, such sentence or
section will be deemed severed from the remainder of this Partnership
Agreement and the balance of this Partnership Agreement will remain in
effect.
24.4 All notices under this Partnership Agreement will be in writing
and, unless otherwise provided herein, will be given to the persons
entitled thereto, by personal service or by mail, posted to the address
maintained by the Partnership for such persons or at such other addresses
as such persons may specify in writing in accordance with the terms of this
Agreement.
24.5 Section titles or captions contained in this Agreement are
inserted only as a matter of convenience and for reference. Such titles
and captions in no way define, limit, extend or describe the scope of this
Partnership Agreement or the intent of any provision hereof.
24.6 Whenever required by the contest hereof, the singular will
include the plural, and vice-versa; the masculine gender will include the
feminine and neuter genders; the neuter gender will include the masculine
and feminine genders; and the word "person" will include a corporation,
partnership, firm or other form of association.
24.7 Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms
and provisions hereof will be construed under the laws of the State of Iowa
and that the limited partnership law of the State of Iowa will govern the
partnership aspects of this Partnership Agreement.
GENERAL PARTNER:
BERTHEL FISHER & COMPANY LEASING, INC.
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<PAGE>
By /s/ Thomas J. Berthel
----------------------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
INITIAL LIMITED PARTNER:
/s/ Thomas J. Berthel
----------------------------------------
THOMAS J. BERTHEL
LIMITED PARTNERS:
"The Parties Listed on Exhibit I"
By: BERTHEL FISHER & COMPANY LEASING,
INC., as Attorney-in-Fact for
said parties
By /s/ Thomas J. Berthel
----------------------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
A-39
<PAGE>
EXHIBIT I
TELECOMMUNICATIONS INCOME FUND XI, L.P.
----------------------------------------
PARTNERS
--------
Total
Capital Number of
Name and Address Contribution Units
- ---------------- ------------ ---------
Berthel Fisher & Company
Leasing, Inc., General
Partner $10,000 General Partner
interest equivalent
to 10 Units
Limited Partners:
Thomas J. Berthel (Initial
Limited Partner) $ 1,000 1
<PAGE>
EXHIBIT B
TELECOMMUNICATIONS INCOME FUND XI, L.P. SUBSCRIPTION AGREEMENT
- -------------------------------------------------------------------------------
SUBSCRIBER HEREBY SUBSCRIBES for the number of Units of limited partnership
interest specified below, and hereby tenders the amount set forth below
($1,000 per Unit) as full payment for the Units, and hereby agrees, subject
to the General Partner's acceptance of this subscription, to become a
Limited Partner in the Partnership and to make a Capital Contribution
thereto in an amount equal to the amount tendered. Subscriber agrees that
Subscriber may not revoke, cancel, terminate or withdraw this subscription
or this Subscription Agreement without the prior written consent of the
General Partner, and acknowledges that the General Partner may reject this
subscription for any reason whatsoever.
Number of Amount Enclosed Check here to indicate if Subscriber has
Units ($1,000 per Unit) previously subscribed in THIS Partnership
- -------------------------------------------------------------------------------
$ / / NO / / YES
- --------- ----------------
- -------------------------------------------------------------------------------
1. INVESTOR DATA - (Please print or type):
(1) Name (Mr./Mrs./Ms.)
--------------------------------------------------------
Social Security or Tax ID #
-----------------------------------------------
(2) Name (Mr./Mrs./Ms.)
--------------------------------------------------------
Social Security or Tax ID #
-----------------------------------------------
Residence Address:
-------------------------------------------------------------
Street (Please do not use a P.O. Box)
- -------------------------------------------------------------------------------
City & State Zip Code
- -------------------------------------------------------------------------------
Home Phone Business Phone
- -------------------------------------------------------------------------------
Mailing Address
- -------------------------------------------------------------------------------
City & State Zip Code Phone
- -------------------------------------------------------------------------------
2. OWNERSHIP - CHECK ONE:
/ / Individual / / Trust
/ / Joint Tenant with right of Survivorship / / Custodian, Uniform Gifts
to Minors Act
/ / Community Property / / IRA
/ / Tenants in Common / / Keogh Plan
/ / Corporation / / Pension or Profit
/ / General Partnership / / Other (explain)
-----------
/ / Limited Partnership ------------------------------
- -------------------------------------------------------------------------------
3. TAX MATTERS. Under penalties of perjury, I certify that (i) the
number shown on this form is my correct taxpayer identification number, and
(ii) that I am not subject to backup withholding because (A) I have not
been notified that I am subject to backup withholding as a result of a
failure to report all interest or dividends or (B) the Internal Revenue
Service has notified me that I am no longer subject to backup withholding.
Under penalties of perjury, I certify that I am not a non-resident alien
individual, a foreign partnership, a foreign corporation, or a foreign
estate or trust, that would be a foreign person within the meaning of
Sections 1441, 1446 and 7701 of the Internal Revenue Code of 1986, as
amended, and that I will notify the Partnership before a change in my
foreign status.
- -------------------------------------------------------------------------------
4. DISTRIBUTIONS - Complete this to direct distribution checks (IF TO A
RETIREMENT ACCOUNT, DISTRIBUTIONS MUST GO TO CUSTODIAN OR TRUSTEE
UNLESS OTHER AUTHORIZATION IS ATTACHED HERETO):
- -------------------------------------------------------------------------------
(a) Name Address
- -------------------------------------------------------------------------------
(b) City & State Zip Code
- -------------------------------------------------------------------------------
(c) Account No. (for distributions to a designated account)
- -------------------------------------------------------------------------------
5. REPRESENTATIONS AND WARRANTIES: (a) Subscriber hereby represents and
warrants the following (please initial if applicable):
- -------------------------------------------------------------------------------
_____ Subscriber is a CALIFORNIA investor and understands that 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. If the
Subscriber is a California investor and the Units subscribed for are to be
purchased on behalf of a fiduciary account, Subscriber represents that the
Partnership suitability standards are satisfied by the beneficiary of the
account; except where the donor of the funds for investment is the
fiduciary of the account, the fiduciary may satisfy the standards.
Subscriber has received a copy of Exhibit D to the Prospectus, which is
California Rule 260.141.11.
_____ Subscriber is a TEXAS investor and meets the Texas suitability
standards on the reverse side.
_____ Subscriber is an investor in a state other than Texas and meets
the general suitability standards on the reverse side.
_____ (b) Subscriber hereby represents and warrants that Investor has
received a copy of the current Prospectus for Telecommunications Income
Fund XI, L.P. and the Partnership Agreement and understands that the Units
being acquired will be governed by the terms of such Prospectus and
Partnership Agreement, and hereby adopts and agrees to be bound by each and
every provision of the Partnership Agreement. The information set forth on
the signature page hereof is true and accurate and Subscriber has proper
authority to execute this Subscription Agreement and make this investment.
_____ (c) Subscriber (other than Minnesota subscribers) hereby represents
and warrants that this purchase is made for the Subscriber's own account and
not with a view toward distribution.
_____ (d) Subscriber (other than Minnesota subscribers) warrants that
Subscriber understands there are restrictions on the transferability of
Units, that it is not anticipated that an active market will ever develop for
Units, and that it may be impossible for Subscriber to liquidate Subscriber's
investment in the Partnership, even in the event of an emergency. Any
transfer of Units must comply with the requirements of the Partnership
Agreement and with any additional requirements imposed by law or by any
governmental authorities.
- -------------------------------------------------------------------------------
6. SIGNATURES: Signature must be identical to subscriber name.
SUBSCRIBERS MUST SIGN THE SUBSCRIPTION AGREEMENT. SECURITIES
REPRESENTATIVES AND INVESTMENT ADVISORS MAY NOT SIGN ON BEHALF OF
SUBSCRIBERS.
BY EXECUTING THIS SUBSCRIPTION AGREEMENT, THE SUBSCRIBER DOES NOT WAIVE
ANY RIGHTS UNDER FEDERAL SECURITIES LAWS OR THE SECURITIES LAWS OF ANY STATE.
BY COMPLETING AND EXECUTING THIS PAGE, THE INVESTOR(S) HEREBY AGREES TO ALL
PROVISIONS SET FORTH ON THIS PAGE AND ON THE REVERSE SIDE.
- -------------------------------------------------------------------------------
Signature Date
- -------------------------------------------------------------------------------
Print Name
- -------------------------------------------------------------------------------
Signature Date
- -------------------------------------------------------------------------------
Print Name
(FIDUCIARY SIGNATURE LINE BELOW APPLIES ONLY TO CUSTODIANS, TRUSTS, IRAS,
KEOGH (HR 10) PENSION OR PROFIT SHARING PLANS. FIDUCIARY REPRESENTS THAT
THE BENEFICIARY MEETS THE SUITABILITY STANDARDS.)
- -------------------------------------------------------------------------------
Fiduciary Signature on Behalf of Beneficiary Date
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BROKER-DEALER DATA--TO BE COMPLETED AND SIGNED BY REGISTERED REPRESENTATIVE
I hereby represent that I, the Registered Representative:
(1) have reasonable grounds to believe, on the basis of information
obtained from the Investor concerning the Investor's educational level,
knowledge of investment, investment objectives, other investments,
financial situation, needs and any other information known by me that
(a) the Investor is or will be in a financial position appropriate to
enable him to realize to a significant extent the benefits described
in the Prospectus,
(b) the Investor has a fair market net worth sufficient to sustain
the risks inherent in this program, including loss of investment and
lack of liquidity, and
(c) this program is suitable for the Investor;
(2) will maintain on file documents disclosing the basis upon which the
determination of suitability was reached; and
(3) have, prior to execution of the written Subscription Agreement,
informed the Investor of all pertinent facts relating to the liquidity and
marketability of the Units during the term of the investment.
- -------------------------------------------------------------------------------
Registered Representative's Signature Date
- -------------------------------------------------------------------------------
Print Name of Registered Representative (Not Principal of Firm)
- -------------------------------------------------------------------------------
Broker-Dealer Firm Name Firm Phone No.
- -------------------------------------------------------------------------------
Branch Office Name
- -------------------------------------------------------------------------------
Street Address (Branch Office)
- -------------------------------------------------------------------------------
City & State Zip Code
- -------------------------------------------------------------------------------
FOR USE OF GENERAL PARTNER OF TELECOMMUNICATIONS INCOME FUND XI, L.P.
Number of Units: Amount: $
------------------------------------ ----------------
Investor #: Investor State:
--------------------------------------- -------------
Acceptance Date: Date of Transfer:
-------------------------------- -------------
- -------------------------------------------------------------------------------
WHITE - FUND XI COPY - CANARY - BROKER COPY - PINK - CUSTOMER COPY
- GOLD - ESCROW AGENT
<PAGE>
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
TO THE GENERAL PARTNER OF TELECOMMUNICATIONS INCOME FUND XI, L.P.:
THE INVESTOR SIGNATORY HERETO ("SUBSCRIBER") REPRESENTS, WARRANTS,
ACKNOWLEDGES AND AGREES AS FOLLOWS:
1. Subscriber hereby represents and warrants that Subscriber: (a)
is of majority age and (b) is a U.S. resident. Subscriber also warrants
that Subscriber (a) meets the general suitability standards, which means
that Subscriber either (i) has a net worth (exclusive of home, home
furnishings and automobiles) of at least $45,000, and expects to have, for
the current tax year, gross income from all sources in excess of $45,000,
or (ii) has a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000, or (b) if Subscriber is a TEXAS
investor, Subscriber meets the Texas suitability standards, which means the
Subscriber has a net worth (or joint net worth with the investor's spouse)
(exclusive of home, home furnishings and automobiles) of at least ten times
the amount of the investment, and either (a) a net worth (or joint net
worth with the investor's spouse) (exclusive of home, home furnishings and
automobiles) of at least $45,000 and current taxable annual income of
$45,000, or (b) has a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000.
2. Subscriber hereby irrevocably makes, constitutes and appoints
Berthel Fisher & Company Leasing, Inc. (the General Partner of the
Partnership), with full power of substitution, as Subscriber's true and
lawful attorney-in-fact, for Subscriber and in Subscriber's name, place and
stead, to make, execute, sign, acknowledge, swear to, deliver, record
and/or file: the Partnership Agreement, in substantially the form attached
to the Prospectus as Exhibit A, and any and all amendments thereto; any and
all amendments to the Certificate of Limited Partnership for the
Partnership; and any other documents or instruments that the General
Partner may consider necessary or desirable to carry out fully the purposes
of the Partnership as set forth in the provisions of the Partnership
Agreement. The power of attorney hereby granted shall be deemed to be
coupled with an interest; shall be irrevocable and shall survive the death,
incapacity, insolvency or dissolution of Subscriber or any assignment by
Subscriber of any or all of Subscriber's Units; and may be exercised by the
General Partner (i) acting for Subscriber individually by the signature of
one of the officers of the General Partner acting on the General Partner's
behalf, or (ii) by listing all of the subscribers for Units executing any
instrument and having one of the General Partner's officers sign such
instrument on the General Partner's behalf in the General Partner's
capacity as attorney-in-fact for such subscribers, or (iii) by any other
method authorized by law.
3. Subscriber hereby acknowledges that the Escrow Agent's sole role
in the offering described in the Prospectus is that of escrow agent, and
that the Escrow Agent has not reviewed the Prospectus and makes no
representations whatsoever as to the nature of such offering or the
compliance of such offering with any applicable state or federal laws,
rules or regulations. Subscriber understands that the Escrow Agent will
make all computations regarding the amount of interest (if any) that will
be paid to such Subscriber with respect to his subscription payment.
The capitalized terms used have the meanings assigned to them in the
Prospectus unless the context otherwise requires.
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT C
TELECOMMUNICATIONS INCOME FUND XI, L.P.
TABULAR INFORMATION
CONCERNING PRIOR TRANSACTIONS
- -------------------------------------------------------------------------------
The following Tables present unaudited information in connection with
eight private programs ("Private Programs") organized by affiliates of the
General Partner and two Public Programs for which the General Partner
serves as the general partner. Mr. Thomas J. Berthel served as a general
partner of each of the Private Programs, together with corporate general
partners which were subsidiaries of Berthel Fisher & Company, Inc. The
General Partner is a subsidiary of Berthel Fisher & Company.
The General Partner purchased equipment placed in four of the Private
Programs (Telecommunications Limited Partnership No. 2, Telecommunications
Limited Partnership No. 5, Telecommunications Limited Partnership No. 7 and
Telecommunications Limited Partnership No. 8) and the Public Programs. The
General Partner is managing the lease portfolios of both of Public
Programs. All of the Private Programs have been closed and liquidated.
One of the Private Programs (Telecommunications Limited Partnership
No. 1) was designed to fund a start-up company through both an operating
loan and equipment leasing. Equipment leases in that program represented
approximately 16% of its business. All of the other Private Programs had
equipment leasing as their primary business. The Public Programs have
equipment leasing as their primary business. The Public Programs' lease
portfolios and all of the Private Programs' lease portfolios consist
predominately of telecommunications equipment.
THE INFORMATION SET FORTH IN THE FOLLOWING TABLES IS INCLUDED HEREIN
SOLELY TO INFORM INVESTORS OF THE PRIOR AND NOT FUTURE PERFORMANCE OF
PROGRAMS PREVIOUSLY SPONSORED BY THE GENERAL PARTNER AND AFFILIATES OF THE
GENERAL PARTNER AND SHOULD NOT BE CONSIDERED AS INDICATIVE OF POSSIBLE
CAPITALIZATION OR OPERATIONS OF THE PARTNERSHIP. LIMITED PARTNERS WILL
HAVE NO INTEREST IN THE PROGRAMS DESCRIBED ON THE FOLLOWING TABLES UNLESS
THEY ARE ALSO INVESTORS IN THOSE PROGRAMS.
The Tables are provided solely to enable prospective investors to
evaluate the experience of the General Partner and its affiliates.
C-1
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dollar amount offered. . . . . . . . $2,000,000 $2,000,000 $280,000 $390,000 $1,000,000
Dollar amount raised . . . . . . . . $1,363,500(1) $1,383,700(1) $282,828(1) $393,939(1) $1,010,000(1)
Less offering expenses:
Selling commissions and discounts
retained by affiliates. . . . . . 9.0% 9.0% 9.0% 9.0% 9.0%
Organizational expenses. . . . . . 9.4% 11.5% 10.2% 9.6% 8.3%
Other. . . . . . . . . . . . . . . 14.8%(2) 0.0% 0.0% 0.0% 0.8%
Reserves . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
------ ----- ----- ----- -----
Percent available for investment 66.8% 79.5% 80.8% 81.4% 82.7%
Acquisition Costs:
Acquisition fees . . . . . . . . . 0.0% 0.0% 4.3% 4.5% 3.5%
Other. . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
------ ----- ----- ----- -----
Total acquisition costs. . . . . . . 0.0% 0.0% 4.3% 4.5% 3.5%
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Percent leveraged (financing divided
by total equipment cost)(3). . . . 32.2% 46.6% 59.9% 45.3% 37.6%
Date offering began. . . . . . . . . 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Length of offering . . . . . . . . . 6 months 11 months 0 months 0 months 3 months
Months to invest 90% of amount
available for investment . . . . . 16 months 21 months 7 months 1 month 9 months
</TABLE>
- -------
(1) Includes 1% general partner purchase of units.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding
balance) to total equipment purchased.
C-2
<PAGE>
TABLE I (CONTINUED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
PRIVATE REG. D OFFERINGS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX(4) TIF X(4)
------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C>
Dollar amount offered. . . . . . . . . . . . . . . . $475,000 $1,000,000 $2,000,000 $25,000,000 $25,000,000
Dollar amount raised . . . . . . . . . . . . . . . . $479,750(1) $1,010,000(5) $1,217,050(1) $17,001,750(5) $22,617,500(5)
Less offering expenses:
Selling commissions and
discounts retained by affiliates 8.0% 9.0% 9.0% 10.0% 10.0%
Organizational expenses. . . . . . . . . . . . . . 8.3% 9.4% 9.4% 4.0% 4.0%
Other. . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
Reserves . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 1.0% 1.0%
------ ------ ------ ------ ------
Percent available for investment 83.7% 81.6% 81.6% 85.0% 85.0%
------ ------ ------ ------ ------
Acquisition Costs:
Acquisition fees . . . . . . . . . . . . . . . . . 0.0% 1.6% 2.0% 4.0% 4.0%
Other. . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.0% 0.0% 0.0% 0.0%
------ ------ ------ ------ ------
Total acquisition costs. . . . . . . . . . . . . . . 0.0% 1.6% 2.0% 4.0% 4.0%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Percent leveraged (financing
divided by total equipment cost)(3) . . . . . . . . 49.7% 31.3% 34.2% 18.2% 15.6%
Date offering began. . . . . . . . . . . . . . . . . 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Length of offering . . . . . . . . . . . . . . . . . 1 month 6 months 11 months 19 months 16 months
Months to invest 90% of amount available for
investment . . . . . . . . . . . . . . . . . . . . 1 month 7 months 11 months 17 months 16 months
</TABLE>
- -------------
(1) Includes 1% general partner purchase of partnership interest.
(2) Operating loan to lessee.
(3) Percentage calculated based on total financing (highest outstanding
balance) to total equipment purchased.
(4) Public Program
(5) Includes $10,000 general partner purchase of partnership interest.
C-3
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1997
NOTE: PRIOR PERFORMANCE DOES OT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Date offering commenced. . . . . . 07-01-86 02-01-87 02-24-88 04-18-88 11-28-88
Dollar amount raised . . . . . . . $1,363,000 $1,383,700 $282,828 $393,939 $1,010,000
Amount paid to sponsor from
proceeds of offering:
Underwriting fees and
commissions . . . . . . . . . . $ 216,000 $ 219,200 $ 44,800 $ 62,400 $ 160,000
Lease acquisition fee. . . . . . $ 0 $ 0 $ 23,720 $ 23,695 $ 47,904
Dollar amount of cash generated
from operations before deducting
payments to sponsor . . . . . . . $1,997,279 $1,994,576 $561,256 $663,620 $1,505,111
Amount paid to sponsor from
operations:
Partnership management fees $ 25,779 $ 121,042 $ 24,858 $ 50,249 $ 60,000
Other. . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Dollar amount of property sales
and financing before deducting
payments to sponsor:
Cash . . . . . . . . . . . . . . $ 125,000 $ 474,976 $182,675 $106,066 $ 512,501
Notes. . . . . . . . . . . . . . $ 0 $ 530,617 $ 0 $ 0 $ 21,037
Amount paid to sponsor from
property sales and refinancing:
Incentive fees . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Other. . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-4
<PAGE>
TABLE II (CONTINUED)
COMPENSATION TO SPONSOR
THROUGH JUNE 30, 1997
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6 TLP #7 TLP #8 TIF IX TIF X
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Date offering commenced. . . . . . 05-31-89 08-16-89 02-28-90 10-30-91 08-27-93
Dollar amount raised . . . . . . . $ 479,750 $1,010,000 $1,217,050 $17,001,750 $22,617,500
Amount paid to sponsor from
proceeds of offering:
Underwriting fees and
commissions. . . . . . . . . $ 68,875 $ 160,000 $ 192,800 $ 1,700,175 $ 2,261,750
Lease acquisition fee. . . . . $ 0 $ 21,587 $ 35,664 $ 799,345 $ 1,157,901
Dollar amount of cash generated
from operations before
deducting payments to sponsor. . $1,042,077 $1,591,989 $1,937,192 $11,364,530 $ 8,870,792
Amount paid to sponsor from
operations:
Partnership management fees $ 20,250 $ 13,500 $ 47,760 $ 1,754,798 $ 1,232,205
Other. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 418,204 $ 325,665
Dollar amount of property sales
and financing before deducting
payments to sponsor:
Cash . . . . . . . . . . . . . $ 13,162 $ 215,883 $ 184,392 $9,722,364 $6,335,978
Notes. . . . . . . . . . . . . $ 0 $ 83,451 $ 318,178 $5,901,016 $5,742,236
Amount paid to sponsor from
property sales and refinancing:
Incentive fees . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Other. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-5
<PAGE>
TABLE III
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
------------------------------------------------------------------
08-26-86
to 12-31-86 1987 1988 1989 1990
------------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross Revenues. . . . . . . . . . . . . . . $ 14,775 $ 253,699 $344,833 $314,644 $189,792
Profit (loss) on sale of equipment(3) . . . $ 0 $ 0 $ 0 $ 0 $ 41,754
Less: Operating Expenses . . . . . . . . . $ 662 $ 5,669 $ 33,079 $ 18,855 $ 18,881
Interest Expense . . . . . . . . . . $ 0 $ 26,287 $ 33,982 $ 26,400 $ 13,796
Depreciation . . . . . . . . . . . . $ 49,708 $ 173,474 $198,441 $199,339 $194,648
Write-offs of Syndication
Costs and A/R . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
------------ --------- -------- -------- --------
Net Income - Tax Basis(4) . . . . . . . . . $ (35,595) $ 48,269 $ 79,331 $ 70,500 $ 4,221
------------ --------- -------- -------- --------
------------ --------- -------- -------- --------
Cash generated from operations(4) . . . . . $ 14,113 $ 221,743 $277,772 $269,389 $157,115
Cash generated from sales . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $125,000
Cash generated from refinancing . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
------------ --------- -------- -------- --------
Cash generated from operations,
sales and refinancing . . . . . . . . . . $ 14,113 $ 221,743 $277,772 $269,389 $282,115
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 1,372 $ 141,875 $192,828 $241,372 $ 59,970
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
------------ --------- -------- -------- --------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 12,741 $ 79,868 $ 84,944 $ 28,017 $222,145
Less: Special items - principal
reduction . . . . . . . . . . . . . . . . $ 0 $ 43,984 $ 80,761 $ 88,066 $ 92,290
------------ --------- -------- -------- --------
Cash generated (deficiency) after
cash distributions and special
items(5) . . . . . . . . . . . . . . . . $ 12,741 $ 35,884 $ 4,183 $(60,049) $129,885
------------ --------- -------- -------- --------
------------ --------- -------- -------- --------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . $ (26) $ 36 $ 59 $ 52 $ 3
Capital gain (loss) . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 31
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 1 $ 105 $ 143 $ 179 $ 44
Other . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -------------------
C-6
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #1(1)(2)
-----------------------------------------------------
01-01-94
1991 1992 1993 to 10-31-94
--------- -------- -------- -----------
<S> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 148,210 $ 82,047 $102,000 $760,138
Profit (loss) on sale of equipment(3) . . . $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses . . . . . . . . . $ 24,252 $ 2,489 $ 2,170 $ 3,003
Interest Expense . . . . . . . . . . $ 3,334 $ 0 $ 0 $ 0
Depreciation . . . . . . . . . . . . $ 67,537 $ 62,433 $ 41,553 $204,396
Write-offs of Syndication
Costs and A/R . . . . . . . . . . . $ 0 $ 0 $ 0 $559,152
--------- -------- -------- -----------
Net Income - Tax Basis . . . . . . . . . . $ 53,087 $ 17,125 $ 58,277 $ (6,413)
--------- -------- -------- --------
--------- -------- -------- --------
Cash generated from operations(4) . . . . . $ 120,624 $ 79,558 $ 99,830 $757,135
Cash generated from sales . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing . . . . . . $ 0 $ 0 $ 0 $ 0
--------- -------- -------- -----------
Cash generated from operations,
sales and refinancing . . . . . . . . . . $ 120,624 $ 79,558 $ 99,830 $757,135
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 59,999 $102,000 $102,000 $751,378
from sales and refinancing. . . . . . $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
--------- -------- -------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 60,625 $(22,442) $(2,170) $ 5,757
Less: Special items - principal
reduction . . . . . . . . . . . . . . . . $ 97,621 $ 0 $ 0 $ 0
--------- -------- -------- -----------
Cash generated (deficiency) after
cash distributions and special
items(5) . . . . . . . . . . . . . . . . $ (36,996) $ 22,442 $(2,170) $ 5,757
--------- -------- -------- -----------
--------- -------- -------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . $ 39 $ 13 $ 43 $ (5)
Capital gain (loss) . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . . $ 44 $ 76 $ 76 $ 557
Operations . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
Other . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0
</TABLE>
C-7
<PAGE>
(1) In addition to equipment leases, TLP1 invested in operating loans to a
lessee.
(2) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(3) Telecommunications Limited Partnership No. 1 invested its assets in
equipment which was leased to one lessee and in an operating loan to that
lessee. Due to financial difficulties experienced by the lessee, full lease
payments and interest payments were not made during the term of the lease
and operating loan. In 1990, following a recapitalization of the lessee,
the lease was restructured to provide for smaller lease payments and an
extended term. As a result of the foregoing, and as shown on Table III,
Exhibit C, there was a reduction of Gross Income and Net Income from 1990
through 1993. The equipment was sold in 1994, resulting in an early payoff
of the restructured lease.
(4) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(5) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP1.
C-8
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
------------------------------------------------------------------------
05-19-87
to 12-31-87 1988 1989 1990 1991
----------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 85,224 $ 476,365 $ 575,247 $ 567,619 $ 396,975
Profit (loss) on sale of equipment(2) . . . $ 0 $ 0 $ 0 $ (88,490) $ 0
Less: Operating Expenses . . . . . . . . . $ 17,826 $ 75,354 $ 31,644 $ 28,138 $ 21,911
Interest Expense. . . . . . . . . . . $ 493 $ 47,407 $ 76,990 $ 57,855 $ 37,031
Depreciation . . . . . . . . . . . . $ 18,666 $ 137,070 $ 183,158 $ 175,057 $ 122,542
Write-offs of Syndication
Costs and A/R . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- --------- --------- --------- ---------
Net Income - Tax Basis . . . . . . . . . . $ 48,239 $ 216,534 $ 283,455 $ 218,079 $ 215,491
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Cash generated from operations(3) . . . . . $ 66,905 $ 353,604 $ 466,613 $ 481,626 $ 338,033
Cash generated from sales . . . . . . . . . $ 0 $ 0 $ 0 $ 436,476 $ 0
Cash generated from refinancing . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- --------- --------- --------- ---------
Cash generated from operations,
sales and refinancing . . . . . . . . . . $ 66,905 $ 353,604 $ 466,613 $ 918,102 $ 338,033
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 22,063 $ 255,547 $ 306,000 $ 300,000 $ 300,000
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 44,842 $ 98,057 $ 160,613 $ 618,102 $ 38,033
Less: Special items - principal
reduction . . . . . . . . . . . . . . . . $ 0 $ 84,946 $ 187,310 $ 201,331 $ 219,808
---------- --------- --------- --------- ---------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 44,842 $ 13,111 $ (26,697) $ 416,771 $ 181,785
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . $ 35 $ 158 $ 207 $ 159 $ 157
Capital gain (loss) . . . . . . . . . $ 0 $ 0 $ 0 $ (65) $ 0
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 16 $ 187 $ 223 $ 219 $ 219
Other . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
C-9
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #2(1)
------------------------------------------------
01-01-94
1992 1993 to 09-30-94
--------- --------- -----------
<S> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 302,760 $ 23,703 $ 16,706
Profit (loss) on sale of equipment(2) . . . $(207,695) $ (29,631) $(57,011)
Less: Operating Expenses . . . . . . . . . $ 19,125 $ 18,472 $ 4,774
Interest Expense . . . . . . . . . . $ 12,581 $ 422 $ 0
Depreciation . . . . . . . . . . . . $ 95,802 $ 22,447 $ 3,142
Write-offs of Syndication
Costs and A/R . . . . . . . . . . . $ 0 $ 0 $288,669
--------- --------- -----------
Net Income - Tax Basis . . . . . . . . . . $ (32,443) $ (47,269) $336,890
--------- --------- -----------
--------- --------- -----------
Cash generated from operations(3) . . . . . $ 271,054 $ 4,809 $ 11,932
Cash generated from sales . . . . . . . . . $ 341,657 $ 258,789 $188,960
Cash generated from refinancing . . . . . . $ 0 $ 0 $ 0
--------- --------- -----------
Cash generated from operations,
sales and refinancing . . . . . . . . . . $ 612,711 $ 263,598 $200,892
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 275,000 $ 6,211 $ 35,040
from sales and refinancing . . . . . $ 0 $ 37,098 $ 0
from other . . . . . . . . . . . . . $ 0 $ 221,691 $188,960
--------- --------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 337,711 $ (1,402) $(23,108)
Less: Special items - principal
reduction . . . . . . . . . . . . . . . . $ 185,168 $ 29,787 $ 0
--------- --------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 152,543 $ (31,189) $(23,108)
--------- --------- -----------
--------- --------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . $ (24) $ (35) $ (246)
Capital gain (loss) . . . . . . . . . $ (152) $ (22) $ (42)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . $ 0 $ 27 $ 0
Refinancing . . . . . . . . . . . . . $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 201 $ 5 $ 26
Other . . . . . . . . . . . . . . . . $ 0 $ 162 $ 138
</TABLE>
- -------------------
C-10
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(2) TLP2 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP2, the
sale resulted in a tax loss, even though TLP2 realized a positive receipt
of cash. The losses of $88,490 in 1990 and $207,695 in 1992 reflects such
tax losses.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP2.
C-11
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #3(1)
------------------------------------------------------------------
03-08-88 01-01-92
to 12-31-88 1989 1990 1991 to 10-20-92
----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $122,598 $177,125 $170,258 $159,847 $ 72,700
Profit (loss) on sale of equipment(2) . . . $ 0 $ 0 $ 0 $ 0 $(151,475)
Less: Operating Expenses . . . . . . . . . $ 7,288 $ 14,415 $ 9,177 $ 4,916 $ 7,049
Interest Expense . . . . . . . . . . $ 19,789 $ 31,176 $ 24,397 $ 16,772 $ 6,293
Depreciation . . . . . . . . . . . . $ 22,302 $ 55,151 $ 55,151 $ 55,151 $ 29,607
Write-offs of Syndication
Costs and A/R . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 53,740
-------- -------- -------- -------- -----------
Net Income - Tax Basis . . . . . . . . . . $ 73,219 $ 76,383 $ 81,533 $ 83,008 $(175,464)
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Cash generated from operations(3) . . . . . $ 95,521 $131,534 $136,684 $138,159 $ 59,358
Cash generated from sales . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 182,675
Cash generated from refinancing . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
-------- -------- -------- -------- -----------
Cash generated from operations,
sales and refinancing . . . . . . . . . . $ 95,521 $131,534 $136,684 $138,159 $242,033
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 40,007 $ 76,501 $ 78,000 $ 78,000 $102,306
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 46,294
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 0
-------- -------- -------- -------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 55,514 $ 55,033 $ 58,684 $ 60,159 $ 93,433
Less: Special items - principal
reduction . . . . . . . . . . . . . . . . $ 29,351 $ 56,764 $ 63,538 $ 71,124 $109,842
-------- -------- -------- -------- -----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 26,163 $ (1,731) $ (4,854) $(10,965) $(16,409)
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . . . . $ 261 $ 273 $ 291 $ 296 $ (627)
Capital gain (loss) . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (541)
Cash distributions to Investors
Source (on cash basis)
Sales . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 165
Refinancing . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 143 $ 273 $ 279 $ 279 $ 365
Other . . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -------------------
C-12
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax
basis. This table includes the presentation of income tax basis
information.
(2) TLP3 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP3, the
sale resulted in a tax loss, even though TLP3 realized a positive receipt of
cash. The loss of $151,475 in 1992 reflects such a tax loss.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP3.
C-13
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #4(1)
---------------------------------------------------------------------
05-03-88 01-01-92
to 12-31-88 1989 1990 1991 to 10-20-92
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 136,484 $ 185,494 $ 175,939 $ 170,488 $ 133,888
Profit (loss) on sale of equipment(2). . . $ 0 $ 0 $ 0 $ 0 $ (205,695)
Less: Operating Expenses . . . . . . . . . $ 7,461 $ 16,465 $ 18,236 $ 12,414 $ 13,636
Interest Expense . . . . . . . . . . $ 19,377 $ 20,534 $ 15,787 $ 10,562 $ 4,201
Depreciation . . . . . . . . . . . . $ 17,336 $ 52,655 $ 52,655 $ 52,655 $ 39,491
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 72,734
--------- ---------- --------- --------- ----------
Net Income - Tax Basis . . . . . . . . . . $ 92,310 $ 95,840 $ 89,261 $ 94,857 $ (201,869)
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Cash generated from operations(3). . . . . $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 166,051
Cash generated from sales. . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 106,066
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 109,646 $ 148,495 $ 141,916 $ 147,512 $ 222,117
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 44,700 $ 108,001 $ 108,001 $ 108,001 $ 116,042
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 79,196
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 64,946 $ 40,494 $ 33,916 $ 39,511 $ 26,879
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 25,347 $ 41,610 $ 46,270 $ 51,463 $ 73,857
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 39,599 $ (1,116) $ (12,354) $ (11,952) $ (46,978)
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . . $ 237 $ 246 $ 229 $ 243 $ (518)
Capital gain (loss). . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (527)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 203
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 115 $ 277 $ 277 $ 277 $ 298
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------
C-14
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP4 generally depreciated equipment on a straight line basis over ten
years. As a result, when leases ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP4, the
sale resulted in a tax loss, even though TLP4 realized a positive receipt
of cash. The loss of $205,695 in 1992 reflects such a tax loss.
(3) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with a combination of cash generated in prior
years and cash reserves maintained by TLP4.
C-15
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
--------------------------------------------------------------------
12-01-88
to 12-31-88 1989 1990 1991 1992
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 16,091 $ 325,420 $ 417,548 $ 414,909 $ 341,810
Profit (loss) on sale of equipment(2). . . $ 0 $ 0 $ 0 $ 0 $ (69,483)
Less: Operating Expenses . . . . . . . . . $ 2,058 $ 16,746 $ 17,409 $ 17,992 $ 17,289
Interest Expense . . . . . . . . . . $ 0 $ 39,583 $ 54,947 $ 42,628 $ 26,381
Depreciation . . . . . . . . . . . . $ 1,846 $ 79,258 $ 136,791 $ 137,466 $ 80,994
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Net Income - Tax Basis . . . . . . . . . . $ 12,187 $ 189,563 $ 208,401 $ 216,823 $ 147,663
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Cash generated from operations(3). . . . . $ 14,033 $ 268,821 $ 345,192 $ 354,289 $ 298,140
Cash generated from sales. . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 378,397
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 14,033 $ 268,821 $ 345,192 $ 354,289 $ 676,537
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 0 $ 129,389 $ 239,998 $ 260,649 $ 260,000
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 14,033 $ 139,432 $ 105,194 $ 93,640 $ 416,537
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 0 $ 35,557 $ 95,928 $ 110,527 $ 150,675
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 14,033 $ 103,875 $ 9,266 $ (16,887) $ 265,862
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ 12 $ 190 $ 208 $ 217 $ 148
Capital gain (loss). . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ (69)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 0 $ 129 $ 240 $ 261 $ 260
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------
C-16
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #5(1)
--------------------------------------------------------------------
1993 1994
---- ----
<S> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 224,659 $ 35,597
Profit (loss) on sale of equipment(2). . . $(114,028) $ 224,899
Less: Operating Expenses . . . . . . . . . $ 18,317 $ 7,757
Interest Expense . . . . . . . . . . $ 8,525 $ 1,021
Depreciation . . . . . . . . . . . . $ 71,170 $ 35,575
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 37,399 $ 173,420
--------- ----------
Net Income - Tax Basis . . . . . . . . . . $ (24,780) $ (407,075)
--------- ----------
--------- ----------
Cash generated from operations(3). . . . . $ 197,817 $ 26,819
Cash generated from sales. . . . . . . . . $ 300,597 $ 60,024
Cash generated from refinancing. . . . . . $ 0 $ 0
--------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 498,414 $ 86,843
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 325,000 $ 26,819
from sales and refinancing . . . . . $ 0 $ 60,024
from other . . . . . . . . . . . . . $ 164,552 $ 51,383
--------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 8,862 $ (51,383)
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 123,785 $ 0
--------- ----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $(114,923) $ (51,383)
--------- ----------
--------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ (25) $ (407)
Capital gain (loss). . . . . . . . . $ (114) $ (225)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 60
Refinancing. . . . . . . . . . . . . $ 0 $ 0
Operations . . . . . . . . . . . . . $ 325 $ 27
Other. . . . . . . . . . . . . . . . $ 165 $ 51
</TABLE>
- --------------------
C-17
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP5 generally depreciated equipment on a straight line basis over ten
years. As a result, when a lease ended and the equipment was sold for
residual value, in many cases, due to the depreciation taken by TLP5, the
sale resulted in a tax loss, even though TLP5 realized a positive receipt
of cash. The loss of $69,483 in 1992 reflects such a tax loss.
(3) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
C-18
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
--------------------------------------------------------------------
07-14-89
to 12-31-89 1990 1991 1992 1993
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 115,881 $ 192,346 $ 194,487 $ 197,229 $ 188,894
Profit (loss) on sale of equipment . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Less: Operating Expenses . . . . . . . . . $ 5,718 $ 8,525 $ 6,879 $ 7,689 $ 9,269
Interest Expense . . . . . . . . . . $ 26,854 $ 45,881 $ 40,457 $ 36,568 $ 27,117
Depreciation . . . . . . . . . . . . $ 36,003 $ 79,208 $ 79,856 $ 80,504 $ 80,504
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Net Income - Tax Basis . . . . . . . . . . $ 47,306 $ 58,732 $ 67,295 $ 72,468 $ 72,004
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Cash generated from operations(2). . . . . $ 83,309 $ 137,940 $ 147,151 $ 152,972 $ 152,508
Cash generated from sales. . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 83,309 $ 137,940 $ 147,151 $ 152,972 $ 152,508
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 13,769 $ 99,999 $ 99,999 $ 100,000 $ 100,000
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 69,540 $ 37,941 $ 47,152 $ 52,972 $ 52,508
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 19,722 $ 40,059 $ 45,471 $ 49,353 $ 58,784
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions and special
items(3) . . . . . . . . . . . . . . . . $ 49,818 $ (2,118) $ 1,681 $ 3,619 $ (6,276)
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations . . . . . . . . . . $ 100 $ 124 $ 142 $ 153 $ 152
Capital gain (loss). . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 29 $ 211 $ 211 $ 211 $ 211
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #6(1)
--------------------------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 193,470 $ 162,239 $ 63,215
Profit (loss) on sale of equipment . . . . $ 0 $ (6,052) $(174,675)
Less: Operating Expenses . . . . . . . . . $ 8,820 $ 7,537 $ 5,234
Interest Expense . . . . . . . . . . $ 16,988 $ 10,916 $ 1,232
Depreciation . . . . . . . . . . . . $ 81,600 $ 76,128 $ 48,950
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 77,320
--------- ---------- ---------
Net Income - Tax Basis . . . . . . . . . . $ 86,062 $ 61,606 $(244,196)
--------- ---------- ---------
--------- ---------- ---------
Cash generated from operations(2). . . . . $ 167,662 $ 143,786 $ 56,749
Cash generated from sales. . . . . . . . . $ 0 $ 1,301 $ 11,861
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0
--------- ---------- ---------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 167,662 $ 145,087 $ 68,610
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 100,000 $ 125,000 $ 61,860
from sales and refinancing . . . . . $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0
--------- ---------- ---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 67,662 $ 20,087 $ 6,750
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 69,354 $ 75,049 $ 42,208
--------- ---------- ---------
Cash generated (deficiency) after
cash distributions and special
items(3) . . . . . . . . . . . . . . . . $ (1,692) $ (54,962) $ (35,458)
--------- ---------- ---------
--------- ---------- ---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ 181 $ 130 $ (514)
Capital gain (loss). . . . . . . . . $ 0 $ (13) $ (368)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 211 $ 263 $ 130
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0
</TABLE>
- --------------------
C-20
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) "Net Income(loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(3) Deficiencies were funded with cash generated in prior years.
C-21
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #7(1)
--------------------------------------------------------------------
08-30-89
to 12-31-89 1990 1991 1992 1993
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 58,574 $ 403,825 $ 446,673 $ 398,353 $ 314,143
Profit (loss) on sale of equipment(2). . . $ 0 $ 0 $ 0 $ (92,261) $ (177,823)
Less: Operating Expenses . . . . . . . . . $ 2,599 $ 9,569 $ 9,433 $ 12,504 $ 8,906
Interest Expense . . . . . . . . . . $ 4,290 $ 42,520 $ 33,830 $ 21,054 $ 13,400
Depreciation . . . . . . . . . . . . $ 26,137 $ 104,289 $ 133,646 $ 130,053 $ 103,876
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Net Income - Tax Basis . . . . . . . . . . $ 25,548 $ 247,447 $ 269,764 $ 142,481 $ 10,138
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Cash generated from operations(3). . . . . $ 51,685 $ 351,736 $ 403,410 $ 364,795 $ 291,837
Cash generated from sales. . . . . . . . . $ 0 $ 0 $ 0 $ 6,000 $ 48,103
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 51,685 $ 351,736 $ 403,410 $ 370,795 $ 339,940
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 1,660 $ 177,484 $ 227,998 $ 228,000 $ 228,000
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 50,025 $ 174,252 $ 175,412 $ 142,795 $ 111,940
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 5,013 $ 81,572 $ 106,206 $ 84,743 $ 68,319
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . . $ 45,012 $ 92,680 $ 69,206 $ 58,052 $ 43,621
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ 26 $ 247 $ 270 $ 142 $ 10
Capital gain (loss). . . . . . . . . $ 0 $ 0 $ 0 $ (92) $ (178)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 2 $ 177 $ 228 $ 228 $ 228
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------
C-22
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #7(1)
--------------------------------------------------------------------
01-01-94
to 09-30-94
-----------
<S> <C>
Gross Revenues . . . . . . . . . . . . . . $ 140,640
Profit (loss) on sale of equipment(2). . . $(342,437)
Less: Operating Expenses . . . . . . . . . $ 8,926
Interest Expense . . . . . . . . . . $ 3,188
Depreciation . . . . . . . . . . . . $ 50,736
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 184,655
---------
Net Income - Tax Basis . . . . . . . . . . $(449,302)
---------
---------
Cash generated from operations(3). . . . . $ 128,526
Cash generated from sales. . . . . . . . . $ 190,715
Cash generated from refinancing. . . . . . $ 0
---------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 319,241
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 128,002
from sales and refinancing . . . . . $ 266,901
from other . . . . . . . . . . . . . $ 0
---------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ (75,662)
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 69,147
---------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . . $(144,809)
---------
---------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ (449)
Capital gain (loss). . . . . . . . . $ (342)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 267
Refinancing. . . . . . . . . . . . . $ 0
Operations . . . . . . . . . . . . . $ 128
Other. . . . . . . . . . . . . . . . $ 0
</TABLE>
- --------------------
C-23
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP7 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the equipment
was sold for residual value, in many cases the sale resulted in a tax loss
because the sale price was less than the adjusted basis of the equipment.
The loss of $92,261 in 1992 reflects such a tax loss that resulted from the
sale of equipment that TLP7 took possession of in 1991 following the early
termination of a lease.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
C-24
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
INCOME TAX BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TLP #8(1)
---------------------------------------------------------------------
04-09-90 01-01-94
to 12-31-90 1991 1992 1993 to 09-30-94
----------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . . $ 282,731 $ 821,754 $ 475,321 $ 418,859 $ 177,850
Profit (loss) on sale of equipment(2). . . $ 0 $ 0 $(351,774) $(154,322) $ (372,256)
Less: Operating Expenses . . . . . . . . . $ 21,826 $ 26,531 $ 27,054 $ 16,772 $ 10,196
Interest Expense . . . . . . . . . . $ 28,958 $ 56,699 $ 39,109 $ 12,178 $ 0
Depreciation . . . . . . . . . . . . $ 78,386 $ 175,511 $ 108,398 $ 196,959 $ 52,029
Write-offs of Syndication
Costs and A/R. . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 231,437
--------- ---------- --------- --------- ----------
Net Income - Tax Basis . . . . . . . . . . $ 153,561 $ 563,013 $ (51,014) $ 38,628 $ (488,068)
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Cash generated from operations(3). . . . . $ 231,947 $ 738,524 $ 409,158 $ 389,909 $ 167,654
Cash generated from sales. . . . . . . . . $ 0 $ 0 $ 24,000 $ 7,400 $ 137,194
Cash generated from refinancing. . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 231,947 $ 738,524 $ 433,158 $ 397,309 $ 304,848
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 53,053 $ 256,000 $ 256,000 $ 256,000 $ 474,722
from sales and refinancing . . . . . $ 0 $ 0 $ 0 $ 0 $ 137,194
from other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . . $ 178,894 $ 482,524 $ 177,158 $ 141,309 $ (307,068)
Less: Special items - principal
reduction. . . . . . . . . . . . . . . . $ 61,507 $ 103,803 $ 203,565 $ 138,901 $ 138,901
--------- ---------- --------- --------- ----------
Cash generated (deficiency) after
cash distributions and special
items(4) . . . . . . . . . . . . . . . . $ 117,387 $ 378,721 $ (26,407) $ 2,408 $ (445,969)
--------- ---------- --------- --------- ----------
--------- ---------- --------- --------- ----------
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . . $ 127 $ 467 $ (42) $ 32 $ (405)
Capital gain (loss). . . . . . . . . $ 0 $ 0 $ (292) $ (128) $ (309)
Cash distributions to Investors
Source (on cash basis)
Sales. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 114
Refinancing. . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations . . . . . . . . . . . . . $ 44 $ 212 $ 212 $ 212 $ 394
Other. . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- --------------------
C-25
<PAGE>
(1) This was a nonpublic program whose books were kept on an income tax basis.
This table includes the presentation of income tax basis information.
(2) TLP8 generally depreciated equipment on a straight line basis over ten
years, even though the equipment was leased pursuant to a lease having a
three to five year term. As a result, when a lease ended and the equipment
was sold for residual value, in many cases the sale resulted in a tax loss
because the sale price was less than the adjusted basis of the equipment.
The loss of $351,774 in 1992 reflects such a tax loss that resulted from
the sale of equipment that TLP8 took possession of in 1991 following the
early termination of a lease.
(3) "Net Income (loss) -- Tax Basis" plus current year Depreciation plus loss
(if any) on sale of equipment or less gain (if any) on sale of equipment.
(4) Deficiencies were funded with cash generated in prior years.
C-26
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF IX(1)(2)
-----------------------------------------------------------------------
11-30-91
to 12-31-91 1992 1993 1994 1995
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . $ 27,892 $ 1,068,671 $ 2,759,468 $ 2,958,118 $ 2,933,329
Profit (loss) on sale of equipment . . . $ 0 $ 0 $ 94,003 $ 38,445 $ 23,355
Less: Operating Expenses . . . . . . . . $ 13,375 $ 254,794 $ 495,491 $ 578,979 $ 630,062
Interest Expense . . . . . . . . . $ 482 $ 110,245 $ 239,437 $ 363,881 $ 432,197
Provision for possible lease
losses . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 270,000 $ 94,156
Depreciation . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 150,540
Impairment loss on
Equipment. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ------------ ------------ ------------ ------------
Net Income - GAAP Basis. . . . . . . . . $ 14,035 $ 703,632 $ 2,118,543 $ 1,783,703 $ 1,649,729
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Cash generated from operations . . . . . $ 86,725 $ 1,969,307 $ 2,291,515 $ 1,435,986 $ 1,830,610
Proceeds from termination of direct
financing leases . . . . . . . . . . . $ 0 $ 0 $ 2,291,412 $ 379,489 $ 416,768
Cash generated from refinancing. . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ------------ ------------ ------------ ------------
Cash generated from operations,
sales and refinancing. . . . . . . . . $ 86,725 $ 1,969,307 $ 4,582,927 $ 1,815,475 $ 2,247,378
Less: Cash distributions to investors
from operating cash flow . . . . . $ 14,550 $ 710,834 $ 1,839,447 $ 2,040,210 $ 2,040,208
from sales and refinancing . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
----------- ------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . $ 72,175 $ 1,258,473 $ 2,743,480 $ (224,735) $ 207,170
Less: Special items - principal
reduction . . . . . . . . . . . . $ 0 $ 133,588 $ 0 $ 1,121,243 $ 0
----------- ------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . $ 72,175 $ 1,124,885 $ 2,743,480 $ (1,345,978) $ 207,170
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Income Tax Reporting Basis
Net income for income tax
reporting purposes. . . . . . . . $ 40,414 $ (238,776) $ 679,003 $ 1,515,757 $ 1,267,314
Gain (loss) on sales of
equipment . . . . . . . . . . . . $ 0 $ 567 $ 85,044 $ (34,565) $ (635,945)
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . $ 33 $ (22) $ 40 $ 89 $ 75
Gain (loss) on sale of
Equipment. . . . . . . . . . . . $ 0 $ 0 $ 5 $ (2) $ (37)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations. . . . . . . . . . . . . $ 12 $ 65 $ 108 $ 120 $ 120
Other . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- -------------------
C-27
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
TIF IX(1)(2)
-------------------------------
1996 09-30-97
---- --------
Gross Revenues . . . . . . . . . . . . . . $ 2,875,262 $ 1,701,976
Profit (loss) on sale of equipment . . . . $ 413,880 $ 486,921
Less: Operating Expenses . . . . . . . . . $ 574,268 $ 443,174
Interest Expense . . . . . . . . . . $ 492,210 $ 136,560
Provision for possible lease
losses . . . . . . . . . . . . . . $ 577,931 $ 57,283
Depreciation . . . . . . . . . . . . $ 286,526 $ 230,808
Impairment loss on
Equipment. . . . . . . . . . . . . $ 350,000 $ 0
------------ ------------
Net Income - GAAP Basis. . . . . . . . . . $ 1,008,207 $ 1,321,072
------------ ------------
------------ ------------
Cash generated from operations . . . . . . $ 1,803,251 $ 1,184,865
Proceeds from termination of direct
financing leases . . . . . . . . . . . . $ 6,874,524 $ 2,450,406
Cash generated from refinancing. . . . . . $ 0 $ 0
------------ ------------
Cash generated from operations,
sales and refinancing. . . . . . . . . . $ 8,677,775 $ 3,635,271
Less: Cash distributions to investors
from operating cash flow . . . . . . $ 2,065,823 $ 1,527,565
from sales and refinancing . . . . . $ 0 $ 0
from other . . . . . . . . . . . . . $ 0 $ 0
------------ ------------
cash distributions . . . . . . . . . . . $ 6,611,952 $ 2,107,706
Less: Special items - principal
reduction . . . . . . . . . . . . . $ 3,437,296 $ 1,222,261
------------ ------------
Cash generated (deficiency) after
cash distributions and special
items. . . . . . . . . . . . . . . . . . $ 3,174,656 $ 885,445
------------ ------------
------------ ------------
Income Tax Reporting Basis
Net income for income tax
reporting purposes. . . . . . . . . $ 2,687,332 (3)
Gain (loss) on sales of
equipment . . . . . . . . . . . . . $ (3,475,641) (3)
Tax and distribution data per $1,000 invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . . $ 158 (3)
Gain (loss) on sale of
Equipment. . . . . . . . . . . . $ (205) (3)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . . . $ 0 $ 0
Refinancing . . . . . . . . . . . . . $ 0 $ 0
Operations. . . . . . . . . . . . . . $ 122 $ 90
Other . . . . . . . . . . . . . . $ 0 $ 0
- ----------------------
C-28
<PAGE>
(1) This is a public program whose books are kept on a GAAP basis.
The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
C-29
<PAGE>
TABLE III (CONTINUED)
OPERATING RESULTS OF PRIOR TRANSACTIONS
GAAP BASIS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
TIF X(1)(2)
----------------------------------------------------------------------
08-27-93
to 12-31-93 1994 1995 1996 9-30-97
----------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Gross Revenues . . . . . . . . . . . . . $ 136,896 $ 2,240,714 $ 3,751,290 $ 3,444,271 $ 2,319,276
Profit (loss) on sale of equipment . . . $ 0 $ 20,306 $ 77,143 $ 260,706 $ 61,073
Less: Operating Expenses . . . . . . . . $ 51,378 $ 388,920 $ 605,211 $ 709,592 $ 509,482
Interest Expense . . . . . . . . . $ 0 $ 216,665 $ 672,512 $ 692,863 $ 267,646
Provision for possible lease
losses . . . . . . . . . . . . . $ 0 $ 360,000 $ 828,911 $ 1,092,551 $ 67,005
Depreciation . . . . . . . . . . . $ 0 $ 0 $ 170,646 $ 392,774 $ 310,348
Impairment loss on
Equipment. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 621,000 $ 0
---------- ----------- ----------- ----------- -----------
Net Income - GAAP Basis. . . . . . . . . $ 85,518 $ 1,295,435 $ 1,551,153 $ 196,197 $ 1,225,868
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Cash generated from operations . . . . . $ 158,914 $ 1,643,652 $ 2,566,020 $ 1,938,010 $ 1,254,064
Proceeds from termination of direct
financing leases . . . . . . . . . . . $ 0 $ 201,125 $ 837,182 $ 5,297,671 $ 880,728
Cash generated from refinancing. . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- ----------- ----------- ----------- -----------
Cash generated from operations,
sales and refinancing. . . . . . . . . $ 158,914 $ 1,844,777 $ 3,403,202 $ 7,235,681 $ 2,134,792
Less: Cash distributions to investors
from operating cash flow . . . . . $ 104,880 $ 1,416,600 $ 2,427,345 $ 2,456,178 $ 1,824,139
from sales and refinancing . . . . $ 0 $ 0 $ 0 $ 0 $ 0
from other . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
---------- ----------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions . . . . . . . . . . $ 54,034 $ 288,786 $ 960,510 $ 4,793,261 $ 310,563
Less: Special items - principal
reduction. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 3,811,544 $ 595,496
---------- ----------- ----------- ----------- -----------
Cash generated (deficiency) after
cash distributions and special
items . . . . . . . . . . . . . . . $ 54,034 $ 288,786 $ 960,510 $ 981,717 $ (284,843)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Income Tax Reporting Basis
Net income for income tax
reporting purposes. . . . . . . . $ 6,473 $ (624,998) $ (949,880) $(1,135,380) (3)
Gain (loss) on sales of
equipment . . . . . . . . . . . . $ 0 $ 42,853 $ 142,416 $(1,284,298) (3)
Tax and distribution data per $1,000
invested:
Federal income tax results:
Ordinary income (loss)
from operations. . . . . . . . $ 1 $ (28) $ (42) $ (50) (3)
Gain (loss) on sale of
Equipment. . . . . . . . . . . $ 0 $ 2 $ 6 $ (57) (3)
Cash distributions to Investors
Source (on GAAP basis)
Sales . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Refinancing . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Operations. . . . . . . . . . . . . $ 17 $ 69 $ 108 $ 108 $ 81
Other . . . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ---------------------
C-30
<PAGE>
(1) This is a public program whose books are kept on a GAAP basis.
(2) The amount (in percentage terms) remaining invested in program equipment at
the end of September, 1997 is 100.00%.
(3) Tax information not available at this time.
C-31
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
<TABLE>
<CAPTION>
PROGRAM NAME TLP #1 TLP #2 TLP #3 TLP #4 TLP #5
<S> <C> <C> <C> <C> <C>
Dollar Amount Raised(1). . . . . . . . . $ 1,363,500 $ 1,383,700 $ 282,828 $ 393,939 $ 1,010,000
Date of Closing of Offering. . . . . . . 12/31/86 12/31/87 03/04/88 05/03/88 02/28/89
Date of First Sale of Equipment. . . . . 10/01/90 10/01/90 03/01/92 10/01/92 10/01/92
Date of Final Sale of Equipment. . . . . 10/01/90 09/01/93 08/01/92 10/01/92 03/01/94
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations. . . . . . . . . $ 214 $ 692 $ 1,036 $ 964 $ 751
--from recapture . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Capital Gain (loss). . . . . . . . . $ 31 $ (279) $ (541) $ (527) $ (408)
Deferred Gain
Capital. . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Ordinary . . . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income. . . . . . . . . $ 224 $ 422 $ 504 $ 446 $ 518
--Return of Capital. . . . . . . . . $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales. . . . . . . . . . . . . . . $ 0 $ 27 $ 165 $ 203 $ 60
--Refinancing. . . . . . . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0
--Operations . . . . . . . . . . . . $ 1,224 $ 1,095 $ 1,339 $ 1,243 $ 1,242
--Other. . . . . . . . . . . . . . . $ 0 $ 300 $ 0 $ 0 $ 216
Receivable on Net Purchase Money
Financing
</TABLE>
- ------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
C-32
<PAGE>
TABLE IV (CONTINUED)
RESULTS OF COMPLETED PROGRAMS
NOTE: PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
PROGRAM NAME TLP #6 TLP #7 TLP #8
------ ------ ------
Dollar Amount Raised(1). . . . . . . $ 479,750 $ 1,010,000 $ 1,217,050
Date of Closing of Offering. . . . . 07/14/89 02/21/90 02/07/91
Date of First Sale of Equipment. . . 12/01/96 09/01/92 01/01/93
Date of Final Sale of Equipment. . . 12/01/96 09/01/93 11/01/93
Tax and Distribution Data per $1,000
Federal Income Tax Results:
Ordinary income (loss)
--from operations. . . . . . . $ 846 $ 859 $ 908
--from recapture . . . . . . . $ 0 $ 0 $ 0
Capital Gain (loss). . . . . . . $ (380) $ (613) $ (729)
Deferred Gain
Capital. . . . . . . . . . . . $ 0 $ 0 $ 0
Ordinary . . . . . . . . . . . $ 0 $ 0 $ 0
Cash Distributions to Investors
Source (on GAAP basis)
--Investment Income. . . . . . . $ 475 $ 258 $ 189
--Return of Capital. . . . . . . $ 1,000 $ 1,000 $ 1,000
Source (on cash basis)
--Sales. . . . . . . . . . . . . $ 0 $ 267 $ 114
--Refinancing. . . . . . . . . . $ 0 $ 0 $ 0
--Operations . . . . . . . . . . $ 1,475 $ 991 $ 1,075
--Other. . . . . . . . . . . . . $ 0 $ 0 $ 0
Receivable on Net Purchase Money
Financing
- ---------------------
(1) Includes general partner purchase of 1% of amount raised from investors.
C-33
<PAGE>
TABLE V
SALES OR DISPOSITION OF EQUIPMENT BY PUBLIC PROGRAM SINCE 01/01/94
<TABLE>
<CAPTION>
Net Net
Net Cash Notes/Noncash Proceeds
Net proceeds from Proceeds from from
Investment Termination of Termination of termination
In Direct Direct direct direct Federal
Date Year of Financing Financing financing financing GAAP Taxable
Partnership Description Acquired Disposition Leases Leases leases leases Gain/(Loss) Gain/(Loss)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TIF IX Telecommunication
Equipment Various 1994 $ 341,044 $ 379,489 $ 0 $ 379,486 $ 38,445 $ (34,565)
TIF IX Telecommunication
Equipment Various 1995 $ 393,413 $ 416,768 $ 0 $ 416,768 $ 23,355 $ (635,945)
TIF IX Telecommunication
Equipment Various 1996 $12,361,660 $6,874,524 $5,901,016 $12,775,540 $413,880 $(3,475,641)
TIF X Telecommunication
Equipment Various 1994 $ 180,819 $ 201,125 $ 0 $ 201,125 $ 20,306 $ 42,853
TIF X Telecommunication
Equipment Various 1995 $ 760,039 $ 837,182 $ 0 $ 837,182 $ 77,143 $ 142,416
TIF X Telecommunication
Equipment Various 1996 $10,779,201 $5,297,671 $5,742,236 $11,039,907 $260,706 $(1,284,298)
</TABLE>
C-34
<PAGE>
NOTICE TO CALIFORNIA INVESTORS EXHIBIT D
SECTION 260.141.11. RESTRICTION ON TRANSFER
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113, or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (1) of
Section 25102; provided that any such transfer is on the condition that any
certificate evidencing the security issued to such transferee shall contain the
legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"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."
D-1
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or any 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 contained in this Prospectus and, if
given or made such information or representations must not be relied upon.
Neither the delivery of this Prospectus nor any sale made hereunder will, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to its date. However, if any material change in the
information stated herein does occur during the period when the Prospect is
required to be delivered, it will be supplemented or amended accordingly.
------------------------------------
------------------------------------
Until ninety days after the Effective 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 obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
This Prospectus does not constitute an offer or solicitation by anyone in
any state in which said offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$25,000,000
TELECOMMUNICATIONS
INCOME FUND XI, L.P.
AN IOWA LIMITED PARTNERSHIP
--------------------------------
$1,000 PER UNIT
--------------------------------
A MINIMUM OF 1,200 UNITS ($1,200,000)
OF LIMITED PARTNERSHIP INTEREST
--------------------------------
MINIMUM INVESTMENT:
2 UNITS ($2,000)
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
100 Second Street, S.E.
Cedar Rapids, Iowa 52401
(319) 365-2506
(800) 356-5234
Fax (319) 365-4538
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LOGO]
BERTHEL FISHER & COMPANY LEASING, INC. INVITES YOU TO JOIN US
AS AN INVESTOR IN THE EXPANDING MARKET FOR EQUIPMENT LEASING.
TELECOMMUNICATIONS INCOME FUND XI (TIF XI) IS THE ELEVENTH
LIMITED PARTNERSHIP WE'VE OFFERED SINCE 1986.
- -------------------------------------------------------------------------------
INVESTING IN THE PARTNERSHIP
- - TIF XI will invest primarily in telecommunications equipment for lease.
- - TIF XI will also invest in general equipment for emerging growth markets.
- - Leases will be full payout.
LEASING IS BIG BUSINESS
Leasing is one of the largest equipment financing options in the United
States.
Lease benefits are as follows:
- 100% financing
- Cash conservation
- Tax advantages
- Inflation hedge
- Cash flow improvements
TELECOMMUNICATIONS LEASING MARKET
- - The expanding telecommunications industry is an established market for
equipment leasing.
- - Lease rates for telecommunications equipment are competitive and
affordable for the expanding industry.
- - Deregulation of the telephone industry has allowed private companies to
enter the pay telephone and call processing business.
- Private companies acquire equipment via full payout leases.
- Each lease request is evaluated upon the private company's
creditworthiness.
- Pay telephone and call processing equipment generate income that repays
the lease.
- Revenues are generally collected by independent billing companies and in
many cases are paid direct to the Lessor.
GENERAL LEASING MARKET
- - The General Partner has identified special markets for general equipment
leasing.
- - Growth markets are emerging businesses with limited access to capital.
- - Examples of general equipment required by companies identified as growth
markets:
- Automated Teller Machines (ATM)
- Cash Dispensing Machines
- Durable home medical equipment
- Manufacturing equipment
- Retail point of sales systems
- - The General Partner anticipates that equipment other than telecommunications
equipment will make up a small portion of the portfolios.
FULL PAYOUT LEASES
- - Full payout leases are a conservative approach to equipment leasing.
- - Full payout leases return the original cost of the equipment plus a return
on invested funds.
- - At lease end the partnership owns the equipment and can sell or release the
equipment.
- - Leases are noncancellable for the entire term of the lease.
[GRAPHIC DESCRIBING PROCESS BY WHICH INVESTORS MAKE CAPITAL CONTRIBUTIONS AND
RECEIVE DISTRIBUTIONS, THE PARTNERSHIP MAKES INVESTMENTS IN LEASED EQUIPMENT
AND COLLECTS LEASE REVENUE, AND THE GENERAL PARTNER MANAGES THE FUND AND
ORIGINATES LEASES. PHOTOGRAPHS OF CROWD OF PEDESTRIANS, THE OFFICE OF THE
GENERAL PARTNER, THE LOGO OF THE PARTNERSHIP, AND THREE ITEMS OF TYPICAL
LEASE EQUIPMENT]
<PAGE>
[LOGO]
THE TIF XI ADVANTAGES
- -------------------------------------------------------------------------------
[GRAPHIC OF STAR WITH THE FOLLOWING FIVE ITEMS OF TEXT AT THE POINTS]
SUBORDINATED MANAGEMENT FEE
Investors will receive a return before the General Partner receives its
management fee. The General Partner and its Affiliates will receive
substantial Front End Fees before investors receive a return.
MONTHLY DISTRIBUTIONS
Cash payments are expected to be paid monthly to investors, but distributions
are at the discretion of the General Partner, and there is no assurance that
they will be made. Distributions may include a return of capital.
FULL PAYOUT LEASES
Leases pay back the full cost of equipment plus a return on invested funds.
80/20 PROFIT SPLIT
After the Investors receive their original investment plus a 9.6% annual
return, calculated during the Operating Phase, 80% of the profits will be
returned to investors, and 20% to the General Partner.
TAX-DEFERRED INCOME
A portion of the income on certain leases will be tax-deferred through
equipment depreciation. Investors will not be able to defer taxes on their
own income as a result of investing in the Partnership.
OFFERING SUMMARY
- -------------------------------------------------------------------------------
TYPE OF OFFERING:
Publicly registered Leasing Income Fund.
OFFERING SIZE:
Minimum - $1,200,000
Maximum - $25,000,000
UNIT SIZE:
$1,000
MINIMUM PURCHASE
$2,000
GENERAL PARTNER:
Berthel Fisher & Company Leasing, Inc.
PRIOR PROGRAMS:
Eight private placements and two publicly registered programs.
ALLOCATION OF CASH FLOW:
The Partnership Agreement provides that after distributions to the Limited
Partners equal their original investment plus a 9.6% return, calculated
during the Operating Phase, subsequent profits, if any, at liquidation will
be split 80/20, with Limited Partners receiving 80% and the General Partner
20%.
CASH DISTRIBUTIONS:
Distributions during the Operating Phase will be paid monthly to the extent
funds are available. Distributions are at the discretion of the General
Partner and there is no assurance that they will be made. Distributions may
include a return of capital.
LENGTH OF INVESTMENT:
The Liquidation Phase will begin 3.5 to 5 years after closing of offering.
PARTNERSHIP OBJECTIVES:
- - Preserve capital
- - Maximize current income
- - Reinvest all available cash in new leases.
- - Maximize residual values.
PARTNERSHIP BORROWING:
Maximum leverage of 40%.
TYPES OF LEASED EQUIPMENT:
- - Telecommunications systems
- - Call Processing systems
- - Pay telephones
- - PBX systems
- - ATM systems
- - Miscellaneous income-producing general equipment
TAX DEFERRAL:
Tax on distributions may be deferred through the use of accelerated
depreciation. Investors will not be able to defer taxes on their own income
as a result of investing in the partnership.
PASSIVE INCOME:
TIF XI is a passive income generator.
INVESTOR REPORTING:
- - Welcome letter and certificate confirming participation in TIF XI
- - Quarterly reports
- - Annual reports audited by an independent public accounting firm
- - Tax information (schedule K-1)
<PAGE>
TELECOMMUNICATIONS INCOME FUND XI
PAST PERFORMANCE
PRIOR PERFORMANCE DOES NOT DICTATE FUTURE PERFORMANCE
- --------------------------------------------------------------------------------
Cash Distributions to Limited Partners of Prior Programs
Sponsored by Berthel Fisher & Company Leasing, Inc. and Affiliates
as of June 30, 1997
<TABLE>
<CAPTION>
DISTRIBUTION AS
PROGRAM OFFERING LENGTH OF TOTAL PAID A % OF ORIGINAL PROGRAM
PROGRAM SIZE CLOSING PROGRAM TO DATE INVESTMENT CLOSED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 1,363,500 12/31/86 8 YEARS $ 1,652,794 121.22% 10/31/94
2 $ 1,383,700 12/31/87 7 YEARS $ 1,947,611 140.75% 9/30/94
3 $ 282,828 3/4/88 4 1/2 YEARS $ 421,109 148.89% 9/42/92
4 $ 393,939 5/3/88 4 1/2 YEARS $ 563,940 143.15% 10/19/92
5 $ 1,010,000 2/28/89 6 YEARS $ 1,353,262 133.99% 12/31/94
6 $ 479,750 7/14/89 7 1/2 YEARS $ 700,627 146.04% 12/31/96
7 $ 1,010,000 2/21/90 4 1/2 YEARS $ 1,258,045 124.56% 9/30/94
8 $ 1,217,050 2/7/91 3 1/2 YEARS $ 1,432,969 117.74% 9/30/94
9 $17,001,750 4/30/93 OPEN (1) $ 9,690,392 57.00% OPEN
10 $22,617,500 12/31/94 OPEN (1) $ 7,878,145 34.83% OPEN
</TABLE>
(1) DESIGNED FOR A 5 YEAR TERM FROM CLOSING OF OFFERING.
THERE CAN BE NO ASSURANCE THAT ANY SPECIFIC LEVEL OF CASH DISTRIBUTIONS OR
ANY OF THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP CAN OR WILL BE ATTAINED.
ANYONE INTERESTED IN TELECOMMUNICATIONS INCOME FUND XI SHOULD CAREFULLY
REVIEW THE PROSPECTUS.
<PAGE>
[PHOTO OF OFFICES OF BERTHEL FISHER & COMPANY]
BERTHEL FISHER & COMPANY
FOUNDED IN 1985 AS A DIVERSIFED FINANCIAL SERVICES HOLDING COMPANY,
BERTHEL FISHER & COMPANY, INC. OPERATES A NUMBER OF SUBSIDIARIES, INCLUDING:
- - BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.
- - BERTHEL FISHER & COMPANY LEASING, INC.
- - BERTHEL FISHER & COMPANY PLANNING, INC.
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
100 SECOND STREET SE
CEDAR RAPIDS, IOWA 52401
(319) 365-2506
(800) 356-5234 (TOLL FREE)
(319) 365-4538 (FAX)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by the Registrant (other than broker-dealer
commissions) in connection with the offering herein described are as follows:
Minimum Maximum
------- -------
Securities and Exchange
Commission Registration Fee. . . . . . . . . . . . .$ 7575 $ 7575
National Association of Securities
Dealers Registration Fee . . . . . . . . . . . . . . 3,000 3,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . 100,000 100,000
Accountants' Fees and Expenses . . . . . . . . . . . . 25,000 25,000
Fees and Expenses Relating to Blue Sky
Qualifications (including legal fees). . . . . . . . 50,000 50,000
Printing . . . . . . . . . . . . . . . . . . . . . . . 45,000 45,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . 0
Seminars . . . . . . . . . . . . . . . . . . . . . . . 75,000 75,000
Advertising and Sales. . . . . . . . . . . . . . . . . 85,000 85,000
Literature . . . . . . . . . . . . . . . . . . . . . . 25,000 25,000
-------- --------
Total Estimated Expenses . . . . . . . . . . . . . . .$415,575 $415,575
-------- --------
-------- --------
- ---------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Partnership Agreement provides that the General Partner or its
Affiliates performing services on behalf of the Partnership will not be
liable to the Partnership or the Limited Partners for any act performed or
omitted to be performed by them in connection with the activities of the
Partnership or in dealing with third parties on behalf of the Partnership, if
the General Partner, in good faith, determined that such course of conduct
was in the best interest in the Partnership, and such act or omission does
not constitute fraud, negligence, breach of fiduciary duty or misconduct.
The Partnership Agreement provides that the General Partner or its Affiliates
performing services on behalf of the Partnership will be indemnified by the
Partnership for any liabilities incurred by them arising from acts performed
or omitted to be performed by them that were determined in good faith by the
General Partner to have been in the best interest of the Partnership in
connection with the activities of the Partnership or in dealing with third
parties on behalf of the Partnership, including attorney's fees (which may be
paid as incurred subject to certain restrictions) and any amounts expended in
the investigation or settlement of any claims, except for claims with respect
to acts or omissions which constitute fraud, negligence, breach of fiduciary
duty or misconduct.
The General Partner or any of its Affiliates performing services on
behalf of the Partnership, or in connection with its business, will not be
indemnified against any liability, loss or damage incurred by reason of any
act performed or omitted to be performed by them in good faith in connection
with the activities of the Partnership or in dealing with third parties on
behalf of the Partnership, involving allegations that federal or state
securities laws were violated, unless such lawsuits alleging such claims are
successfully defended or a court approves indemnification of litigation costs
(provided that the Court is apprised of the position of the SEC), unless such
lawsuits are dismissed with prejudice on the merits or unless such lawsuits
are settled and a court approves the settlement and the indemnification.
The Partnership Agreement provides that the Partnership will not incur
the cost of that portion of any insurance which insures any party against any
liability the indemnification of which is prohibited by the Partnership
Agreement.
<PAGE>
Advances of attorney's fees and costs will not be permitted for
indemnification suits unless the action relates to the performance of duties or
services by the General Partner or its Affiliates on behalf of the Partnership,
or in connection with the Partnership's business, the claim against which
indemnification is sought is not made by a Limited Partner and the indemnified
party undertakes to repay within 90 days the advanced funds to the Partnership
in cases in which they would not be entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Thomas J. Berthel has purchased one Unit for $1,000 in order to become an
Initial Limited Partner and permit the filing of a Certificate of Limited
Partnership. The General Partner has purchased 10 Units for $10,000. These
sales were made pursuant to the exemption contained in Section 4(2) of the
Securities Act of 1933, as a transaction not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS:
1.1 Managing Sales Agent Agreement
1.2 Form of Selected Sales Agent Agreement
3.1 Amended and Restated Agreement of Limited Partnership
(included as Exhibit A to the Prospectus)
*3.2 Certificate of Limited Partnership
*4.1 Form of Certificate Representing Limited Partnership
Interests in the Registrant
5.1 Opinion of Bradley & Riley, P.C., Counsel to Registrant,
as to the legality of the securities being registered
8.1 Opinion of Bradley & Riley, P.C., Counsel to
Registrant, as to tax matters
10.1 Escrow Agreement
10.2 Amended Contract between the General Partner and the
Partnership
23.1 Consent of Deloitte & Touche, LLP
23.2 Consent of Bradley & Riley, P.C. included in its opinions
filed as Exhibits 5.1 and 8.1
*24.1 Power of Attorney
*27.1 Financial Data Schedule
- --------------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
None
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement: (i) To include any Prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
Prospectus any facts or events arising
<PAGE>
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement;
(b) That, for the purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(c) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(d) To provide to the Managing Sales Agent at the closing
specified in the Managing Sales Agent Agreement certificates in
such denominations and registered in such names as required by the
Managing Sales Agent and Soliciting Sales Agents to permit prompt
delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cedar Rapids, and State
of Iowa on this 21st day of November , 1997.
TELECOMMUNICATIONS INCOME
FUND XI, L.P., an Iowa Limited Partnership
By: BERTHEL FISHER & COMPANY
LEASING, INC.
By /s/ Thomas J. Berthel
---------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
By /s/ Ronald O. Brendengen
---------------------------
RONALD O. BRENDENGEN, Chief
Financial Officer
By /s/ Daniel P. Wegmann
---------------------------
DANIEL P. WEGMANN, Chief
Accounting Officer
Pursuant to the requirements of the Securities Act of 1993, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 21st day of November, 1997.
Signature Title
--------- -----
/s/ Thomas J. Berthel
- ------------------------------- Director, Chief Executive Officer and
THOMAS J. BERTHEL President of the General Partner
/s/ Nancy Lowenberg
- ------------------------------- Director, Vice President and Chief
NANCY LOWENBERG Operating Officer
/s/ Ronald O. Brendengen
- ------------------------------- Director, Treasurer and Chief Financial
RONALD O. BRENDENGEN Officer of the General Partner
/s/ Daniel P. Wegmann
- ------------------------------- Chief Accounting Officer
DANIEL P. WEGMANN
/s/ Leslie D. Smith
- ------------------------------- Secretary of the General Partner
LESLIE D. SMITH
/s/ Von Elbert
- ------------------------------- Director of the General Partner
VON ELBERT
/s/ Emmett J. Scherrman
- ------------------------------- Director of the General Partner
EMMETT J. SCHERRMAN
/s/ James W. Noyce
- ------------------------------- Director of the General Partner
JAMES W. NOYCE
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT NO. NAME PAGE NUMBER
1.1 Managing Sales Agent Agreement . . . . . . . . . .
1.2 Form of Selected Sales Agent Agreement . . . . . .
3.1 Amended and Restated Agreement of Limited
Partnership (included as Exhibit A to the
Prospectus). . . . . . . . . . . . . . . . . . . .
5.1 Opinion of Bradley & Riley, P.C., Counsel to
Registrant, as to the legality of the securities
being registered . . . . . . . . . . . . . . . . .
8.1 Opinion of Bradley & Riley, P.C., Counsel to
Registrant, as to tax matters . . . . . . . . . .
10.1 Escrow Agreement . . . . . . . . . . . . . . . . .
10.2 Amended Contract Between the General Partner and
the Partnership. . . . . . . . . . . . . . . . . .
23.1 Consent of Deloitte & Touche, LLP. . . . . . . . .
23.2 Consent of Bradley & Riley, P.C. included in its
opinions filed as Exhibits 5.1 and 8.1 . . . . . .
27.1 Financial Data Schedule. . . . . . . . . . . . . .
<PAGE>
EXHIBIT 1.1
MANAGING SALES AGENT AGREEMENT
<PAGE>
MANAGING SALES AGENT AGREEMENT
MANAGING SALES AGENT AGREEMENT made as of October 27, 1997, between BERTHEL
FISHER & COMPANY FINANCIAL SERVICES, INC., an Iowa corporation (the "Managing
Sales Agent"), BERTHEL FISHER & COMPANY LEASING, INC., an Iowa corporation (the
"General Partner"), and TELECOMMUNICATIONS INCOME FUND XI, L.P. (the
"Partnership").
RECITALS
The General Partner is a corporation duly organized under the laws of Iowa,
and is the General Partner of the Partnership formed as a limited partnership
under the laws of Iowa pursuant to a Limited Partnership Agreement (the "Limited
Partnership Agreement"). The Partnership proposes to offer and sell up to
25,000 units representing limited partnership interests (the "Units") to the
general public, pursuant to a public offering of the Units (the "Offering")
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
The Managing Sales Agent is a corporation presently in good standing in the
State of Iowa, is a member presently in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"), is presently licensed or
will be licensed as a securities broker-dealer qualified to offer and sell to
members of the public securities of the type represented by the Units in the
states in which the Units are to be offered and is presently registered with the
SEC as a broker-dealer.
The General Partner, on behalf of the Partnership, will file with the SEC a
registration statement on Form S-1, including a preliminary prospectus, for the
registration of the Units under the Securities Act. Such registration
statement, as it may be amended, and the prospectus included therein at the time
the registration statement becomes effective, including any supplements and
amendments to such documents after the effective date of the registration
statement, are herein referred to as the "Registration Statement" and the
"Prospectus," respectively.
The offer and sale of the Units shall be made pursuant to the terms and
conditions of the Registration Statement and the Prospectus as well as pursuant
to the terms and conditions of all applicable securities laws of all states in
which the Units are offered and sold.
The Partnership and the General Partner desire to retain the Managing Sales
Agent to use its best efforts to sell the Units and to manage the sale of Units
by others, and the Managing Sales Agent is willing and desires to serve as the
managing placement agent for the Partnership for the sale of the Units upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and terms and conditions
thereof, it is agreed as follows:
1. EMPLOYMENT; OPTION.
(a) Subject to the terms and conditions herein set forth, the
Partnership hereby employs the Managing Sales Agent as a broker-dealer to use
its best efforts to sell the Units for the Partnership's account, pursuant to
the Registration Statement and the Prospectus. The Managing Sales Agent hereby
accepts such employment and covenants, warrants and agrees that all Units sold
by or through it will be sold according to all of the terms and conditions of
the Registration Statement, the Conduct Rules of the NASD and all applicable
state and federal laws, including the Securities Act and any and all regulations
-1-
<PAGE>
and rules pertaining thereto heretofore or hereafter issued by the SEC. Neither
the Managing Sales Agent nor any other person shall have any authority or give
any information or make any representations in connection with any offer or sale
of the Units other than as contained in the Prospectus and as is otherwise
expressly authorized in writing by the General Partner.
(b) Promptly following receipt of written notice from the General
Partner of the effective date of the Registration Statement, the Managing Sales
Agent shall use its best efforts as managing broker-dealer to cause the Units to
be sold at the price per Unit specified in, and in such quantities and to such
persons and according to such terms as are contained in, the Registration
Statement and the Prospectus. The Managing Sales Agent shall comply with all
requirements set forth in the Registration Statement and the Prospectus. The
Managing Sales Agent shall use and distribute, in conjunction with the offer and
sale of the Units, only the Prospectus and such sales literature and advertising
as shall conform in all respects to any restrictions of local law and the
applicable requirements of the Securities Act and which shall be approved by the
General Partner. The General Partner reserves the right to establish such
additional procedures as they may deem necessary to insure compliance with the
requirements of the Registration Statement, and the Managing Sales Agent shall
comply with all such additional procedures to the extent that it has received
such written notice thereof.
(c) All checks received for purchase of any of the Units shall be
made out to "First National Bank Iowa, Cedar Rapids, Iowa, Escrow #80-9164-00"
and shall be deposited by the Managing Sales Agent in an escrow account (the
"Escrow Account") established at First National Bank Iowa, Cedar Rapids, Iowa,
solely for such deposits pursuant to an Escrow Agreement between the Partnership
and First National Bank Iowa, Cedar Rapids, Iowa. The funds will be held in
escrow in such Escrow Account or in an escrow account with such other
substantial commercial bank designated by the Partnership as successor escrow
agent, under and subject to the terms of an Escrow Agreement entered into
between the Partnership and the escrow agent. All checks received from Selected
Sales Agents who have obtained subscription payments by debiting an investor's
account will be deposited by the Managing Sales Agent in the Escrow Account by
the end of the next business day following receipt of such checks. Checks
received from Selected Sales Agents who have not received subscribers' funds by
debiting a customer's account will be deposited by the Managing Sales Agent in
the Escrow Account no later than the second business day following receipt.
After the Minimum number of Units has been sold, all checks received from
Selected Sales Agents who have obtained subscription payments by debiting an
investor's account will be deposited by the Managing Sales Agent to the account
of the Partnership by the end of the next business day following receipt of such
checks. Checks received from Selected Sales Agents who have not received
subscribers' funds by debiting a customer's account will be deposited by the
Managing Sales Agent to the account of the Partnership no later than the second
business day following receipt.
(d) During the full term of this Agreement, the General Partner shall
have full authority to take such action as it may deem advisable with respect to
all matters pertaining to the performance of the Managing Sales Agent under this
Agreement.
(e) The Units shall be offered and sold only where the Units may be
legally offered and sold, and only to such persons in such states who shall be
legally qualified to purchase the Units.
(f) Notwithstanding anything herein to the contrary, the Managing
Sales Agent shall have no obligation under this Agreement to purchase any of the
Units for its own account.
2. COMPENSATION TO THE MANAGING SALES AGENT. The Partnership shall pay
the Managing Sales Agent, as compensation for services to be rendered by the
Managing Sales Agent hereunder, a Managing Sales Agent Fee on each Unit sold on
behalf of the Partnership of nine percent (9%) of the
-2-
<PAGE>
selling price of each Unit sold and delivered, which shall remain in effect
during the full term of this Agreement unless otherwise changed by a written
agreement between the General Partner and the Managing Sales Agent. From the
Managing Sales Agent Fee the Managing Sales Agent shall pay the Selected Agent
Fee which is an amount up to six and one-half percent (6.5%) of the selling
price of each Unit sold and delivered. The Managing Sales Agent shall also be
reimbursed by the General Partner for accountable expenses paid on behalf of the
Partnership, as described in paragraph 7(c) herein. A sale of a Unit shall be
deemed to be completed when a properly completed Subscription Agreement,
Signature Page and Power of Attorney has been received by the Partnership and
payment of the full purchase price of each purchased Unit has been received by
the Partnership or the administrator of the Escrow Account, from a buyer who
satisfies each of the terms and conditions of the Registration Statement and
Prospectus. Such compensation due under this paragraph shall be payable to the
Managing Sales Agent by the Partnership within ten (10) days after the end of
the month of the receipt of the full purchase price; provided, however, that
such compensation may, at the sole election of the Partnership, be paid at any
time prior to such time; and provided further that no compensation shall be paid
to the Managing Sales Agent with respect to any Units sold unless and until the
purchase price for the Units is released from the Escrow Account to the
Partnership or delivered directly to the Partnership in accordance with the
Prospectus and the Escrow Agreement.
3. CONDITIONS TO THE MANAGING SALES AGENT'S OBLIGATIONS. The Managing
Sales Agent's obligations hereunder are subject, during the full term of this
Agreement and the Offering, to: (a) the performance by the General Partner and
the Partnership of their obligations hereunder and (b) the conditions that: (i)
the Registration Statement shall become and remain effective; (ii) the NASD
shall have indicated that it does not disapprove of the underwriting
arrangements with respect to the Offering; and (iii) no stop order shall have
been issued suspending the effectiveness of the Offering.
4. CONDITIONS TO THE OBLIGATIONS OF THE GENERAL PARTNER AND THE
PARTNERSHIP. The obligations of the General Partner and the Partnership
hereunder are subject, during the full term of this Agreement and the Offering,
to the conditions that: (a) at the effective date of the Registration
Statement, and thereafter during the term of this Agreement while any Units
remain unsold, the Registration Statement shall remain in full force and effect
authorizing the offer and sale of the Units; (b) no stop order suspending the
effectiveness of the Offering or other order restraining the offer or sale of
the Units shall have been issued or proceedings theretofore initiated or
threatened by any state regulatory agency or the SEC; and (c) the Managing Sales
Agent shall have satisfactorily performed all of its obligations hereunder.
5. COVENANTS OF THE GENERAL PARTNER. The General Partner covenants,
warrants and represents, during the full term of this Agreement, that:
(a) It shall use its best efforts to maintain the effectiveness of
the Registration Statement and shall file, or cause to be filed, such amendments
to the Registration Statement as may be reasonably necessary for that purpose.
(b) It shall advise the Managing Sales Agent whenever and as soon as:
(i) the SEC or any state regulatory agency requests any
amendment or supplement to the Registration Statement or the
Prospectus;
(ii) it receives or learns of any order issued by the SEC, any
state regulatory agency or any other regulatory agency which suspends
the effectiveness of the Registration Statement or prevents the use of
the Prospectus or which otherwise prevents or suspends the Offering of
the Units; or
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(iii) it receives notice of any proceedings involving any of the
matters as set forth herein.
(c) It shall use its best efforts to prevent the issuance of any
order described herein in subsection (b) above and to obtain the lifting of any
such order if issued.
(d) It shall give the Managing Sales Agent written notice when the
Registration Statement becomes effective and shall deliver to the Managing Sales
Agent one copy of the exhibits to the Registration Statement and such number of
copies of the Registration Statement, without exhibits, and the final
Prospectus, and any supplements and amendments thereto, in the form in which
filed with the SEC, as the Managing Sales Agent may reasonably request in
connection with the sale of the Units, which Prospectus shall in all respects
conform to the applicable requirements of the Securities Act and all applicable
rules and regulations promulgated thereunder, and which Prospectus shall not
contain any untrue statement of a material fact required to be stated therein or
omit any material statement necessary to make the statements therein, in light
of the circumstances under which they are made, not misleading.
(e) It shall promptly notify the Managing Sales Agent of any
post-effective amendments or supplements to the Registration Statement or
Prospectus, and shall furnish the Managing Sales Agent with copies thereof.
(f) It shall keep the Managing Sales Agent fully informed of any
material development to which the Partnership is a party or which concerns the
business and condition of the Partnership.
(g) It shall cause the Partnership to be operated in the manner
described in the Registration Statement and shall abide by all applicable
provisions of the Limited Partnership Agreement of the Partnership, as the same
may be amended.
(h) It shall use its best efforts to cause, at or prior to the time
the Registration Statement becomes effective, the qualification of the Units (or
exemption from qualification) for offering and sale under the securities laws of
every state in which the Units will be sold.
6. COVENANTS OF THE MANAGING SALES AGENT. The Managing Sales Agent
covenants, warrants and represents that:
(a) It shall use its best efforts to prevent the sale of Units
through persons other than broker-dealers who are licensed members of the NASD,
registered as broker-dealers with the SEC and duly licensed by the appropriate
regulatory agency of each state in which they will offer and sell the Units.
(b) It shall provide the General Partner, when received, with a copy
of any letter from the NASD in which the NASD indicates that it does not
disapprove of the underwriting arrangements with respect to the Offering.
(c) Based upon a review, to the extent relevant to the Offering, of
the items referred to in Rule 2810(b)(3)(B) of the Conduct Rules of the NASD, as
set forth in the Prospectus and other materials made available to it by the
General Partner, it has reasonable grounds to believe that all material facts
relating to the Offering are adequately disclosed and provide a basis for
evaluation of the Offering.
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(d) At the date of execution of this Agreement, it has complied with
Rules 2810(b)(3)(A) and 2810(b)(3)(B) of the Conduct Rules of the NASD.
(e) In recommending to a prospective Subscriber the purchase, sale or
exchange of Units, the Managing Sales Agent shall have, and shall insure that
all persons associated with the Managing Sales Agent ("Associates") making such
recommendations shall have, reasonable grounds to believe, on the basis of
information obtained from the prospective Subscriber concerning his investment
objectives, other investments, financial situation and needs, and any other
information known by the Managing Sales Agent or such Associates, that the
prospective Subscriber satisfies the criteria as to suitability set forth in
Rule 281(b)(2)(B)(i) of the Conduct Rules of the NASD, and prior to executing a
purchase transaction with respect to Units, the Managing Sales Agent shall, and
shall insure that each of its Associates proposing to execute such a transaction
shall, inform the prospective Subscriber of all pertinent facts relating to the
liquidity and marketability of the Units during the term of the investment.
(f) It shall maintain in its files, for the longer of the period
prescribed by SEC Rule 17a-4 or the period prescribed by the state blue sky laws
applicable to it, documents disclosing the basis upon which the determination of
suitability was reached as to each Subscriber who subscribes for Units through
it.
(g) It shall not execute any transaction for a Subscriber in
connection with the Offering in a discretionary account without the prior
written approval of such transaction by such Subscriber.
(h) It shall not distribute or provide any sales incentive items
other than in compliance with Rule 2810(b)(4)(E).
(i) It is familiar with Release No. 4968 and Rule 15C2-8 under the
Exchange Act, which relate to the distribution of preliminary and final
prospectuses, and shall comply therewith.
7. PAYMENT OF COSTS AND EXPENSES.
(a) The Managing Sales Agent shall pay all costs and expenses
incident to the performance of its obligations under this Agreement not
expressly assumed by the Partnership as provided herein.
(b) The Partnership shall pay all costs and expenses, up to a maximum
amount equal to three and one-half percent (3.5%) of gross proceeds related to:
(i) the registration of the offer and sale of the Units with
the SEC, including the cost of preparation, printing, filing and
delivery of the Registration Statement, all amendments or supplements
thereto and all copies of the Prospectus used in the Offering;
(ii) the qualification or registration of the Units under state
securities or "Blue Sky" laws of states where the Units are offered or
sold and must be qualified or registered;
(iii) the filing and clearance of the Registration Statement and
its Exhibits with the NASD;
(iv) communications for prospective investors, including the
cost of preparation, printing, filing and delivery and all sales
brochures and similar literature used in the Offering and the cost of
preparation of video presentations for use in that connection;
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(v) any fees and disbursements of counsel and accountants
relating to the above items; and
(vi) bona fide "due diligence" activities relating to the
Offering, including training meetings and seminars held for
participating broker-dealers and their registered representatives.
(c) The General Partner may advance to the Managing Sales Agent all
or any portion of the costs and expenses described above. The General Partner
shall be responsible for payment of all such costs and expenses as exceed three
and one-half percent (3.5%) of gross proceeds of the offering.
8. INDEMNIFICATION.
(a) The Managing Sales Agent agrees to indemnify, defend and hold
harmless the Partnership and the General Partner and their officers, directors,
employees and agents against all losses, claims, demands, liabilities and
expenses, including reasonable legal and other expenses incurred in defending
such claims or liabilities, whether or not resulting in any liability to the
Partnership, the General Partner or any of their officers, directors, employees
or agents, which they or any of them may incur, arising out of the offer or sale
by the Managing Sales Agent of any Units pursuant to this Agreement or arising
out of the breach by the Managing Sales Agent of any of the terms and conditions
of this Agreement, including but not limited to alleged violations of the
Securities Act and/or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), OTHER THAN any claim, demand or liability arising from any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus or the Registration Statement, as filed and in effect with the SEC,
or any amendments or supplement thereto, or in any application prepared by the
General Partner and filed with any state regulatory agent in order to register
or qualify the Units under the securities laws thereof (the "blue sky
applications"), or in any supplemental sales material which is prepared by the
General Partner for distribution to prospective investors, or which shall arise
out of or be based upon any omission or alleged omission to state therein a
material fact required to be stated in the Prospectus or the Registration
Statement or any of the blue sky applications or such supplemental sales
material necessary to make the statements therein not misleading. This
indemnity provision shall survive the termination of this Agreement.
(b) The General Partner agrees to indemnify, defend and hold harmless
the Managing Sales Agent and its officers, directors, employees and agents
(including selected sales agents) against all losses, claims, demands,
liabilities and expenses, including reasonable legal and other expenses incurred
in defending such claims or liabilities, whether or not resulting in any
liability to the Managing Sales Agent or any of its officers, directors,
employees or agents, which they or any of them may incur, including but not
limited to alleged violations of the Securities Act and/or the Exchange Act, BUT
ONLY to the extent that such losses, claims, demands, liabilities and expenses
shall arise out of or be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus or the Registration
Statement, as filed and in effect with the SEC, or any amendment or supplement
thereto, or in any of the blue sky applications, or in any supplemental sales
material which is prepared by the General Partner for distribution to
prospective investors, or which shall arise out of or be based upon a breach of
this Agreement by the General Partner or the Partnership. This indemnity
provision shall survive the termination of this Agreement.
9. TERM OF AGREEMENT. This Agreement shall become effective when
executed. Any party hereto may prevent this Agreement from becoming effective,
without liability to the other parties, by written notice before the day on
which the Registration Statement becomes effective. After this Agreement
becomes effective, any party may terminate it at any time for any reason by
giving thirty (30) days' written
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notice to the other parties; PROVIDED, HOWEVER, that this Agreement shall in any
event automatically terminate at the first occurrence of any of the following
events: (a) the Registration Statement shall cease to be effective; (b) the
Offering shall be terminated; or (c) the Managing Sales Agent's license or
registration to act as a broker-dealer shall be revoked or suspended by any
federal or state regulatory agency and such revocation or suspension is not
cured within ten (10) days from the date of such occurrence.
10. NOTICES. All notices and communications hereunder shall be in writing
and, if sent to the Partnership and the General Partner, shall be mailed to:
TELECOMMUNICATIONS INCOME FUND XI, L.P.
100 Second Street, SE
Cedar Rapids, Iowa 52401
BERTHEL FISHER & COMPANY LEASING, INC.
100 Second Street, SE
Cedar Rapids, Iowa 52401
and if sent to the Managing Sales Agent, shall be mailed to:
BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.
100 Second Street, SE
Cedar Rapids, Iowa 52401
11. SUCCESSORS. This Agreement shall not be assigned or transferred by
the Managing Sales Agent by operation of law or otherwise.
12. CONSTRUCTION.
(a) This Agreement shall be governed by, and construed in accordance
with, the applicable laws of the State of Iowa without regard to any provision
or rule of law which should require the application of the law of any state
other than Iowa.
(b) Nothing in this Agreement shall constitute the Managing Sales
Agent as in association or partnership with the Partnership or with the General
Partner, and, instead, this Agreement shall only constitute the Managing Sales
Agent as a broker-dealer authorized by the Partnership and the General Partner
to sell and to manage the sale by others of the Units according to the terms
expressly set forth herein, provided that the Managing Sales Agent shall not in
any event have any authority to act as the agent of the Partnership or the
General Partner except according to the terms expressly set forth herein.
(c) This Agreement embodies the entire understanding between the
parties hereto, and no variation, modification or amendment to this Agreement
shall be deemed valid or effective unless and until it is signed by all parties
hereto.
(d) If any provision of this Agreement shall be deemed void, invalid
or ineffective for any reason, the remainder of this Agreement shall remain in
full force and effect.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MANAGING SALES AGENT:
BERTHEL FISHER & COMPANY FINANCIAL
SERVICES INC.
By /s/ Dwight E. Wheelan
----------------------------------------
DWIGHT E. WHEELAN, President
GENERAL PARTNER:
BERTHEL FISHER & COMPANY LEASING, INC.
By /s/ Thomas J. Berthel
----------------------------------------
THOMAS J. BERTHEL, President
PARTNERSHIP:
TELECOMMUNICATIONS INCOME FUND XI, L.P.
By: BERTHEL FISHER & COMPANY LEASING, INC.
By /s/ Thomas J. Berthel
-----------------------------------
THOMAS J. BERTHEL, President
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EXHIBIT 1.2
SELECTED SALES AGENT AGREEMENT
<PAGE>
SELECTED SALES AGENT AGREEMENT
SELECTED SALES AGENT AGREEMENT between BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC., an Iowa Corporation (the "Managing Sales Agent"), and the
Selected Sales Agent (the "Agent") signing this Agreement.
RECITALS
Telecommunications Income Fund XI, L.P., is an Iowa Limited Partnership
(the "Partnership") of which Berthel, Fisher & Company Leasing, Inc. is the
General Partner. The Partnership proposes to offer and sell up to 25,000 units
representing limited partnership interests (the "Units") to the general public,
pursuant to a public offering of the Units (the "Offering") which will be
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
The Managing Sales Agent is a corporation presently in good standing in the
State of Iowa, is a member presently in good standing of the National
Association of Securities Dealers, Inc. ("NASD"), and is presently registered as
a broker-dealer with the SEC. The Managing Sales Agent has heretofore been
designated the Managing Sales Agent to manage the sale by others of the Units
pursuant to the terms of the Offering.
The Agent is an entity as designated in Exhibit A attached hereto, is a
member presently in good standing of the NASD, is presently registered as a
broker-dealer and is in good standing with the SEC and is presently licensed by,
and is in good standing with, the appropriate regulatory agency of each state in
which it will offer and sell the Units, as a securities broker-dealer qualified
to offer and sell to members of the public securities of the type represented by
the Units.
The General Partner, on behalf of the Partnership, has filed with the SEC a
registration statement on Form S-1, including a preliminary prospectus, for the
registration of the Units under the Securities Act. Such registration
statement, as it may be amended, and the prospectus included therein at the time
the registration statement becomes effective, including any supplements and
amendments to such documents after the effective date of registration statement,
are herein referred to as the "Registration Statement" and the "Prospectus,"
respectively.
The offer and sale of the Units shall be made pursuant to the terms and
conditions of the Registration Statement and the Prospectus, and pursuant to the
terms and conditions of all applicable securities laws of all states in which
the Units are offered and sold.
The Managing Sales Agent desires to retain the Agent to use its best
efforts to sell the Units, and the Agent is willing and desires to serve as an
agent for the Managing Sales Agent for the sale of the Units upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and terms and conditions
hereof, it is agreed as follows:
1. EMPLOYMENT. (a) Subject to the terms and conditions herein set
forth, the Managing Sales Agent hereby employs the Agent as an agent to use its
best efforts to sell for the Partnership's account a portion of the Units. The
Agent hereby accepts such employment and covenants, warrants and agrees that all
Units sold by it will be sold according to all of the terms and conditions of
the Registration
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Statement, the Conduct Rules of the NASD and all applicable state and federal
laws, including the Securities Act and any and all regulations and rules
pertaining thereto heretofore or hereafter issued by the SEC. Neither the
Agent nor any other person shall have any authority or give any information
or make any representations in connection with any offer or sale of the Units
other than as contained in the Prospectus and as is otherwise expressly
authorized in writing by the Managing Sales Agent.
(b) The Agent shall use its best efforts as agent, promptly following
receipt of written notice from the Managing Sales Agent of the effective date of
the Registration Statement, to sell a portion of the Units at the price per Unit
to be specified in, and in such quantities and to such persons and according to
such terms as are all contained in, the Registration Statement and the
Prospectus. The Agent shall comply with all requirements set forth in the
Registration Statement and the Prospectus. The Agent shall use and distribute,
in conjunction with the offer and sale of the Units, only the Prospectus and
such sales literature and advertising as shall conform in all respects to any
restrictions of local law and the applicable requirements of the Securities Act.
The Managing Sales Agent reserves the right to establish such additional
procedures as it may deem necessary to insure compliance with the requirements
of the Registration Statement, and the Agent shall comply with all such
additional procedures to the extent that it has received written notice thereof.
(c) All checks received for purchase of any of the Units shall be
made out to "First National Bank Iowa, Cedar Rapids, Iowa ("Escrow Agent"),
Escrow #80-9164-00" until the minimum number of Units is sold and thereafter to
Telecommunications Income Fund XI, L.P., and shall be forwarded by the Agent, no
later than noon of the business day following receipt, to the Managing Sales
Agent; provided, however, that if the Agent receives payment from investors who
authorize the Agent to debit their customer accounts, checks that represent
funds obtained in this manner will be forwarded by the Agent to the Managing
Sales Agent no later than the end of the next business day following their
receipt. The Managing Sales Agent shall deposit such checks no later than the
second business day (no later than the first business day in the case of checks
that represent funds obtained by Agent through the debiting of investors'
accounts) following receipt in an escrow account established with the Escrow
Agent, First National Bank Iowa, Cedar Rapids, Iowa solely for such deposits and
under an Escrow Agreement between the Partnership and Escrow Agent and,
following the sale of the minimum number of Units, in the account of
Telecommunications Income Fund XI, L.P. Funds held in escrow in account with
Escrow Agent, or in an escrow account with such other substantial commercial
bank designated by the Partnership as successor escrow agent (the "Escrow
Account"), will be held under and subject to the terms of an Escrow Agreement
entered into between the Partnership and the Escrow Agent.
(d) During the full term of this Agreement, the Managing Sales Agent
shall have full authority to take such action as it may deem advisable in
respect of all matters pertaining to the performance of the Agent under this
Agreement.
(e) The Units shall be offered and sold only where the Units may be
legally offered and sold and only to such persons in such states as shall be
legally qualified to purchase the Units. The Partnership and the General
Partner contemplate selling the Units in all states listed in the attached
Exhibit B, and unless the Agent shall receive written notice from the Managing
Sales Agent authorizing the offering and sale of Units in additional states not
set forth on such Exhibit B, no Units shall be offered or sold in such
additional states.
(f) Notwithstanding anything herein to the contrary, the Agent shall
have no obligation under this Agreement to purchase any of the Units for its own
account.
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2. COMPENSATION TO THE AGENT. The Managing Sales Agent shall pay the
Agent, as compensation for services to be rendered by the Agent hereunder, a
commission on each Unit sold equal to 6.0%, which commission rate shall remain
in effect during the full term of this Agreement unless otherwise changed by an
agreement in writing between the parties hereto. If the Agent sells more than
$1,000,000 of Units, the Managing Sales Agent shall pay the Agent, as
compensation for services to be rendered by the Agent hereunder, a commission on
each Unit sold equal to 6.5%. A sale of a Unit shall be deemed to be completed
when a properly completed Subscription Agreement, Signature Page and Power of
Attorney has been received from the Agent by the Managing Sales Agent, and
payment of the full purchase price of each purchased Unit has been received by
the Managing Sales Agent, from a buyer who satisfies each of the terms and
conditions of the Registration Statement and Prospectus. Such compensation due
under this paragraph shall be payable to the Agent by the Managing Sales Agent
within a reasonable time after the end of the month of receipt of the full
purchase price; PROVIDED, HOWEVER, that no commissions will be paid to the Agent
with respect to any Units sold until the Managing Sales Agent receives such
commissions from the Partnership; PROVIDED FURTHER that no commission shall be
paid to the Agent with respect to any Units sold unless and until the purchase
price for the Units is released from the Escrow Account to the Partnership in
accordance with the Prospectus and the Escrow Agreement, or, after the minimum
number of Units has been sold, until the purchase price for the Units is paid to
the Partnership.
3. COOPERATION OF OTHER BROKER-DEALERS. It is expressly agreed by the
Managing Sales Agent and the Agent that the Managing Sales Agent may cooperate
with other broker-dealers who are licensed members of the NASD, registered as
broker-dealers with the SEC and duly licensed by the appropriate regulatory
agency of each state in which they will offer and sell the Units ("NASD
Dealers"). Such other NASD Dealers may be employed by the Managing Sales Agent
as agents on terms and conditions identical or similar to this Agreement and
shall receive such rates of commission as are agreed to between the Managing
Sales Agent and the respective other NASD Dealers and as are in accordance with
the terms of the Registration Statement, and to that extent such other NASD
Dealers shall compete with the Agent in the sale of the Units.
4. CONDITIONS TO THE AGENT'S OBLIGATIONS. The Agent's obligations
hereunder are subject during the full term of this Agreement and the Offering
to: (a) the performance by the Managing Sales Agent of its obligations
hereunder; and (b) the conditions that: (i) the Registration Statement shall
become and remain effective; (ii) the NASD shall have indicated that it does not
disapprove of the underwriting arrangements with respect to the Offering; and
(iii) no stop order shall have been issued suspending the effectiveness of the
Offering.
5. CONDITIONS TO THE MANAGING SALES AGENT'S OBLIGATIONS. The obligations
of the Managing Sales Agent hereunder are subject, during the full term of this
Agreement and the Offering, to the conditions that: (a) at the effective date
of the Registration Statement, and thereafter during the term of this Agreement
while any Units remain unsold, the Registration Statement shall remain in full
force and effect authorizing the offer and sale of the Units; (b) no stop order
suspending the effectiveness of the Offering or other order restraining the
offer or sale of the Units shall have been issued or proceedings theretofore
initiated or threatened by any state regulatory agency or the SEC; and (c) the
Agent shall have satisfactorily performed all of its obligations hereunder.
6. COVENANTS OF THE MANAGING SALES AGENT. The Managing Sales Agent
covenants, warrants and represents, during the full term of this Agreement,
that:
(a) It shall use its best efforts to prevent the sale of the Units
through persons other than NASD Dealers.
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(b) It shall provide the Agent, when received, with a copy of any
letter from the NASD in which the NASD indicates that it does not disapprove of
the underwriting arrangements with respect to the Offering.
(c) It shall use its best efforts to cause the Partnership and the
General Partner to maintain the effectiveness of the Registration Statement and
to file such amendments to the Registration Statement as may be reasonably
necessary for that purpose.
(d) It shall advise the Agent whenever and as soon as it receives or
learns of any order issued by the SEC or any state regulatory agency or any
other regulatory agency which suspends the effectiveness of the Registration
Statement or prevents the use of the Prospectus or which otherwise prevents or
suspends the Offering of the Units or receives notice of any proceedings
regarding any such order.
(e) It shall use its best efforts to prevent the issuance of any
order described in subsection (d) above and to obtain the lifting of any such
order if issued.
(f) It shall give the Agent written notice by telegram or facsimile
transmission when the Registration Statement becomes effective and shall deliver
to the Agent such number of copies of the Prospectus, and any supplements and
amendments thereto, in the form in which filed with the SEC, as the Agent may
reasonably request in connection with the sale of the Units, which Prospectus
shall in all respects conform to the applicable requirements of the Securities
Act and all applicable rules and regulations promulgated thereunder, and which
Prospectus shall not contain any untrue statement of a material fact required to
be stated therein or omit any material statement necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(g) It shall make available such number of copies of the Prospectus
as the Agent reasonably requests for the purposes contemplated by the Securities
Act, the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations promulgated thereunder.
(h) It shall promptly notify the Agent of any post-effective
amendments or supplements to the Registration Statement or Prospectus and shall
furnish the Agent with copies thereof.
(i) It shall keep the Agent fully informed of any material
development to which the Partnership is a party or which concerns the business
and condition of the Partnership, of which the Managing Sales Agent has
knowledge.
(j) It, in conjunction with the General Partner, shall use its best
efforts to cause, at or prior to the time the Registration Statement becomes
effective, the qualification (or exemption from qualification) of the Units for
offering and sale under the securities laws of all states listed on Exhibit B
attached hereto.
(k) It undertakes to comply with Sections 2730, 2740, 2420, and 2750
of the NASD Conduct Rules.
7. COVENANTS OF THE AGENT. The Agent covenants, warrants and represents
that:
(a) Based upon a review, to the extent relevant to the Offering, of
the items referred to in Section 2810(b)(3)(B) of the NASD Conduct Rules, as set
forth in the Prospectus and other materials
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<PAGE>
made available to it by the General Partner, it has reasonable grounds to
believe that all material facts relating to the Offering are adequately
disclosed and provide a basis for evaluating the Offering.
(b) At the date of execution of this Agreement, it has complied with
the provisions of Section 2810(b)(3)(A) and Section 2810(b)(3)(B) of the NASD
Conduct Rules.
(c) In recommending to a prospective Subscriber the purchase, sale or
exchange of Units, the Agent shall have, and shall insure that all persons
associated with the Agent ("Associates") making such recommendations shall have,
reasonable grounds to believe, on the basis of information obtained from the
prospective Subscriber concerning his investment objectives, other investments,
financial situation and needs, and any other information known by the Agent or
such Associates, that the prospective Subscriber satisfies the criteria as to
suitability set forth in Section 2810(b)(2)(B)(i) of the NASD Conduct Rules, and
prior to executing a purchase transaction with respect to Units, the Agent
shall, and shall insure that each of its Associates proposing to execute such a
transaction shall, inform the prospective Subscriber of all pertinent facts
relating to the liquidity and marketability of the Units during the term of the
investment. This representation will survive the termination of this Agreement.
(d) It shall maintain in its files, for the longer of the period
prescribed by SEC Rule 17a-4 or the period prescribed by the state blue sky laws
applicable to it, documents disclosing the basis upon which the determination of
suitability was reached as to each Subscriber who subscribes for Units through
it.
(e) It shall not execute any transaction for a Subscriber in
connection with the Offering in a discretionary account without the prior
written approval of such transaction by such Subscriber.
(f) It shall not accept, or permit its employees to accept, sales
incentive items other than in compliance with Section 2810(b)(4)(E) and Section
2810(b)(4)(F) of the NASD Conduct Rules.
(g) It is familiar with Release No. 4968 and Rule 15c2-8 under the
Exchange Act, which relate to the distribution of preliminary and final
prospectuses, and will comply therewith.
(h) It agrees to be bound by the terms of the Escrow Agreement.
(i) It shall provide the Managing Sales Agent with signed
subscription documents or confirmations of such subscriptions for each
investment, as requested by the Managing Sales Agent in its sole discretion.
8. PAYMENT OF COSTS AND EXPENSES. The Agent shall pay all costs and
expenses incident to the performance of its obligations under this Agreement,
including:
(a) All expenses incident to the preparation, printing and filing of
all advertising originated by it related to the sale of the Units; and
(b) All other costs and expenses incurred in connection with its
sales efforts related to the sales of the Units, except expenses which the
Managing Sales Agent has expressly assumed and are incurred in connection with
its due diligence with respect to the Offering.
9. INDEMNIFICATION. (a) The Agent shall indemnify, defend and hold
harmless the Managing Sales Agent, its officers, directors, employees and agents
against all losses, claims, demands, liabilities and expenses, including
reasonable legal and other expenses incurred in defending such claims or
liabilities,
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whether or not resulting in any liability to the Managing Sales
Agent, its officers, directors, employees or agents, which they or any of them
may incur, arising out of the offer or sale by the Agent of any Units, pursuant
to this Agreement, or arising out of the breach by the Agent of any of the terms
and conditions of this Agreement, including but not limited to alleged
violations of the Securities Act and/or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), OTHER THAN any claim, demand or liability arising
from any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus or the Registration Statement, as filed and in
effect with the SEC, or any amendment or supplement thereto, or in any
application prepared by the General Partner and filed with any state regulatory
agency in order to register or qualify the Units under the securities laws
thereof (the "blue sky applications"), or in any supplemental sales material
which is prepared by the General Partner for distribution to prospective
investors, or which shall arise out of or be based upon any omission or alleged
omission to state therein a material fact required to be stated in the
Prospectus or the Registration Statement or any of the blue sky applications or
such supplemental sales material necessary to make the statements therein not
misleading. This indemnity provision shall survive the termination of this
Agreement.
(b) The Managing Sales Agent shall indemnify, defend and hold
harmless the Agent, its officers, directors, employees and agents against all
losses, claims, demands, liabilities and expenses, including reasonable legal
and other expenses incurred in defending such claims or liabilities, whether or
not resulting in any liability to the Agent, its officers, directors, employees
or agents, which they or any of them may incur, including but not limited to
alleged violations of the Securities Act and/or the Exchange Act, BUT ONLY to
the extent that such losses, claims, demands, liabilities and expenses shall
arise or be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or the Registration Statement, as
filed and in effect with the SEC, or any amendment or supplement thereto, or in
any of the blue sky applications, or in any supplemental sales material which is
prepared by the General Partner for distribution to prospective investors, or
which shall arise out of or be based upon any omission or alleged omission to
state therein a material fact required to be stated in the Prospectus or the
Registration Statement or the blue sky applications or such supplemental sales
material necessary to make the statements made therein not misleading. This
indemnity provision shall survive the termination of this Agreement.
10. TERM OF AGREEMENT. This Agreement shall become effective at the time
the Managing Sales Agent (a) releases for publication the first newspaper
advertisement regarding the Offering or (b) releases the Units for offering by
letter or telegram, whichever is earlier. The Agent and the Managing Sales
Agent may each prevent this Agreement from becoming effective, without liability
to the other, by written notice before the time this Agreement otherwise could
become effective. After this Agreement becomes effective, either party may
terminate it at any time for any reason by giving 30 days' written notice to the
other party; PROVIDED, HOWEVER, that this Agreement shall in any event
automatically terminate at the first occurrence of any of the following events:
(a) the Registration Statement shall cease to be effective; (b) the Offering
shall be terminated; or (c) the Agent's license or registration to act as a
broker-dealer shall be revoked or suspended by any federal or state regulatory
agency and such revocation or suspension is not cured within 10 days from the
date of such occurrence.
11. NOTICES. All notices and communications hereunder shall be in writing
and, if sent to the Managing Sales Agent, shall be mailed to:
Berthel Fisher & Company Financial Services, Inc.
100 Second Street, SE
Cedar Rapids, Iowa 52401
-6-
<PAGE>
or, if sent to the Agent, shall be mailed to the person whose name and address
is identified in Exhibit A attached hereto.
12. SUCCESSORS. This Agreement may not be assigned or transferred by the
Agent by operation of law or otherwise.
13. CONSTRUCTION. (a) This Agreement shall be governed by, and construed
in accordance with, the applicable laws of the State of Iowa without regard to
any provision or rule of law which would require the application of the law of
any state other than Iowa.
(b) Nothing in this Agreement shall constitute the Agent as in
association or in partnership with the Managing Sales Agent, and, instead, this
Agreement shall only constitute the Agent as an independent contractor (and not
as an employee or other agent of the Managing Sales Agent) authorized by the
Managing Sales Agent to sell the Units according to the terms expressly set
forth herein, provided that the Agent shall not in any event have any authority
to act in connection with the Offering except according to the terms expressly
set forth herein.
(c) If any provision of this Agreement shall be deemed void, invalid
or ineffective for any reason, the remainder of the Agreement shall remain in
full force and effect.
(d) This Agreement embodies the entire understanding between the
parties hereto, and no variation, modification or amendment to this Agreement
shall be deemed valid or effective unless and until it is signed by both parties
hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year set forth below.
MANAGING SALES AGENT: SELECTED SALES AGENT:
BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC.
------------------------------------
(Broker/Dealer Name)
By: By:
----------------------------------- ---------------------------------
----------------------------------- -----------------------------------
(Print Name and Title) (Print Name and Title)
Date: Date:
--------------------------------- ------------------------------
AGENTS: PLEASE EXECUTE TWO COPIES AND RETURN BOTH TO BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.
-7-
<PAGE>
EXHIBIT A
PLEASE EXECUTE AND RETURN TWO COPIES OF THE SELECTED SALES AGENT AGREEMENT. ONE
EXECUTED COPY WILL BE RETURNED TO YOU BY BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC. FOR YOUR RECORDS.
I. PERSON TO RECEIVE COMMISSION
Name Firm Name
------------------------------- -------------------------
Title Address
------------------------------- ---------------------------
(Street Address/P.O. Box)
Telephone
---------------------------
-----------------------------------
(City) (State) (ZIP)
II. DUE DILIGENCE OFFICER
Name
-------------------------------- -----------------------------------
(Telephone)
Address
---------------------------------------------------------------------
(Street) (City) (State) (ZIP)
III. INFORMATION CONCERNING FIRM
Address
---------------------------------------------------------------------
(Headquarters) (City) (State) (ZIP)
------------------------------------ -----------------------------------
(Telephone) (Facsimile Number)
Type of Entity: [ ] Corporation [ ] Partnership
[ ] Proprietorship [ ] Other (describe)
---------------
-------------------------------
Federal Tax I.D. No.
--------------------------------------------------------
Organized in
----------------------------------------------------------------
(State)
Licensed as Broker-Dealer in
-------------------------------------------------
(List States or Provide Attachment Listing States)
- --------------------------------------------------------------------------------
IV. ADDITIONAL INFORMATION
In order to expedite all transmissions and correspondence, Berthel Fisher &
Company Financial Services, Inc. requests that each Firm include with the
executed copy of the Selected Sales Agent Agreement a list containing the
following information concerning each branch office: (A) branch address
and telephone number; (B) name of branch manager; (C) registered
representatives working out of each branch office; and (D) the names,
addresses and telephone numbers of any other appropriate members of Firm
involved in sales management.
<PAGE>
EXHIBIT B
States in Which Units Are to Be Offered and Sold
- ------------------------------------------------
Arizona
Arkansas
California
Colorado
District of Columbia
Florida
Illinois
Iowa
Kansas
Michigan
Minnesota
Missouri
Nebraska
Nevada
North Dakota
South Dakota
Texas
Wisconsin
<PAGE>
EXHIBIT 5.1
OPINION OF BRADLEY & RILEY, P.C., COUNSEL TO REGISTRANT,
AS TO THE LEGALITY OF THE SECURITIES BEING REGISTERED
<PAGE>
[LETTERHEAD]
BRADLEY & RILEY, P.C.
100 First Street, SW
Cedar Rapids, IA 52404
(319) 363-0101
October 27, 1997
Telecommunications Income Fund XI, L.P.
c/o Berthel Fisher & Company Leasing, Inc.
100 Second Street, SE
Cedar Rapids, IA 52401
RE: Telecommunications Income Fund XI, L.P.
Form S-1 filed September 12, 1997
File Number 333-35557
We have acted as your counsel in connection with the organization of
Telecommunications Income Fund XI, L.P., an Iowa limited Partnership (the
"Partnership"), organized under the Iowa Uniform Limited Partnership Act (the
"Act"). In connection with the preparation of a Registration Statement on Form
S-1, File No. 333-35557 (the "Registration Statement") relating to the
registration under the Securities Act of 1933 as amended, (the "1933 Act") of a
minimum of 1,200 units and a maximum of 25,000 units of limited partnership
interest in the Partnership (the "Units"), at $1,000 per Unit.
We have reviewed the Certificate of Limited Partnership of the Partnership as
filed with the Secretary of State of Iowa on August 26, 1997, the Agreement of
Limited Partnership for the Partnership contained in the Registration Statement
("Agreement") and the prospectus contained in the Registration Statement
("Prospectus").
In rendering the following opinions, we have relied, to the extent we deem such
reliance appropriate, without investigation, on certificates and other
communications from officers of the General Partner and on representations by
the General Partner set forth in the Registration Statement and Prospectus.
We have assumed the authenticity of all documents submitted to us as originals,
the genuineness of all signatures thereon, the legal capacity of natural persons
executing such documents and the conformity to originals of all documents
submitted to us as copies. We have also assumed that the Partnership will be
operated in accordance with the provisions of the Act.
Based upon the foregoing, it is our opinion that:
(1) When: (i) the Registration Statement has become effective under the
1933 Act (ii) subscriptions for the Units have been sold and accepted by Berthel
Fisher & Company Leasing, Inc., an Iowa corporation (the "General Partner"), as
contemplated and in accordance with the terms described in the Prospectus, (iii)
the Agreement (or an amendment thereto) has been executed and delivered by or on
behalf of each of the partners of the Partnership as contemplated in the
Prospectus, and (iv) each limited partner (the "Limited Partner") has paid to
the Partnership the amount of the capital contribution required to be paid as
set forth in the Prospectus; the Units will be legally issued, fully paid and,
except as provided below, nonassessable.
<PAGE>
Telecommunications Income Fund XI, L.P.
Page 2
October 27, 1997
(2) Upon execution of an amendment to the Agreement, the Limited Partners
of the Partnership will be Limited Partners of the Partnership with no liability
under the Act for the obligations of the Partnership except:
(a) if a Limited Partner, in addition to the exercise of the rights
and powers of a Limited Partner, participates in or is deemed to
have participated in the control of the Partnership's business,
or holds itself out as a general partner of the Partnership, then
the Limited Partner will be liable for obligations of the
Partnership to the same extent as a general partner of the
Partnership; provided that, the Limited Partner is liable only to
persons who transact business with the Partnership reasonably
believing, based upon the Limited Partner's conduct, that the
Limited Partner is a general partner;
(b) if a Limited Partner receives a return of any part of its capital
contribution from the Partnership without violation of the
Agreement or the Act, the Limited Partner will be liable for a
period of one (1) year thereafter for the amount of the
contribution returned, but only to the extent necessary to
discharge the Partnership's liabilities to creditors who extended
credit to the Partnership during the period the capital
contribution was held by the Partnership; and
(c) if a Limited Partner receives a return of any part of its capital
contribution from the Partnership in violation of the Agreement
or the Act, the Limited Partner will be liable for a period of
six (6) years thereafter for the amount of the contribution
wrongfully returned.
We were also requested to provide our opinion on certain other tax issues.
Among the tax issues we were requested to consider include the issue of whether
the agreements for the rental of equipment will be classified as leases for tax
purposes, whether the allocation of Partnership net income under the Partnership
Agreement would be recognized for tax purposes under Section 704(b) of the Code,
the deductibility of organizational versus syndication costs of the Partnership
and whether the Partnership would be considered organized for profit under
Section 183 of the Code. The statements contained in the Registration Statement
attributed to us as tax counsel accurately reflect our opinion on these tax
issues, subject to representations by the General Partner and the qualifications
to our opinion, as set forth in the Registration Statement. The Registration
Statement accurately reflects our opinion on these additional tax issues for the
reasons and based on authority set forth in the Registration Statement.
We hereby consent to the inclusion of this opinion letter as Exhibit 5.1 to the
Registration Statement, to the use of our name in such Registration Statement as
well as in the Prospectus under the heading "Legal Matters," and to the filing
of this opinion with the Securities and Exchange Commission.
Very truly yours,
BRADLEY & RILEY, P.C.
<PAGE>
EXHIBIT 8.1
OPINION OF BRADLEY & RILEY, P.C., COUNSEL TO
REGISTRANT, AS TO TAX MATTERS
<PAGE>
[LETTERHEAD]
BRADLEY & RILEY, P.C.
100 First Street, SW
Cedar Rapids, IA 52404
(319) 363-0101
October 27, 1997
Telecommunications Income Fund XI, L.P.
c/o Berthel Fisher & Company Leasing, Inc.
100 Second Street, SE
Cedar Rapids, IA 52401
RE: Telecommunications Income Fund XI, L.P.
Form S-1 filed September 12, 1997
File Number 333-35557
We have acted as tax counsel for Telecommunications Income Fund XI, L.P. (the
"Partnership") in connection with the offering and sale of limited partnership
interests in the Partnership as described in (i) the Partnership's Registration
Statement filed with the Securities and Exchange Commission Registration
No. 333-35557 (the "Registration Statement"), and (ii) the Amended and Restated
Agreement of Limited Partnership appended thereto as Exhibit A to the Prospectus
(the "Agreement").
In our opinion, if the Partnership is organized and operated in accordance with
the provisions of the Agreement, then, under present laws, regulations and
judicial interpretations thereof (all of which are subject to change), the
Partnership will be classified and treated as a partnership for federal income
tax purposes and not as an association taxable as a corporation.
In rendering this opinion, we have reviewed the Registration Statement and the
Agreement. We have further considered Treasury Regulation Section 301.7701-2,
which sets forth certain criteria to determine whether or not an entity is a
"partnership" or an "association taxable as a corporation." In our opinion the
Partnership will be classified and treated as a "partnership" and not as an
"association taxable as a corporation" for federal income tax purposes.
Inasmuch as these Regulations are a primary basis for this opinion, it should be
noted that there can be no assurance that new regulations may not be issued in
the future that may classify the entity as an association taxable as a
corporation and not as a partnership. If the Treasury Department should decide
to amend these Regulations, it is conceivable that said amended regulations may
be applied retroactively and that the Partnership would no longer qualify as a
"partnership" for tax purposes. While there is no legal or constitutional
prohibition on the retroactive application of amendments to the Treasury
Department Regulations, the Treasury Department generally does not apply such
amended regulations retroactively to taxpayers who have acted in reliance upon
prior regulations.
Our opinion that the Partnership will be classified as a partnership rather than
as an association for federal income tax purposes assumes:
(1) no further amendments will be made to the Agreement that affect
any of the underlying assumptions;
(2) compliance with the terms of the provisions of the Agreement;
<PAGE>
Telecommunications Income Fund XI, L.P.
Page 2
October 27, 1997
(3) substantial compliance with all applicable state statutes.
We note also that we did not seek on your behalf to obtain any ruling on this
issue from the Internal Revenue Service.
The Revenue Act of 1987 (the "1987 Act"), contained numerous provisions that
will have an adverse impact on many "publicly traded" partnerships. The General
Partner has represented that (i) the Partnership will not list limited
partnership interests (the "Units") for trading or otherwise encourage or
condone the establishment of a market for Units, (ii) the General Partner does
not expect Units to be readily tradeable on a secondary market, based upon the
experience of its affiliated limited partnerships, and (iii) the General Partner
will not consent to the assignment, redemption, or other disposition of Units
if, in the opinion of counsel, the sum of percentage interests in Partnership
capital or profits assigned, redeemed or otherwise disposed of during a
Partnership taxable year exceeds two percent (2%) (excluding exempt transfers)
of the total interest in Partnership capital or profits after such assignment,
redemption or other disposition for purposes of determining whether the
Partnership is a "publicly traded" partnership for federal income tax purposes.
Based upon these representations and Treasury Regulation Section 1.7704-1, it is
our opinion that the Partnership will not be treated as "publicly traded"
unless, unexpectedly, a substantial secondary market in Units was to arise.
We have reviewed the Registration Statement of Telecommunications Income Fund
XI, L.P. under the Securities Act of 1933 and, specifically, the language in the
Tax Consequences section of the Registration Statement. We hereby affirm the
opinions attributed to this office, as tax counsel, as set forth in the
Registration Statement and subject to the limitations set forth therein.
Specifically, we affirm the opinions attributed to us in the Registration
Statement, as set forth in the Registration Statement and subject to limitations
set forth therein, that:
A. an investment in the Partnership more likely than not will be considered a
passive activity,
B. the allocation of Net Income or Net Loss more likely than not will be
recognized under the regulations under Section 704(b) of the Code,
C. the leases entered into by the Partnership will more likely than not
qualify as true leases for federal income tax purposes,
D. expenses incurred in the creation of the Partnership will more likely than
not be treated as organization expenses and be subject to amortization over
a five (5) year period and syndication costs will be nondeductible capital
expenditures,
E. the Partnership more likely than not will be able to satisfy the profit
motive requirement of Section 183 of the Code, and
F. under ERISA, the Partnership Units will constitute "publicly offered
securities."
<PAGE>
Telecommunications Income Fund XI, L.P.
Page 3
October 27, 1997
We hereby affirm the opinions attributed to us in the Registration Statement and
consent to the reference to our foregoing opinions in the Registration Statement
under the captions "Risk Factors -- Federal Income Tax Risks" and "Tax
Consequences" and to the reference to our firm under the caption "Legal
Matters."
Very truly yours,
BRADLEY & RILEY, P.C.
<PAGE>
EXHIBIT 10.1
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
FOR TELECOMMUNICATIONS INCOME FUND XI, L.P.
PUBLIC OFFERING FUNDS
In consideration of the mutual covenants herein contained,
TELECOMMUNICATIONS INCOME FUND XI, L.P. (an Iowa limited partnership)
(hereinafter referred to as the "Partnership"), BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC. (an Iowa corporation) (hereinafter referred to as
"Managing Sales Agent"), and First National Bank Iowa, Cedar Rapids, Iowa,
(hereinafter referred to as the "Escrow Agent"), or its successor represent and
agree as follows:
1. The Partnership proposes to offer up to 25,000 Units of limited
partnership interest (hereinafter referred to as "Units") in a public offering
made pursuant to a Registration Statement on Form S-1 and Prospectus filed with
the Securities and Exchange Commission under the provisions of the Securities
Act of 1933, as amended (hereinafter referred to as the "Public Offering"). The
Partnership will also file an application to register securities with the
applicable authorities of states in which the Public Offering will be made.
2. The Partnership has entered into a Managing Sales Agent Agreement with
the Managing Sales Agent wherein the Managing Sales Agent has agreed to use its
best efforts to obtain investors for the Partnership and to manage the sale by
others of the Units in return for a Selling Commission payable by the
Partnership equal to 9.0% of the aggregate capital contributions to the
Partnership out of which the Managing Sales Agent will reallow to other
broker-dealers participating in the Public Offering, Selling Commissions of up
to 6.5% of the capital contributions attributable to the Units sold by them.
3. The Partnership desires to meet the requirements of the Securities Act
of 1933 and the various state regulatory statutes and regulations, and desires
to protect the investors in the Public Offering by providing, under the terms
and conditions herein set forth, for the return to subscribers of the money
which they may pay on account of purchases of Units in the Public Offering if
the Minimum Escrow Deposit (as hereinafter defined) is not deposited with the
Escrow Agent.
4. All proceeds from sales of Units in the Public Offering shall be
delivered to the Escrow Agent immediately upon receipt thereof from investors,
endorsed (if appropriate) to the order of the Escrow Agent, together with an
appropriate written statement setting forth the name, address and social
security number of each person purchasing Units, the number of Units purchased,
and the amount paid by each such Purchaser.
5. To the extent any such proceeds are deposited with the Escrow Agent in
accordance with paragraph 4 in the form of uncollected checks, the Escrow Agent
promptly shall present the checks for collection through customary banking and
clearing house facilities. The Escrow Agent shall invest all cash or collected
funds deposited with it as soon after receipt as is reasonable in an account
(sometimes hereinafter referred to as the "Escrow Account") and shall reinvest
said funds, principal and interest, upon the sale or maturity of any securities
or assets purchased hereunder, all such investments or reinvestments to be as
directed by the Partnership and only in short-term government obligations,
securities issued or guaranteed by government agencies, funds investing only in
government obligations or government agency securities, and time or demand
deposits in commercial banks or shares of an institutional money market fund.
The Escrow Agent shall, upon written request therefor, provide the Partnership
with a list of the securities and assets then on hand, their identification,
location and maturity date, together with a complete accounting of the total
cash income earned by such securities or others previously purchased, sold or
matured, as interest or otherwise. The Escrow Account shall be created and
maintained
-1-
<PAGE>
subject to the customary rules and regulations of the Escrow Agent pertaining to
such accounts. Unless and until the amounts so deposited in the Escrow Account
shall equal at least the Minimum Escrow Deposit (as hereinafter defined), all
amounts so deposited in the Escrow Account shall not become the property of the
Partnership or Managing Sales Agent, or be subject to the debts of either the
Partnership, Managing Sales Agent, or any other person.
6. The Escrow Agent shall send a written notice to the Partnership and to
the Managing Sales Agent every thirty days acknowledging the receipt and the
amount of the deposited funds from the Managing Sales Agent or Selected Sales
Agents. The Escrow Agent shall give the Partnership and Managing Sales Agent
prompt written notice when funds deposited in the Escrow Account total
$1,200,000. No certificate of deposit, stock certificates or any other
instrument or document representing any interest in the deposited funds shall be
issued by the Escrow Agent.
7. At the time that funds are paid by the Escrow Agent to the Partnership
at the initial disbursement of the Minimum Escrow Deposit or at any subsequent
disbursement as provided in Section 10, the Escrow Agent shall report to the
Partnership the amount of interest earned on the funds while in escrow. The
interest shall be paid to the Partnership together with the payment of funds to
the Partnership at the initial disbursement of the Minimum Escrow Deposit or at
any subsequent disbursement as provided in Section 10.
If the funds held in the Escrow Account are returned to the purchasers as
provided in Section 11, the Escrow Agent shall pay to each of the purchasers the
amount of interest earned on the funds of each purchaser, computed with respect
to each purchaser of Units based pro rata on the average daily rate for the
number of days that funds received from each purchaser are held in the Escrow
Account pursuant to this Agreement.
8. During the period (hereinafter referred to as the "Escrow Period")
beginning on the date of this Agreement and ending one year after the date of
effectiveness of the Registration Statement (or two years after the date of
effectiveness of the Registration Statement if extended by the Partnership and
Managing Sales Agent), the Escrow Account shall make or permit no disbursements
from the Escrow Account except as expressly provided for herein.
9. Until termination of the Escrow Period as described in paragraph 8, or
until payment of the Escrow Account proceeds of the Public Offering over to the
Partnership, purchasers in the Public Offering whose funds are held in the
Escrow Account will be subscribers for Units, in view of the fact that no Units
will be issued and distributed to such purchasers until such Escrow Account
proceeds are paid over to the Partnership at Closings held for that purpose.
10. At the time (and in the event) that the amount on deposit in the
Escrow Account shall, during the Escrow Period, equal $1,200,000 or more in
subscription proceeds (exclusive of interest)(hereafter "Minimum Escrow
Deposit"), the Escrow Agent shall, after receiving written approval from the
Managing Sales Agent, disburse the funds on deposit to the Partnership on its
demand. Any amounts deposited with the Escrow Agent subsequent to attainment of
the Minimum Escrow Deposit shall be disbursed by the Escrow Agent, after
receiving written approval of the Managing Sales Agent, to the Partnership on
its demand. Upon the making of the initial disbursement of the Minimum Escrow
Deposit, plus interest, and the subsequent disbursements of subsequent deposits,
plus interest, prior to the termination of the
-2-
<PAGE>
Escrow Period, the Escrow Agent shall be completely discharged and released of
any and all further responsibilities hereunder.
11. If the Escrow Period has ended after the expiration of one year from
the effective date of the Registration Statement and the Minimum Escrow Deposit
has not been attained, the Escrow Agent shall return to each of the purchasers
of the Units in the Public Offering, as promptly as possible after such
termination of the Escrow Period and on the basis of its records pertaining to
the Escrow Account, the sum which each purchaser initially paid on account of
purchases of the Units in the Public Offering and shall also distribute interest
as provided in paragraph 7 hereof. Each amount paid or payable to each
subscriber or purchaser pursuant to this paragraph shall be deemed to be the
property of each such subscriber or purchaser, free and clear of any and all
claims of the Partnership, any agents employed by the Partnership, or any other
person or of any creditors of the Partnership, any such agents, or such other
persons; and the respective purchases of the Units made and entered into in the
Public Offering shall thereupon be deemed, IPSO FACTO, to be canceled without
any further liability of the purchasers or any of them to pay for the Units
purchased. At such time as the Escrow Agent shall have made all the payments
and remittances, and given all notices provided for in this paragraph, the
Escrow Agent shall be completely discharged and released of any and all further
liability and responsibilities hereunder.
12. The Partnership will deliver a copy of the Prospectus to the Escrow
Agent within two weeks of the effective date of the Registration Agreement. The
Escrow Agent will have no responsibility to examine the Prospectus with regard
to the Escrow Account or otherwise.
13. The Escrow Agent shall receive as compensation a $300 set-up fee and
an additional single payment of $100 initial escrow closing fee. If the minimum
number of Units is not sold and the original subscription amounts plus prorata
interest is returned to the purchaser by the Escrow Agent, the Escrow Agent will
be paid an additional fee of $35 per purchaser for processing payments and 1099
reports. The Escrow Agent will also be reimbursed out-of-pocket expenses
including postage, toll calls, registered mail, photocopies, wire transfer
charges, insurance, etc., for its services hereunder from the Partnership and no
charge shall be made therefor against the interest and principal amount of the
escrow funds. Such expenses shall be reimbursed upon the receipt of an invoice
from the Escrow Agent. The Escrow Agent shall not receive compensation with
respect to Purchasers whose funds are paid directly to the Partnership after the
minimum number of Units (1,200) is sold.
14. The Partnership does hereby agree to indemnify and hold the Escrow
Agent harmless against any and all losses, claims, damages, liabilities and
expenses, including reasonable costs of investigation and counsel fees, which
may be imposed upon the Escrow Agent in connection with its acceptance or
appointment hereunder for the performance of its duties, including any
litigation arising from this Escrow Agreement or involving the subject matter
hereof. This Agreement to indemnify and hold harmless, however, shall not
absolve the Escrow Agent in the event of any damages, losses, claims,
liabilities or expenses as herein contemplated in the event they are the result
of the Escrow Agent's own negligence or willful default.
15 Any notices provided for herein, or which any party hereto may desire
to give to any other party, may be given by registered or certified mail, return
receipt requested, postage prepaid, or orally or by telephone if confirmed in
writing, to the respective parties at the respective addresses stated below:
-3-
<PAGE>
TO THE PARTNERSHIP: Nancy Lowenberg
Telecommunications Income Fund XI, L.P.
100 Second Street, SE
Cedar Rapids, Iowa 52401
TO THE ESCROW AGENT: First National Bank Iowa
Attn. Trust Department - Frank E. Ceynar
P.O.Box 5850
Cedar Rapids, Iowa 52401 - 5850
TO MANAGING SALES AGENT: Berthel Fisher & Company Financial Services, Inc.
100 Second Street, SE
Cedar Rapids, Iowa 52401
Notices given by mail shall be deemed to have been given when mailed in
accordance herewith.
16. The validity, interpretation and construction of this Agreement and of
each part hereof shall be governed by the laws of the State of Iowa.
IN WITNESS WHEREOF, the parties hereto have hereunto affixed their
corporate seals and signatures as of this day of November, 1997.
TELECOMMUNICATIONS INCOME FUND XI, L.P.
By: BERTHEL FISHER & COMPANY LEASING, INC.,
General Partner
By /s/ Thomas J. Berthel
------------------------------------------
THOMAS J. BERTHEL, Chief
Executive Officer
BERTHEL FISHER & COMPANY FINANCIAL
SERVICES, INC.
By /s/ Dwight E. Wheelan
------------------------------------------------
DWIGHT E. WHEELAN, President
FIRST NATIONAL BANK IOWA, CEDAR RAPIDS, IOWA
By /s/ Frank E. Ceynar
------------------------------------------------
FRANK E. CEYNAR, Vice President and
Senior Trust Officer
<PAGE>
EXHIBIT 10.2
AMENDED CONTRACT BETWEEN
THE GENERAL PARTNER AND THE PARTNERSHIP
<PAGE>
AMENDED PARTNERSHIP MANAGEMENT AGREEMENT
THIS AMENDED PARTNERSHIP MANAGEMENT AGREEMENT (the "Agreement") dated
November 17, 1997, is entered into by and between BERTHEL FISHER & COMPANY
LEASING, INC., an Iowa corporation ("Leasing") and TELECOMMUNICATIONS INCOME
FUND XI, L.P. and Iowa limited partnership ("TIF XI").
WHEREAS, Leasing is the general partner of TIF XI, and as such, pursuant to
the Agreement of Limited Partnership of TIF XI (the "Partnership Agreement") has
full, complete and exclusive discretion and authority to manage and control the
business of the TIF XI, subject to the limitations contained in the Partnership
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and subject to the terms and conditions set
forth herein, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Partnership Agreement.
2. SERVICES. TIF XI hereby retains the services of Leasing, and Leasing
hereby accepts and undertakes to provide to TIF XI such services as TIF XI shall
require pertaining to the management of TIF XI, including but not limited to,
such services as are set forth in the Partnership Agreement, and on behalf of
TIF XI, such services as TIF XI shall require pertaining to the management of
TIF XI, including but not limited to, such services as are set forth in the
Partnership Agreement.
3. STAFF. During the term of this Agreement, Leasing shall maintain in
its employ, or have otherwise available to it, personnel sufficient in number
and adequate in ability to perform all services that it may be called upon to
perform under this Agreement.
4. FEES AND REIMBURSEMENTS TO LEASING. In consideration of the services
and activities to be performed by Leasing pursuant to this Agreement, during the
term of this Agreement, TIF XI shall pay Leasing fees, and reimburse Leasing
expenses, in amounts and for the purposes as set forth in the Partnership
Agreement, particularly Articles IX and X (and, with respect to distributions
and allocations, Articles XI and XII), including the following:
(a) The General Partner has committed a percentage of Capital
Contributions to Investment in Program Assets which is equal to the greater of
(a) 80.0% of the Capital Contributions reduced by .0625% for each 1.0% of
indebtedness encumbering Program Assets; or (b) 75.0% of Capital Contributions.
The percent of indebtedness encumbering Program Assets 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 80.0%. The General Partner shall
bear all Front End Fees which in the aggregate are in excess of that percentage
of Gross Proceeds determined by subtracting from 100% the percentage amount
determined by application of the foregoing formula.
(b) The Managing Sales Agent shall be Berthel Fisher & Company Financial
Services, Inc., an affiliate of Leasing. TIF XI will pay a Managing Sales Agent
Fee to the Managing Sales Agent equal to 9.0% of the Gross Proceeds.
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(c) TIF XI will pay a maximum of three and one-half percent (3.5%) of
Gross Proceeds of the offering for actual expenses incurred by Leasing in
connection with the formation of TIF XI, and in qualifying Units under
applicable federal and state law and any other expenses actually incurred and
directly related to the qualification, registration, advertising, offering and
sale of Units. Such expenses include (i) fees and expenses paid by TIF XI to
any counsel or accountants, (ii) registration fees, filing fees and taxes,
(iii) the costs of printing, amending, supplementing and distributing the
Prospectus and Registration Statement, (iv) the costs of producing, qualifying,
printing and distributing advertising and sales materials used in connection
with the issuance of Units, (v) the costs of "due diligence" activities
(including meetings and seminars), and (vi) accounting and legal fees incurred
in connection with any of the foregoing, but does not include Acquisition Fees.
The total of Organization and Offering Expenses plus the nine percent (9.0%)
Selling Commission will not exceed twelve and one-half percent (12.5%) of the
Gross Proceeds. The twelve and one-half percent (12.5%) limitation is without
recourse to, or reimbursement by, TIF XI.
(d) Leasing will receive an Acquisition Fee for rendering its services in
connection with the research, evaluation and negotiation of available
acquisition and financing opportunities. The Acquisition Fee shall be in an
amount equal to five percent (5%) of the cost of Equipment purchased by TIF XI,
all or a portion of which will be payable when the Equipment is purchased by TIF
XI (or Leasing as nominee) and five percent (5%) of the amount of financings
placed by TIF XI, payable upon the closing of a financing transaction. The
total Acquisition Fee including all fees and commissions paid by all parties to
all parties in connection with the initial acquisition or manufacturer of
Equipment will not exceed the lesser of five percent (5%) of the cost of
Equipment purchased by TIF XI and financings placed by the TIF XI, or an amount
which is competitive with that charged for Affiliates of Leasing. Included in
the Acquisition Fee will be any leasing commission, selection fee, construction
supervision fee, financing fee, remarketing fee, nonrecurring management fee, or
any fee of a similar nature, however designated. Leasing shall pay Acquisition
Expenses out of its Acquisition Fee. The Partnership shall not reimburse
Leasing for Acquisition Expenses. The Acquisition Fee shall be paid for
acquisition services during the Acquisition Phase and during the Operating Phase
and Liquidating Phase.
(e) During the Operating Phase and Liquidating Phase of TIF XI, Leasing is
entitled to receive, to the extent available, (i) the General Partner's Expense
Allowance, (ii) the Management Fee, (iii) twenty percent (20%) of certain
Liquidating Distributions, as provided in Articles XI and XII of the Partnership
Agreement, (iv) its distributions as owner of the General Partner interest
(equivalent to 10 Units), and (v) the Re-Leasing fee described in Section 9.3.2
of the Partnership Agreement.
(f) As compensation for providing re-leasing services to TIF XI, Leasing
will receive a fee equal to the lesser of the competitive rate for comparable
services for similar equipment or 2.0% of the gross rental payments derived from
the re-lease of such equipment after the time that the re-lease has been
consummated as a result of the efforts of Leasing. Leasing will not be paid for
re-leasing services where Equipment is re-leased to a previous lessee of such
Equipment or to an affiliate of such previous lessee. Payment for re-leasing
services shall be paid as each rental payment is made over the term of the
re-lease. This fee will not be paid on a current basis if TIF XI has not paid
the Limited Partners Operating Distributions equal to 9.6% of Adjusted Capital
Contributions for the year. In such case, the fee will be accrued as a debt TIF
XI payable out of future revenues.
(g) TIF XI will reimburse Leasing or its Affiliates for (i) Organization
and Offering Expenses reimbursed pursuant to Section 9.2.3 of the Partnership
Agreement; (ii) loans made pursuant to Section 9.4 of the Partnership Agreement;
(iii) the actual cost to Leasing or its Affiliates of goods and materials used
for or by TIF XI and obtained from persons who are not Affiliates of Leasing;
(iv) expenses incurred by TIF XI or its Affiliates related to the purchase,
operations, financing and acquisition of Equipment incurred prior to the time
that TIF XI has funds available to pay such expenses directly; and (v)
administrative
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services provided by Leasing or any of its Affiliates, such as legal,
accounting, computer, transfer agent, mailings to Limited Partners and other
similar services. However, reimbursement for administrative expenses will be at
the lesser of cost or the competitive rate that is charged by persons who are
not Affiliates of Leasing for comparable administrative services in the same
geographic area.
The reimbursement for administrative expenses will be for administrative
expenses that are necessary for the prudent operation of TIF XI, and will not be
for time expended by Controlling Persons of Leasing or its Affiliates, or for
salaries, fringe benefits, travel expenses, and other administrative items
incurred or allocated to any Controlling Person of a Sponsor. No general or
administrative overhead incurred by Leasing in connection with the
administration of TIF XI will be charged to TIF XI. Such general or
administrative overhead includes, but is not limited to, salaries, rent, travel
expenses, utilities, capital expenditures and other items generally falling
under the category of overhead. No payment will be made for services to which
Leasing or its Affiliates are entitled by way of a separate fee.
Any expenses referred to in this section 4(g) that may be reimbursed
pursuant to this section 4(g) but that are properly categorized as Acquisition
Expenses shall not be included in the reimbursement described in this section
4(g).
(h) Subject to Section 10.1 of the Partnership Agreement, TIF XI shall pay
all expenses of TIF XI, which expenses shall be billed directly to TIF XI from
unrelated third parties and not from Leasing and may include, but are not
limited to: (i) all costs (excluding rent, depreciation, utilities, capital
equipment and other overhead items) of personnel employed full or part-time by
TIF XI and involved in the business of TIF XI, and such personnel may include
employees of Leasing or its Affiliates (other than Controlling Persons); (ii)
all costs of borrowed money, taxes and assessments on Equipment and other taxes
applicable to TIF XI; (iii) legal, audit, accounting, data processing,
programming, brokerage and other fees; (iv) printing, engraving and other
expenses and taxes incurred in connection with the issuance, distribution,
transfer, registration and recording of documents evidencing ownership of an
interest in TIF XI or in connection with the business of TIF XI; (v) fees and
expenses paid to independent contractors, bankers, brokers and servicers,
consultants and other Equipment management personnel, insurance brokers and
other agents; (vi) expenses in connection with the disposition, replacement,
alteration, repair, refurbishment, leasing, re-leasing, financing, refinancing
and operation of Equipment (including the costs and expenses of insurance
premiums and of maintenance of such Equipment); (vii) expenses of organizing,
revising, amending, converting, modifying or terminating TIF XI; (viii) expenses
in connection with distributions made by TIF XI to, and communications,
bookkeeping and clerical work necessary in maintaining relations with its
Limited Partners, including the costs of printing and mailing to such persons
any evidence of ownership of Units and reports of meetings of the Limited
Partners, and of preparation of proxy statements and solicitations of proxies in
connection therewith; (ix) expenses in connection with preparing and mailing
reports required to be furnished to Limited Partners for investor, tax reporting
or other purposes, and reports which Leasing deems to be in the best interests
of TIF XI to furnish to the Limited Partners; (x) any accounting, computer
(including, but not limited to, terminals, controllers, leased lines, and CPUs),
statistical, data processing, programming or bookkeeping costs necessary for the
maintenance of the books and records of TIF XI (including an allocable portion
of Leasing's costs of acquiring and owning computer equipment primarily used in
connection with the operations and reporting activities of TIF XI and any other
investment entities sponsored or administered by Leasing or any of its
Affiliates), and (xi) the cost of preparation and dissemination of the
informational material and documentation relating to the potential lease,
re-lease, sale, financing or other disposition of Equipment.
5. SERVICES OF LEASING NOT EXCLUSIVE. The services of Leasing to TIF XI
hereunder are not to be deemed exclusive and Leasing shall be free to render
similar services to others and to conduct its own business.
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6. TERMINATION. Subject to the terms and provisions of this Agreement,
upon the earliest to occur of any of the following events, this Agreement shall
be terminated:
(a) by either party without penalty, upon not less than 60 days prior
written notice of its intention to so terminate;
(b) upon the withdrawal or removal of Leasing as general partner of TIF
XI; or
(c) upon the liquidation of TIF XI and the cancellation of its Certificate
of Limited Partnership.
7. INDEMNIFICATION OF LEASING BY TIF XI. To the extent that Leasing were
to seek any indemnification from TIF XI, it would be subject to the limitations
on indemnification contained in Article XXIII of the Partnership Agreement.
8. AMENDMENTS. This Agreement may not be amended or modified except by
an instrument in writing executed by all of the parties hereto, and upon the
vote of a majority of the then outstanding Units.
9. ASSIGNABILITY. This Agreement may not be assigned to any party hereto
without the express written consent of the other parties.
10. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the matters to which it pertains and
supersedes all prior oral and written agreements and understandings between the
parties with respect thereto.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Iowa without giving effect to any
conflicts of law or choice of law provisions.
13. NOTICES. All notices and other communications required or permitted
hereunder shall be delivered, telefaxed, cabled or mailed (by registered or
certified mail, postage prepaid, or by Federal Express or similar express mail
service) to the parties hereto at their respective addresses set forth below:
(a) If to Leasing: BERTHEL FISHER & COMPANY LEASING, INC.
100 Second Street, SE
Cedar Rapids, Iowa 52401
(b) If to TIF XI: TELECOMMUNICATIONS INCOME FUND XI, L.P.
100 Second Street, SE
Cedar Rapids, Iowa 52401
Any party may, by notice given as aforesaid, change its address for notices
hereunder.
IN WITNESS WHEREOF, Leasing and TIF XI have caused this Agreement to be
duly executed as of the date first above written by their respective officers
and representatives.
BERTHEL FISHER & COMPANY LEASING, INC. TELECOMMUNICATIONS INCOME FUND XI, L.P.
By: BERTHEL FISHER & COMPANY LEASING,
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By INC., its General Partner
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By
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EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-35557 of Telecommunications Income Fund XI, L.P. of our reports dated
September 4, 1997 related to Telecommunications Income Fund XI, L.P. and
March 18, 1997 related to Berthel Fisher & Company Leasing, Inc. (General
Partner), appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Cedar Rapids, Iowa
November 21, 1997
