<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999 Commission File Number 000-25593
TELECOMMUNICATIONS INCOME FUND XI, L.P.
---------------------------------------
(Exact name of Registrant as specified in its charter)
Iowa 39-1904041
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Second Street S.E., Cedar Rapids, Iowa 52401
----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 365-2506
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interest (the "Units")
------------------------------------------
Title of Class
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes X No
---- ----
As of April 27, 1999, 8,004 units were issued and outstanding. Based on the book
value at March 31, 1999 of $842.13 per unit, the aggregate market value at April
27, 1999 was $6,740,409.
<PAGE> 2
TELECOMMUNICATIONS INCOME FUND XI, L.P.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
- -------------------------------
<S> <C>
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 1999 and December 31, 1998 3
Statements of Operations- three months ended March 31, 1999 and March 31, 1998 4
Statement of Changes in Partners' Equity - three months ended March 31, 1999 5
Statement of Cash Flows - three months ended March 31, 1999 and March 31, 1998 6
Notes to financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
TELECOMMUNICATIONS INCOME FUND XI, L.P.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 678,978 $ 500,713
Net investment in direct financing leases
and notes receivable (Note B) 5,950,717 4,640,514
Allowance for possible losses (112,888) (87,818)
------------ -----------
Notes receivable and direct financing leases, net 5,837,829 4,552,696
Other assets 227 -0-
------------ -----------
TOTAL ASSETS $ 6,517,034 $ 5,053,409
============ ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Due to affiliates $ 4,077 $ 3,472
Distributions payable to partners 57,213 45,038
Accrued expenses and other liabilities 33,888 10,591
Lease security deposits 91,561 90,810
------------ -----------
TOTAL LIABILITIES 186,739 149,911
------------ -----------
PARTNERS' EQUITY, 25,000 units authorized:
General partner, 10 units issued and outstanding 9,116 9,254
Limited partners, 7,507 and 5,784 units issued
and outstanding at March 31, 1999 and
December 31, 1998, respectively 6,321,179 4,894,244
------------ -----------
TOTAL PARTNERS' EQUITY 6,330,295 4,903,498
------------ -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 6,517,034 $ 5,053,409
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
INCOME:
Lease and interest income $ 168,403 $ 19,403
Other 493 2,591
--------- --------
Total income 168,896 21,994
--------- --------
EXPENSES:
Management fees 7,084 333
Administrative services 21,000 14,000
Provision for possible losses (Note B) 25,070 18,086
Other 38,857 5,154
--------- --------
Total expenses 92,011 37,573
--------- --------
Net income (loss) $ 76,885 $(15,579)
========= ========
Net income (loss) per partnership unit (Note C) $ 11.69 $ (9.28)
========= ========
Weighted average partnership units outstanding 6,577 1,678
========= ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL TOTAL
PARTNER LIMITED PARTNERS PARTNERS'
(10 UNITS) UNITS AMOUNT EQUITY
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $ 9,254 5,784 $ 4,894,244 $ 4,903,498
Proceeds from sale of limited
partnership interests -0- 1,723 1,723,000 1,723,000
Syndication costs incurred -0- --- (215,375) (215,375)
Distributions (240) --- (157,473) (157,713)
Net Income 102 --- 76,783 76,885
------------------------------------------------------------------
Balance at March 31, 1999 $ 9,116 7,507 $ 6,321,179 $ 6,330,295
==================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
TELECOMMUNICATIONS INCOME FUND XI, L.P.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 76,885 $ (15,579)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Provision for possible losses 25,070 18,086
Amortization 414 -0-
Changes in operating assets and liabilities:
Other assets (227) (9,608)
Due to affiliates 605 9,826
Accrued expenses and other liabilities 23,297 9,427
------------- ----------
Net cash from operating activities 126,044 12,152
------------- ----------
INVESTING ACTIVITIES
Acquisitions of, and purchases of equipment for, direct
financing leases (1,496,401) (599,149)
Issuance of notes receivable -0- (245,088)
Repayments of direct financing leases 110,263 (8,008)
Repayments of notes receivable 75,520 -0-
Net lease security deposits collected 751 15,607
------------- ----------
Net cash from investing activities (1,309,867) (836,638)
------------- ----------
FINANCING ACTIVITIES
Borrowings from line-of-credit 600,000 -0-
Repayments of line-of-credit (600,000) -0-
Proceeds from sale of partnership interests 1,723,000 2,731,000
Syndication costs incurred (215,375) (341,375)
Distributions paid to partners (145,537) (9,938)
------------- ----------
Net cash from financing activities 1,362,088 2,379,687
------------- ----------
Net increase in cash and cash equivalents 178,265 1,555,201
Cash and cash equivalents at beginning of period 500,713 10,593
------------- ----------
Cash and cash equivalents at end of period $ 678,978 $1,565,794
============= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Decrease in accrued expenses and other liabilities due to
equipment purchase costs - $ 361,542
Interest paid $ 3,673 -
</TABLE>
See accompanying notes
6
<PAGE> 7
TELECOMMUNICATIONS INCOME FUND XI, L.P.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles 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.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
NOTE B - NET INVESTMENT IN DIRECT FINANCING LEASES AND NOTES RECEIVABLE
Components of the net investment in direct financing leases are as follows:
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Lease payments receivable $ 6,064,441
Unamortized initial direct costs 1,558
Estimated residual values of leased equipment 496,214
Unearned lease income (1,365,423)
Notes receivable 753,927
-----------
Net investment in direct financing leases $ 5,950,717
===========
</TABLE>
NOTE C - NET INCOME (LOSS) PER PARTNERSHIP UNIT
Net income (loss) per Partnership Unit is based on the weighted average number
of units outstanding (including both general and limited partners) which were
6,577 and 1,678 units for the periods from January 1, 1999 to March 31, 1999 and
January 1, 1998 to March 31, 1998, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
Description March 31, 1999 March 31, 1998
----------- -------------- --------------
<S> <C> <C>
Lease and interest income $168,403 $19,403
Management fees 7,084 333
Administrative services 21,000 14,000
Provision for possible losses 25,070 18,086
Other expenses 38,857 5,154
</TABLE>
The increase in lease and interest income is due to the acquisition of equipment
for investment in direct financing leases and notes receivable. The Partnership
commenced leasing operations in February of 1998 and since the first quarter of
1998 has acquired equipment for investment in leases and notes of $6,249,998.
Equipment acquisitions for investment in direct financing leases totalled
$1,496,401 for the first quarter of 1999.
Management fees are paid to the General Partner and represent 2% of the gross
rental payments received. Rental payments for the first quarter of 1999 were
$354,200. As the lease portfolio has increased due to the acquisition of
equipment, management fees have increased and will continue to increase
accordingly during the operational phase of the Partnership.
Administrative services of $21,000 represent fees paid to the General Partner
for the operation of the Partnership as defined in the Partnership Agreement.
The Partnership pays the General Partner $7,000 per month for these services.
Since leasing operations did not commence until February 1998, no administrative
fee was paid to the General Partner in January 1998.
The provision for possible losses has increased due to the increase in the
Partnerships' lease portfolio. At March 31, 1999 the allowance for possible
losses was $112,888 and represents 1.9% of the lease and note portfolio of
$5,950,717. Management continually reviews its reserves and will make
adjustments as needed.
At March 31, 1999, one customer was past due over 90 days. The contract balance
remaining for this customer was $2,646 at March 31, 1999, while the
Partnership's net investment in this contract was $2,371. When a payment is past
due more than 90 days, the Partnership discontinues recognizing income on the
contract.
Other expenses include interest expense, legal fees, audit fees, data processing
expenses, and other professional and administrative expenses. The majority of
this expense for the first quarter of 1999 was audit fees, which was $23,000.
Interest expense, which is on a line of credit that was obtained in January
1999, was $3,673. Data processing expenses, including fees paid for lease and
loan servicing, were $9,465 for the first quarter.
The Partnership's portfolio of leases and notes receivable are concentrated in
ATM machines, pay telephones, and office and computer equipment, representing
approximately 45%, 23%, and 19%,
8
<PAGE> 9
respectively, of the portfolio at March 31, 1999. Three lessees account for
approximately 72% of the Partnership's portfolio at March 31, 1999.
YEAR 2000 ISSUE: The Partnership recognizes that the arrival of the Year 2000
poses a unique challenge to the ability of all systems to recognize the date
change from December 31, 1999 to January 1, 2000. The costs of ensuring systems
are compatible with the Year 2000 are not believed to be material. There are no
non-information technology processes that the Partnership has identified which
would affect its operations. An assessment of the readiness of external entities
which it interfaces with, such as vendors, counterparties, customers, and
others, is ongoing. At present the Partnership does not contemplate that any
specific charges will be incurred for this assessment or any other costs
directly related to fixing Year 2000 issues, and if there are any related
expenditures, does not expect them to be significant.
The Partnership is assessing the impact of the Year 2000 issue on information
technology and non-information technology systems used by lessees. No lessee is
contractually obligated to become Year 2000 compliant or to disclose their
capabilities to the Partnership. The Partnership has not yet determined whether
the Year 2000 issue has been addressed by all of its customers. The Partnership
has contacted some of its customers and will continue to contact its customers
in 1999. In a worst case scenario, the inability of lessees to be Year 2000
compliant could result in delayed or no payment of amounts due to the
Partnership. The Partnership has no contingency plans at this time to alleviate
this worst case scenario should it be encountered.
The Partnership has determined that the software it utilizes in its operations
is compatible with the Year 2000. The Partnership utilizes an unrelated third
party for lease servicing. This third party vendor has been contacted and it has
been determined that their lease servicing application is year 2000 compliant. A
written confirmation regarding compliance of this application has been received
from the software developer.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Major Cash Sources:
<S> <C> <C>
Proceeds from issuance of units $1,723,000 $2,731,000
Borrowings from line of credit 600,000 -0-
Major Cash Uses:
Payments for syndication costs 215,375 341,375
Purchases of equipment 1,496,401 844,237
Payments on line of credit 600,000 -0-
Distributions and withdrawals paid to partners 145,537 9,938
</TABLE>
The demand for equipment leases is strong and as Partnership Units continue to
be sold, the Partnership's available cash will be used to acquire equipment for
investment in direct financing leases and issue notes receivable.
9
<PAGE> 10
In January 1999, the Partnership obtained financing under a line of credit
agreement with a bank. The amount available to borrow under the line of credit
is limited to $2,000,000 or 32% of qualified accounts, primarily leases and
notes receivable. The line of credit agreement bears interest at 1% over the
prime rate, with a $4,000 minimum interest charge beginning in July 1999, and is
collateralized by substantially all the assets of the Partnership. The line of
credit is guaranteed by the General Partner and certain affiliates of the
General Partner. This agreement is cancelable by the lender after giving a
90-day notice. The ageeement expires on June 30, 2000. The General Partner
believes amounts available under the line of credit are adequate for the
foreseeable future.
At March 31, 1999, adequate cash is being generated to make projected
distributions and allow for reinvestment of a portion of the cash to fund
additional leases and notes. However, the Partnership has not yet achieved an
earnings level equivalent to its operating distributions to partners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table below provides information about the Partnership's notes receivable
that are sensitive to changes in interest rates. For notes receivable, the table
presents principal cash flows and related weighted average interest by expected
maturity dates as of March 31, 1999.
<TABLE>
<CAPTION>
Expected Principal Average
Maturity Date Balance Due Interest Rate
---------------- ----------- -------------
<S> <C> <C>
1999 $ 136,313 14.42 %
2000 197,597 14.43 %
2001 209,203 14.47 %
2002 171,186 14.82 %
2003 39,628 14.00 %
---------
Total $ 753,927
=========
Fair Value $ 753,927
=========
</TABLE>
The Partnership manages interest rate risk, its primary market risk exposure, by
limiting the terms of notes receivable to no more than five years and generally
requiring full repayment ratably over the term of the note.
10
<PAGE> 11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- -------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
a. Exhibits
3.1 Amended and Restated Agreement of Limited Partnership
(included as Exhibit A to the Prospectus)*
4.1 Form of Certificate Representing Limited Partnership
Interests in the Registrant*
10.1 Escrow Agreement*
10.2 Amended Contract between the General Partner and the
Partnership*
10.3 Revolving Loan and Security Agreement.
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*
b. Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 1999.
* Previously filed.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELECOMMUNICATIONS INCOME FUND XI, L.P.
(Registrant)
Date: 5/11/1999 Ronald O. Brendengen/s/
--------------------------------------------------------
Ronald O. Brendengen, Chief Financial Officer, Treasurer
Date: 5/11/1999 Daniel P. Wegmann/s/
--------------------------------------------------------
Daniel P. Wegmann, Controller
12
<PAGE> 1
EXHIBIT 10.3
[FIRSTAR LOGO]
REVOLVING LOAN AND SECURITY AGREEMENT
FIRSTAR BANK MILWAUKEE, N.A. "LENDER" through its Financial Services Division,
and TELECOMMUNICATIONS INCOME FUND XI, L.P. ("DEBTOR") agree as follows:
NATURE OF CREDIT
For good and valuable consideration and upon the security of the Collateral (as
defined below), Lender may lend to Debtor such amounts as LENDER determines in
its SOLE AND ABSOLUTE DISCRETION, and Debtor promises to repay to Lender any
amounts so lent at such times and in such manner as provided herein ("LINE OF
CREDIT"). This is an asset-based revolving Line of Credit under which Lender
may, among other things: establish, without obligation for payment to any
party, such reserves from Qualified Accounts and/or Qualified Inventory as
Lender deems necessary to preserve the value of the Collateral and/or protect
Lender's rights and interest in the Collateral reduce the percentage advance
ratios set forth in Section 3. COLLATERAL-OBLIGATION RATIO below; advance funds
in excess of such percentage advance ratios; decline to advance funds at any
time against any particular Qualified Accounts or Qualified Inventory; and, in
order to determine potential borrowing availability but not the calculation of
interest, give credit against Debtor's Loan Account Ledger for Collections (as
defined in Section 4. COLLECTIONS below) before Lender determines that such
Collections constitute good funds. Notwithstanding Lender's discretion and as
consideration from Lender, Lender agrees with Debtor that Lender shall at all
times while this Revolving Loan and Security Agreement ("AGREEMENT") is in
effect, maintain its own borrowing capability to meet Debtor's daily borrowing
requests up to the maximum amount set forth herein and staff its operation
through the scheduled term of this Agreement with sufficient personnel and
systems to process Debtor's loan requests in order to administer on a daily
basis this revolving Line of Credit and any other credit facilities extended by
Lender to Debtor. Debtor acknowledges that Lender is furnishing valuable
consideration by undertaking the foregoing covenants.
1. LOANS AND SECURITY INTEREST
(a) LOANS AND INTEREST RATE. Lender and Debtor intend that all indebtedness
incurred hereunder shall be governed exclusively by the terms of this
Agreement. Such indebtedness shall not be evidenced by separate notes but
by Lender's computer and/or book entries ("LOAN ACCOUNT LEDGER"); and each
month, Lender shall render to Debtor a statement of account as of the last
day of the preceding month. As provided herein, DEBTOR PROMISES TO PAY
LENDER all or any part of the Obligations (as defined in Section 2
DEFINITIONS below) at any time outstanding on Debtor's Loan Account Ledger,
together with all expenses and accrued interest thereon computed on the
basis of the daily balance of such Loan Account Ledger during such month.
The interest rate hereunder shall be computed at an annual rate equal to
1.0 % plus the rate announced from time to time by Lender as its "prime
rate", which may or may not be the best rate available at said bank. (In
the event of a participation, see Section 7(a). PARTICIPATIONS, PARTICIPANT
INTEREST RATE). Such interest rate does not reflect additional costs
payable by Debtor including, without limitation; wire transfer charges or
other charges pertaining to the transfer of funds to Debtor or to Lender
from Debtor or from Debtor's depository banks; lock box, demand deposit;
control disbursement fees and other fees described in this or other
agreements between Debtor and Lender; charges arising from any returned or
dishonored checks of an account debtor accrual of interest pending the
"clearance" of checks described in Section 4. COLLECTIONS below; and
interest upon unpaid interest debited as principal to Debtor's Loan Account
Ledger. Interest shall be computed on the basis of actual days elapsed and
a year of 360 days. Interest for each calendar month shall be due and
payable by Debtor as of the first day of the next succeeding month and, at
Lender's option, may be debited as principal to Debtor's Loan Account
Ledger on the first day of each month or thereafter.
(b) DAILY ADVANCES. Debtor may make daily telephonic or written requests to
Lender for advances under the Agreement for deposit into Debtor's demand
deposit account(s) at a permitted depository institution. Any requests for
advances to be disbursed elsewhere shall be made in writing signed by an
authorized representative of Debtor. Debtor agrees not to hold Lender
responsible for any errors or misunderstandings in complying with any
telephonic or oral directions for advance requests; and Debtor has the
responsibility for ensuring that representatives of Debtor contacting
Lender to request advances are authorized.
(c) MINIMUM MONTHLY CHARGE. Notwithstanding the principal amount of the debit
balance of the Loan Account Ledger, and in addition to fees or charges for
items other than interest described herein, Debtor agrees to pay Lender, as
of the first day of the next succeeding month, at least $ 4,000.00 per
calendar month for every calendar month during the scheduled term of this
Agreement including any renewal terms, as stated in Section 9. TERMINATION
hereof (but discounted in the event of an earlier termination of this
Agreement as requested by Debtor), which monthly amount shall be reduced
by any interest paid to Lender for such month only, and not reduced by the
cumulative interest paid to Lender during the term of this Agreement
(hereinafter "MINIMUM MONTHLY CHARGE"). * Lender may debit as principal any
unpaid portion of such charge to Debtor's Loan Account Ledger. Such Minimum
Monthly Charge shall constitute, among other things, partial compensation
for Lender's benefit of its bargain, including, without limitation, loss of
future interest income to Lender if this Agreement were to be terminated by
Debtor before the end of that term set forth in Section 9. TERMINATION
below, and partial remuneration of Lender's fixed costs associated with
Lender's business (which costs may be amortized during the full term of
this Agreement), Unless otherwise specifically expressed in writing, only
one Minimum Monthly Charge applies to all Obligations and agreements
between Debtor. Debtor's affiliated companies (where applicable) and Lender
*EXCEPT THAT NO MINIMUM MONTHLY CHARGE SHALL BE PAYABLE BY DEBTOR DURING
THE FIRST SIX (6) MONTHS OF THIS AGREEMENT.
(d) SECURITY INTEREST, ASSIGNMENT AND CROSS-COLLATERALIZATION. To secure
payment of Debtor's Obligations, Debtor grants to Lender a security
interest in the Collateral, and Debtor collaterally assigns to Lender its
rights under any lease of personal or real property and its interests in
all general intangibles, including, without limitation, trademarks, trade
names, patents, copyrights, licenses, franchises, insurance claims and
claims or rights of action against third parties, however arising. The
intent of the parties hereto is that all the Collateral plus all other
property, rights and claims pledged to Lender secures all Obligations of
Debtor to Lender, whether or not such Obligations exist under this or
other agreements and while such Obligations are due under any other
agreement, whether or not the loans under this Agreement have been paid in
full.
1 of 8
<PAGE> 2
2. DEFINITIONS
The terms set forth in this Agreement shall have the meanings set forth in the
Uniform Commercial Code as adopted in the State of Wisconsin unless otherwise
defined herein.
(a) "Collateral" means all of the following whether now owned or existing or
hereafter created or acquired by Debtor, wherever located, including all
documents, general intangibles, additions and accessions, spare and repair
parts, special tools, replacements, returned or repossessed goods and books
and records relating to the following; and all proceeds and products of
the following: all accounts, instruments, documents, chattel paper, general
intangibles, contract rights, securities, certificates of deposit and funds
on deposit with and all property in the possession of Lender or any other
depository institutions; all inventory; all equipment and all fixtures. SEE
EXHIBIT A HERETO
(b) "QUALIFIED ACCOUNT" means an account owing to Debtor which meets all of
these specifications on a continuing basis; as determined by Lender:
(1) SALE OF GOODS OR SERVICES RENDERED. It arose from the performance of
services by Debtor, or from a bona fide sale or lease of goods on
terms in effect as of the date of this Agreement as disclosed by
Debtor to Lender; which services have been fully performed for an
account Debtor or which goods have been delivered or shipped to an
account Debtor residing in the United States or a foreign account
Debtor acceptable to Lender; and for which Debtor has genuine and
complete invoices, shipping documents or receipts;
(2) AGE AND DUE DATE. It is not more than 60 days past due;
(3) OWNERSHIP. It is owned and assignable by Debtor free of all claims,
encumbrances and security interests (except Lender's paramount
security interest);
(4) NO DEFENSES. It is enforceable by Debtor and Lender against the
account Debtor for the amount shown as owing in the statements
furnished by Debtor to Lender; it and the transaction out of which it
arose comply with all applicable laws and regulations; it is not
subject to any setoff, credit allowance or adjustment except discount
for prompt payment, nor has the account Debtor returned the goods or
disputed liability; and it did not arise from a conditional sale,
guaranteed sale, sale on approval, sale or return or sale on
consignment;
(5) FINANCIAL CONDITION OF ACCOUNT Debtor. Neither Debtor nor Lender has
any notice or knowledge of anything which might impair the credit
standing of the account Debtor or the prospect of payment of the
account, nor does the dollar amount of past-due invoices as a portion
of the total dollar amount due from an account Debtor exceed 50%,
which limitation may change from time to time;
(6) SATISFACTION OF Lender. Lender has not notified Debtor, orally or in
writing, that the account or account Debtor is unsatisfactory.
(7) AFFILIATES. It is not due from an Affiliate of Debtor, including,
without limitation, a parent corporation, subsidiary corporation or
corporation owned in part or in whole by any controlling
shareholder(s) of Debtor, or any officer, director or shareholder of
Debtor or of any Affiliate (collectively "AFFILIATE");
(8) OTHER PROVISIONS.
SEE EXHIBIT A HERETO
(c) "QUALIFIED INVENTORY" means inventory which meets all of these
specifications on a continuing basis, as determined by Lender:
(1) OWNERSHIP. It is owned and assignable by Debtor free of all claims,
encumbrances and security interests (except Lender's paramount
security interest); it is not stored with any bailee, warehouseman,
Affiliate or other party without a written agreement in favor of
Lender; and it is not with Debtor nor put in the field by Debtor as a
conditional sale, guaranteed sale, sale on approval, sale or return or
sale on consignment;
(2) CONDITION. It is in good condition; it has not materially declined in
value; it is of an age, type and quantity acceptable to Lender; and,
in the case of goods held for sale, it is new and unused (except as
Lender may otherwise consent in writing);
(3) SATISFACTION OF Lender. Lender has not notified Debtor, orally or in
writing, that any of the inventory is unsatisfactory;
(4) OTHER PROVISIONS.
(d) "OBLIGATIONS" means all Debtor's debts, covenants, warranties, duties and
liabilities to Lender (including the Financial Services Division and any
other division of Lender) whether liquidated or unliquidated, absolute or
contingent, whether arising under this Agreement, any lease, any charge
card program, any other service or credit extended by Lender, any mortgage
or deed of trust, any guaranty, any letter of credit or bankers acceptance,
any reserve established by Lender to support any letter of credit, bankers
acceptance or other undertaking by Lender for the benefit of Debtor and/or
its Affiliates, any account with a balance due Lender, any term
indebtedness (installment, demand or promissory note), and /or under any
other agreements of whatever nature with Lender (together and individually,
the "LOAN DOCUMENTS") and including fees and charges related to any of the
foregoing, and whether arising out of past, existing or future credit
granted by Lender to Debtor, to Debtor and others, to others guaranteed or
endorsed by Debtor or to any debtor-in-possession or successor-in-interest
of Debtor.
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3. COLLATERAL-OBLIGATION RATIO
Without Lender's prior written consent, Debtor shall not permit advances
(including accrued interest, expenses fees and reserves) against Qualified
Accounts and Qualified Inventory at any time outstanding to exceed the lesser of
$ 2,000,000.00 or:
(a) up to 32% of the amount owing on Qualified Accounts (minus payments on
Qualified Accounts which are in the process of collection by Lender); SEE
EXHIBIT A FOR CONTINUATION
In addition to other required payments herein, Debtor shall at all times pay
Lender such sums as may be necessary from time to time to maintain the foregoing
ratios or limits ("RATIOS"). Such Ratios are stated only for the purpose of
establishing advances under this Agreement and not for valuation of the
Collateral. Notwithstanding Debtor's obligation to maintain the foregoing
Ratios, Lender, in its sole discretion, may make advances to Debtor in excess of
the foregoing Ratios, which advances shall be payable to Lender ON DEMAND unless
otherwise agreed to in writing by Lender. Where Debtor has exceeded the
foregoing Ratios or any Excess Line of Credit (as defined below), Debtor shall
be assessed a daily service fee as a cost in addition to the interest
designated in Section 1. LOANS AND SECURITY INTEREST above. Furthermore, where
Lender has consented to an additional line of credit in excess of the foregoing
Ratios ("EXCESS LINE OF CREDIT"), Debtor shall be assessed a daily service fee
for such Excess Line of Credit whether or not Debtor draws upon such Excess Line
of Credit, Nothing herein, however, shall be construed as a commitment by Lender
to make or allow advances against Qualified Accounts and/or Qualified Inventory
(including accrued interest, expenses, fees and reserves) in excess of the
foregoing Ratios; nor shall this section be a waiver of any default by Debtor if
it exceeds such Ratios without Lender's prior written consent.
4. COLLECTIONS
(a) PAYMENT OF COLLECTIONS. Debtor promises to continuously repay the
Obligations upon Debtor's receipt of any proceeds of the Collateral,
including all checks, drafts, cash and other remittances and
proceeds received in part or full payment of or with respect to the
Collateral ("COLLECTIONS"). Debtor shall deposit or cause to be deposited
all Collections in accordance with the provisions marked with an 'x' below.
/X/ LENDER'S/REMOTE LOCK BOX SERVICE; RESTRICTED ACCOUNT. Prior to Lender
making any advances hereunder, Debtor hereby agrees to enter into a
lock box arrangement with Lender _____________________________________
("DEPOSITORY BANK") [strike as appropriate) which is satisfactory to
Lender, and pursuant to which Lender shall be granted sole access to
the post office box to which account debtors shall be instructed to
forward Collections. All Collections shall constitute a payment to and
the property of Lender and be processed in accordance with such lock
box arrangement. Once processed, the amount of any such Collections at
Depository Bank shall be placed in a restricted account in the sole
name and control of Lender (if not otherwise immediately
wire-transferred to Lender). Any charges relating to such restricted
account which Lender elects to pay shall be charged to Debtor's Loan
Account Ledger. Any Collections inadvertently received by Debtor shall
be immediately delivered to Lender or to Lender's restricted account
at Depository Bank in precisely the form received (but endorsed by
Debtor if necessary for collection), and until such delivery, Debtor
shall not commingle any such Collections with any other funds or
property of Debtor and shall hold the Collections upon an express
trust for Lender.
/ / DIRECT DELIVERY/RESTRICTED ACCOUNT. Immediately upon receipt, Debtor
shall (1) deliver to Lender or (2) deliver to ________________________
("Depository Bank") [strike as appropriate] all Collections in
precisely the form received (but endorsed by Debtor if necessary for
collection). Said Collections shall constitute a payment to and the
property of Lender and, until such delivery, Debtor shall not
commingle any Collections with any other funds or property of Debtor
and shall hold the Collections upon an express trust for Lender. Once
delivered, the amount of any such Collections at Depository Bank shall
be immediately placed in a restricted account in the sole name and
control of Lender (if not otherwise immediately wire-transferred to
Lender). Any charges relating to such restricted account which Lender
elects to pay shall be charged to Debtor's Loan Account Ledger.
(b) CREDIT FOR COLLECTIONS. For calculating the amount available for borrowing
hereunder, the amount of any Collections in the form of cash, immediately
payable checks, drafts or other instruments received by Lender in
Milwaukee, Wisconsin, prior to 12:00 Noon of each banking day will be
immediately credited to Debtor's Loan Account Ledger. As consideration, in
part, for Collections that may not be immediately available for use by
Lender, interest shall continue to be charged on the amount so credited at
Lender's rate of interest for a period of two (2) business days after such
receipt. The amount of any Collections in the form of a wire transfer
received by Lender at Milwaukee, Wisconsin, prior to 1:30 P.M. of each
banking day, will be credited that same day to Debtor's Loan Account Ledger
for borrowing and interest purposes unless otherwise agreed to in writing
by Debtor and Lender. In the event that any such Collections, the amount of
which has been credited to Debtor's Loan Account Ledger, is subsequently
dishonored or otherwise returned unpaid to Lender, Lender may debit
Debtor's Loan Account Ledger for such amount, including any charges for
dishonored items, retroactively to the date that the amount was credited
against the Obligations. Except as provided in any account agreement and
except for Lender's willful misconduct, Lender shall not be liable for any
of its own errors or errors by any other financial institution in the
processing and/or transfer of funds or Collections to or from Lender, and
Lender may retroactively debit Debtor's Loan Account Ledger for any lost
interest or principal resulting therefrom.
(c) VERIFICATION AND NOTIFICATION. Lender may verify accounts and other
Collateral in any manner, and Debtor shall assist Lender in so doing. Upon
default by Debtor or termination of this Agreement, Lender may (or Debtor
shall, upon request of Lender) notify account debtors to make payment
directly to Lender; and Lender may enforce collection of, settle,
compromise, extend or renew the indebtedness of such account debtors, all
without notice to or the consent of Debtor. Lender shall have the right to
exercise all rights and remedies available to Debtor relating to account
debtors (including, without limitation, enforcing any mechanic or
construction lien rights), and Debtor is hereby deemed to have assigned to
Lender all such rights and remedies,
5. DEBTOR'S WARRANTIES AND COVENANTS
During the term of this Agreement or while any Obligations are unpaid or
outstanding under this Agreement or the other Loan Documents, Debtor
continuously warrants, represents and agrees as follows:
(a) ACCURACY OF INFORMATION. All information, certificates or statements given
to Lender pursuant to this Agreement and the other Loan Documents shall be
accurate and complete when given.
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(b) ORGANIZATION, AUTHORITY, VALIDITY OF OBLIGATIONS. Debtor is a validly
existing corporation or partnership (as applicable) in good standing under
the laws of its state of organization, and has all requisite power and
authority, corporate or otherwise, to perform under this Agreement, and
possesses all necessary licenses, to conduct its business and own its
properties. The execution, delivery and performance of this Agreement and
the other Loan Documents with Lender are within Debtor's authority, are
legal, valid and binding obligations of Debtor, enforceable against Debtor
in accordance with their terms, and do not require the consent of others.
(c) EXISTENCE; BUSINESS ACTIVITIES; ADVERSE CHANGE; LITIGATION. Debtor will:
preserve its corporate or partnership existence (as applicable) and its
rights and franchises; not make any material change in the nature or manner
of its business activities, and not suffer any material adverse change in
its business operation, its financial condition or in the value or
condition of the Collateral. Further, there is no litigation or
administrative proceeding threatened or pending against Debtor which would,
if adversely determined, have a material adverse affect on Debtor's
business operation, financial condition or the Collateral.
(d) ACQUISITIONS, INVESTMENTS, DIVIDENDS, CORPORATE CHANGES. Without the prior
written consent of Lender, Debtor shall not: acquire any other business
(whether by stock or asset acquisition); make any loan, advance or
extension of, credit to, or investment in, any other person, corporation or
other entity (except for extensions of credit to account debtors for goods
and/or services purchased from Debtor in the ordinary course of business
and except for loans up to $5,000 at any time outstanding to individual
employees); pay any cash dividends; pay any management, administration,
consulting fees or the like to any Affiliate, director or shareholder;
purchase, redeem or otherwise acquire, directly or indirectly, any shares
of any class of its stock or any other stock; merge with or into or
consolidate with or into any other corporation or entity; or liquidate or
dissolve.
(e) OTHER AGREEMENTS, LAWS AND REGULATIONS. Debtor is not in default under any
material agreement for the payment of money which would give any creditor
of Debtor the right to accelerate indebtedness of Debtor to such creditor
or terminate such agreement to which Debtor is a party; nor is Debtor
delinquent in the payment of any tax, payroll or withholding obligation or
of any obligation under any federal or state law which could impose a lien
or claim upon the Collateral as a result of such default. Furthermore,
Debtor's Affiliates are not in default under any agreement between such
Affiliates and Lender.
(f) DEBTOR'S NAME, LOCATIONS; NOTICE OF CHANGES. Debtor's name and
organizational structure have remained the same during the past 5 years.
Debtor will continue to use only the name set forth on the first page of
this Agreement unless Debtor gives Lender prior written notice of any
change. Furthermore, Debtor shall not do business under another name nor
use any trade name without giving 10 days prior written notice to Lender.
The address appearing below Debtor's signature is Debtor's chief executive
office and principal place of business; and such office, place of business
and all Collateral shall be at such address except to the extent Debtor has
provided prior written notice to Lender of any change of address/new
location. Further, Debtor will promptly notify Lender in writing of any
change, death or disability of any of its principal officers, directors and
key employees; death of any guarantor; and any other material change in the
structure, business or financial affairs of Debtor or the Collateral.
(g) USE OF PROCEEDS, SPECULATION. Advances by Lender under this and other
agreements shall be used exclusively by Debtor for working capital
purposes. No part of any of the proceeds shall be used for speculative
investment purposes; including, without limitation, speculating or hedging
in the commodities and/or futures market without the prior written consent
of Lender.
(h) OWNERSHIP, MAINTENANCE OF COLLATERAL, RESTRICTION ON LIENS AND
DISPOSITIONS. Debtor is the sole owner of the Collateral free of all
claims, encumbrances and security interests except as permitted in writing
by Lender. Debtor shall: maintain the Collateral in good condition and
repair (reasonable wear and tear excepted), and not permit its value to be
impaired; not permit waste, removal or loss of identity of the Collateral,
nor shall Debtor, by action or inaction, cause Lender in good faith to fear
waste, removal or loss of identity of the Collateral: keep the Collateral
free from all claims, encumbrances and security interests (other than
Lender's paramount security interest); defend it against all claims and
legal proceedings by persons other than Lender; pay and discharge when due
all taxes, levies and other charges or fees upon the Collateral except for
payments of taxes contested by Debtor in good-faith by appropriate
proceedings so long as no levy or lien has been imposed upon the
Collateral; not lease, sell or transfer the Collateral to any party or to
any new location outside of the ordinary course of business; not permit the
Collateral to become a fixture or accession to other goods; not permit the
Collateral to be used in violation of any applicable law, regulation or
policy of insurance; and, as to the Collateral consisting of instruments
and chattel paper, preserve Lender's rights in it against all other
parties. Notwithstanding the above, Debtor may sell or lease inventory in
the ordinary course of its business provided that (1) no sale or lease
shall include any transfer or sale in satisfaction (partial or complete) of
a debt owed by Debtor; (2) title will not pass to buyer until Debtor
physically delivers the goods to buyer or Debtor ships the goods F.O.B. to
buyer's destination; and (3) sales and/or leases to Debtor's Affiliates
shall be for fair market value, cash on delivery, with the proceeds
remitted to Lender.
(i) MAINTENANCE OF SECURITY-INTEREST/PURCHASE MONEY SECURITY INTERESTS. Debtor
shall take any action requested by Lender to preserve the Collateral and to
establish priority of, perfect, continue perfection of or enforce Lender's
interest in the Collateral and Lender's rights under this Agreement; and
shall pay all costs and expenses related thereto. Debtor and Lender intend
to maintain the full effect of any purchase money security interest granted
in favor of Lender notwithstanding the fact that the Collateral so
purchased is also pledged as security for other Obligations under this
Agreement and the other Loan Documents.
(j) COLLATERAL INSPECTIONS, MODIFICATIONS, CHANGES AND RETURNS. At reasonable
times, Lender may examine the Collateral and Debtor's records pertaining to
it, wherever located, and make copies of such records at Debtor's expense;
and Debtor shall assist Lender in so doing. Without Lender's prior written
consent, Debtor shall not alter, modify, discount, extend, renew or cancel
any Collateral, except for ordinary discounts for prompt payment on
accounts, physical modifications to the inventory occurring in the
manufacturing process or alterations to equipment which do not materially
affect its value. Debtor shall promptly notify Lender if any Qualified
Account or Qualified Inventory ceases to be qualified, and notify Lender of
any change in the condition of the Collateral.
(k) COLLATERAL RECORDS/REPORTS. Debtor shall keep accurate and complete
records respecting the Collateral in such form as Lender may approve. At
such times as Lender may require, Debtor shall furnish to Lender
information regarding the Collateral, certified by Debtor as complete and
accurate and in such form and substance as required by Lender, including,
without limitation; the current status and value of the leases pledged to
Lender.
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(l) ACCOUNTING RECORDS/REPORTS; CONTROLLER. Debtor shall maintain a modern
system of accounting in accordance with generally accepted principles of
accounting consistently applied throughout all accounting periods. Debtor
shall furnish Lender such reports and financial statements respecting the
business, assets, income and financial condition of Debtor as Lender may
reasonably request (at least within 30 days of the end of each monthly
interim accounting period); all of which reports and financial statements
shall be certified as complete and accurate by a principal officer of
Debtor, and annually, within 90 days of fiscal year end Debtor shall
provide Lender a certified audit, by an independent public accountant
satisfactory to Lender with a reliance letter for the benefit of Lender.
Furthermore, Debtor shall cause and hereby authorizes its accountants to
deliver to Lender a copy of any letters, memoranda or advice such
accountants direct to Debtor's management. At Debtor's expense, Lender
shall have the right at any time during normal business hours to verify,
inspect and make extracts of all of Debtor's books, accounts, records,
orders, correspondence and such other papers as Lender may desire. Debtor
shall employ a full-time controller whose experience and training are
acceptable to Lender.
(m) INSURANCE. Debtor shall keep the Collateral and Lender's interest in it
insured against all risks and under policies with such provisions, for such
amounts and with such insurers as shall be satisfactory to Lender, and
shall furnish evidence of such insurance satisfactory to Lender. Insurer or
its agent shall endorse the policy of insurance naming Lender as "Lender's
Loss Payee", and shall agree to notify Lender of any changes in the policy
coverage with respect to the Collateral or the addition of any other loss
payees as to the Collateral. Debtor hereby assigns all insurance proceeds
to and irrevocably directs, while any Obligations remain unpaid, any
insurer to pay to Lender the proceeds of all such insurance and any premium
refund, and authorizes Lender to endorse Debtor's name to effect the same;
to make, adjust or settle, in Debtor's name, any claim on any insurance
policy relating to the Collateral; and, at the option of Lender, to apply
such proceeds and refunds to any balance of the Obligations and/or to
restoration of the outstanding Collateral, returning any excess to Debtor.
(n) ENVIRONMENTAL MATTERS. Except as disclosed in a written schedule attached
to this Agreement (if no schedule is attached, there are no exceptions),
there exists no uncorrected violation by Debtor of any federal, state or
local laws (including, without limitation, statutes, regulations,
ordinances or other governmental restrictions and requirements) relating to
the discharge of air pollutants, water pollutants or process waste water or
otherwise relating to the environment or hazardous substances as
hereinafter defined, whether such laws currently exist or are enacted in
the future (collectively "ENVIRONMENTAL LAWS"). The term "HAZARDOUS
SUBSTANCES" shall mean any hazardous or toxic wastes, chemicals or other
substances, the generation, possession or existence of which is prohibited
or governed by any Environmental Laws. Debtor is not subject to any
judgment, decree, order or citation, or a party to (or threatened with) any
litigation or administrative proceeding, which asserts that Debtor (1) has
violated any Environmental Laws; (2) is required to clean up, remove or
take remedial or other action with respect to any Hazardous Substances
(collectively "REMEDIAL ACTION"); or (3) is required to pay all or a
portion of the cost of any Remedial Action, as a potentially responsible
party. There are not now, nor to Debtor's knowledge after reasonable
investigation, have there ever been, any Hazardous Substances (or tanks or
other facilities for the storage of Hazardous Substances) stored,
deposited, recycled or disposed of on, under or at any real estate owned or
occupied by Debtor during the periods that Debtor owned or occupied such
real estate, which if present on the real estate or in the soils or ground
water, could require Remedial Action. To Debtor's knowledge, there are no
proposed or pending changes in Environmental Laws which would adversely
affect Debtor or its business, and there are no conditions existing
currently or likely to exist during the term of this Agreement which would
subject Debtor to Remedial Action or other liability. Debtor currently
complies with and will continue to timely comply with all applicable
Environmental Laws; and will provide Lender, immediately upon receipt,
copies of any correspondence, notice, complaint, order or other document
from any source asserting or alleging any circumstance or condition which
requires or may require a financial contribution by Debtor or Remedial
Action or other response by or on the part of Debtor under any
Environmental Laws, or which seeks damages or civil, criminal or punitive
penalties from Debtor for an alleged violation of any Environmental Laws.
(o) CHATTEL PAPER, INSTRUMENTS, ETC. Chattel paper, instruments, drafts, notes,
acceptances, and other documents which constitute Collateral shall be on
forms satisfactory to Lender. Debtor shall promptly mark all original
chattel paper to indicate conspicuously Lender's security interest therein,
shall not deliver any chattel paper or instruments to any other entity and,
upon request, deliver all original chattel paper, instruments, drafts,
notes, acceptances and other documents which constitute collateral to
Lender.
(p) UNITED STATES GOVERNMENT CONTRACTS. It any accounts or contract rights
arose out of contracts with the United States or any of its departments,
agencies or instrumentalities, Debtor shall promptly notify Lender and
execute any writings required by Lender so that all money due or to become
due under such contracts shall be assigned to Lender under the Federal
Assignment of Claims Act.
(q) EXPENSES AND FEES. Debtor shall be responsible for the payment of all
expenses and fees of Lender and its personnel, Lender's corporate inside
counsel, retained outside counsel and other third parties, (including any
Participant) in connection with the Loan Documents, including, without
limitation: perfecting Lender's security interest in the Collateral and
confirming its priority; the internal reviews of Debtor's business
operations and the Collateral; appraisals and environmental audits; the
closing, administration, modification, defense of or enforcement of this
Agreement and the other Loan Documents; and the preservation, collection
and/or liquidation of the Collateral; in each case regardless of whether
such expenses and fees arise after termination of this Agreement or as part
of a judicial or non-judicial proceeding. Such expenses and fees may, at
Lender's option, be debited to Debtor's Loan Account Ledger and be in
addition to the interest and Minimum Monthly Charge referred to in Section
1. LOANS AND SECURITY INTEREST
6. RIGHTS AND DUTIES OF LENDER
(a) AUTHORITY TO PERFORM FOR DEBTOR. To facilitate application of the
Collateral against the Obligations, Debtor presently appoints any officer
of Lender as Debtor's attorney-in-fact (coupled with an interest and
irrevocable while any Obligations remain unpaid): to endorse the name of
Debtor on any invoice or document of title relating to accounts, drafts or
notices to account debtors, notes, acceptances, assignments of government
contracts, instruments, financing statements, checks, insurance claims or
payments or other evidence of payment or security interest related to the
transactions under this Agreement or the other Loan Documents: to perfect,
protect and/or realize upon Lender's interest in the Collateral; and to do
all such other acts and things necessary to carry out Debtor's obligations
under this Agreement and the other Loan Documents, including, upon default,
to receive, open and dispose of all mail addressed to Debtor, to notify the
Post Office authorities to change the address for delivery of mail
addressed to Debtor to an address designated by Lender and to notify (and
Debtor hereby directs) each of Debtor's depository institutions to remit to
Lender, without liability to Debtor, all of Debtor's funds on deposit with
such institutions. All acts by Lender are hereby ratified and approved, and
Lender shall not be liable for any acts of commission or omission, nor for
any errors of judgment or mistakes of fact or law.
(b) COLLATERAL PRESERVATION. Lender shall use reasonable care in the custody
and preservation of any Collateral in its physical possession but in
determining such standard of reasonable care, Debtor expressly acknowledges
that Lender has no duty to: insure the Collateral against hazards; ensure
that the Collateral will not cause damage to property or injury to third
parties; protect it from seizure, theft or conversion by third parties,
third parties' claims or acts of God; give to Debtor any notices received
by Lender regarding the Collateral; perfect or continue perfection of any
security interest in favor of Debtor; perform any services, complete any
work-in-process or take any other action in connection with the management
or maintenance of the Collateral; nor sue or otherwise effect collection
upon any accounts even if Lender shall have made a demand for payment
upon individual account debtors. Notwithstanding any failure by Lender to
use reasonable care in preserving the Collateral, Debtor agrees that Lender
shall not be liable for consequential or special damages arising therefrom.
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(c) SETOFFS. As additional security for the payment of the Obligations, Debtor
hereby grants to Lender a security interest in, a lien on and an express
contractual right to set off against all depository account balances, cash
and any other property of Debtor now or hereafter in the possession of
Lender. Lender may, at any time upon the occurrence of a default hereunder
(notwithstanding any notice requirements or grace/ cure periods under this
Agreement or the other Loan Documents) set off against the Obligations
WHETHER OR NOT THE OBLIGATIONS (INCLUDING FUTURE INSTALLMENTS) ARE THEN DUE
OR HAVE BEEN ACCELERATED, ALL WITHOUT ANY ADVANCE OR CONTEMPORANEOUS NOTICE
OR DEMAND OF ANY KIND TO DEBTOR, SUCH NOTICE AND DEMAND BEING EXPRESSLY
WAIVED.
7. OTHER LOAN PROVISIONS
(a) PARTICIPATIONS, PARTICIPANT INTEREST RATE. Debtor recognizes that an
integral part of the financing under this Agreement is Lender's
participation with_________________________________________________________
("Participant"), and Debtor consents to such participation, the extent of
which shall not exceed ____ % of the advances under this Agreement or such
dollar limit as Lender and Participant may agree. Such participation is
subject to the execution of a participation agreement in a form
satisfactory to Lender. The annual rate of interest charged to Debtor on
any advances subject to participation shall be _____% plus the rate
announced from time to time by Lender as its "prime rate." Minor deviations
above and below such rate of interest will result from costs and fees
provided for in this Agreement, timing of the settlement with Participant
on any particular day, clearance factors and the time of day of the
application of Collections. The time and manner of settlement of any
participation shall be within the sole determination of Lender and
Participant. In the event a participation is terminated for any reason, the
rate of interest charged Debtor by Lender on any advances in replacement of
the participated advances shall revert to that rate set forth in Section 1.
LOANS AND SECURITY INTEREST hereof; and Lender shall not be obligated to
fund Participant's prior share of the advances. Notwithstanding the
existence of or lack of any participation, Lender shall not at any time
lend funds to Debtor in excess of Lender's lending limits. Lender may
distribute to Participant or potential participants any information Lender
may obtain regarding Debtor, the Collateral, this Agreement and the Loan
Documents between Debtor and Lender. Debtor also agrees to furnish
Participant, upon request, the same information Debtor provides to Lender.
(b) LETTERS OF CREDIT/BANKER'S ACCEPTANCES. From time to time, and subject to
execution of appropriate agreements, Debtor may request Lender's
International Banking Division, or another institutional lender (either
hereinafter referred to as "ISSUER") to issue letters of credit and/or
create banker's acceptances for the account of Debtor (either hereinafter
referred to as "CREDIT") in favor of various beneficiaries. In order to
support the issuance of such Credit by Issuer and at Lender's option,
Lender shall reduce the amount of funds Lender may make available for
borrowing by Debtor under Section 3. COLLATERAL-OBLIGATION RATIO of this
Agreement to the extent of the Issuer's liability under such Credit or such
lesser amount as Lender and the Issuer may determine is required
("COLLATERAL RESERVATION"). This Collateral Reservation shall be deemed an
"Obligation" under this Agreement, and at any time Lender is called upon to
advance funds to Issuer under any such Credit, the amount of funds so
advanced shall be charged against Debtor's Loan Account Ledger as a loan,
and interest will be charged thereon at the rate set forth under Section 1.
LOANS AND SECURITY INTEREST of this Agreement. Lender shall charge Debtor a
fee for such Collateral Reservation in an amount and on terms mutually
agreeable to Lender and Debtor. Any fee for Collateral Reservation shall be
in addition to any fees or charges imposed by Issuer. Debtor shall not hold
Lender liable nor shall any advance made by Lender to any Issuer be subject
to any contest, offset or defense by virtue of Issuer's failure to comply
with its obligations to Debtor.
(c) RETURN OF DOCUMENTS, ACCOUNT STATED. Any documents, schedules, invoices or
other papers delivered to Lender by Debtor may be destroyed or otherwise
disposed of by Lender unless Debtor immediately requests, in writing, the
return of said documents, schedules, invoices or other papers and makes
arrangements for such return, at Debtor's expense. ANY STATEMENT OF ACCOUNT
RENDERED BY LENDER TO DEBTOR, INCLUDING, WITHOUT LIMITATION, STATEMENTS OF
BALANCE OWING, ACCRUED INTEREST, EXPENSES AND COSTS, SHALL BE DEEMED TO BE
CORRECT AND CONSTITUTE AN ACCOUNT STATED UNLESS, WITHIN 30 DAYS AFTER
RECEIPT THEREOF BY DEBTOR, DEBTOR SHALL DELIVER TO LENDER, BY REGISTERED OR
CERTIFIED MAIL, WRITTEN OBJECTION THERETO SPECIFYING THE ERRORS, IF ANY,
CONTAINED IN SUCH STATEMENT.
(d) LOAN ADMINISTRATION AND CLOSING FEE. In addition to interest, the Minimum
Monthly Charge and other costs and fees referred to in this Agreement and
while this Agreement is in effect, Debtor shall be assessed a loan
administration fee of $ 500.00 per quarter.
(e) INITIAL FUNDING. Initial funding under this and other agreements between
Debtor and Lender is, among other things, contingent upon (1) maintenance
of Debtor's business, financial condition and Collateral such that no
material adverse change will have occurred from the date hereof until the
time of initial funding; (2) no material change in the structure of the
transaction under which Lender might provide financing; (3) appropriate
perfection of Lender's paramount security interest in the Collateral; and
(4) completion of all closing requirements and execution of all closing
documentation necessary and satisfactory to Lender.
8. DEFAULT
(a) DEFAULT. DEBTOR SHALL IMMEDIATELY NOTIFY THE LENDER, IN WRITING, WHEN
DEBTOR OBTAINS KNOWLEDGE OF THE OCCURRENCE OF ANY DEFAULT SPECIFIED BELOW.
Regardless of whether Debtor has given Lender the required notice, the
occurrence of one or more of the following shall constitute a default.
(1) NONPAYMENT. Debtor fails to pay when due any of the Obligations.
(2) NONPERFORMANCE. Debtor or any guarantor of Debtor's Obligations to
Lender ("Guarantor") shall fail to perform or observe any agreement,
term, provision, condition, or covenant (other than a default
occurring under (1), (3), (4), (5) or (6) of this section) required to
be performed or observed by Debtor or any Guarantor hereunder or under
any other Loan Document or other agreement with or in favor of Lender.
(3) MISREPRESENTATION. Any financial information, statement, certificate,
representation or warranty given to Lender by Debtor or any Guarantor
(or any of their representatives) in connection with this Agreement or
the other Loan Documents and/or any borrowing thereunder, or required
to be furnished under the terms thereof, shall prove untrue or
misleading in any material respect (as determined by Lender in the
exercise of its judgment) as of the time when given.
(4) DEFAULT ON OTHER OBLIGATIONS. Debtor or any Guarantor shall be in
default under the other Loan Documents or any indebtedness in excess
of $10,000 owing by Debtor to any third party, and the period of
grace, if any, to cure said default shall have passed.
(5) JUDGMENTS. Any judgment shall be obtained against Debtor or any
Guarantor which, together with all other outstanding unsatisfied
judgments against Debtor (or such Guarantor), shall exceed the sum of
$10,000 and shall remain unvacated, unbonded or unstayed for a period
of 30 days following the date of entry thereof.
6 of 8
<PAGE> 7
(6) INABILITY TO PERFORM BANKRUPTCY/INSOLVENCY, (i) Debtor or any
Guarantor shall die or cease to exist; or (ii) any Guarantor shall
attempt to revoke any guaranty of the Obligations described herein, or
any guaranty becomes unenforceable in whole or in part for any reason;
or (iii) any bankruptcy, insolvency or receivership proceedings, or an
assignment for the benefit of creditors, shall be commenced under any
federal or state law by or against Debtor or any Guarantor; or (iv)
Debtor or any Guarantor shall become the subject of any out-of-court
settlement with its creditors; or (v) Debtor or any Guarantor is
unable or admits in writing its inability to pay its debts as they
mature.
(b) TERMINATION OF LOANS; ADDITIONAL LENDER RIGHTS. Upon termination of this
Agreement as provided in Section 9. TERMINATION below or the occurrence of
any default identified above and in the exercise of its discretion under
this Agreement, Lender may at any time (1) immediately cease making
additional loans to Debtor; (2) set off; and/or (3) take such other steps
to protect or preserve Lender's interest in the Collateral, including,
without limitation, notifying account debtors to make payment directly to
Lender, advancing funds to protect or preserve the Collateral and insuring
the Collateral at Debtor's expense; ALL WITHOUT DEMAND OR NOTICE OF ANY
KIND, all of which are hereby waived.
(c) ACCELERATION, EXPENSES AND LENDER'S CUMULATIVE REMEDIES. Upon the
occurrence of any one of the above defaults or termination of this
Agreement as provided in Section 9. TERMINATION below, then at the option
of Lender and upon written notice to Debtor, all of the Obligations shall
become immediately payable by Debtor and fully accelerated and this
Agreement shall be terminated. Debtor shall also pay Lender all expenses
incurred by Lender, including, without limitation, those described in
Section 5. DEBTOR'S WARRANTIES AND COVENANTS above. Any termination of this
Agreement shall also effect an acceleration of all Obligations owed Lender
(including, without limitation, any installment obligations and other
agreements between Debtor and Lender even if scheduled payments thereunder
would otherwise remain outstanding). Furthermore, Lender shall have all
rights and remedies for default provided by the Uniform Commercial Code, as
well as any other applicable law and this Agreement, INCLUDING, WITHOUT
LIMITATION, THE RIGHT TO REPOSSESS, RENDER UNUSABLE AND/OR DISPOSE OF THE
COLLATERAL WITHOUT JUDICIAL PROCESS. The rights and remedies specified
herein are cumulative and are not exclusive of any rights or remedies which
Lender would otherwise have. With respect to such rights and remedies:
(1) ASSEMBLING COLLATERAL, STORAGE, USE OF DEBTOR'S NAME/OTHER PROPERTY.
Lender may require Debtor to assemble the Collateral and to make it
available to Lender at any convenient place designated by Lender.
Debtor recognizes that Lender will not have an adequate remedy in law
if this obligation is breached and, accordingly, Debtor's obligation
to assemble the Collateral shall be specifically enforceable. Lender
shall have the right to take immediate possession of said Collateral;
and Debtor irrevocably authorizes Lender to enter any of the premises
of Debtor or wherever said Collateral shall be located, and to store
(rent-free) repair, maintain, assemble, manufacture, advertise and
sell, lease or dispose of (by public sale or otherwise) the same on
said premises until sold. Lender is hereby granted an irrevocable
license to use, without charge, Debtor's equipment, inventory labels,
patents, copyrights, franchises, names, trade secrets, trade names,
trademarks and advertising matter and any property of a similar
nature; and Debtor's rights under all licenses and franchise
agreements shall inure to Lender's benefit. Further, Debtor releases
Lender from obtaining a bond or surety with respect to any
repossession and/or disposition of the Collateral.
(2) NOTICE OF DISPOSITION. Written notice, when required by law, sent to
any address of Debtor in this Agreement, at least 10 calendar days
(counting the day of sending) before the date of a proposed
disposition of the Collateral is reasonable notice. Notification to
account debtors by Lender shall not be deemed a disposition of the
Collateral.
(3) POSSESSION OF COLLATERAL; COMMERCIAL RESONABLENESS. Lender shall not,
at any time, be obligated to either take or retain possession or
control of the Collateral. With respect to Collateral in the
possession or control of Lender, Debtor and Lender agree that as a
standard for determining commercial resonableness, Lender need not
liquidate, collect, sell or otherwise dispose of any of the Collateral
if Lender believes, in good faith, that disposition of the Collateral
would not be commercially reasonable, would subject Lender to
third-party claims or liability or that other potential purchasers
could be attracted or a better price obtained if Lender held the
Collateral for up to 1 year; and Lender shall not then be deemed to
have retained the Collateral in satisfaction of the Obligations.
Furthermore, Lender may sell the Collateral on credit (and reduce the
Obligations only when payment is received from the buyer), at
wholesale and/or with or without an agent or broker; and Lender need
not complete, process or repair the Collateral prior to disposition.
(4) INTEREST AFTER MATURITY AND EXPENSES. Upon maturity of any or all of
the Obligations, whether by default or otherwise, the unpaid
Obligations shall bear interest from and after maturity until paid at
an annual rate equal to 2% plus that rate of interest payable under
Section 1. LOANS AND SECURITY INTEREST.
(d) WAIVER BY LENDER. Lender may permit Debtor to attempt to remedy any default
without waiving its rights and remedies hereunder, and Lender may waive any
default without waiving any other subsequent or prior default by Debtor.
Furthermore, delay on the part of Lender in exercising any right, power or
privilege hereunder or at law shall not operate as a waiver thereof, nor
shall any single or partial exercise of such right, power or privilege
preclude other exercise thereof or the exercise of any other right, power
or privilege. For purposes of this subsection, delays may include, but
shall not be limited to, Lender's failure to immediately enforce any
warranty or covenant or to demand immediate repayment of any Obligation in
excess of the ratios set forth in Section 3. COLLATERAL-OBLIGATION RATIO
above, or of any other past-due Obligation. NO WAIVER OR SUSPENSION SHALL
BE DEEMED TO HAVE OCCURRED UNLESS LENDER HAS EXPRESSLY AGREED IN WRITING
SPECIFYING SUCH WAIVER OR SUSPENSION.
9. TERMINATION
(a) TERM, TERMINATION, PREPAYMENT. Absent a termination by default under
Section 8. DEFAULT, this Agreement may be terminated at any time upon 90
days prior written notice from Lender to Debtor. While this Agreement is in
effect, Debtor agrees to borrow funds and pay at minimum to Lender the
Minimum Monthly Charge specified in Section 1. LOANS AND SECURITY INTEREST
of this Agreement until June 30, 2000 and from year to year thereafter,
unless Debtor notifies Lender that it does not intend to extend the
Agreement for another year by giving Lender written notice at least 90 days
prior to the expiration of the then existing term of this Agreement. In any
event, Debtor shall always have the unchallengeable right to fully prepay
its Obligations to Lender prior to the end of the term of this Agreement or
any renewal term provided, however, that Debtor gives Lender at least 90
days prior written notice of such prepayment and pays Lender, in addition
to all other Obligations (including, without limitation, prepayment charges
on fixed rate Obligations), the Minimum Monthly Charge specified in Section
1. LOANS AND SECURITY INTEREST above for each and every month from the
month of prepayment until the expiration of the then existing term of this
Agreement. Said payment of the aggregate Minimum Monthly Charge shall be
discounted to its "present value" at a discount rate equal to that price
reported in THE WALL STREET JOURNAL as the "Asked (Discount)" price of
13-week United States Treasury Bills as sold in the most current Monday
auction preceding the date of prepayment by Debtor of all its Obligations
to Lender.
(b) SURVIVAL OF SECURITY INTEREST, DUTIES AND WARRANTIES. Notwithstanding
termination of this Agreement by either Debtor or Lender, by default or
otherwise, Lender's security interest and all Debtor's duties, liabilities,
representations and warranties under this Agreement shall survive
termination of this Agreement and shall continue while any Obligation
remains unsatisfied, whether such Obligation arises under this Agreement or
the other Loan Documents or whether such Obligation is an advance made by
Lender to Debtor following either (1) a temporary zero credit balance in
Debtor's Loan Account Ledger, or (2) termination of this Agreement.
7of 8
<PAGE> 8
10. DEBTOR'S INDEMNIFICATION; WAIVER; LIMITATION OF DAMAGES
(a) INDEMNIFICATION. Except for damages arising from Lender's willful
misconduct, Debtor hereby indemnifies and agrees to defend and hold Lender
harmless from any and all losses, costs, damages, claims and expenses of
any kind suffered by or asserted against Lender relating to claims by third
parties arising out of the financing provided by Lender to Debtor or
related to the Collateral. This indemnification and hold harmless provision
shall survive the termination of this Agreement and the satisfaction of the
Obligations due Lender.
(b) NOTICE OF CLAIM; WAIVER; LIMITATION OF DAMAGES. In order to allow Lender to
mitigate any alleged breach of this Agreement by Lender or its other duties
to Debtor, if any, Debtor agrees to give Lender WRITTEN notice of any claim
or defense it has against Lender, whether in tort or contract, relating to
any action or inaction by Lender under this Agreement, or the transactions
related thereto, or of any defense to payment of the Obligations for any
reason. DEBTOR AGREES TO PROVIDE SUCH NOTICE TO LENDER WITHIN 60 DAYS AFTER
DEBTOR HAS KNOWLEDGE OF SUCH ACTION OR INACTION BY LENDER OR HAS KNOWLEDGE
OF SUCH DEFENSE TO PAYMENT. The requirement of providing such notice to
Lender represents Debtor's agreed-to standard of performance. IF DEBTOR
DOES NOT TIMELY DELIVER SUCH NOTICE TO LENDER, DEBTOR SHALL NOT ASSERT AND
SHALL BE DEEMED TO HAVE WAIVED ANY SUCH CLAIM OR DEFENSE. Notwithstanding
any claim that Debtor may have against Lender, Lender shall not be liable
to Debtor for consequential and special damages arising therefrom.
11. MISCELLANEOUS
(a) RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and other
obligations of Debtor (and the rights and remedies of Lender) that are
outlined in this Agreement and the other Loan Documents are intended to
supplement each other. In the event of any inconsistencies between any of
the terms in this Agreement and the other Loan Documents, all terms shall
be construed so as to give Lender the most favorable rights set forth in
the conflicting documents, except that if there is a direct conflict
between any preprinted terms and specifically negotiated terms (whether
included in an addendum or otherwise), the specifically negotiated terms
will control.
(b) NOTICES. Although any notice required to be given hereunder might be
accomplished by other means, notice to Debtor shall always be deemed given
when placed in the United States Mail, with postage prepaid, or sent by
overnight delivery service, or sent by telex or facsimile; in each case to
the address set forth below or as amended.
(c) SUCCESSORS. The rights, options, powers and remedies granted in this
Agreement shall extend to Lender and to its successors, Participants and
assigns, shall be binding upon Debtor and its successors and assigns and
shall be applicable and to all renewals, amendments and/or extensions
hereof.
(d) ORDER OF PAYMENT/APPLICATION OF PROCEEDS. All payments received by Lender
under this Agreement or to other Loan Documents with Debtor, any Guarantor,
third parties or from the Collateral, may be applied against the
Obligations in any order and manner which Lender may choose.
(e) APPLICABLE LAW AND JURISDICTION; INTERPRETATION AND MODIFICATION. This
Agreement and all other Loan Documents shall be governed by and interpreted
in accordance with the laws of the State of Wisconsin. Invalidity of any
provision of this Agreement shall not affect the validity of any other
provision. The provisions of the other Loan Documents shall not be altered,
amended or waived without the express written consent of Lender (and
Debtor, when appropriate). DEBTOR HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN MILWAUKEE COUNTY,
WISCONSIN, AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, WITH
REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS
AGREEMENT, THE COLLATERAL, ANY OTHER LOAN DOCUMENT, OR ANY TRANSACTIONS
ARISING THEREFROM, OR ENFORCEMENT AND/OR INTERPRETATION OF ANY OF THE
FOREGOING. Nothing herein shall affect Lender's rights to serve process in
any manner permitted by law, or limit Lender's right to bring proceedings
against Debtor in the competent courts of any other jurisdiction or
jurisdictions. This Agreement, the other Loan Documents and any amendments
hereto (regardless of when executed) will be deemed effective only upon
Lender's receipt and acceptance of the executed originals thereof in
Milwaukee, Wisconsin.
(f) WAIVER OF JURY TRIAL. DEBTOR AND LENDER HEREBY JOINTLY AND SEVERALLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT, THE LOAN DOCUMENTS, THE OBLIGATIONS THEREUNDER, THE
COLLATERAL OR ANY TRANSACTION ARISING THEREFROM OR CONNECTED THERETO.
DEBTOR AND LENDER EACH REPRESENTS TO THE OTHER THAT THIS WAIVER IS
KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.
12. ADDITIONAL TERMS
SEE EXHIBIT A HERETO
Signed in Milwaukee, Wisconsin, on ___________________________ 19____
LENDER: DEBTOR:
TELECOMMUNICATIONS INCOME FUND XI, L.P.
FIRSTAR FINANCIAL SERVICES, By: Berthel Fisher & Company Leasing, Inc.
A DIVISION OF FIRSTAR BANK ITS: General Partner
MILWAUKEE, N.A.
By:______________________________ By: [SIGNATURE]
----------------------------
Title:___________________________ TITLE: President
777 East Wisconsin Avenue Address:
Milwaukee, Wisconsin 53202
100 SECOND STREET S.E.
CEDAR RAPIDS, IA 52401
8 OF 8
<PAGE> 9
EXHIBIT A
TO THE
REVOLVING LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
FIRSTAR FINANCIAL SERVICES,
A DIVISION OF FIRSTAR BANK MILWAUKEE, N.A.,
AND
TELECOMMUNICATIONS INCOME FUND XI, L.P.
DATED: __________________________
1. Section 2. DEFINITIONS subsection (a) continued:
The term "Collateral" shall include, without limitation, all Debtor's
chattel paper now and hereafter existing or created, including all
leases represented by such chattel paper; all interests in any
payments made under or respecting the chattel paper (including,
without limitation, all rents, security deposits, advance payments,
indemnity payments, purchase options and renewal payments), any cash
accounts, inventory, equipment and general intangibles (all
hereinafter "Lease Collateral") pertaining to such chattel paper; all
purchase orders pertaining to the Lease Collateral; all returns,
repossessions, upgrades, additions, modifications and accessories to
the Lease Collateral; all rental, maintenance, warranty and software
agreements regarding the Lease Collateral; any guaranties, letters of
credit, notes or other property supporting such chattel paper; any
proceeds from acquisition of the Lease Collateral under any
remarketing or similar agreement; all insurance and other proceeds
thereof; any assignment in favor of Debtor of all telephone revenue
received by or on behalf of lessees of Debtor and all proceeds
thereof; any assignment from Berthel Fisher & Company Leasing, Inc.
("Berthel Fisher"), Debtor as successor of lessees' interests under
location (site) leases pertaining to the Lease Collateral and proceeds
thereof.
2. Section 2. DEFINITIONS, subsection (b)(8):
(a) Each Qualified Account must be an Eligible Lease. Requirements
for an Eligible Lease:
(1) The lease executed by each respective lessee is in form and
substance similar to that lease form attached hereto as
Exhibit B;
(2) For each lease entered into with Berthel Fisher, as lessor,
the lease has been assigned to Debtor pursuant to an
Assignment of Lease or Security Agreement (in the form of
Exhibit C hereto), the original of such assignment having
been placed in the possession of Lender;
(3) The lease terms and underlying collateral ("Lease
Collateral") pledged to Lender are fully acceptable to
Lender;
(4) The lease is for a term of 60 months or less;
(5) The unpaid lease payments under each new lease and the
aggregate of the unpaid lease payments to any lessee (x) do
not exceed $1,200,000.00 when such aggregate unpaid lease
payments are less than or equal to $10,000,000.00 (not
including the unpaid lease payments existing as of the date
of this Agreement); and (y) do not exceed 12 percent of the
aggregate of the unpaid lease payments to all leases of
Debtor when such aggregate unpaid lease payments exceed
$10,000,000.00 (not including the unpaid lease payments
existing as of the date of this Agreement);
(6) The lease is not in default, and all lease payments under
the lease are not more than 60 days past due,
(7) Except as provided below, each lease constitutes a "true
lease" transaction under applicable law and does not
constitute a secured transaction. Qualified Account also
will include loans made by Debtor to customers for the
purchase of telephone equipment which loans are secured by a
first security interest in such equipment. Such loans shall
also be subject to the same eligibility requirements for
leases under this subsection, except where such requirements
are applicable to leases only;
(8) The original of each lease is placed in the possession of
Lender, and the lease and Lease Collateral are and remain
subject to the first perfected security interest of Lender.
There shall be only one original of each lease, and Debtor
shall mark any copies or duplicates thereof "COPY
ONLY/ORIGINAL ASSIGNED TO FIRSTAR BANK MILWAUKEE, N.A.";
<PAGE> 10
(9) For each lease, Lender shall be provided evidence of the vesting
of Debtor's first perfected security interest in each specific
lease and Lease Collateral provided by Debtor to each respective
lessee and assignment of such interest to Lender. Debtor shall
provide Lender original financing statements and assign to Lender
each financing statement against each lessee as "Lessee" and
Debtor as "Lessor"; all in a form acceptable to Lender. Lender
reserves the right to require assignment of any financing
statements recorded by Debtor prior to the date of this
Agreement.
Each such prior recorded financing statement should reference the
specific lease or leases, the Lease Collateral and proceeds
thereof. The description of the Lease Collateral shall include
listings of quantity, make, model, serial number or any other
identifications acceptable to Lender.
Absent Debtor providing Lender with evidence of its priority
purchase money secured position in the Lease Collateral, Debtor
shall provide copies of all applicable UCC searches,
subordinations and/or releases necessary to evidence the first
perfected security interest of Debtor in the Lease Collateral;
(10) For each lease, Lender shall be provided the original (in form
and substance similar to Exhibit D hereto) of each lessee's
authorization that third-party collections of the lessee's
telephone revenue be remitted to Debtor as lease payments under
each lease;
(11) For each lease, Lender shall be provided the original (in form
and substance similar to Exhibit E hereto) of each lessee's
Assignment of Site Lease and Security Agreement to Berthel
Fisher;
(12) For each lease, Lender shall be provided the original of each
lessee's written acceptance of the Lease Collateral, which
acceptance certificate is in form and substance similar to that
acceptance certificate attached hereto as Exhibit F;
(13) Lender shall be provided a copy of each invoice for the Lease
Collateral sent by the supplier of the Lease Collateral
("Vendor") to Debtor. Such invoice should contain an adequate
description of the Lease Collateral and the cost thereof,
(14) Lender shall be provided with a copy of all check(s) from Debtor
payable to Vendor evidencing payment for the Lease Collateral;
(15) Lender shall be provided with a copy of each lessee's corporate
borrowing resolution indicating lessee's authority to execute
each lease pledged hereunder;
(16) if requested by Lender, Debtor shall provide Lender evidence of
its qualification and authority to do business in those states
where each lessee resides;
(17) Debtor shall also provide such other documents or information as
Lender may require to evidence the validity, enforceability
and/or terms of any lease or Debtors interest in the Lease
Collateral;
(18) Unless terms of similar substance are incorporated into new
leases created after the date of this Agreement, each lessee
shall execute an Acknowledgement of Collateral lease Assignment
in favor of Lender, which Acknowledgement of Collateral Lease
Assignment is in form and substance similar to that
Acknowledgement of Collateral Lease Assignment attached hereto as
Exhibit G. (For leases existing as of the date of this Agreement,
Debtor shall use its best efforts to obtain an executed
Acknowledgement of Collateral Lease Assignment from each such
prior-existing lessee); and
(19) Debtor shall prepare and remit to Lender a Lease Financing
Documentation Checklist in the form of Exhibit H hereto, along
with the related underlying documents specified in the checklist
for each lease pledged to Lender hereunder.
(b) Qualified Accounts shall not include, among other things, any unearned
revenue, advances on leases and security deposits, and lessees who do not
maintain a Traditional Cash Flow. The term "Traditional Cash Flow" shall be
defined as net income plus non-cash expenses minus principal payments
minus non-financed capital expenditures.
3. Section 3. COLLATERAL/OBLIGATION RATIO (continued):
-2-
<PAGE> 11
provided advances shall not exceed 40% of the Gross Proceeds of Debtor's
offering pursuant to its S-1 registration statement, as calculated by
Debtor, provided that Lender shall have no responsibility for calculation
of such amount.
4. Section 12. ADDITIONAL TERMS:
(a) Debtor shall:
(1) On a monthly basis, provide Lender with a detailed listing of
outstanding leases;
(2) Provide Lender with a monthly past-due report;
(3) At all times, notify Lender of any change of location of Debtor's
equipment in the possession of Debtor's lessees;
(4) Periodically, but not less than twice weekly, provide Lender with
a schedule of the application of cash receipts;
(5) Provide Lender with financial statements of each lessee upon
request from Lender; and
(6) Provide Lender with such other documents or information as Lender
may deem necessary for its financing of Debtor.
(b) At all times during the term of this Agreement Berthel Fisher shall
have entered into an agreement with Lender whereby Berthel Fisher will
acknowledge that all site leases, along with the underlying leases it
had assigned to Debtor, have been assigned by Debtor to Lender and
that all lease payments or other revenue relating to the leases
received by Berthel Fisher will be transferred to Lender at Lender's
discretion.
(c) At Debtor's expense, Lender shall conduct a periodic update search of
UCC filings against Berthel Fisher and any other party Lender deems
appropriate.
(d) Debtor shall not waive, amend or supplement any provisions of the
form(s) of Chattel Paper used by Debtor and approved by Lender as
attached hereto without the prior written consent of Lender. Debtor
shall promptly notify Lender in writing of any material default by any
party to any Chattel Paper and/or any claim of setoff, deduction,
defense or suspension of performance regarding any Chattel Paper, or
any material impairment in the creditworthiness of any party to any
Chattel Paper. Debtor agrees to promptly provide Lender with a copy of
any notices or demands received by or given by Debtor to any Chattel
Paper, the effect of which would adversely affect Lender's rights
under such Chattel Paper or as regards the goods subject thereto.
(e) Debtor will not attempt to assign or pledge the Chattel Paper, any
property securing the same or the rights thereunder to anyone other
than Lender so long as Debtor remains obligated to Lender. In
addition, Debtor shall have no authority, without Lender's prior
written consent, to repossess or consent to the return of property
described in the Chattel Paper, to consent to any assignment of the
Chattel Paper and/or sublease of property securing the Chattel Paper,
to release property pertaining to the Chattel Paper or to modify,
release or discharge any obligations of any obligor an the Chattel
Paper.
(f) Upon Lender's request, Debtor shall obtain a written acknowledgment
from any party to any Chattel Paper consenting to payment of rentals
directly to Lender and containing such other confirmations,
representations, warranties and/or agreements as are deemed necessary
by Lender. Debtor hereby unconditionally and irrevocably appoints
Lender as its attorney-in-fact (coupled with an interest) for the
purpose of collecting all amounts due under any Chattel Paper and
otherwise exercising all of Debtor's rights, powers and remedies under
such Chattel Paper in its own name or in the name of Debtor, without
further authorization, action or consent of Debtor. Debtor hereby
releases any and all parties to any Chattel Paper from any liability
whatsoever taken at the request of Lender, so long as such is not
expressly prohibited under the provisions of said Chattel Paper. Upon
the request of Lender, Debtor hereby agrees to instruct all parties to
any Chattel Paper to make all further payments under such Chattel
Paper directly to Lender and/or to a lock box established for the
benefit of Lender. Debtor hereby unconditionally indemnifies and
agrees to hold Lender harmless regarding any and all actions taken by
Lender with respect to the collection of any amount due under any of
the Chattel Paper and/or in the exercise of Debtor's rights, remedies
and powers thereunder, including, without limitation, reasonable
attorneys' fees, costs and expenses.
-3-
<PAGE> 12
(g) During the term of this Agreement, Debtor shall maintain insurance on
the life of Thomas J. Berthel in the amount of $500,000.00. Lender
shall be named as collateral assignee of the proceeds under such
policies, and in the event Lender receives any such proceeds the same
shall be applied against the Obligations. Debtor shall cause such
policies of insurance to be issued with original policies placed in
the possession of Lender within sixty (60) days of the date hereof.
(h) AUTHORIZATION TO ACCEPT ELECTRONIC TRANSMISSIONS. In the event Debtor
or Lender transmits any information, directions, authorizations and/or
documents to each other via electronic transmission, including via
facsimile, modem, computer and the like ("Electronic Communications"),
Debtor and Lender agree that each may rely and accept such Electronic
Communications in lieu of written communication and without any
further written confirmation, unless requested in writing. Lender may
rely on any Electronic Communications transmitted, regardless of
whether the transmitter of such information is unauthorized to do so
on behalf of Debtor and regardless of any mistake, omission or
transmission error. Due to the potentially large amount of Electronic
Communications received and transmitted by Lender, and unless caused
by Lender's willful misconduct, Debtor agrees not to hold Lender
liable for any error in the transmission or contents of any Electronic
Communications, and Lender may retroactively correct or adjust such
errors. Debtor indemnifies Lender from any costs, liability, suits,
actions or other claims brought against Lender by others as a result
of Lender's reliance on such electronically transmitted information.
Lender may rely on any Electronic Communications regardless of whether
other resolutions or documents provide otherwise, or require
authorizations from persons other than the transmitter of such
Electronic Communications.
Accepted by Initialing: /s/ SIGNATURE
----------------
----------------
----------------
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF TELECOMMUNICATIONS INCOME FUND XI, L.P. AS OF
MARCH 31, 1999, AND THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 678,978
<SECURITIES> 0
<RECEIVABLES> 5,950,717
<ALLOWANCES> (112,888)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 227
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,517,034
<CURRENT-LIABILITIES> 186,739
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,330,295
<TOTAL-LIABILITY-AND-EQUITY> 6,517,034
<SALES> 168,896
<TOTAL-REVENUES> 168,896
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 66,941
<LOSS-PROVISION> 25,070
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 76,885
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,885
<EPS-PRIMARY> 11.69<F1>
<EPS-DILUTED> 11.69<F1>
<FN>
<F1>NET INCOME (LOSS) PER PARTNERSHIP UNIT.
</FN>
</TABLE>
