As filed with the Securities and Exchange Commission on October 22, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Capital Preferred Yield Fund - V, L.P.
(Exact Name of registrant as specified in its governing instruments)
Delaware 7394 84-1331690
(State of Organization) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(303) 980-1000
(Address and telephone number of registrants' principal executive offices)
John F. Olmstead, President
CAI Equipment Leasing VI Corp.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
(303) 980-1000
(Name, address and telephone number of agent for service)
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Copies to:
Lyle B. Stewart, Esq.
Lyle B. Stewart, P.C.
3751 S. Quebec St.
Denver, Colorado 80237
(303) 267-0920
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
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CALCULATION OF REGISTRATION FEE
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Amount to Proposed maximum Proposed maximum Amount of
Title of each class of be offering price aggregate registration
securities to be registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
Units of Class A Limited
Partner Interest.................... 500,000 $100.00 $50,000,000 $15,152
================================================================================================================================
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CAPITAL PREFERRED YIELD FUND - V, L.P.
Cross Reference Sheet Furnished
Pursuant to Rule 404(a)
Between Items in Part I of Form S-1 and the Prospectus
Registration Statement
Item Number and Caption Prospectus Caption
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus............... Facing Page; Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus........................................ Reports to Class A Limited Partners;
Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges......................... Summary of the Offering; Risk
Factors
4. Use of Proceeds...................................... Estimated Use of Proceeds
5. Determination of Offering Price...................... Risk Factors
6. Dilution............................................. *
7. Selling Security Holders............................. *
8. Plan of Distribution................................. Plan of Distribution; Investor
Suitability and Minimum Investment
Requirements; Subscription
Procedures
9. Description of Securities to be
Registered........................................... Summary of the Partnership Agreement
10. Interests of Named Experts and Counsel............... *
11. Information with Respect to the Registrant
(a) Description of Business......................... Investment Objectives and Policies
(b) Description of Property......................... Investment Objectives and Policies
(c) Legal Proceedings............................... *
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters............................. *
(e) Financial Statements............................ Financial Statements
(f) Selected Financial Information.................. *
(g) Supplementary Financial Information............. *
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... Management's Discussion of Financial
Condition
(i) Disagreements With Accountants on
Accounting and Financial Disclosure............. *
(j) Directors and Executive Officers................ Management
(k) Management Remuneration......................... Compensation and Fees
(l) Security Ownership of Certain
Beneficial Owners and Management................ Management
(m) Certain Relationships and Related
Transactions.................................... Conflicts of Interest; Management
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................................... Fiduciary Responsibility of the
General Partner
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* Not Applicable
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[Red Herring information to be placed on Outside Front Cover Page of Prospectus]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in a State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
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SUBJECT TO COMPLETION, DATED ___________, 1997
PROSPECTUS
CAPITAL PREFERRED YIELD FUND - V, L.P.
$1,200,000
12,000 Units Minimum Offering
$100 per Unit
Minimum Investment: 25 Units ($2,500); 10 Units ($1,000)
for Individual Retirement Accounts and Qualified Plans
Capital Preferred Yield Fund - V, L.P. (the "Partnership") is a
newly-formed equipment leasing limited partnership. Neither it nor its General
Partner currently has any operating assets or operating history. However,
Affiliates of the General Partner have considerable experience in the equipment
leasing industry. See "MANAGEMENT." This prospectus describes an investment in
securities of the Partnership, which are called "Units." The Partnership may
sell as little as $1,200,000 or as much as $50,000,000 of Units.
Partnership objectives include: (i) to make monthly distributions of cash
generated by its operations; and (ii) to reinvest undistributed cash flow and
sale proceeds in additional equipment. See "INVESTMENT OBJECTIVES AND POLICIES."
AN INVESTMENT IN UNITS OF THE PARTNERSHIP HAS SIGNIFICANT RISKS (SEE
"RISK FACTORS" ON PAGE 21) including:
o The cash realized from future sales or re-leases of the
Equipment may be less than that projected; the Equipment may
have little or no residual value at the termination of the
Partnership.
o A substantial portion of the distributions made to date by
similar partnerships sponsored by Affiliates of the General
Partner have been, and a substantial portion of the
distributions to be made by the Partnership are expected to
be, a return of investors' capital contributions (i.e., the
money you originally invested).
o Lack of market for the Units - Limited Partners may be able to
resell their Units, if at all, only at a discount.
o Some of the Equipment acquired by the Partnership may be
subject to leases under which the non-cancelable rental
payments due during the initial term of the Lease are
insufficient to permit the Partnership to recover the purchase
price of the Equipment leased thereby.
o The Partnership plans to borrow a portion of the money to be
used to acquire some items of Equipment, creating a risk of
loss of the Equipment if a Lessee defaults. Certain fees to be
earned by the General Partner will also be greater as the
percentage of leverage increases.
o Affiliates of the General Partner manage similar existing
partnerships and this may give rise to conflicts of interest.
o The ownership and leasing of equipment and provision of
financing may be adversely affected by various economic and
business factors that are beyond the control of the General
Partner.
o For the reasons discussed under "Performance of Prior
Investment Programs," Leastec Income Fund V, an affiliated
partnership, experienced net losses for financial reporting
purposes in 1990 and 1992. As a result, its partners will
recover approximately 90% of their full initial investments.
(cover page continued)
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The Partnership will use investors' capital contributions (i.e., cash
investments in the Partnership) to buy a wide range of equipment on lease to a
diversified group of creditworthy businesses. The Partnership will use
approximately 79% of the gross offering proceeds raised by the Partnership to
purchase Equipment. See "ESTIMATED USE OF PROCEEDS" and "INVESTMENT OBJECTIVES
AND POLICIES--The Equipment--Equipment Investment Criteria." The Partnership
will reinvest cash from operations, in excess of amounts distributed to the
Partners, in Equipment for seven or eight years, and anticipates that all
Equipment will be sold and the Partnership liquidated in approximately eight to
ten years. Up to 50.0% of the aggregate price of Equipment purchased may be
borrowed. The General Partner will not contribute any capital to the
Partnership. However, the Class B Limited Partner, which is affiliated with the
General Partner, will contribute cash to the Partnership in an amount equal to
1.0% of investors' capital contributions. See "SUMMARY OF THE OFFERING."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Selling Proceeds to
the Public Commissions(1) Partnership
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Per Unit....................................................... $ 100.00 $ 10.00 $ 90.00
Minimum Offering (12,000 Units)(2)............................. $ 1,200,000.00 $ 120,000.00 $ 1,080,000.00
Maximum Offering (500,000 Units).......................... $50,000,000.00 $5,000,000.00 $45,000,000.00
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(1) See "PLAN OF DISTRIBUTION" for a description of certain commission
discounts.
(2) All funds received prior to the Minimum Offering being sold will be placed
in an interest-bearing escrow account with the Escrow Agent. The
termination date of the Offering is the earliest of: (i) the date on which
the Maximum Offering has been sold; (ii) the date twelve months from the
date of this Prospectus if the Minimum Offering has not been sold; (iii)
the date 24 months from the date of this Prospectus; and (iv) the date of
the termination of the Offering by the General Partner. If the Minimum
Offering has not been subscribed by 12 months from the date of this
Prospectus, all subscription funds will be promptly returned to each
subscriber, together with all interest earned thereon. See "PLAN OF
DISTRIBUTION - Escrow Arrangements."
The date of this Prospectus is _____ __, 1998.
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THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND RESALE, AND
MAY ONLY BE TRANSFERRED AND RESOLD IN CONFORMITY WITH THE AGREEMENT OF LIMITED
PARTNERSHIP OF THE PARTNERSHIP AND IN COMPLIANCE WITH APPLICABLE LAW.
CAPITAL PREFERRED YIELD FUND - V, L.P. IS NOT A MUTUAL FUND OR ANY OTHER
TYPE OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF
1940 AND IS NOT SUBJECT TO REGULATION THEREUNDER.
Unless otherwise indicated, all capitalized terms used in this Prospectus
are defined in the Glossary that appears below.
THE USE OF PROJECTIONS OR FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATION TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
THAT MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM IS NOT PERMITTED.
No dealer, salesman or any other person acting in any capacity whatsoever
with respect to this Offering has any authority to give any information or to
make any representations or warranties, either express or implied, other than
those that may be contained in this Prospectus and, if given or made, such
information, representations or warranties must not be relied upon as having
been authorized by the General Partner.
PENNSYLVANIA INVESTORS: BECAUSE THE MINIMUM OFFERING AMOUNT IS UNDER
$5,000,000, YOU ARE CAUTIONED TO EVALUATE CAREFULLY THE PARTNERSHIP'S ABILITY TO
ACCOMPLISH ITS STATED OBJECTIVES AND INQUIRE AS TO THE CURRENT DOLLAR VOLUME OF
SUBSCRIPTIONS.
Until ____ __, 1998, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotment or subscriptions.
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TABLE OF CONTENTS
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Page
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SUMMARY OF THE OFFERING...................................................... 8
Partnership......................................................... 8
Business of the Partnership......................................... 8
Risk Factors........................................................ 9
Class B Limited Partner............................................. 11
Estimated Use of Proceeds........................................... 12
Cash Distribution to Partners....................................... 12
Summary of Compensation............................................. 13
Conflicts of Interest............................................... 14
Other Offerings by the General Partner and its
Affiliates................................................. 14
Management; Financial Statements of the General Partner
and the Partnership........................................ 14
Investment Objectives and Policies.................................. 15
Federal Income Tax Consequences..................................... 16
Capitalization...................................................... 16
Summary of Partnership Agreement.................................... 17
Transfer of Units................................................... 17
Fiscal Year......................................................... 17
Glossary of Terms................................................... 17
RISK FACTORS................................................................. 18
A. Business Risks............................................. 18
1. General........................................... 18
2. Residual Value of Equipment....................... 18
3. Risk of Operating Leases.......................... 18
4. Losses of Prior Program........................... 19
5. Risks Associated with Lessee Default.............. 19
6. Decreasing Interest Rate.......................... 19
7. Competition....................................... 20
B. Partnership or Investment Risks............................ 20
1. A Substantial Portion of the Cash
Distributions of Prior CAI Public
Partnerships has been a Return of Capital......... 20
2. Lack of a Secondary Market for Units;
Restricted Transferability........................ 20
3. Leverage--Risk of Loss of Equipment Through
Foreclosure....................................... 21
4. Conflicts of Interest............................. 21
5. Equipment and Lessees Unspecified; Investment
Delay; Investment Portfolio Composition........... 21
3
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6. Management of the Partnership; Limited Voting
Rights of Limited Partners........................ 22
7. Subscription Payments May Be Held in Escrow
for Up to Twelve Months Before Being
Returned.......................................... 22
8. Participation of a Security Sales Affiliate
in this Offering.................................. 22
9. A Lack of Diversification of Equipment Would
Result if only the Minimum Offering were
Raised............................................ 23
10. Redemption Price.................................. 23
11. Limited Time Commitment........................... 23
12. Uninsured Losses.................................. 23
13. Liability of Limited Partners for Certain
Distributions; Limited Liability Not Clearly
Established....................................... 23
14. Lack of Separate Counsel.......................... 24
C. Federal Income Tax and ERISA Matters....................... 24
1. Federal Income Tax Matters........................ 24
2. ERISA Matters..................................... 25
ESTIMATED USE OF PROCEEDS.................................................... 25
COMPENSATION AND FEES........................................................ 27
Organizational and Offering Stage................................... 28
Acquisition and Operating Stage..................................... 29
Liquidation Stage................................................... 31
Interest in Partnership Profits or Losses........................... 31
CONFLICTS OF INTEREST........................................................ 34
Competition With the General Partner and its
Affiliates................................................. 34
Acquisition of Equipment................................... 35
Re-Leasing or Sale of Equipment............................ 35
Limitation on Purchase Prices.............................. 35
Other Investment Activities......................................... 36
Availability of Management Services................................. 36
Compensation of the General Partner and Affiliates.................. 37
Effect of Leverage on Compensation Arrangements..................... 37
Determination of Reserves........................................... 38
Participation of a Securities Sales Affiliate in this
Offering................................................... 38
General Partner to Act as Tax Matters Partner....................... 38
Lack of Separate Counsel............................................ 38
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER.............................. 39
General ........................................................... 39
Conflicts of Interest............................................... 40
Indemnification of the General Partner, Dealer-Manager
and Selling Dealers........................................ 41
4
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MANAGEMENT................................................................... 42
The General Partner................................................. 42
Capital Associates, Inc............................................. 43
Relationship of the Partnership and Affiliates...................... 43
Management of the General Partner................................... 44
PERFORMANCE OF PRIOR INVESTMENT PROGRAMS..................................... 46
Prior CAI Public Partnerships....................................... 46
Prior CAI Private Programs.......................................... 47
Losses in Residual Value............................................ 48
Information About Prior Programs.................................... 49
INVESTMENT OBJECTIVES AND POLICIES........................................... 50
The Equipment Leasing Industry...................................... 50
Objectives of the Partnership....................................... 50
The Equipment....................................................... 52
Acquisition of Equipment................................... 52
Equipment Investment Criteria.............................. 53
Purchase of Used Equipment................................. 54
Vendor Leasing Programs.................................... 54
Reinvestment............................................... 55
Diversification............................................ 55
Re-Leasing................................................. 55
Types of Equipment......................................... 56
Market Factors and Residual Values.................................. 60
Description of Leases............................................... 62
Insurance........................................................... 63
Joint Venture Equipment............................................. 64
Leverage ........................................................... 65
Cash Distributions to Partners...................................... 66
Reinvestment of Undistributed Cash in Additional
Equipment.................................................. 68
CAPITALIZATION............................................................... 69
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION............................... 69
Liquidity and Capital Resources..................................... 69
Operations.......................................................... 70
FEDERAL INCOME TAX CONSEQUENCES.............................................. 72
General ........................................................... 72
Summary ........................................................... 72
Tax Opinion......................................................... 75
Classification of the Partnership................................... 76
Limitations on Deductions of Losses................................. 78
Allocation of Partnership Profits and Losses........................ 82
Cash Distributions.................................................. 84
Sales or Other Dispositions of Units................................ 84
Changes in Holdings of Units........................................ 86
Dissolution of the Partnership...................................... 87
5
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Election to Adjust the Tax Basis of Partnership Assets.............. 88
Organization and Syndication Expenses............................... 88
Ownership of the Equipment and Status of the Leases as
True Leases................................................ 88
Depreciation and Depreciation Recapture............................. 89
Disposition of Equipment............................................ 91
Method of Accounting................................................ 92
Taxable Year........................................................ 92
Treatment of Partnership Expenses................................... 92
Investment by Qualified Plans or IRAs............................... 93
Individual Alternative Minimum Tax.................................. 94
Preparation and Filing of Tax Returns............................... 94
Partnership Audits; Interest and Penalties.......................... 95
Tax Shelter Registration............................................ 96
Large Partnership Election.......................................... 97
Tax Laws Subject to Change..........................................100
State and Local Taxes...............................................101
INVESTMENT BY QUALIFIED PLANS................................................101
Fiduciaries Under ERISA.............................................101
Prohibited Transactions Under ERISA and the Code....................102
Plan Assets.........................................................103
Other ERISA Considerations..........................................104
SUMMARY OF THE PARTNERSHIP AGREEMENT.........................................105
Distribution of Distributable Cash..................................105
Allocation of Profits and Losses....................................107
Voting Rights of Limited Partners...................................107
Meetings ...........................................................108
Books and Records...................................................108
Rights, Obligations and Powers of General Partner...................108
Restrictions........................................................109
Partnership Expenses................................................110
Liability of Limited Partners; Nonassessability of
Units......................................................110
Liability of General Partner; Indemnification.......................111
Dissolution and Liquidation of the Partnership......................111
Withdrawal and Removal of General Partner...........................112
Amendments to the Partnership Agreement.............................113
Designation of Tax Matters Partner..................................113
Applicable Law......................................................113
Power of Attorney...................................................113
TRANSFER OF UNITS............................................................114
Restrictions on the Transfer of Units...............................114
Redemption of Units.................................................115
REPORTS TO CLASS A LIMITED PARTNERS..........................................116
PLAN OF DISTRIBUTION.........................................................116
6
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General ...........................................................116
Escrow Arrangements.................................................119
INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS;
SUBSCRIPTION PROCEDURES........121
Individual Investment Suitability Considerations....................121
State Requirements Concerning Investor Suitability and
Minimum Investment.........................................121
Minimum Investment and Suitability Standards........................123
How To Subscribe....................................................126
EXPERTS ....................................................................128
LEGAL MATTERS................................................................128
ADDITIONAL INFORMATION.......................................................128
SALES MATERIAL...............................................................129
GLOSSARY ....................................................................129
FINANCIAL STATEMENTS.........................................................F-1
SCHEDULE I - ANTICIPATED EQUIPMENT PURCHASES.................................S-1
EXHIBITS:
A. Amended and Restated Agreement of Limited
Partnership................................................. A-1
B. Prior Performance Tables...................................... B-1
C. Subscription Agreement........................................ C-1
7
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SUMMARY OF THE OFFERING
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Partnership
Capital Preferred Yield Fund - V, L.P. (the "Partnership") is a Delaware
limited partnership that was formed on September 30, 1997. Class A Limited
Partners (i.e., the investors) are not guaranteed any return from the
Partnership, but, if and when there are cash distributions, are entitled to cash
distributions prior to the distributions to the Class B Limited Partner and
payment to the General Partner of a fee for services rendered in connection with
managing the Partnership's Equipment. However, operating expenses and fees and
expenses for services rendered during the Partnership's organizational or
acquisition phases will be paid to the General Partner or its Affiliates and any
necessary working capital will be provided for prior to any distributions to the
investors. The Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") is attached as Exhibit A to this Prospectus. See
"SUMMARY OF THE PARTNERSHIP AGREEMENT."
Business of the Partnership
The Partnership intends to engage in the business of acquiring Equipment on
lease to creditworthy Lessees. See "INVESTMENT OBJECTIVES AND POLICIES--The
Equipment--Equipment Investment Criteria." No Equipment will be purchased for
which a Lease has not been obtained. The Equipment will be leased initially for
periods of approximately two to seven years. At the end of each Lease, the
General Partner will have the right to either sell or re-lease the Equipment to
the same or a different Lessee. The Partnership will use cash from operations
that is not distributed to the Partners to purchase additional Equipment over a
eight to ten year "Reinvestment Period" (seven years, unless extended up to an
additional year by the General Partner). The General Partner anticipates that
all Equipment will be sold and the Partnership liquidated between seven and
eight years after the date on which at least 12,000 Units have been sold and the
Partnership has received the funds therefor.
It is expected that on or about __________, 1998, CAII will sell certain
items of Equipment worth approximately $__________ to the Partnership. This sale
shall be made pursuant to an installment sales contract which shall be fully
paid within twelve months of its execution by the Partnership from the proceeds
of the Offering. The interest rate payable to CAII under the installment sale
contract shall be 8.75% per annum. The price paid by the Partnership pursuant to
8
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the installment sale contract shall comply with the limitations set forth under
"CONFLICTS OF INTEREST Competition with the General Partner and its Affiliates
Limitation on Purchase Prices". Schedule I to this Prospectus identifies certain
Equipment that is expected to be purchased by the Partnership from CAII. After
the Closing, it is anticipated that Equipment will be purchased on an all-cash
basis or financed by non-affiliated third parties.
Risk Factors
An investment in the Partnership has many risks. The "RISK FACTORS" Section
of this Prospectus, which immediately follows this Section, contains a detailed
discussion of the most important risks associated with an investment in Units.
Please refer to that Section of this Prospectus for a discussion of the
following specific risk factors as well as other relevant risk factors:
Business and Investment Risks:
o The cash realized from future sales or re-leases of the Equipment
may be less than that projected; the Equipment may have little or
no residual value at the termination of the Partnership,
depending on the ability of the Equipment purchased by the
Partnership to hold its value over the term of the Partnership.
o A substantial portion of the distributions made to date by
similar partnerships sponsored by Affiliates of the General
Partner have been, and a substantial portion of the distributions
to be made by the Partnership are expected to be, a return of
investors' capital contributions.
o Limited Partners may be able to resell their Units, if at all,
only at a discount. Investors must be prepared to hold their
Units for the entire seven to nine year life of the Partnership
since: (i) no secondary market is expected to exist for Units;
and (ii) a buyer for Units (other than the Partnership under
certain circumstances) may not exist. See "TRANSFER OF
UNITS--Redemption of Units" for a discussion of redemption rights
and prices.
o Some of the Equipment acquired by the Partnership may be subject
to leases under which the non-cancelable rental payments due
during the initial term of the lease are insufficient to permit
the Partnership to recover the purchase price of the Equipment.
9
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o The Partnership plans to borrow a portion of the money to be used
to acquire some items of Equipment, creating a risk of loss of
the Equipment if a Lessee defaults. Certain fees to be earned by
the General Partner will also be greater as the percentage of
leverage increases.
o Affiliates of the General Partner manage similar existing
partnerships and this may give rise to conflicts of interest.
o The ownership and leasing of Equipment and provision of financing
may be adversely affected by various economic and business
factors that are beyond the control of the General Partner.
o For the reasons discussed under "PERFORMANCE OF PRIOR INVESTMENT
PROGRAMS - Losses in Residual Value," Leastec Income Fund V
experienced net losses for financial reporting purposes in 1990
and 1992. As a result, its partners will recover approximately
90% of their full initial investments.
o No one can predict whether the Limited Partners will receive cash
distributions in an amount sufficient to return their original
investment, nor the amount of profit thereon, if any, that they
will ultimately receive.
o The Equipment to be acquired and the Leases to be entered into by
the Partnership have not been specified as of the date of this
Prospectus and will be determined by the General Partner after
the minimum offering of 12,000 Units (the "Minimum Offering") has
been achieved.
o Investors will not have the opportunity to vote except in
extraordinary circumstances (for example, to approve, by a vote
of not less than 50.0% of all Class A Limited Partnership
interests, certain amendments to the Partnership Agreement).
o The risk relating to the creditworthiness of lessees and debtors.
10
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o The risks of loss of collateral inherent in all leveraged lease
transactions.
o Investors' subscription payments may be held in escrow for up to
12 months before being returned if the Minimum Offering is not
sold. During such period investors will be deprived of the use of
such funds, although interest will be earned on such funds.
o Because both the General Partner and the Dealer- Manager are
Affiliates of Capital Associates, Inc. ("CAI"), this Offering has
not been the subject of an independent due diligence
investigation, except that each Selling Dealer may conduct such
an investigation if it so desires.
o As interest rates decrease, lease rental rates are generally
decreased, potentially lowering the overall rate of return on the
Equipment and on the contributions of capital made to the
Partnership by the Limited Partners.
o A default by a Lessee could lead to loss of anticipated revenues
which may result in the Partnership's inability to fully recover
its investment in Equipment on lease to such Lessee.
Federal Income Tax Risks:
o Investors may be required to report taxable income in excess of
cash distributed to them.
See "FEDERAL INCOME TAX CONSEQUENCES" for a discussion of material federal
income tax issues.
Class B Limited Partner
Capital Associates International, Inc. ("CAII") will be the Class B Limited
Partner, will contribute cash in the amount of $10,000 for each $1,000,000 of
investors' capital contributions (i.e., cash investments in the Partnership) to
the Partnership and will agree to subordinate its interest in the cash
distributions made to Class A Limited Partners and the General Partner. The
contributions of the Class B Limited Partner will be made simultaneously with
the purchase of Equipment by the Partnership.
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The Class A Limited Partners (the investors) will receive First Cash
Distributions (i.e., monthly or quarterly cash distributions out of
Distributable Cash in an amount equal to a certain percentage of the Class A
Limited Partners' contributions to the Partnership) if funds are available. The
Class B Limited Partner will receive its cash distribution for any Period only
if the Class A Limited Partners have received all their accumulated and unpaid
First Cash Distributions as discussed in detail below. See "Cash Distribution to
Partners" below.
Estimated Use of Proceeds
Of the Gross Offering Proceeds raised by the Partnership from the Class A
Limited Partners, approximately 79% will be used to purchase Equipment, 1.0%
will be allocated to reserves maintained for working capital of the Partnership
and contingencies and the rest will go to pay fees and expenses incurred by the
Sponsor of the Offering and others. See "ESTIMATED USE OF PROCEEDS" for a
breakdown of the Partnership's estimate as to how the capital it raises will be
used.
Cash Distribution to Partners
From the aggregate monthly rental payments received from companies leasing
Equipment owned by the Partnership, the Partnership will pay its operating
expenses such as accounting, investor relations and legal fees, the costs of
reports to the Class A Limited Partners and the General Partner's fee for
management of the Partnership's Equipment (to the extent payable in light of its
subordination) and will establish any necessary reserves for working capital and
contingencies. Amounts remaining after the payment of these expenses and the
establishment of such reserves, together with net proceeds from any sale of
Partnership Equipment ("Distributable Cash"), will be used to make cash
distributions to the Partners. The Partners may elect to take monthly or
quarterly cash distributions. During the "Reinvestment Period" (a period that
ends approximately seven to eight years after the Closing Date and during which
undistributed cash will be used to purchase additional Equipment for the
Partnership) cash distributions to the Class A Limited Partners, if any, is
expected to be an amount equal to 10.5% on an annual basis (twelve 30-day
months), of each investor's capital contribution to the Partnership (a
substantial portion of which is expected to be a return of capital), if funds
are available for distribution (the "First Cash Distributions"). After the
Reinvestment Period, all rental payments net of operating expenses and reserves
and all net proceeds of sales of Equipment will be distributed to the Partners.
The Partnership Agreement prohibits the borrowing of funds solely for the
purpose of making cash distributions to the Partners. See "INVESTMENT OBJECTIVES
AND POLICIES - Cash Distributions to Partners" for a more detailed discussion of
cash distributions by the Partnership.
12
<PAGE>
Summary of Compensation
The Dealer-Manager (an Affiliate of the General Partner that will select
the Selling Dealers and manage the Offering) and the General Partner (which will
acquire and manage the assets and business of the Partnership) will receive
compensation for their services. The Section of this Prospectus entitled
"COMPENSATION AND FEES" details the estimated amount and range of each item of
compensation payable by the Partnership. The most significant items of
compensation are:
o Approximately 20.2% of the Gross Offering Proceeds (i.e., the
aggregate capital contributions of all ---- Class A Limited
Partners admitted to the Partnership) (assuming 50.0% leverage)
will be used to pay the costs of organizing the Partnership,
offering the Units to the public and acquiring Equipment and, of
such percentage, up to 12.25% will be paid to the General Partner
or an Affiliate and up to 8.5% is expected to be paid to
unrelated Selling Dealers. See "ESTIMATED USE OF PROCEEDS."
However, of the 12.25% of Gross Offering Proceeds paid to the
General Partner, a substantial portion will be paid to third
parties. See the discussion following the table in "COMPENSATION
AND FEES" for an explanation of why the Partnership's Investment
in Equipment is less than 80.0% of Gross Offering Proceeds, which
is the NASAA Guideline standard for unleveraged Programs, due to
the use of leverage by the Partnership. No more than 14.5% of
Gross Offering Proceeds will be paid for expenses incurred in
connection with preparing the Partnership for registration and
subsequently offering and distributing it to the public.
o The General Partner will generally be entitled to receive a
management fee of 2.0% of the gross rental payments received
pursuant to any lease of Equipment for services in managing the
Partnership's Equipment. The General Partner's right to receive
such compensation is subordinated to the Class A Limited
Partners' (i.e., the ---- investors') receipt of First Cash
Distributions, if funds are available. See "INVESTMENT OBJECTIVES
AND POLICIES--Cash Distributions to Partners."
o There are a number of other, smaller items of compensation in the
form of expense reimbursements, presently estimated to total
$158,000 for 1999, that the General Partner may receive during
the operation of the Partnership. See "COMPENSATION AND FEES."
13
<PAGE>
Conflicts of Interest
The Partnership will be subject to various conflicts of interest arising
out of its relationship to the General Partner and its Affiliates. These
conflicts may include, but are not limited to:
o the lack of arm's length negotiations in determining
compensation;
o competition with other leasing programs sponsored by the General
Partner or its Affiliates for (i) sources of equipment on lease
to creditworthy lessees to be purchased, and (ii) purchasers of
Equipment being disposed of; and
o competition with other leasing programs sponsored by the General
Partner or its Affiliates for management services.
In addition to the fiduciary duty that the General Partner owes to the
Class A Limited Partners (i.e., the investors), the Partnership Agreement
contains certain provisions intended to minimize conflicts between the General
Partner and its Affiliates on the one hand and the Class A Limited Partners
(i.e., the investors) on the other. See "SUMMARY OF THE PARTNERSHIP AGREEMENT"
and "CONFLICTS OF INTEREST."
Other Offerings by the General Partner and its Affiliates
Affiliates of the General Partner have sponsored, and currently manage,
five other public leasing programs with objectives similar to the Partnership
(the "Prior CAI Public Partnerships") as well as fourteen non-public programs
with different investment objectives. See "PERFORMANCE OF PRIOR INVESTMENT
PROGRAMS" for more detailed information concerning such programs and the Prior
Performance Tables included in Exhibit B to this Prospectus for tabular and
statistical data concerning the five Prior CAI Public Partnerships.
Management; Financial Statements of the General Partner and the
Partnership
The General Partner of the Partnership is CAI Equipment Leasing VI Corp., a
Colorado corporation with offices located at 7175 West Jefferson Avenue, Suite
4000, Lakewood, Colorado 80235 (telephone (303) 980-1000). The General Partner
will manage and control the affairs of the Partnership. See "MANAGEMENT" for a
description of the officers and other key personnel who will be responsible for
the management of the Partnership's business.
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<PAGE>
See "FINANCIAL STATEMENTS" for the financial statements of the General
Partner, the Partnership and CAI, the parent company of the General Partner.
Investment Objectives and Policies
The Partnership intends to acquire various types of Equipment on lease to
creditworthy businesses. The Equipment will be located primarily in North
America. The Partnership may take advantage of leasing opportunities outside of
North America; however, the aggregate Equipment Purchase Price of the amount of
any Equipment leased outside of North America will be less than 10.0% of the
aggregate Equipment Purchase Price of all the Partnership's Equipment. The terms
of the Partnership's Leases are expected to range from two to seven years. After
its initial term, each Lease will be expected to produce additional investment
income from the re-lease and/or ultimate sale of the Equipment.
The Partnership's overall investment objectives are to:
(i) raise the maximum allowable capital from investors for
investment in accordance with the Partnership's investment objectives
described herein;
(ii) invest such capital and related indebtedness in a
diversified portfolio of Equipment subject to Leases with terms
ranging from two to seven years;
(iii) if funds are available for distribution from Distributable
Cash, make cash distributions to the Class A Limited Partners in an
amount equal to the First Cash Distributions during the Reinvestment
Period (a period that ends approximately seven to eight years after
the Closing Date);
(iv) re-invest all available undistributed Cash From Operations
(i.e., cash provided by the Partnership's operations after certain
expenses and liabilities are paid, including reserves) and Cash From
Sales (i.e., the net cash received by the Partnership from a sale or
refinancing of Equipment) in additional Equipment during the
Reinvestment Period to increase the amount of the Partnership's
revenue-generating Equipment; and
15
<PAGE>
(v) sell or otherwise dispose of the Partnership's Equipment and
other assets in an orderly manner and promptly distribute Cash From
Sales thereof to the Partners within one to two years of the end of
the Reinvestment Period.
"Cash From Sales" means the cash received by the Partnership as a result of
a Sale or refinancing, reduced by: (i) all debts and liabilities of the
Partnership required to be paid as a result of the Sale, whether or not then
payable (including any liabilities on an item of Equipment sold that are not
assumed by the buyer and any remarketing fees required to be paid to Persons who
are not Affiliates of the General Partner) and (ii) any amounts set aside as
Reserves to the extent deemed reasonable by the General Partner. If the
Partnership takes back a promissory note or other evidence of indebtedness in
connection with any Sale, the amount of such obligations shall not be included
in Cash From Sales and all payments subsequently received in cash by the
Partnership with respect to such note or other evidence of indebtedness shall be
included in Cash From Sales only upon receipt, irrespective of the treatment of
such payments by the Partnership for tax or accounting purposes. If the
Partnership has the right to retain insurance proceeds in connection with the
damage or loss of Equipment, such proceeds shall be treated as Cash From Sales.
See "INVESTMENT OBJECTIVES AND POLICIES" for a detailed discussion of: (i)
the Partnership's proposed Equipment and Leases; (ii) the credit criteria to be
employed by the General Partner in evaluating businesses for proposed Leases;
and (iii) the nature of cash distributions to be made to the Class A Limited
Partners (i.e., the investors).
Federal Income Tax Consequences
The Section of this Prospectus entitled "FEDERAL INCOME TAX CONSEQUENCES"
contains a discussion of the material federal income tax issues pertinent to the
Partnership. It also contains a description of Tax Counsel's legal opinion as to
federal income tax matters that the Partnership will receive. The "FEDERAL
INCOME TAX CONSEQUENCES" Section and the tax opinion, when read together,
address the material federal income tax issues that are expected to be of
relevance to U.S. taxpayers who are individuals. Other tax issues of relevance
to other taxpayers should be reviewed carefully by investors, prior to their
subscription, to determine special tax consequences to them of an investment in
the Partnership.
Capitalization
The Section of this Prospectus entitled "CAPITALIZATION" details, in
tabular form, the Partnership's current and projected capitalization.
16
<PAGE>
Summary of Partnership Agreement
The Section of this Prospectus entitled "SUMMARY OF THE PARTNERSHIP
AGREEMENT" summarizes the Partnership Agreement at some length. Certain
pertinent portions of the Partnership Agreement are also summarized under
"REPORTS TO CLASS A LIMITED PARTNERS."
Investors should be particularly aware that under the Partnership
Agreement:
o They will have limited voting rights;
o Their Units will not be freely transferable and even if
transferable, can probably only be sold at a discount; and
o The fiduciary duty owed by the General Partner to the Class A
Limited Partners (i.e., the investors) has been modified in
recognition of its sponsorship of the Prior CAI Public
Partnerships and future programs so as to avoid conflicts in
fiduciary standards that would otherwise apply to the Sponsor of
only one investment program.
See "SUMMARY OF THE PARTNERSHIP AGREEMENT," "FIDUCIARY RESPONSIBILITY OF
THE GENERAL PARTNER" and "CONFLICTS OF INTEREST" for further details.
Transfer of Units
The "TRANSFER OF UNITS" Section of this Prospectus discusses the
restrictions on transfer of Units, investors' limited right to present Units for
possible redemption and other issues related to transfer of Units.
Fiscal Year
The fiscal and taxable year of the Partnership will end on December 31.
Glossary of Terms
For definitions of certain terms used in this Prospectus, see the Glossary
below.
17
<PAGE>
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RISK FACTORS
- --------------------------------------------------------------------------------
The purchase of the Units may be considered speculative and is subject to
certain risks. In addition to the factors set forth elsewhere in this
Prospectus, prospective investors should consider the following risks.
A. Business Risks
1. General. The Partnership will engage in the business of Equipment
leasing, which entails certain economic and other risks, including, but not
limited to, the following: (i) the risk of physical deterioration in use or
technological obsolescence of some types of Equipment that it may lease; (ii)
risk related to creditworthiness of Lessees generally and the possibility of
Lessee default; (iii) fluctuations in general business and economic conditions;
and (iv) the adoption of legislation or regulations that may affect the cost or
manner of operation of the Equipment it acquires.
2. Residual Value of Equipment. Each investor's ultimate investment return
from the Partnership will depend in large part upon the Residual Value of the
Partnership's Equipment at the time of its re-lease or Sale. Such Residual Value
will depend upon several factors, such as general economic conditions at the
time of Sale or re-lease, which will impact demand, technological obsolescence
resulting from the introduction of more efficient models of equipment competing
with the Equipment to be sold or released and the cost of such newer models.
3. Risk of Operating Leases. The General Partner has not established what
proportion of the Equipment portfolio will be subject to Full Payout Leases and
what proportion will be subject to Operating Leases. A significant portion of
the Partnership's Leases will be Operating Leases. The Lease rentals for the
entire term of an Operating Lease are by definition insufficient to recover the
purchase price of the subject Equipment. In order to recover its investment in
such Equipment and make a profit, the Partnership must, on termination of an
Operating Lease, either obtain a renewal from the original Lessee, find a new
Lessee or sell the Equipment. Failure to secure renewal leases or to enter into
new leases (or failure to do so at a sufficient lease rate), or failure to sell
the Equipment at a sufficient sales price after the expiration of the initial or
renewal term of a Lease, may result in the failure of the Partnership to achieve
its objectives of maintaining a portfolio of Equipment that will have Residual
Value and provide cash distributions for the return of investors' contributions.
18
<PAGE>
4. Losses of Prior Program. Leastec Income Fund V, a California Limited
Partnership ("LIF"), a limited partnership that is managed by an Affiliate of
the General Partner, has experienced operating losses, losses on the sale of
equipment and writedowns of the value of equipment due to unexpected losses in
the residual value of equipment estimated by management of that Program at the
time such equipment was purchased. Due to these reductions in residual values
LIF investors will not receive any return on their investment and will recover
approximately 90% of their full initial investments in LIF. A significant
portion of the equipment purchased by LIF was manufactured by IBM. See
"PERFORMANCE OF PRIOR INVESTMENT PROGRAMS--Losses in Residual Value."
5. Risks Associated with Lessee Default. If a Lessee defaults on its
payment obligations under a Lease, the Partnership must repossess the Equipment.
If the Partnership is unable to sell or re-lease the repossessed Equipment for
adequate payment or rental or is unable to repossess such collateral promptly or
at all, the Partnership could realize a loss of anticipated revenues that may
result in the inability of the Partnership to fully recover its investment in
such Equipment. Up to 35.0% of the Equipment subject to Initial Leases, by value
(based on the aggregate Equipment Purchase Price of all such Equipment), could
initially be leased to companies that are not Investment Grade Companies. Up to
an additional 15.0% of the Equipment could be leased in an Investment Grade Pool
containing leases to smaller unrated lessees. See "INVESTMENT OBJECTIVES AND
POLICIES--The Equipment--Equipment Investment Criteria" for definitions of
"Investment Grade Company" and "Investment Grade Pool". An additional percentage
of the Equipment could be leased to companies that are not themselves Investment
Grade Companies, but that are operating subsidiaries of such companies.
Generally, the Partnership will not lease Equipment to a Lessee with a Net Worth
less than $20,000,000 unless it is an Investment Grade Company. See "INVESTMENT
OBJECTIVES AND POLICIES -- The Equipment --Equipment Investment Criteria."
6. Decreasing Interest Rate. The Lease rentals (which include a factor
representing return on the use of capital) related to Equipment to be purchased
by the Partnership are influenced, in part, by the general level of interest
rates. The current low interest rate environment generally acts to lower lease
rental rates thereby potentially lowering the Partnership's overall rate of
return on purchased Equipment and the Limited Partners' return on their Capital
Contributions. However, interest rates would have to decrease further by
substantial amounts before the return of the Limited Partners' Capital
Contributions or the receipt of First Cash Distributions would be jeopardized.
19
<PAGE>
7. Competition. The equipment leasing industry is highly competitive, and
the Partnership will face competition from various sources. There are numerous
potential competitors, many of which may have greater financial resources than
the Partnership and more experience than the General Partner. Leases offered by
the Partnership will compete with those offered by manufacturers or their
affiliates, in their lease programs. In addition to attractive financial terms,
manufacturers may also provide certain ancillary services that neither the
Partnership nor the General Partner can offer directly, such as maintenance
services, warranty services, consulting and advisory services, purchase rights
and trade-in privileges.
B. Partnership or Investment Risks
1. A Substantial Portion of the Cash Distributions of Prior CAI Public
Partnerships has been a Return of Capital. A substantial portion of
distributions made to date by the Prior CAI Public Partnerships sponsored by
Affiliates of the General Partner has been a return of investors' capital
contributions. See Table III of the Prior Performance Tables, which appear as
Exhibit B to this Prospectus. Subscribers will not, by investing in Units,
acquire any ownership interest in any Prior CAI Public Partnership and should
not assume that they will experience investment results or returns, if any,
comparable to those experienced by investors in any such Prior CAI Public
Partnership (notwithstanding the similarity in investment objectives and
intended operations of such Programs and the Partnership) or that the prior
performance of any such Prior CAI Public Partnership indicates the future
results of operations of such Prior CAI Public Partnership.
2. Lack of a Secondary Market for Units; Restricted Transferability. The
Units are limited partnership interests. In order to avoid treatment of the
Partnership as a "publicly traded partnership," the ability of the General
Partner or the Partnership to create or participate in a "secondary market" for
Units is severely limited. As a result of the foregoing, only a limited market
for limited partnership interests such as the Units currently exists.
The ability of an owner of Units to sell or otherwise transfer such Units
(other than at a substantial discount) is extremely limited. As a result, an
investor must view an investment in the Partnership as a long-term, illiquid
investment. See "TRANSFER OF UNITS."
20
<PAGE>
3. Leverage--Risk of Loss of Equipment Through Foreclosure. The General
Partner expects to cause the Partnership to borrow funds only on a long-term,
non-recourse basis, which means that generally the lender's only claim or
recourse is to repossess and sell the Equipment and no claim can be made against
the Partnership or the Partners. Although the use of borrowings permits the
Partnership to acquire more Equipment, borrowings may also increase the
Partnership's risk of loss. Specifically, if a Lessee defaults in the payment of
rentals due under a Lease that has been assigned to a lender, and if the
Partnership is unable to either (i) release such Equipment upon rental terms
comparable to those under the original Lease, or (ii) pay the debt it has
incurred, the lender could foreclose on such Equipment and the Partnership could
suffer a loss of its investment therein. Although unlikely in a material amount,
the Partnership may also borrow funds on a recourse basis. The Partnership is
permitted to borrow up to 50% of the aggregate Equipment Purchase Price, but may
borrow less. Cash borrowed on a recourse basis will be limited to no more than
10% of the aggregate Equipment Purchase Price.
4. Conflicts of Interest. The Partnership will be subject to various
conflicts of interest arising out of its relationship to the General Partner and
its Affiliates. These conflicts may include: (i) the lack of arm's length
negotiations in determining fees payable to the General Partner and its
Affiliates; (ii) competition with Affiliates of the General Partner with respect
to acquisition and disposition of suitable Equipment; (iii) competition with
other equipment leasing programs sponsored by the General Partner or its
Affiliates with respect to management services; and (iv) the conflict arising
from the fact that distributions, Acquisition Fees and Management Fees paid to
the General Partner and its Affiliates may increase due to the General Partner's
decision to have the Partnership borrow funds (although the Partnership is not
permitted to borrow funds solely to fund distributions). For more information
concerning the nature of such potential conflicts, see "CONFLICTS OF INTEREST."
5. Equipment and Lessees Unspecified; Investment Delay; Investment
Portfolio Composition. Except as set forth in Schedule I hereto, the Equipment
to be purchased by the Partnership and the Lessees to which such Equipment will
be leased have not been determined as of the date of this Prospectus. The
General Partner will have complete discretion in investing the Net Offering
Proceeds from the sale of Units and Partnership indebtedness within the limits
set forth in "INVESTMENT OBJECTIVES AND POLICIES." Purchasers of Units must
therefore rely solely on the judgment and ability of the officers of the General
Partner with respect to the selection of Lessees, the purchase of Equipment, the
financing, if any, of Equipment, the negotiations of the terms of the purchase
of its Equipment and Leases and other aspects of the Partnership's business and
affairs.
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<PAGE>
There can be no assurance as to the ultimate composition of the
Partnership's actual Equipment and Lease portfolio, as there is no way of
anticipating what types of Equipment or Leases will be available on reasonable
terms at the times the Partnership is ready to invest its funds. The General
Partner may, in accordance with its best business judgment, vary the
Partnership's Equipment portfolio and may invest a substantial portion of its
Net Offering Proceeds and Cash From Operations and/or Cash From Sales in a
lesser number of, or different, types of Equipment than described in "INVESTMENT
OBJECTIVES AND POLICIES."
6. Management of the Partnership; Limited Voting Rights of Limited
Partners. All decisions with respect to management of the Partnership, including
the determination as to which Equipment the Partnership will acquire and which
Leases it will enter into or acquire, will be made exclusively by the General
Partner. The success of the Partnership, to a large extent, will depend on the
quality of its management, particularly as it relates to acquisition of
Equipment and the re-leasing and disposition of its Equipment. Class A Limited
Partners are not permitted to take part in the management of the Partnership or
the establishment of the Partnership's investment objectives. Accordingly,
potential investors should not purchase Units unless they are willing to entrust
all aspects of the management of the Partnership to the General Partner. See
"MANAGEMENT."
Generally speaking, only extraordinary matters, such as certain proposed
amendments to the Partnership Agreement, are required to be submitted for vote
of the Limited Partners. For any matter submitted for vote of the Limited
Partners, a vote of a Majority (holders of more than 50.0% of the Units) is
required for approval. Any action taken by vote of a Majority will be effective
for the Partnership and all of its Partners.
7. Subscription Payments May Be Held in Escrow for Up to Twelve Months
Before Being Returned. Investors' subscription payments may be held in escrow
for up to 12 months before being returned if the Minimum Offering is not sold
and during such period investors will be deprived of the use of such funds,
although interest will be earned on such funds.
8. Participation of a Security Sales Affiliate in this Offering. The
Dealer-Manager is an Affiliate of the General Partner. As a result, the
information provided in this Prospectus will not have the benefit of a review
and investigation by an independent securities firm in the capacity of a
dealer-manager but may have the benefit of a review by, or for, each Selling
Dealer.
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<PAGE>
9. A Lack of Diversification of Equipment Would Result if only the Minimum
Offering were Raised. The Partnership may begin operations with minimum
capitalization of approximately $1,026,000, net of Front-End Fees and excluding
the General Partner's and original limited partner's capital contributions. In
this event, the ability of the Partnership to diversify its Equipment and Lease
portfolio and enhance its profitability could be adversely affected by the
amount of funds at its disposal. See "ESTIMATED USE OF PROCEEDS" and
"CAPITALIZATION."
10. Redemption Price. The right of presentment of Units for redemption has
only been established to provide liquidity to individual investors for emergency
needs and not as a procedure to approximate a fair value for Units. Redemption
is at the General Partner's sole discretion and no assurance can be given that
funds will be available to redeem Units of investors who wish to have their
Units redeemed.
11. Limited Time Commitment. The officers and employees of the General
Partner will devote to the Partnership's affairs only such time as may be
reasonably necessary to conduct its business. See "MANAGEMENT."
12. Uninsured Losses. The Partnership will generally require Lessees to
arrange, at their expense, for comprehensive insurance (including fire,
liability and extended coverage) and to assume the risk of loss of the Equipment
whether or not insured. The General Partner, in its discretion, may permit a
Lessee to self-insure against such risks. However, there are certain types of
losses (generally of a catastrophic nature such as war and earthquakes) that are
either uninsurable or not economically insurable. Should such a disaster occur
with respect to the Partnership's Equipment and, because of such disaster the
Lessee is unable to honor its payment obligations, the Partnership could suffer
a loss of capital invested in, and a loss of any profits and related cash flow
that might be anticipated from, the lease of such Equipment. See "INVESTMENT
OBJECTIVES AND POLICIES--Insurance."
13. Liability of Limited Partners for Certain Distributions; Limited
Liability Not Clearly Established. A Class A Limited Partner's personal
liability for obligations of the Partnership generally will be limited, under
the Delaware Act, to the amount of his Capital Contribution and his right to
undistributed profits and assets of the Partnership. Under the Delaware Act, a
Class A Limited Partner may be required to return to the Partnership any amount
distributed for a period of three years from the date of such distribution if
such distribution causes the liabilities of the Partnership (other than
Partnership liabilities to Partners on account of their Partnership interests
and Partnership non-recourse debt) to exceed the fair market value of the assets
23
<PAGE>
of the Partnership and if the Class A Limited Partner knew such facts at the
time of such distribution. The Partnership Agreement provides for Class A
Limited Partners to exercise certain rights relative to the internal affairs or
organization of the Partnership (such as, for example, a right to vote on the
removal of the General Partner or to terminate the Partnership). Under Delaware
law, neither the existence nor the exercise of such rights will cause the Class
A Limited Partners to be deemed to be taking part in the control of the
Partnership's business. However, all states have not adopted the version of the
Revised Uniform Limited Partnership Act enacted in Delaware. As a result, there
can be no certainty that the courts of every state would conclude that the Class
A Limited Partners were entitled to limited liability under all circumstances
notwithstanding the provisions of the Partnership Agreement.
14. Lack of Separate Counsel. The Class A Limited Partners, as a group,
have not been represented by counsel. The Partnership, CAI, the General Partner
and the Class B Limited Partner have been represented by the same counsel. If
any potential Class A Limited Partner desires a legal analysis of the Offering
by independent counsel, such party should engage its own counsel.
C. Federal Income Tax and ERISA Matters.
1. Federal Income Tax Matters. The federal income tax consequences of an
investment in Units are complex and their impact may vary depending on each
Class A Limited Partner's particular tax situation. Potential Class A Limited
Partners should consider the following federal income tax risks, among others:
o a Class A Limited Partner's share of Partnership taxable income
may exceed his share of Distributable Cash from the Partnership
in any Year;
o the allocation of the Partnership's income, gains, losses,
deductions and credits may be found to lack substantial economic
effect and may be reallocated among the Partners in a manner
different from that set forth in the Partnership Agreement;
o the Partnership may not be treated for federal income tax
purposes as the owner of its Equipment, or the Leases may not be
treated as true leases, in which case the Partnership would not
be permitted to claim depreciation deductions with respect to
such Equipment;
o tax-exempt Class A Limited Partners may be required to include
substantially all of their distributive shares of Partnership
income in the calculation of their unrelated business taxable
income;
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<PAGE>
o the Partnership may be treated as a publicly traded partnership,
which would deprive Class A Limited Partners of the tax benefits
of operating in partnership form;
o the federal income tax returns of the Partnership might be
subject to audit, in which event any adjustments to be made in
the Partnership's income, gains, losses, deductions or credits
would be made in a unified audit with regard to which Class A
Limited Partners would have little, if any, control; and
o adverse changes in the federal income tax laws might occur, which
could affect the Partnership retroactively as well as
prospectively.
The Partnership will rely on an opinion of Tax Counsel regarding certain federal
income tax consequences of an investment in the Partnership, including the
characterization of the Partnership as a partnership for federal income tax
purposes. The opinion of Tax Counsel, however, is not binding on the IRS. See
"FEDERAL INCOME TAX CONSEQUENCES."
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS TAX ADVISORS WITH
SPECIFIC REFERENCE TO HIS OWN TAX SITUATION AND POTENTIAL CHANGES IN THE
APPLICABLE LAW.
2. ERISA Matters. The ERISA implications of an investment in Units by a
qualified plan or IRA investor also are complex, and they may vary based on the
particular circumstances of the investment. See "INVESTMENT BY QUALIFIED PLANS."
EACH PROSPECTIVE QUALIFIED PLAN OR IRA INVESTOR SHOULD CONSULT ITS ADVISORS
PRIOR TO AN INVESTMENT IN THE PARTNERSHIP.
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ESTIMATED USE OF PROCEEDS
- --------------------------------------------------------------------------------
The following table sets forth the General Partner's best estimate of the
use of the Gross Offering Proceeds from the sale of the Minimum Offering
($1,200,000) and the Maximum Offering ($50,000,000). Because the Partnership has
not made any acquisitions, certain of the amounts below cannot be precisely
calculated at the present time and may vary substantially from these estimates.
The following table assumes the Partnership will borrow an aggregate of 50.0% of
the Gross Offering Proceeds Available for Investments. As shown below, it is
projected that approximately 79.0% of Gross Offering Proceeds will be used to
make investments in Equipment. The amount of Acquisition Fees paid depends on
the amount the Partnership borrows.
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<TABLE>
<CAPTION>
Minimum Offering Maximum Offering
---------------- ----------------
Dollar Dollar
Amount %(1) Amount %(1)
------ --- ------ ---
<S> <C> <C> <C> <C>
Gross Offering Proceeds(2) $ 1,200,000 100.00% $50,000,000 100.00%
Public Offering Expenses:
Sales Commissions(3) $ 96,000 8.00% $ 4,000,000 8.00%
Dealer-Manager Fees(4) 24,000 2.00 1,000,000 2.00
Due Diligence Reimbursement(5) 6,000 0.50 250,000 0.50
Organizational and Offering
Expenses and Reimbursement(6) 48,000 4.00 2,000,000 4.00
----------- ------ ----------- ------
Total Public Offering Expenses(7) $ 174,000 14.50% $ 7,250,000 14.50%
Reserves(8) 12,000 1.00 500,000 1.00
---------- ------ ----------- ------
Gross Offering Proceeds Available $ 1,014,000 84.50% $42,250,000 84.50%
for Investment
Acquisition Fees (attributable to $ 66,204 5.52% $ 2,762,633 5.53%
---------- ----- ----------- ----
Offering Proceeds and
borrowings)(9)
Acquisition Expenses(10) 2,000 0.17% 25,000 0.05%
---------- ----- ---------- ----
Gross Offering Proceeds Used to
Purchase Equipment $ 945,796 78.82% $39,462,367 78.92%
========= ===== =========== =====
</TABLE>
- --------------------------
(1) All percentages shown in the table above are percentages of Gross Offering
Proceeds.
(2) These figures do not include $120.00 in cash contributed by the original
limited partner and the General Partner to the Partnership at time of its
formation. Upon the Closing Date, the Original Limited Partner will
withdraw and his Capital Contribution of $20.00 will be refunded.
(3) The Partnership will pay to participating broker-dealers a Sales Commission
of $8.00 per Unit sold (8.0% of Gross Offering Proceeds), except for Units
sold that are subject to volume discounts. Selling Dealers will be given
the option to receive 6.0 percent of their full sales commission at closing
and an additional 0.5 percent per year for five years rather than the full
8.0 percent commission at closing. In no event shall the full sales
commission exceed 10 percent. The General Partner expects that all Sales
Commissions will be paid to unaffiliated Selling Dealers.
(4) The Partnership will pay the Dealer-Manager a Dealer-Manager Fee equal to
$2.00 for each Unit sold (2.0% of Gross Offering Proceeds) for managing the
Offering of Units and to reimburse, on a non-accountable basis, the
wholesaling fees and expenses of the Sponsor.
(5) The Partnership may pay or reimburse bona fide due diligence fees and
expenses actually incurred by actual or prospective Selling Dealers. Such
due diligence fees and expenses are limited to an aggregate amount not to
exceed the lesser of: (i) 0.5% of Gross Offering Proceeds; or (ii) the
amount permitted to be paid pursuant to Section 34 of Article III of the
NASD Rules of Fair Practice.
26
<PAGE>
(6) The Partnership will pay the General Partner an amount equal to 4.0% of the
Gross Offering Proceeds ($4.00 per Unit for all Units sold) as an O&O
Expenses Reimbursement. The O&O Expenses Reimbursement will be paid on a
non-accountable basis, which means that such compensation may be less than,
or greater than, the actual costs and expenses paid by the General Partner
in organizing the Partnership and offering Units for sale. The General
Partner has agreed in the Partnership Agreement to pay all Reimbursable
Organizational and Offering Expenses of the Partnership, including any
amounts in excess of the O&O Expenses Reimbursement. See "PLAN OF
DISTRIBUTION" and "SUMMARY OF THE PARTNERSHIP AGREEMENT."
(7) No more than 14.5% of Gross Offering Proceeds will be paid for
Organizational and Offering Expenses.
(8) The Partnership intends to establish initial Reserves equal to 1.0% of
Gross Offering Proceeds, which will be maintained and used for insurance,
certain repairs, replacements and miscellaneous contingencies.
(9) Acquisition Fees include the Origination Fee and Evaluation Fee payable to
the General Partner as well as any fees paid by or on behalf of the
Partnership to third parties in connection with the purchase by the
Partnership of any Equipment. Acquisition Fees payable by or on behalf of
the Partnership to unaffiliated finders and brokers will be deducted from
the Origination Fee otherwise payable to the General Partner (until it is
reduced to zero). The General Partner cannot estimate with certainty the
amount of Acquisition Fees payable to third parties that will exceed such
deductions. However, the maximum Acquisition Fees payable to the General
Partner have been assumed for the purpose of this table.
(10) Acquisition Expenses are expected to include only legal fees and expenses,
costs of appraisals and miscellaneous expenses paid or reimbursed by the
Partnership relating to selection and acquisition of Equipment for the
Partnership, whether or not acquired.
- --------------------------------------------------------------------------------
COMPENSATION AND FEES
- --------------------------------------------------------------------------------
The following table summarizes all compensation or distributions that may
or will be paid, directly or indirectly, by the Partnership to the General
Partner and its Affiliates, including the Dealer-Manager. Such compensation and
distributions were determined by the General Partner and were not subject to
arm's length negotiation between the General Partner and the Partnership. Some
of such compensation and distributions will be paid regardless of the success or
profitability of the Partnership's operations.
The General Partner directly controls the amount of Acquisition Fees
(subject to overall limitations on all Front-End Fees) through the amount of
borrowings it uses to acquire Equipment (which directly affects the Equipment
Purchase Price and Acquisition Fees payable with respect to Equipment). The
Partnership Agreement subordinates the timing of the General Partner's receipt
of Management Fees and increased shares of Distributable Cash, and the Class B
Limited Partner's receipt of distributions, to the receipt by the Class A
Limited Partners of certain total amounts of Cash Distributions (as disclosed
below). Notwithstanding the fact that some of the compensation disclosed below
may vary in amount from the amounts projected, the total amounts of compensation
payable to all Persons, including the General Partner, is limited by provisions
of the Partnership Agreement that must comply with the requirements of: (i) the
27
<PAGE>
North American Securities Administrators Association's Statement of Policy for
Equipment Programs (the "NASAA Guideline"), which includes specific maximum
Sponsor compensation and minimum use-of-proceeds requirements; and (ii) the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
(the "NASD"), which limit selling compensation. Where the Partnership Agreement
contains limitations on certain categories of fees and expenses, the General
Partner may not recover such fees and expenses by reclassifying them under a
different category.
The General Partner or its Affiliates may acquire up to 5.0% of the total
Units sold for their own accounts and for investment purposes only, in which
case they will receive allocations of Profits or Losses and distributions of
Distributable Cash and Liquidation Proceeds in accordance with the ownership of
such Units.
<TABLE>
<CAPTION>
Form of (and Entity
Receiving) Compensation Method of Compensation Estimated Dollar Amount
- ----------------------- ---------------------- -----------------------
Organizational and Offering Stage
---------------------------------
<S> <C> <C>
Dealer-Manager Fees (payable 2.0% ($2.00 per Unit sold) A minimum of $24,000 if the
to the Dealer-Manager). of Gross Offering Proceeds Minimum Offering of 12,000
for its services rendered Units is sold and a maximum of
in managing the Offering. $1,000,000 if the Maximum
Offering of 500,000 Units is
sold. See discussion of limit
on Front-End Fees at the end
of this table.
O&O Expenses Reimbursement 4.0% ($4.00 per Unit A minimum of $48,000 if the
(payable to the General Partner). sold) of the Gross Minimum Offering of 12,000
Offering Proceeds (the Units is sold and a maximum of
"O&O Expenses $2,000,000 if the Maximum
Reimbursement"), whether Offering of 500,000 Units is
the General Partner sold. See discussion of limit
incurs Reimbursable on Front-End Fees at the end
Organizational and of this table.
Offering Expenses in a
greater or lesser amount
than the O&O Expenses
Reimbursement. The
General Partner has
agreed in the Partnership
Agreement to pay actual
Reimbursable
Organizational and
Offering Expenses for
this Offering, including
any amounts in excess of
the O&O Expenses
Reimbursement.
28
<PAGE>
Acquisition and Operating Stage
-------------------------------
Origination Fee (payable to 1.5% of the Equipment Origination Fees (assuming
the General Partner). Purchase Price paid by 50.0% leverage and no
the Partnership for Acquisition Fees paid to third
services rendered in parties) would equal
connection with the approximately 2.36% of Gross
acquisition of Equipment Offering Proceeds (or $28,320)
and the negotiation of if the Minimum Offering of
the Leases, if originated 12,000 Units is sold and
by the General Partner or approximately 2.36% of Gross
its Affiliates, or the Offering Proceeds (or
review and any necessary $1,180,000) if the Maximum
modification of the Offering of 500,000 Units is
Leases, if originated by sold. See discussion of limits
an unaffiliated party. on Front-End Fees and on
Acquisition Fees and
Acquisition Expenses at the
end of this table.
Acquisition Fees with respect
to any Equipment payable by or
on behalf of the Partnership
to unaffiliated finders and
brokers will be deducted from
the Origination Fee with
respect to such Equipment
payable to the General Partner
(until the Origination Fee
otherwise payable to the
General Partner is reduced to
zero, but the Partnership must
bear the cost of the
third-party Acquisition Fee to
the extent that it exceeds the
amount of such Origination
Fee). See discussion of limits
on Front-End Fees and on
Acquisition Fees and
Acquisition Expenses at the
end of this table.
Evaluation Fee (payable to 2.0% of the Equipment Evaluation Fees (assuming
the General Partner). Purchase Price paid by 50.0% leverage) would equal
the Partnership for approximately 3.1% of Gross
services rendered in Offering Proceeds (or $37,200)
connection with if the Minimum Offering of
evaluating the 12,000 Units is sold and
suitability of Equipment approximately 3.1% of Gross
and the creditworthiness Offering Proceeds (or
of the Lessee and $1,550,000) if the Maximum
negotiation of Offering of 500,000 Units is
non-recourse loans, or sold. See discussion of limits
the assignment of on Front-End Fees and on
existing non-recourse Acquisition Fees and
loans, secured by the Acquisition Expenses at the
Equipment. end of this table.
29
<PAGE>
Management Fee (payable 2.0% of monthly Gross Not determinable at this time.
to the General Partner). Rentals for all Leases,
paid monthly in arrears The General Partner has agreed
as compensation for to subordinate (without
services rendered in interest) its receipt of
connection with the monthly payments of the
management of the Management Fees to the Class A
Equipment. Limited Partners' receipt of
the First Cash Distributions
until the receipt by the Class
A Limited Partners of all
accrued but previously unpaid,
and current, installments of
First Cash Distributions.
Reimbursement for expenses The Partnership will Not determinable at this time.
of the General Partner and reimburse the General
its Affiliates. Partner and its
Affiliates for certain
expenses incurred by them
in connection with the
Partnership's operations,
including the borrowing
of funds, except for:
services for which they
are entitled to a
separate fee; salaries
and other costs allocated
to a Controlling Person
of a General Partner or
an Affiliate; and
Reimbursable Organiza-
tional and Offering
Expenses in excess of the
O&O Expenses Reimbursement.
Shares of Distributable 1.0% of Distributable Not determinable at this time.
Cash distributable to the Cash until both Payout
General Partner. and 170% Recovery are
reached by the Limited
Partners and, thereafter,
10.0% of Distributable
Cash.
Shares of Distributable 1.0% of the Limited Not determinable at this time.
Cash distributable to the Partners' share of
Class B Limited Partner. Distributable Cash. These
distributions are
subordinated to the Class
A Limited Partners'
receipt of First Cash
Distributions.
30
<PAGE>
Liquidation Stage
-----------------
Shares of Liquidation Proceeds In proportion to the Not determinable at this time.
distributable to the General positive balance in their
Partner and the Class B Limited respective Capital
Partner. Accounts.
Interest in Partnership Profits or Losses
-----------------------------------------
Partnership Profits and The General Partner and Not determinable at this time.
Losses for tax purposes the Class B Limited
(shares allocable to the Partner will be allocated
General Partner and the shares of Partnership
Class B Limited Partner). Profits and Losses for
tax purposes that will
generally approximate
their shares of
Distributable Cash. See
"FEDERAL INCOME TAX
CONSEQUENCES--Allocation
of Partnership Profits
and Losses."
</TABLE>
The Partnership Agreement provides that the Partnership's Investment in
Equipment, which term includes the Partnership's equity investment from Gross
Offering Proceeds in Equipment and Reserves for working capital, but excludes
all Front-End Fees paid to or by any Person, including Dealer-Manager Fees,
Sales Commissions, the O&O Expenses Reimbursement, Acquisition Expenses and
Acquisition Fees (which include Origination Fees and Evaluation Fees as well as
fees paid to third parties), will be not less than the greater of: (i) 80.0% of
the Gross Offering Proceeds from sale of Units, reduced by .0625% for each 1.0%
of borrowings encumbering Partnership Equipment; or (ii) 75.0% of the Gross
Offering Proceeds from the sale of Units. An example demonstrating the mechanics
of this formula is as follows:
1. Calculate the percentage of indebtedness encumbering
Partnership Equipment by dividing the amount of indebtedness by the
aggregate Equipment Purchase Price of initial Partnership Equipment,
excluding any Front-End Fees.
2. Assume indebtedness of the Partnership is at 50.0%.
3. .0625% multiplied by 50 = 3.125%.
4. 80.0% - 3.125% = 76.875%
5. 76.875% of Gross Offering Proceeds must be committed to
Investment in Equipment.
To the extent that such limitation is not otherwise satisfied, any
Acquisition Fees payable or paid to the General Partner by the Partnership will
be reduced or refunded by the General Partner to the Partnership to the extent
necessary to comply with such limitation. Any such refund will bear interest
calculated at a rate of 1.0% per month if such refund is not made within 30 days
after the end of any calendar Quarter in which the Partnership's Investment in
Equipment fails to satisfy such minimum investment.
As described in the above table, the General Partner will be entitled to
receive Origination Fees from the Partnership for services rendered in
connection with the acquisition of Equipment and the negotiation of a Lease, if
originated by the General Partner or its Affiliates, or the review and any
necessary modification of the Lease if the Lease is originated by an
unaffiliated party. In calculating the Origination Fees, any Acquisition Fee
with respect to any Equipment payable by or on behalf of the Partnership, or the
General Partner or its Affiliates, to unaffiliated finders and brokers will be
31
<PAGE>
deducted from the Origination Fee with respect to such Equipment otherwise
payable to the General Partner (until the Origination Fee otherwise payable to
the General Partner is reduced to zero, but the Partnership must bear the cost
of the third-party Acquisition Fee to the extent that it exceeds the amount of
such Origination Fee). In addition, sellers of Equipment to the Partnership may
pay fees to brokers or finders representing such sellers, but in no event may
such brokers or finders include the General Partner or any of its Affiliates.
Such fees are not included in Acquisition Fees. However, the Equipment Purchase
Price of any Equipment payable by the Partnership may reflect any such fees paid
by the seller, so that in effect any such fees may be indirectly paid by the
Partnership.
Acquisition Fees (which include Origination Fees, Evaluation Fees and fees
paid to third parties) payable by the Partnership are estimated to equal 3.5% of
the aggregate Equipment Purchase Price paid for all items of Equipment acquired
by the Partnership, subject to certain conditions and limitations specified in
the Partnership Agreement. The Acquisition Fees presented in "ESTIMATED USE OF
PROCEEDS" are calculated assuming that, on average, total indebtedness will
equal 50.0% of the Equipment Purchase Price (excluding any Acquisition Fees) of
all of the Partnership's Equipment. Based on such assumption, the total
Acquisition Fees payable upon the Partnership's initial investment in its
Equipment (excluding any Acquisition Fees payable upon the investment of
Reinvested Proceeds) are estimated at 5.52% of Gross Offering Proceeds. However,
Acquisition Fees (including those payable to third parties) are subject to the
limit on Front-End Fees.
In addition to payment of the O&O Expenses Reimbursement, the Partnership
will reimburse the General Partner and its Affiliates for: (i) the actual costs
to them of services, goods and materials used for or by the Partnership and
obtained from entities unaffiliated with the General Partner and its Affiliates;
and (ii) administrative services necessary to the prudent operation of the
Partnership, not in excess of the lesser of the General Partner's (or
Affiliate's) costs or the costs that the Partnership would be required to pay to
independent parties for comparable services. The Partnership's annual reports to
the Class A Limited Partners will provide a breakdown of goods, materials and
services provided by, and amounts reimbursed to, the General Partner and its
Affiliates. For a more complete description of reimbursable expenses and
limitations on reimbursement see Sections 5.2(e), (f) and (g) of the Partnership
Agreement (Exhibit A to this Prospectus).
Assuming the sale of 500,000 Units in 1998, the General Partner estimates
that the following expenses would be reimbursed by the Partnership in 1999:
Salaries and benefits:
Accountants................. $ 50,000
Professional staff.......... $ 35,000
Asset Management............ $ 14,000
Investor relations.......... $ 21,000
Computer and equipment........... $ 35,000
Maintenance...................... $ 3,000
--------
Total $158,000
- --------------------------------------------------------------------------------
CONFLICTS OF INTEREST
- --------------------------------------------------------------------------------
The Partnership will be subject to various conflicts of interest with the
General Partner, its Affiliates and investment entities advised, managed or
controlled by them. Certain provisions of the Partnership Agreement are intended
to protect the Class A Limited Partners' interests; specifically, Sections 5.4
and 5.5 limit the General Partner's exercise of powers and its Affiliates'
32
<PAGE>
compensation, respectively. In addition, see "FIDUCIARY RESPONSIBILITY OF THE
GENERAL PARTNER" for a discussion of the General Partner's fiduciary obligations
to the Class A Limited Partners, which, in general, require the General Partner
to consider the best interests of the Class A Limited Partners in managing the
Partnership's assets and affairs.
The General Partner intends to use its best business judgment and
discretion, and to consider good business practices in resolving any conflicts
that arise. The General Partner will use its best efforts to resolve the
conflicts identified below as discussed. However, the General Partner and its
Affiliates have no effective means of limiting such conflicts.
Competition With the General Partner and its Affiliates
The General Partner and its Affiliates are engaged directly and indirectly
in the business of acquiring equipment on lease to creditworthy lessees for
their own respective accounts as well as for prior investment programs that they
manage as general partners or otherwise (the "Prior Programs"). See "PERFORMANCE
OF PRIOR INVESTMENT PROGRAMS." The General Partner or any of its Affiliates may
in the future form or sponsor, or act as a general partner of, or as an advisor
to, other investment programs (including other public equipment ownership and
leasing partnerships) that have investment objectives similar to the
Partnership's and that may be in a position to acquire the same Equipment at the
same time as the Partnership. See "MANAGEMENT" for a chart of, and a description
of, the relationships of the Partnership to the General Partner and relevant
Affiliates.
The Partnership Agreement does not prohibit the General Partner or its
Affiliates from competing with the Partnership for equipment acquisitions,
financing, refinancing, leasing, re-leasing or sale opportunities on its or
their own behalf or on behalf of the Prior Programs. See Section 5.7 of the
Partnership Agreement. Neither the General Partner nor any of its Affiliates
will be obligated to present to the Partnership particular equipment
acquisition, financing, refinancing, leasing and re-leasing opportunities that
come to its attention, even if such opportunities are of a character that might
be suitable for the Partnership. In general, however, the General Partner and
its Affiliates will attempt to adhere to the following guidelines in evaluating
whether to present a particular opportunity to the Partnership.
Acquisition of Equipment. If the General Partner and its Affiliates are
presented with a potential Equipment acquisition that meets the investment
objectives and policies of the Partnership and one or more other Affiliates of
the General Partner, they will analyze the Equipment already purchased by, and
the investment objectives of, each Affiliate involved and will make the decision
as to which Affiliate will purchase the Equipment based upon such factors, among
others, as: (i) the amount of cash available in each Affiliate for such
acquisition and the length of time such funds have been available; (ii) the
current and long-term liabilities of each Affiliate; (iii) the effect of such
acquisition on the diversification of each Affiliate's equipment portfolio by
type of equipment and by length of lease term; (iv) the credit diversification
(geographically and by industry) of each Affiliate's equipment portfolio; (v)
the remaining time before the liquidation of the Partnership and each Affiliate;
(vi) the cash distribution objectives of each Affiliate; and (vii) the policy or
limitations of each Affiliate relating to borrowings.
Re-Leasing or Sale of Equipment. Conflicts may also arise between two or
more Affiliates of the General Partner (including the Partnership) that may be
seeking to re-lease or sell similar equipment at the same time. In any such case
involving the Partnership, the first opportunity to re-lease or sell Equipment
will generally be allocated to the Affiliate attempting to re-lease or sell
equipment that has been subject to the lease that expired first, or, if the
leases expire simultaneously, the lease that was first to take effect. However,
the General Partner in its discretion may make exceptions to this general policy
where equipment is subject to remarketing commitments that provide otherwise or
where, in the General Partner's judgment, other circumstances make the
application of such policy inequitable (such as the location of a potential
lessee) or not economically feasible for a particular investment entity.
33
<PAGE>
Limitation on Purchase Prices. The Partnership may not acquire Equipment in
which the Sponsor either has, or in the past has had, an interest, except for
Equipment acquired on a temporary or interim basis (generally not longer than
six months) by the Sponsor for the purpose of facilitating the acquisition by
the Partnership of the Equipment or obtaining financing for the Partnership or
any other purpose related to the business of the Partnership. The Partnership
may acquire any such Equipment only if the Sponsor determines that: (i) such
acquisition is in the best interests of the Partnership; (ii) such Equipment is
to be purchased by the Partnership for a price no greater than the Cost of such
Equipment to the Sponsor minus any rents or other proceeds that are received by
the Sponsor in connection with the leasing of, or other arrangement with respect
to, the Equipment, except compensation in accordance with Section IV of the
NASAA Guidelines, unless the current value of Equipment to be acquired from it
or an Affiliate is less than the price so calculated, in which case such
Equipment shall be acquired at the lesser of (A) such price so calculated or (B)
the then fair market value of such Equipment, as determined by an independent
nationally-recognized equipment appraiser selected by the Sponsor; (iii) there
is no difference in interest terms of the loans secured by the Equipment at the
time acquired by the Sponsor and the time acquired by the Partnership; and (iv)
no other benefit arises out of such transaction to the Sponsor apart from
compensation otherwise permitted by this Agreement.
Other Investment Activities
Affiliates of the General Partner are not restricted from acquiring
Equipment and engaging in leasing activities for their own account or for the
account of others, and the General Partner is not restricted from forming or
managing other investment entities that may be in competition with the
Partnership. The Class A Limited Partners, as such, will not be entitled to the
benefits of any such activities, programs or syndicates, or any income or
profits derived therefrom.
Availability of Management Services
Officers and directors of the General Partner are principally employed as
officers of CAI, CAII and other Affiliates of the General Partner. See
"MANAGEMENT." The General Partner may authorize one or more of its Affiliates to
carry out its duties as General Partner of the Partnership. The General Partner
and its Affiliates will be subject to conflicts of interest in allocating
management time, services and functions among the businesses of the Partnership
and the other entities for which such officers and directors may provide
services. The officers, directors and employees of the General Partner and its
Affiliates will devote such time to the affairs of the Partnership as they, in
their sole discretion, determine in good faith to be necessary for the business
and operations of the Partnership. The General Partner believes that it and its
Affiliates will have sufficient staff, equipment or other resources to be fully
capable of discharging their responsibilities to the Partnership and other
entities.
When the General Partner owes a fiduciary duty to the Partnership and to
another Program sponsored by it, the General Partner may have a conflict in the
allocation of fiduciary duties to each of such entities.
The General Partner will attempt to resolve all of such conflicts by
allocating services or fiduciary duties to all Programs needing services or
fiduciary duties solely in proportion to their respective needs. The General
Partner will not ignore the fiduciary obligation that it owes to any of such
Programs. See "RISK FACTORS--Partnership or Investment Risks--General Partner
Not Full Time."
34
<PAGE>
Compensation of the General Partner and Affiliates
The compensation payable by the Partnership to the General Partner and the
Dealer-Manager has been determined unilaterally by the General Partner and,
therefore, is not the result of arm's length negotiations. However, the amount
of such compensation is believed to be representative of practices in the
industry and complies with the NASAA Guideline as in effect on the date of this
Prospectus. The General Partner and Dealer-Manager will receive substantial
compensation from the sale of Units and the Partnership's acquisition and use of
Equipment. Decisions involving these transactions will be made by the General
Partner in its discretion. See "COMPENSATION AND FEES."
A conflict of interest may also arise from decisions by the General Partner
concerning the timing of the Partnership's purchases and sales of Equipment or
the termination of the Partnership, each of which events will have an effect on
the timing and amount of its compensation. In such circumstances, the interest
of the General Partner and the Class B Limited Partner in continuing the
Partnership and receiving subordinated Management Fees and cash distributions,
for example, may conflict with the interests of the Class A Limited Partners in
realizing an earlier return of their capital and any investment return thereon.
Effect of Leverage on Compensation Arrangements
The General Partner may finance up to 50.0% of the aggregate purchase price
of the Partnership's total Equipment. Since Acquisition Fees are based upon the
purchase price of all Equipment acquired by the Partnership, including related
borrowings, the General Partner would realize a greater amount of Acquisition
Fees if a greater percentage of debt were employed. See "COMPENSATION AND FEES."
The Partnership Agreement provides that the General Partner may not borrow cash
on behalf of the Partnership solely to fund distributions. The possibility
exists, however, that borrowings of the Partnership for other purposes may have
the indirect effect of funding distributions to the Class A Limited Partners
sufficient to allow the Class B Limited Partner to receive its subordinated
distributions and to allow the General Partner to receive its subordinated
Management Fee.
Determination of Reserves
The amount of cash distributions from the Partnership to Class A Limited
Partners is subject, among other things, to the discretion of the General
Partner in establishing and maintaining for the Partnership Reserves for working
capital and contingent liabilities. See "ESTIMATED USE OF PROCEEDS." Since the
amount of Reserves will affect the potential liability of the General Partner to
creditors of the Partnership, the General Partner may be considered to have a
conflict of interest in determining the amount of such Reserves.
Participation of a Securities Sales Affiliate in this Offering
Units will be sold on a best-efforts basis through CAI Securities
Corporation, which will act as Dealer-Manager and will receive Dealer-Manager
Fees with respect to the sales of all Units. Because of its affiliation with the
General Partner, its review and investigation of the Partnership and of the
information provided in this Prospectus will not constitute a review and
investigation by an independent securities firm serving in the capacity of a
dealer-manager.
General Partner to Act as Tax Matters Partner
The General Partner has been designated as the Tax Matters Partner for the
Partnership for purposes of dealing with the IRS on any audit or other
administrative proceeding before the IRS or any legal proceeding. As Tax Matters
Partner, the General Partner is empowered, among other acts, to enter into
negotiations with the IRS, to settle tax disputes and to bind the Partnership
and the Class A Limited Partners by such settlement. While the General Partner
35
<PAGE>
will seek to take into consideration the interest of the Class A Limited
Partners generally in agreeing to any settlement of any disputed items of
Partnership income and expense, there is no assurance that such settlement will
be in the best interest of any specific Class A Limited Partner given his
specific tax situation.
Lack of Separate Counsel
The Class A Limited Partners, as a group, have not been represented by
counsel. The Partnership, CAI, the General Partner and the Class B Limited
Partner have been represented by the same counsel. The attorneys, accountants
and other professionals who perform services for the Partnership will perform
additional services for the General Partner, CAI and its Affiliates, and for
other partnerships or entities that CAI will cause to be formed from time to
time. However, should a dispute arise between or among the Partnership and the
General Partner or any of its Affiliates, the General Partner will cause the
Partnership to retain separate legal counsel, at the expense of the Partnership,
to represent the Partnership in connection with such dispute.
- --------------------------------------------------------------------------------
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
- --------------------------------------------------------------------------------
General
Under Delaware law, a general partner in a limited partnership generally is
accountable to the limited partners and the partnership as a fiduciary and
consequently must exercise good faith, fairness and loyalty in handling
partnership affairs. However, the Delaware Act specifically permits this
fiduciary duty to be modified in the partnership agreement. See "Conflicts of
Interest" below and "SUMMARY OF THE PARTNERSHIP AGREEMENT--Rights, Obligations
and Powers of General Partner." The Partnership Agreement includes a
modification of this fiduciary duty, which is necessary to allow the General
Partner and its Affiliates to function as sponsors of other equipment leasing
programs and to invest in equipment for their own accounts. While this
modification of the fiduciary duty may be viewed as a detriment to the Class A
Limited Partners because it could reduce the Equipment and managerial resources
available to the Partnership, the General Partner believes that its Affiliates'
involvement in similar programs provides certain efficiencies that should
benefit the Partnership in terms of reduced costs and increased opportunities.
The modification of the General Partner's fiduciary duty to the Partnership
benefits the General Partner and its Affiliates by allowing them to engage in
more than one equipment leasing activity at a time and allocate equipment and
managerial resources among themselves and the various entities in the manner
that they deem appropriate.
Delaware law provides that a limited partner may institute legal action on
behalf of himself and all other similarly situated limited partners (a "class
action") to recover damages for a breach by a general partner of its fiduciary
duty, or on behalf of the partnership (a "partnership derivative action") to
recover damages from a general partner or third parties with respect to an
obligation to the partnership where the general partner has failed or refused to
enforce the obligation. Accordingly, it appears, based on currently applicable
law, that: (i) the Limited Partners of the Partnership have the right, subject
to the provisions of applicable procedural rules and statutes, to (a) bring
Partnership class actions, (b) enforce rights of all Limited Partners similarly
situated, and (c) bring partnership derivative actions to enforce rights of the
Partnership including, in each case, rights under certain rules and regulations
of the Commission; and (ii) Limited Partners who have suffered losses in
connection with the purchase or sale of their Partnership Interests due to a
breach of fiduciary duty by the General Partner in connection with such purchase
or sale, including misapplication by the General Partner of the proceeds from
36
<PAGE>
the sale of Partnership Interests, may have a right to recover such losses from
the General Partner in an action based upon Rule 10b-5 under the Securities
Exchange Act. In addition, where an employee benefit plan has acquired Units,
case law applying the fiduciary duty concepts of ERISA to an insurance company
in connection with an insurance contract could be viewed to apply with equal
force to the General Partner.
In defending against a suit by a Limited Partner for breach of fiduciary
duty, the General Partner may have a number of defenses in any such legal
action, including the defense that its actions come within the business judgment
rule. Under that rule, the General Partner or the General Partner's directors
would not, in general, be liable for actions taken in good faith and on the
basis of an informed judgment (after reasonable investigation) that the course
of conduct in question was consistent with the General Partner's duties to the
Partnership. The General Partner would be able to raise only factual defenses
negating the claims of the Limited Partner; essentially, the General Partner
would be able to argue that its actions were reasonable and did not constitute a
breach of its fiduciary duty to the Partnership and the Partners, as described
in the Partnership Agreement.
Conflicts of Interest
As permitted by the Delaware Act, the Partnership Agreement modifies the
General Partner's fiduciary duty by providing that whenever a conflict of
interest arises between another investment entity sponsored by the General
Partner or its Affiliates on the one hand and the Partnership or any Limited
Partner on the other hand, the General Partner, in resolving such conflict: (i)
will consider the relative interests and investment objectives of the parties
involved in such conflict or affected by such action; and (ii) may consider (a)
any customary or accepted industry practices, and (b) any applicable generally
accepted accounting practices or principles (see Section 5.7 of the Partnership
Agreement). Thus, unlike the strict duty of a fiduciary who must act solely in
the best interest of his beneficiary, the Partnership Agreement permits the
General Partner to consider the interests of other investment entities sponsored
by such General Partner or its Affiliates, to act as the general partner of more
than one similar investment program and to allow the Partnership to benefit from
its experience resulting therefrom, but relieves the General Partner and its
Affiliates of the strict fiduciary duty of a general partner acting as such for
only one investment program at a time.
Indemnification of the General Partner, Dealer-Manager and Selling
Dealers
The Partnership Agreement provides that the General Partner will have
limited liability to the Partnership and the Class A Limited Partners. It
provides for the indemnification of the General Partner and its Affiliates for
certain acts or omissions to act, provided that such actions or omissions were
done in good faith and in a manner reasonably believed by the General Partner or
Affiliate to be in the best interests of the Partnership and that such course of
conduct did not constitute negligence or misconduct of the General Partner or
its Affiliates. As a result, purchasers of Units may have a more limited right
of action in certain circumstances than they would in the absence of such
provisions in the Partnership Agreement, which could be asserted by the General
Partner as a defense to suit by a Class A Limited Partner for alleged breach by
the General Partner of its fiduciary duty in conducting the affairs of the
Partnership.
The Partnership Agreement also provides that, to the extent permitted by
law, the Partnership will indemnify the General Partner against liability and
related expenses (including attorneys' fees) incurred in certain dealings with
third parties, provided that the conduct of the General Partner is consistent
with the standards described in the preceding paragraph. In addition, the
General Partner has agreed to indemnify the Dealer-Manager and the Selling
Dealers against all losses, claims, damages, liabilities and expenses incurred
by any of them (except those arising as a result of their fault) in connection
with the offer or sale of Units. A successful claim for indemnification would
deplete the Partnership's assets by the amount paid and could reduce the amount
of distributions subsequently made to the Class A Limited Partners. The
Partnership is not permitted, however, to indemnify the General Partner, its
Affiliates or the Selling Dealers with respect to alleged violations of federal
or state securities laws unless the alleged violator has successfully defended
against the claim of violation or a court has approved a settlement of the
claim.
37
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT
- --------------------------------------------------------------------------------
The General Partner
The General Partner is CAI Equipment Leasing VI Corp., a wholly owned
subsidiary of Capital Associates, Inc. ("CAI"). CAI also owns all of the stock
of Capital Associates International, Inc. ("CAII"), which will be the Class B
Limited Partner of the Partnership. The General Partner was recently formed for
the purpose of managing the Partnership. The General Partner will be responsible
for supervising the Partnership's day-to-day operations, including, without
limitation, acquiring the Equipment, reinvesting Partnership funds in Upgrades
or additional Equipment, re-leasing and selling Equipment, borrowing funds,
advising and assisting in locating, evaluating and negotiating the terms of
Leases, collecting Lease revenues from Lessees, financing Upgrades, ensuring
compliance by Lessees with all of their obligations under the Leases (including
performance of maintenance and payment of insurance and taxes), instituting and
prosecuting legal proceedings in the name of the Partnership and otherwise
exercising appropriate remedies under the terms of the Leases and any other
services reasonably required in connection with the lease, use and ownership of
the Equipment. The General Partner may authorize one or more of its Affiliates
to carry out its duties.
The backgrounds of the executive officers and directors of the General
Partner are set forth below. See "MANAGEMENT--Management of the General
Partner."
The General Partner may resign from the Partnership with the Consent of a
Majority Interest of the Class A Limited Partners, and may be removed, under
certain circumstances, by the Class A Limited Partners as set forth in the
Partnership Agreement. See "SUMMARY OF THE PARTNERSHIP AGREEMENT--Withdrawal and
Removal of General Partner." The General Partner and its Affiliates will receive
substantial compensation for their services. See "COMPENSATION AND FEES." The
officers and directors of the General Partner are to be indemnified by the
General Partner in connection with their performance as officers and directors
to the fullest extent permitted under applicable state law.
CAI has capitalized the General Partner with a capital contribution of
$1,000 in cash and its own non-negotiable, non-interest bearing, demand
promissory note in a principal amount equal to the greater of: (i) 2.5% of Gross
Offering Proceeds; or (ii) $1,000,000. See "FINANCIAL STATEMENTS" for the
balance sheets of CAI and the General Partner. See footnote 3 to the audited
balance sheet of the General Partner for a description of potential limitations
on the payment of the demand promissory note.
38
<PAGE>
Capital Associates, Inc.
CAII was incorporated in 1976, at which time it acquired the operating
partnership of its founders, which was engaged in the lease brokerage business.
CAII continued in the lease brokerage business, developing relationships with
many lessees that are in the "Fortune 500" and that continue to be a principal
source of business for CAII today. CAII and its predecessor partnership have
participated in over $3.0 billion of equipment leasing transactions.
CAI was formed in September, 1986 as a holding company owning 100.0% of the
equity in CAII as its sole asset. In February 1987, CAI made an initial public
offering of its common stock. Both CAII and the General Partner are wholly owned
subsidiaries of CAI.
In 1995, MCC Financial Corporation ("MCC") acquired control of CAI. MCC
beneficially owns and/or has voting control over a total of 2,833,369 shares of
common stock constituting 56% of the outstanding shares of CAI common stock. Of
the 2,833,369 shares, 257,500 shares are not owned by MCC, but MCC is entitled
to vote those shares pursuant to proxies executed by the current owners, and MCC
has entered into the Stock Purchase Agreements to purchase these shares in the
future. James D. Walker and William K. Buckland each own 50% of the common stock
of MCC.
Relationship of the Partnership and Affiliates
The following diagram identifies certain relationships among the
Partnership, the General Partner, the Dealer-Manager and the Class B Limited
Partner. Solid lines represent ownership interests (as created by the
Partnership Agreement) and dotted lines represent contractual relationships
(excluding the relationships created by the Partnership Agreement).
39
<PAGE>
--------------------------
|Capital Associates, Inc.|
--------------------------
------------------- | ----------------
--------------------- ------------------- ----------------
|Capital Associates | | CAI Equipment | |CAI Securities|
|International, Inc | |Leasing VI Corp. | | Corporation |
--------------------- ------------------- ----------------
| | |
| | |
| | |
|
-----------------------------------------
| Capital Preferred Yield Fund-V, L.P. |
-----------------------------------------
Management of the General Partner
Each of the following directors and executive officers of the General
Partner assumed his/her position on October 1, 1997 and is to serve until
his/her successor is elected and qualified:
Names Position
- ----- --------
John F. Olmstead President and Director
Dennis J. Lacey Senior Vice President and Director
Anthony M. DiPaolo Senior Vice President, Treasurer and
Chief Administrative Officer and Director
Daniel J. Waller Vice President and Director
Richard H. Abernethy Vice President and Director
John A. Reed Vice President, Assistant Secretary
and Director
David J. Andersen Chief Accounting Officer and Secretary
The following biographical information relates to the persons listed above:
John F. Olmstead, age 53, joined CAII in December 1988, is a Senior Vice
President of CAI and CAII and is head of CAII's Public Equity and Syndications
division. He has served as Chairman of the Board for Neo-kam Industries, Inc.,
Matchless Metal Polish Company, Inc. and ACL, Inc. for more than 5 years. He has
over 20 years of experience holding various positions of responsibility in the
leasing industry. Mr. Olmstead holds a Bachelor of Science degree from Indiana
University and a Juris Doctorate degree from Indiana Law School.
40
<PAGE>
Dennis J. Lacey, age 44, became associated with CAII in October 1989 and
currently serves as Chief Executive Officer, President and as a director of CAI
and CAII. Formerly an audit partner with Coopers & Lybrand where Mr. Lacey's
areas of expertise included equipment leasing, insurance, banking and real
estate. He also has experience in mergers and acquisitions and deal structuring.
Mr. Lacey holds a degree in Accounting and Finance from the University of West
Florida.
Anthony M. DiPaolo, age 38, joined CAII in July 1990 as an Assistant
Treasurer and is currently Senior Vice President - Chief Financial Officer and
Treasurer of CAI and CAII. He has held financial management positions as Chief
Financial Officer for Mile High Kennel Club, Inc. from 1988 to 1990 and was Vice
President/Controller for VICORP Restaurants, Inc. from 1987 to 1988. Mr. DiPaolo
holds a Bachelor of Science degree in Accounting from the University of Denver.
Daniel J. Waller, age 38, joined CAII in July 1990, as a manager of
Investor Relations. Mr. Waller assumed the responsibility for the asset
management department a short time later, and is currently the Vice President,
Syndications for CAII. Prior to joining CAII, Mr. Waller was an audit manager
with Coopers & Lybrand for over three years and gained considerable experience
in the leasing industry. While at Coopers & Lybrand, Mr. Waller held positions
with the company's International Accounting and Auditing Committee as well as
the national Auditing Directorate. Mr. Waller holds a Bachelor of Arts degree in
Accounting from the University of Northern Iowa.
Richard H. Abernethy, age 42, joined CAII in April 1992 as Equipment
Valuation Manager and currently serves as Vice President of Asset Management for
CAII. Mr. Abernethy has 13 years experience in the leasing industry, including
prior positions with Barclays Leasing Inc., from November 1986 to February 1992,
and Budd Leasing Corporation, from January 1981 to November 1986. Mr. Abernethy
holds a Bachelor of Arts degree in Business Administration from the University
of North Carolina at Charlotte.
John A. Reed, age 42, joined CAII in January 1990 as the Tax Director and
Assistant Secretary. Mr. Reed was Vice President of Marketing and is responsible
for all lease documentation and management of transaction structuring and
processing until September 1997, when he was elected to the office of Vice
President - Manager of Capital Markets Group for CAII. Prior to joining the
Marketing Department, Mr. Reed was Vice President of Credit and Debt
41
<PAGE>
Administration. He spent seven and one half years with Coopers & Lybrand in the
Tax Department and served on CAII's tax consulting engagement during that time.
Mr. Reed holds a Bachelor of Arts degree in Social Sciences and Masters of
Science in Accounting, from Colorado State University.
David J. Anderson, age 44, joined CAII in August 1990 as Manager of Billing
& Collections and currently serves as Assistant Vice-President/Chief Accounting
Officer. Prior to joining CAII, Mr. Anderson was Vice-President/Controller for
Systems Marketing, Inc., from 1985 to 1990, and previous to that worked in
several senior staff positions at the Los Alamos National Laboratory and with
Ernst & Whinney. Mr. Anderson holds a Bachelor of Business Administration degree
in Accounting from the University of Wisconsin.
- --------------------------------------------------------------------------------
PERFORMANCE OF PRIOR INVESTMENT PROGRAMS
- --------------------------------------------------------------------------------
The General Partner has been recently formed specifically for the purpose
of acting as General Partner of the Partnership. Accordingly, it has not
participated in any previous private or public programs. Affiliates of the
General Partner have sponsored other public and private equipment investment
programs as discussed below. Prospective investors in the Partnership should
note that they will not, by investing in Units, acquire any ownership interest
in any of the prior investment programs of Affiliates of the General Partner or
in the General Partner.
Prior CAI Public Partnerships
Affiliates of the General Partner have organized and acted as a general
partner for seven publicly offered, income-oriented equipment leasing limited
partnerships, none of which have been liquidated. Information is set forth in
the following table as of June 30, 1997 unless otherwise indicated.
<TABLE>
<CAPTION>
====================================================================================================================================
Offering Amount Number of
Fund Name Period Raised Investors Equipment Acquired Equipment Sold
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Leastec Income Fund V, 1987-1989 $50,638,000 4,453 $ 93,161,303 $60,361,469
a California Limited
Partnership ("LIF")
- ------------------------------------------------------------------------------------------------------------------------------------
NorthStar Income Fund 1988-1989 $52,401,000 3,378 $ 63,710,439 $54,912,802
I, L.P. ("NorthStar")
- ------------------------------------------------------------------------------------------------------------------------------------
PaineWebber Preferred 1990-1991 $71,064,000 3,477 $116,199,090 $44,054,754
Yield Fund, L.P.
("PWPYF")
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Yield 1990-1992 $63,660,750 4,148 $131,993,306 $62,014,586
Fund, a California
Limited Partnership
("CPYF")
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Yield 1992-1994 $33,943,500 2,379 $ 74,448,546 $16,625,661
Fund-II ("CPYF-II")
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Yield 1994-1996 $50,000,000 4,971 $ 85,726,945 $ 6,101,618
Fund-III ("CPYF-III")
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Preferred Yield 1996-1998 $31,125,349 2,389 $ 45,167,752 $ 0
Fund-IV ("CPYF IV")
====================================================================================================================================
</TABLE>
42
<PAGE>
The percentages and amounts of cash distributions that represented
investment income (after deductions for depreciation and amortization of initial
direct costs of equipment) and a return of capital (corresponding to a portion
of the depreciation deductions for the related equipment) for the Prior CAI
Public Partnerships for each year from their respective dates of formation
through December 31, 1996, as well as for the period from January 1, 1997 to
June 30, 1997, are included in Table III of the "PRIOR PERFORMANCE TABLES"
attached as Exhibit B to this Prospectus. Certain additional investment
information concerning the Prior CAI Public Partnerships as of June 30, 1997, is
also included in Tables I, II and IV of the "PRIOR PERFORMANCE TABLES" attached
as Exhibit B to this Prospectus.
Prior CAI Private Programs
Affiliates of the General Partner sponsored 14 prior private investment
programs (the "Prior Private Programs") in the form of grantor trusts or
co-ownership programs between 1982 through 1987, raising $44,152,995 in capital
from investors and purchasing equipment valued at approximately $192,293,990.
Each of the Prior Private Programs acquired and leased, on a net basis, a
highly-leveraged portfolio of specified equipment. The primary investment
objectives of the Prior Private Programs were: (i) the generation of rental
revenues sufficient to repay program equipment indebtedness; (ii) the generation
of re-lease rental revenues and residual proceeds sufficient to return the
investors' equity investment and an "economic" profit thereon; and (iii)
realization of the federal income tax benefits resulting from the use of
leverage. The Prior Private Programs sought to accomplish their investment
objectives through high leverage (an average of approximately 80.0%).
Accordingly, the Prior Private Programs generate minimal cash distributions to
the investors until termination of their leases. None of the Prior Private
Programs had investment objectives like the Partnership which is to maximize
cash flow without any special tax benefits; therefore, they are not included in
the Prior Performance Tables at Exhibit B to this Prospectus. Due to the failure
of certain equipment to retain the re-lease and residual values projected at the
time of acquisition by the Prior Private Programs, in general, the re-lease
and/or residual revenues received by the Prior Private Programs and,
consequently, the cash-on-cash returns to investors, have been significantly
lower than forecasted at the inception of such Programs.
Losses in Residual Value
At the time equipment is purchased by a Program, the general partner of the
Program estimates the value of the equipment at the date in the future when the
lease of such equipment expires (the "Residual Value"). If at any later time the
general partner of a Program determines that the Residual Value of any equipment
owned by the Program has suffered a permanent decline due to events such as the
introduction of a more efficient or less costly model of such equipment, the
Program records additional depreciation for the affected assets so that the new,
lower Residual Value is reflected on the Program's balance sheet. If such
writedowns in asset value are large enough, the Program might suffer an
operating loss during the period in which the writedowns occur. In addition to
any such writedowns, the Partnership would also suffer the loss of expected
future rental income.
In its form 10-K for the year ended December 31, 1992, LIF disclosed losses
for the year ended December 31, 1992 of $1,344,759. In addition, LIF stated
that, "it is likely that the limited partners (of which CAII is the largest with
in excess of $2.5 million invested) will not recover their full initial
investments to the Partnership." It has now been determined that the limited
partners will not receive any return on capital and will receive approximately
90% of their original investment.
43
<PAGE>
A significant portion of the portfolio of LIF consisted of computers and
computer peripherals. Of this equipment, a significant portion of such equipment
was manufactured by IBM. During the late 1980s the resale market for IBM
equipment declined significantly due to the frequent introduction of new models
and technology by IBM during this period. Further, IBM became more active as a
lessor of equipment manufactured by it during this period. This had the impact
of narrowing the margins for all lessors of IBM equipment. Finally, LIF
purchased a significant amount of equipment subject to Operating Leases. While
the rentals on Operating Leases are typically higher than Full Payout Leases,
the lease terms are typically much shorter. Therefore, equipment was coming off
lease relatively early in its useful life during a time when the residual value
of the equipment was falling due to the competitive and market factors as noted
above. In addition, LIF's financial results were impacted by a recessionary
national economy and a decline in interest rates, resulting in a decline of
lease rates from the levels that existed at the time LIF was formed. Because
leasing is an alternative to financing equipment purchases with debt, a general
decline in interest rates at which companies can borrow debt results in a
decline in leasing rates. Further, the recessionary national economy resulted in
a higher than normal number of lessee bankruptcies in the LIF portfolio.
Each Prior CAI Public Partnership has experienced some reductions in
recorded Residual Values. This is a normal occurrence in the equipment leasing
business. None of the other Prior CAI Public Partnerships have suffered the
concentrations of Residual Value problems that LIF has suffered.
While lower interest rates cause the rate of return on equipment leases to
decrease, they do not directly impact the ability of lessors to sell or re-lease
equipment at the end of the term of the original equipment lease. This is driven
by economic factors that impact the demand for equipment. Lower interest rates
have meant that the rate of returns for Prior CAI Public Partnerships have
decreased marginally, but there has been no difficulty in re-leasing or selling
equipment coming off lease in those partnerships, other than the problems of LIF
discussed above.
Information About Prior Programs
The General Partner will provide, upon request, the most recent Form 10-K
Annual Report filed with the Commission for all or any of the Prior CAI Public
Partnerships described herein that were reported to the Commission, and for a
reasonable fee, all exhibits to each Form 10-K. Those who desire to have this
information should call the Investor Operations Department of CAI at (800) 843-
4552.
44
<PAGE>
For more detailed information regarding these Prior Programs, see the
"PRIOR PERFORMANCE TABLES" attached as Exhibit B to this Prospectus.
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Equipment Leasing Industry
Equipment leasing is a method of financing long favored by American
corporations. It has been used for over a hundred years by railroads to lease
their rolling stock. It allows the user to conserve cash and still acquire the
use of equipment it needs to operate its business. That's why 8 out of 10 U.S.
companies lease all or some of their equipment.* Of the estimated $563.1 billion
spent by businesses on productive assets in 1996, $168.9 billion or 30% was
acquired through leasing.** Banks, large financial institutions, leasing
companies and individuals own over $400 billion in equipment under lease.** As
you can see below, equipment leasing is the largest single source of capital for
American industry.
- -------------------
Sources: *Equipment Leasing Association
**U.S. Department of Commerce
***Equipment Leasing Association
Objectives of the Partnership
The Partnership intends to acquire and lease various types of Equipment to
creditworthy businesses. The terms of the Partnership's Leases are expected to
range from two to seven years. After the initial term of its Lease, each item of
Equipment will be expected to produce additional investment income from its
re-lease or ultimate Sale.
The Partnership's overall investment objectives are to:
(i) raise the maximum allowable capital from investors for investment
in accordance with the Partnership's investment objectives described herein (see
"PLAN OF DISTRIBUTION");
(ii) invest such capital and related indebtedness in a diversified
portfolio of Equipment subject to Leases with terms ranging from two to seven
years;
45
<PAGE>
(iii) if funds are available for distribution from Distributable Cash,
make cash distributions to the Class A Limited Partners in an amount equal to
the First Cash Distributions during the Reinvestment Period (a period that ends
approximately seven years to eight years after the Closing Date);
(iv) re-invest all available undistributed Cash From Operations and
Cash From Sales in additional Equipment during the Reinvestment Period to
increase the Partnership's portfolio of revenue-generating Equipment; and
(v) sell or otherwise dispose of the Partnership's Equipment and other
assets in an orderly manner and promptly distribute Cash From Sales thereof to
the Partners within one to two years of the end of the Reinvestment Period.
THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP WILL BE SUCCESSFUL IN
MEETING ANY OF ITS OBJECTIVES.
The General Partner intends to make periodic evaluations of the Equipment
and to use such evaluations at the end of the primary Lease term for each item
of Equipment to determine whether such Equipment should remain in the
Partnership's portfolio or be sold. This determination will involve an analysis
of the Partnership's operating results, economic conditions, tax considerations,
the nature and condition of the Equipment and other factors. Established markets
exist for sale of used equipment of the type to be included in the Partnership's
portfolio. The General Partner expects to obtain appropriate diversification in
the Equipment portfolio by following the investment guidelines set forth below.
See "The Equipment--Equipment Investment Criteria" below. The Partnership
intends to dispose of all its Equipment and terminate within approximately eight
to ten years after the Closing Date. However, after the end of the Reinvestment
Period, the General Partner will continue to evaluate the Equipment portfolio
and the value of future Lease rental payments in order to be able to make a
determination to accelerate the collection of cash through the refinancing of
the Leases and the sale of the underlying Equipment if economic conditions
warrant.
The General Partner has not established what proportion of the Equipment
portfolio will be subject to Full Payout Leases and what proportion will be
subject to Operating Leases. It is anticipated that a substantial portion of the
Partnership's Leases will be Operating Leases. See "Description of Leases" below
and "RISK FACTORS--Business Risks--Risks of Operating Leases."
When required, the General Partner intends to arrange, through various
unaffiliated service organizations, to provide for the installation, removal,
maintenance and modification of the Equipment. The General Partner anticipates
that the Equipment will be located primarily in North America. The Partnership
46
<PAGE>
may take advantage of leasing opportunities outside of North America; however,
the aggregate Equipment Purchase Price of the amount of any Equipment leased
outside of North America will be less than 10.0% of the aggregate Equipment
Purchase Price of all the Partnership's Equipment.
The Equipment
Acquisition of Equipment. All investment decisions relating to the
acquisition of Equipment will be made by the General Partner in accordance with
the Equipment investment criteria described herein and the undertakings set
forth under "CONFLICTS OF INTEREST." Potential Equipment investments will be
evaluated primarily on the basis of: (i) the extent to which the investment
satisfies the Partnership's investment objectives, with special emphasis on the
economic return to the Partnership; (ii) the creditworthiness of the Lessee; and
(iii) the type of Equipment to be purchased and leased. The Partnership expects
to acquire and lease Equipment of the types described below. See "The
Equipment--Types of Equipment" below.
Affiliates of the General Partner have employees who have developed
expertise in the evaluation of equipment residual values. Generally, evaluations
of Residual Values will be done by such employees. However, where necessary or
appropriate, the General Partner will obtain from unrelated third parties, at
the expense of the Partnership, such reports, inspections or surveys as it
considers necessary to determine the economic life, reliability and productivity
of Equipment to be purchased and its suitability, desirability and demand in the
industry in which it is to be used. Neither the General Partner nor its
Affiliates will receive any fees in connection with any such third party
reports, inspections or surveys.
It is expected that on or about __________, 1998, CAII will sell certain
items of Equipment worth approximately $__________ to the Partnership. This sale
shall be made pursuant to an installment sales contract which shall be fully
paid within twelve months of its execution by the Partnership from the proceeds
of the Offering. The interest rate payable to CAII under the installment sale
contract shall be ____% per annum. The price paid by the Partnership pursuant to
the installment sale contract shall comply with the limitations set forth under
"CONFLICTS OF INTEREST Competition with the General Partner and its Affiliates
Limitation on Purchase Prices". Schedule I to this Prospectus identifies certain
Equipment that is expected to be purchased by the Partnership from CAII. After
the Closing, it is anticipated that Equipment will be purchased on an all-cash
basis or financed by non-affiliated third parties.
Upon the Sale of Equipment, the Partnership may receive purchase money
obligations secured by liens on the Equipment. In such cases, the amount of such
obligations will not be included in Cash From Sales generally distributable to
the Limited Partners until, and only to the extent that, the obligations are
realized in cash, whether by payment, Sale or other disposition.
Equipment Investment Criteria. No less than 65.0% of the Equipment subject
to Initial Leases, by value (based on the aggregate Equipment Purchase Price of
all such Equipment), will either be in an Investment Grade Pool (as defined
below) or initially be leased to Investment Grade Lessees (as defined below),
including the operating subsidiaries of entities that are Investment Grade
Companies. Leasing to such subsidiaries may involve more risk than leasing
directly to the entity that is an Investment Grade Company. The General Partner
will consider the advisability of requiring guaranties from the parent of such
lessees on a case-by-case basis.
"Investment Grade Lessee" means (a) a Lessee that has, or is an operating
subsidiary of an entity (an "Investment Grade Company") that has (i) a net worth
in excess of $100,000,000 (and no debt issues that are rated), or (ii) at least
one debt issue with a credit rating by Moody's Investor Service, Inc.
("Moody's") of "Baa" or better, or its equivalent, assigned by another
47
<PAGE>
nationally recognized credit rating agency, including, among others, Standard &
Poor's Corporation and A.M. Best Company, or (b) a Lessee, all of whose payments
under a Lease to the Partnership have been unconditionally guaranteed or
supported by a letter of credit issued by a company that has (i) a net worth in
excess of $100,000,000, or (ii) at least one debt issue with a credit rating by
Moody's of "Baa" or better, or its equivalent, assigned by another nationally
recognized credit rating agency. Baa is a corporate bond credit rating.
According to Moody's, bonds that are rated Baa are considered to be medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
"Investment Grade Pool" means a pool of Equipment Leases with an aggregate
Equipment Purchase Price to the Partnership of in excess of $2,000,000,
containing no less than twenty (20) unaffiliated Lessees, with all Lessees being
business (no consumer Lessees), and containing no Lease with a total original
Equipment purchase price of less than $5,000, provided, however, that the total
Equipment Purchase Price in the Investment Grade Pool shall in no event be
greater than 15% of the aggregate Equipment Purchase Price of the Equipment. See
"Vender Leasing Programs" below.
Other than in the Investment Grade Pool, the Partnership will acquire
Equipment subject to a Lease with a Lessee that is not an Investment Grade
Lessee only if the candidate Lessee is creditworthy, in the judgment of the
General Partner. Generally, no Lessee will be treated as "creditworthy" for this
purpose unless it has a Net Worth of at least $20,000,000.
Not more than 15.0% of the aggregate Equipment Purchase Price of the
Equipment will be invested in a single model of Equipment. There are no
Equipment investment criteria concerning the age of the Equipment purchased;
however, it is anticipated that a substantial portion of the Equipment purchased
by the Partnership will be models introduced or equipment manufactured within
the last five years. Not more than 15.0% of the Equipment, by value, will be
subject to a Lease or Leases to a single Lessee or its Affiliates. The
Partnership will not invest in limited partnership interests in other limited
partnerships. The foregoing are investment criteria only; there can be no
assurance as to the ultimate composition of the Partnership's actual Equipment
portfolio, as there is no way to anticipate what lease transactions or types of
Equipment may be available on reasonable terms at the time the Partnership is
prepared to invest its funds. No assurance can be given that these objectives
will be met. During the start-up phase of Partnership operations, some or all of
these criteria may be waived by the General Partner for a limited period of time
due to the small number of Leases the Partnership will initially enter into.
Purchase of Used Equipment. Some portion of the Equipment purchased by the
Partnership may be used equipment, that is, equipment sold to the Partnership or
an Affiliate on a temporary basis by a seller other than the manufacturer. The
Partnership intends to acquire primarily new equipment. However, the age of the
Equipment purchased will depend on many factors, including the anticipated
length of the product cycle for the type of Equipment being purchased, the lease
terms and the price. Since a portion of the Equipment will be subject to
technological obsolescence, but not to physical depreciation, used equipment
(which can often be purchased more cheaply than new equipment) may in many cases
represent a more economical investment than new equipment of the same type.
Vendor Leasing Programs. CAII expects to provide lease financing programs
to vendors and manufacturers of business equipment, who will market their
products to business customers, including small businesses without any formal
credit ratings. Small business leasing will be a new segment of the leasing
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industry for CAII and its affiliates. The General Partner anticipates that the
Partnership will purchase a pool of these vendor directed leases that meets the
criteria set forth in the definition of "Investment Grade Pool" above. The
amount invested in this vendor program pool of leases will in no event exceed
15% of the aggregate Equipment Purchase Price of all of the Partnership's
Equipment.
Reinvestment. The Partnership expects to purchase additional Equipment
during the Reinvestment Period with Distributable Cash not distributed to the
Partners. The General Partner anticipates that reinvestment of Distributable
Cash during the Reinvestment Period will facilitate the purchase of Upgrades for
Equipment already owned and leased by the Partnership, thereby enhancing the
Residual Value of such Equipment. It is also anticipated that reinvestment in
Equipment will reduce the average age of the Equipment portfolio. Equipment
purchased with Reinvested Proceeds will be subject to the Equipment investment
criteria set forth above. The Partnership will be given a right of first refusal
to purchase any Upgrade leased by a General Partner or an Affiliate relating to
Equipment owned by the Partnership. The Partnership may purchase additional
Equipment after the Reinvestment Period, but only if a commitment to purchase
such Equipment was made by the Partnership during the Reinvestment Period or if
the Equipment is an Upgrade to Equipment purchased by the Partnership prior to
the end of the Reinvestment Period.
Diversification. Diversification is generally desirable to minimize the
effects of changes in specific industries and local economic conditions and the
risks of technological or economic obsolescence of any particular type of
Equipment or similar risks. However, the extent of the Partnership's
diversification, in the aggregate and within each category of Equipment, will
depend on the amount of Net Offering Proceeds available to the Partnership from
the sale of Units and the availability of various types of Equipment. The
General Partner does intend to cause the Partnership to invest at least 65.0% of
its acquisition funds in low technology Equipment, such as railroad cars, trucks
and trailers, construction Equipment, mining Equipment, production Equipment and
warehouse Equipment. No more than 35.0% of its acquisition funds would be
invested in other types of Equipment. There can be no assurance that such goals
can be reached and that this intended "mix" of Equipment will be realized.
Re-Leasing. Initial Lease terms will vary according to the type of
Equipment. Generally such Lease terms will be for approximately two to seven
years. At the termination of the Initial Lease terms, the General Partner will
attempt to arrange for the Equipment to be re-leased (either to the original
Lessee or to a new Lessee) if it determines that re-leasing is in the best
interests of the Partnership at such time. The terms of such Subsequent Leases
will vary.
The General Partner anticipates beginning to dispose of Equipment
immediately after the close of the Reinvestment Period (i.e., seven to eight
years after the Closing Date). The General Partner anticipates that all
Equipment will be sold (in some cases subject to Leases) and the Partnership
liquidated between seven and eight to ten years after the Closing Date. No
assurance can be given that the Partnership will in fact be successful in the
re-leasing or selling of any item of its Equipment profitably.
Types of Equipment. The primary Equipment types that the General Partner
anticipates considering for purchase by the Partnership are described below.
However, the General Partner may consider acquiring other Equipment types as
market conditions require and product development continues, and there can be no
assurance that the Partnership will acquire Equipment of the type, make or model
described below.
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Materials Handling Equipment. Materials handling equipment
includes forklift trucks, pallet trucks and various other
types of equipment utilized to transport merchandise or other
items in bulk quantities.
Warehouse Equipment. The Partnership may acquire and lease
conveyor systems and related equipment used on assembly lines
and for the transport of finished and unfinished products
through various stages of production. Warehouse equipment
includes counters, pallets, racks and bins which are used in
the organization and operation of warehouses and distribution
facilities. The equipment comes in a variety of models
depending on the design of the product to be stored and the
design of the warehouse or distribution facility.
Manufacturing Equipment. Manufacturing equipment includes, but
is not limited to, machine tools such as lathes, drill
presses, injection molding and extrusion equipment, turning
mills and grinders used in the manufacturing of various
products and components.
Production Equipment. The Partnership may acquire various
types of metal bending equipment, metal slitting equipment
and other metal forming equipment used in the production of
a wide variety of machinery and equipment.
General Purpose Plant Equipment. Plant equipment includes
racking, shelving, storage bins, portable steel storage sheds
and pallets, as well as numerous other items used in
manufacturing plants.
Printing Equipment. Printing equipment includes various sizes
of printing presses, offset press equipment and pre-press
equipment used in the publication, commercial printing and
newspaper industries.
Graphics Printing Equipment. Graphics printing equipment
includes print setters, automatic drafting machines and laser
printers which are used for the printing of graphic designs
and drawings. CAD/CAM (computer assisted design and
manufacturing machines) includes all equipment which is used
for the visual display of designs and drawings.
Communications Equipment. Telephone communications equipment
is used in voice transmission activities and includes such
equipment as telephone systems, automatic call direction
systems, voice recorders, central switching equipment,
telephone handsets and connecting and/or wiring equipment.
Radio and television communications equipment includes items
used in cable television, radio and wire telegraph
communications, transmitters and control and amplification
equipment. The Partnership may acquire satellite and microwave
transmission facilities, as well as other equipment used in
the transmission of information via satellite. Data
communications equipment includes terminals, cables,
transmission wires, modems, teleprinters and related data
communications support equipment. Computer peripheral
equipment includes tape drives, disk drives, printers,
terminals and monitors used in tandem with central processing
units.
Computer Systems. The Partnership may acquire various types of
personal computer equipment, local area network equipment,
file servers, printers and other related equipment used to
process data and programming applications.
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Energy Equipment. Energy management systems include
thermostats and regulators as well as other equipment used
in the conservation and regulation of power supplies. Energy
production equipment includes compression and pumping
equipment, storage facilities, transmission lines,
generation facilities and other processing equipment. Energy
conversion equipment includes distillation, fractionation
and modification equipment as well as tanks and pumping
equipment used to convert energy from one form to another.
Office Furniture. Office equipment includes desks, chairs,
bookcases, cabinets, credenzas and tables manufactured by
Steelcase and Herman Miller, among others.
Retail Store Fixtures. Retail store fixtures include racking,
shelving, display cases and freezers, as well as other
equipment for use in the display and stocking of items in
retail facilities.
Medical Equipment. The Partnership may acquire and lease
diagnostic and radiology equipment, magnetic resonance imaging
systems, X-ray equipment and monitoring equipment manufactured
by Siemens, General Electric and Beckman, as well as other
manufacturers. Hospital equipment includes drug dispensers,
cabinets, counters, tables and other furniture and medical
support equipment.
Research and Test Equipment. Research equipment includes
spectrometers, oscilloscopes, gas and liquid chromatographs,
laser equipment, digital-aided design systems, scanning
electron microscopes, dissolution sampling systems and other
equipment used in research programs. Laboratory and test
equipment includes physical testing centrifuges, measuring
instruments, graphic plotters and printers, analyzers and
other general purpose laboratory and test equipment used in
research and testing facilities.
Railroad Equipment. The Partnership may acquire power driven
locomotives used to pull passenger and cargo railcars.
Locomotives are manufactured by General Electric and General
Motors, among others. Railroad cars include, but are not
limited to, tank cars, hopper cars, frame, flat cars and
passenger cars used by railroad companies for the shipment of
cargo and passengers over long and short distances. Railroad
maintenance equipment includes stationary and mobile
equipment used by railroads in track, locomotive and railcar
maintenance.
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Over-the-road Tractors. A "tractor" refers to the power unit
of a tractor-trailer combination and consists of the cab,
frame, engine and drive train. Manufacturers of cabs include
Ford, General Motors, International, Peterbilt, Freightliner,
Kenworth and Mack. Engines may be manufactured by cab
manufacturers or by other manufacturers such as Cummins or
Caterpillar.
Heavy Trucks and Other Vehicles. Heavy duty trucks are large
trucks in which the engine and load carrying part are mounted
on a single frame. These trucks can be used for the local
delivery of large products or for the hauling of construction
materials. Heavy duty trucks are manufactured by General
Motors, Ford and various other manufacturers. Other motor
vehicles may include vans, light trucks and automobiles to be
used by the Lessee in its trade.
Heavy Duty Trailers, Intermodal Containers and Chassis.
Trailers are the container portion of a tractor trailer rig,
which are manufactured in a variety of sizes and designs. A
trailer may be enclosed or a flat bed for the shipment of
larger or oversized products. Trailers are manufactured by a
number of companies including Fruehauf, Great Dane and
Trailmobile. Intermodal containers include general dry cargo
containers and special purpose containers, such as
refrigerated containers, tank containers, half-height
containers, flat rack containers, open-top containers and
special purpose containers. Chassis are the frame portion of a
unit which includes tires, wheels, axles, suspensions and
which support the containers for local or long distance
transport over the road.
Construction Equipment. Construction equipment includes
rollers, bulldozers, graders, cranes, asphalt spreaders and
cement spreaders and other types of equipment used in the
building of residential and commercial structures and road,
bridge and other civil engineering projects.
Semiconductor and Circuit Board Manufacturing and Testing
Equipment. Includes equipment used in the manufacture of
silicon wafers where the final product is an integrated
circuit. This would include but not be limited to
photolithography equipment, etching systems, ion
implantation and thin film deposition. The category would
also include equipment used to mount chips on printed
circuit boards (chip placement, screen printing and board
cleaning). Also included would be equipment used to test
wafers, finished chips and entire circuit boards. Included
would be ULSF testers, memory testers, mixed signal testers
for telecommunications products, and board functionality
testers.
Below Ground Mining Equipment. Equipment used in the
underground mining of coal and other metals. The equipment
would include continuous miners, shuttle cars, hydraulic roof
supports, conveyors, etc.
Above Ground Mining Equipment. Mining equipment includes
trucks with 80 to 190 - ton capacity, haulers, bulldozers,
backhoes, front-end loaders, scrapers and spreaders used in
mining.
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Market Factors and Residual Values
The market for used Equipment at the end of a Lease will determine the
Residual Value of the Equipment at that time. Such Residual Value will depend on
many factors, including the rate of Equipment obsolescence, competitive
practices, the physical condition of particular Equipment and the general state
of the economy at such time.
Obsolescence has not been as significant a factor with respect to market
and Residual Values for certain kinds of used Equipment, such as industrial,
mining and transportation Equipment ("General Equipment") as it has for used
high technology Equipment such as computer and telecommunication Equipment
("High Technology Equipment"). This fact has tended to result in a longer market
life and a more stable residual curve for used General Equipment. Proceeds from
renewals and extensions of existing leases and from leases to different lessees
represent a significant portion of the residual value of used Equipment.
Renewals, extensions and new leases of used General Equipment tend to be
increased due to a lack of significant technological change. There exist active
used Equipment markets and wholesale brokers for such Equipment, which usually
allow remarketing opportunities to be quickly utilized for used General
Equipment.
Physical deterioration and maintenance practices are significant factors
affecting the value of used General Equipment. However, provisions within Lease
agreements concerning required maintenance and return conditions generally serve
to ensure resale value for this Equipment. The demand for certain types of used
General Equipment is affected by the economic strength of particular industries,
as well as by general economic conditions. Due to the broad range of General
Equipment in which the Partnership may invest, it is not possible to describe
specifically the variety of market factors and residual values that may be
associated with the General Equipment invested in by the Partnership.
The used Equipment market for High Technology Equipment has developed as a
result of a number of factors, including: (i) frequent upgrading of Equipment by
computer users as the result of advances in technology, broadening of user
applications and the need for greater capacity; (ii) in the case of computer
peripheral Equipment, certain manufacturers' practices of designing new
mainframes so that their existing peripheral Equipment may be used in connection
with them; and (iii) certain manufacturers' policies of selling used Equipment
only at new Equipment prices, except in certain limited circumstances, and of
furnishing maintenance, service and parts to owners of their used as well as new
Equipment.
To the extent the Partnership invests in a particular manufacturer's High
Technology Equipment initially, the market and residual value of that portion of
its portfolio invested in such Equipment will be susceptible to changes in such
manufacturer's marketing policies and the possibility that such manufacturer may
lose its market position in the High Technology Equipment marketplace because of
the development of an innovative system of High Technology Equipment by a third
party. The General Partner is expected to take into account Residual Value
expectations in the pricing of the Leases.
Computer technology has developed rapidly in recent years and is expected
to continue to do so. Technological advances have permitted continued reductions
in the cost of computer processing capacity, thereby permitting applications not
previously economically feasible. Software is sometimes interchangeable between
old and new Equipment, and older Equipment is sometimes capable of performing
many of the same functions as newer Equipment. However, technological advances
and other factors have caused dramatic reductions in the market price of older
models of Equipment from the prices at which they were originally introduced,
which in some cases was only a few years earlier.
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Like computer-related Equipment, telecommunications technology and the
integration of computer components into and with telecommunications Equipment
have developed rapidly in recent years and are expected to continue to do so.
Technological advances, the divestiture by AT&T of certain of its assets and
operations and the introduction of foreign-manufactured telephone Equipment have
permitted continued reductions in the cost of telecommunications Equipment.
The rate at which High Technology Equipment may decline in value over time
will depend primarily on the rate of introduction of new, technically advanced
models and the pricing of such models. This introduction of a newer model of
Equipment with an improved price/performance relationship will tend to cause the
secondary market's price for an older model to decline, as the new model becomes
available in quantities sufficient to displace the older model and meet any
increased demand for Equipment with superior performance characteristics until
the price/performance relationship of the older model is in line with that of
the newer model.
Description of Leases
Only Equipment subject to a Lease will be acquired by the Partnership. Each
Lease acquired by the Partnership will be a Triple Net Lease, which will require
the Lessee to repair and maintain the Equipment, pay all taxes relating to the
Lease and Lessee's use of the Equipment (other than taxes measured by the net
income or net capital of the lessor), and bear the entire risk of the Equipment
being lost, damaged, destroyed or rendered unfit or unavailable for use.
Generally, each Lease will require the Lessee to provide liability and casualty
insurance on the Equipment naming the lessor or its nominee as an additional
insured or loss payee, although the General Partner in its sole discretion may
permit a creditworthy Lessee to self-insure. Generally, the responsibility of
the Lessee to pay rent under the Lease will be absolute and unconditional and
not subject to abatement, reduction, set-off, defense, counterclaim or
recoupment for any reason whatsoever unless the Partnership breaches its
covenant of quiet enjoyment. Generally, the Lessee will indemnify and hold the
Partnership harmless from and against any and all claims, costs, expenses,
damages, losses, and liability incurred as a result of, or incident to, the
ownership, management, control, use, operation or storage of the Equipment, any
defect in the Equipment, the use during the term of the Lease of any design,
article or material in connection with the construction or operation of the
Equipment that infringes, or is claimed to infringe, upon any patent or other
right or any default by Lessee in the performance of its obligations under the
Lease. However, the General Partner may agree to vary such terms in negotiations
with a Lessee or third party seller of Equipment already subject to Lease if it
determines that such action is in the best interest of the Partnership. CAI and
its Affiliates, including the Partnership, maintain both a "blanket" casualty
policy and "umbrella" liability policies insuring CAI and its Affiliates,
including the Partnership. See "Insurance" below.
Leases may be initially entered into by CAII as lessor and, upon selection
by the General Partner, assigned to the Partnership or may initially be entered
into by a third party lessor and assigned by such lessor or another party to the
Partnership. Frequently, the lessor's obligations will remain with the
originating lessor and only the lessor's rights under the Lease will be assigned
to the Partnership. It is currently anticipated that all Initial Leases assigned
to the Partnership will have a fixed base Lease rate, as opposed to a percentage
or floating rate rental.
In general, the terms of the Leases will depend upon a variety of factors,
including the desirability of each type of lease (from both an investment and a
tax perspective), the relative demand among prospective lessees for short-term
and longer-term leases, the type and use of Equipment and its anticipated
Residual Value, the business of that lessee and its credit rating, the
availability and cost of financing, regulatory considerations, the accounting
treatment of the Lease sought by the Lessee or the Partnership and other
competitive factors.
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Insurance
The Partnership will purchase and maintain such insurance policies or
self-insurance programs as the General Partner deems reasonably necessary to
protect the interests of the Partnership (to the extent such policies or
acceptable self-insurance programs are not maintained by the Lessees or other
parties for the benefit of the Partnership). CAI and its Affiliates, including
the Partnership, maintain both a "blanket" casualty policy and "umbrella"
liability policies insuring CAI and its Affiliates, including the Partnership.
The Partnership does not currently intend to carry business interruption
insurance covering loss of income resulting from Equipment loss or damage.
The policies described above have or will have such limits and deductible
amounts as the General Partner deems advisable, based on the costs involved and
the operations of the Partnership. In addition, such policies have or will have
certain exclusions from coverage for risks that are uninsurable or are not
insurable at rates deemed reasonable by the General Partner. Such exclusions
include damage or loss by war, nuclear accidents, earthquakes and other similar
risks. The Partnership will not assume the cost of any portion of liability
insurance that would insure the General Partner for any liability as to which
the General Partner is prohibited from being indemnified under the Partnership
Agreement. The Partnership may purchase and pay for such types of insurance,
including extended coverage liability and casualty and workers' compensation, as
would be customary for any Person owning comparable property and engaged in
similar business, and the General Partner and its Affiliates, employees and
agents may be named as additional insured parties thereunder, provided that the
cost of premiums payable by the Partnership is not increased thereby. There is
no assurance, however, that any such insurance will be available or, if
available, that it will be at a rate acceptable to the Partnership.
Joint Venture Equipment
It is an objective of the Partnership to maximize direct ownership of all
its Equipment and to minimize joint investments except when joint ownership of
Equipment will increase diversification of the Partnership's Equipment or Lease
portfolio or promote other Partnership objectives. The General Partner will
invest in joint ventures (including general partnerships, with other limited
partnerships sponsored by the General Partner and its Affiliates or any
non-Affiliate) only if such action is in the best interest of the Partnership
and such investment satisfies the criteria set forth in the following two
sentences. In the case of joint ventures with non-Affiliates, the Partnership
must acquire a controlling interest in the joint venture and the joint
investment must otherwise comply with the Partnership's investment criteria as
to the proposed Lease. In the case of joint investments with other Programs
sponsored by the General Partner or an Affiliate, the Partnership will only
invest in such joint ventures under the following circumstances: (i) all
participating Programs including the Partnership have substantially identical
investment objectives; (ii) participation by the Partnership will not result in
the General Partner, its Affiliates or any other Person receiving any fees from
the joint venture that duplicate fees contemplated and permitted by the terms of
the Partnership Agreement; (iii) the compensation payable to the General Partner
and its Affiliates is substantially identical for the Partnership and all other
participating Programs; (iv) the Partnership has a right of first refusal to buy
if another Program desires to sell equipment held in the joint venture; (v) the
investment of each Program participating in the joint venture including the
Partnership is on substantially the same terms and conditions; and (vi) the
joint venture is done either for the purpose of effecting appropriate
diversification for the Partnership and all other participating Programs or for
the purpose of relieving the General Partner or its Affiliates of a commitment
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to acquire Equipment in those instances where the General Partner or its
Affiliates is holding title to Equipment on an interim basis for the purpose of
(a) facilitating acquisition of such Equipment by the Partnership, (b) arranging
financing for the Partnership, or (c) for any other purpose related to the
business of the Partnership, provided that: (I) such action is in the best
interests of the Partnership, (II) such Equipment is purchased by the
Partnership for a price no greater than the cost of such Equipment to the
General Partner or its Affiliates plus compensation described in the Partnership
Agreement, (III) there is no difference in the interest terms of the loans
secured by the Equipment at the time acquired by the General Partner or its
Affiliates and at the time acquired by the Partnership, and (IV) no other
benefit arises out of such transaction to the General Partner apart from
compensation contemplated by the Partnership Agreement.
A risk of joint ventures with non-Affiliates is that an impasse may be
reached when both parties must agree on a management decision. If neither party
has the funds to buyout the other, a forced sale could result in losses to both
joint ventures.
Leverage
The Partnership will utilize borrowings: (i) to finance the purchase of
Equipment; and (ii) to invest the proceeds thereof in additional Equipment and,
at times, Reserves. It is expected that a substantial portion of the purchase
price of certain Equipment will be borrowed by the Partnership on a non-recourse
basis and that such Equipment will be used to secure such borrowings. In such
cases, it is expected that title to the Equipment would remain with the
Partnership, but that a security interest in the Equipment would be granted to
the bank or other institution that provides the financing for the purchase of
that Equipment. The Partnership will only finance the purchase of Equipment on a
non-recourse basis (i.e., the Lender may look only to Lease rentals and the
Equipment for repayment, and not to the Partnership's other assets). Under any
Equipment Lease that is financed, net rentals, if paid, will be sufficient, at a
minimum, to repay the related non-recourse debt. No Equipment or Lease provides
security for the financing of any other Equipment or Lease.
Generally speaking, the "mix" of the Partnership's investments will
include: (i) Equipment subject to "leveraged" Leases (all or a substantial
portion of the rental revenues from which will be assigned to a lender to pay
debt service used in the acquisition of the Equipment subject to such Lease);
and (ii) Equipment subject to "unleveraged" Leases (all of the gross revenues
from which will be retained by the Partnership and be applied to discharge the
cash needs of the Partnership other than debt service). Since the rentals with
respect to the Partnership's "leveraged" Leases are expected to be payable to
the lender, the gross revenues from its "unleveraged" Leases must be sufficient,
after allowing for contingencies such as Lessee defaults, to meet the cash needs
of the Partnership other than debt service.
The actual amount borrowed by the Partnership for the purchase of Equipment
and the terms of such borrowings will depend upon the availability of financing,
interest rates and other costs to the Partnership, and the General Partner's
determination that the amount borrowed is desirable in light of the
Partnership's investment objectives and policies. The Partnership may have total
borrowings up to 50.0% of the aggregate purchase price to the Partnership of all
its Equipment as determined when all Net Offering Proceeds are fully invested.
There is, however, no limit on borrowings relating to an individual item of
Equipment.
Equipment leases have on occasion been held by the courts to be loan
transactions subject to state usury laws. Severe penalties, including loss of
interest and treble damages, may be imposed upon persons who violate such usury
laws. The Partnership will seek to structure its Leases in such a manner as to
avoid application of the usury laws of the states in which it conducts its
operations. However, in a lawsuit, a transaction that the Partnership believes
to be exempt from, or in compliance with, such usury laws could be alleged to be
a loan that violates a usury law, and there can be no assurance that some of the
amounts that the Partnership receives on its investments may not be
characterized as interest charges and fees that are held to be usurious.
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Cash Distributions to Partners
From the aggregate monthly rental payments received from companies leasing
Equipment owned by the Partnership, the Partnership will pay its operating
expenses such as accounting, investor relations and legal fees, the costs of
reports to the Class A Limited Partners and the General Partner's Management Fee
(to the extent payable in light of its subordination) and will establish any
necessary reserves. The net amount is called "Cash From Operations." Amounts
remaining after the payment of these expenses and the establishment of Reserves,
together with net proceeds from any Sale of Partnership Equipment ("Cash From
Sales"), will be used to make cash distributions to the Partners. The Partners
may elect to take monthly or quarterly cash distributions. During the
Reinvestment Period (a period that ends approximately seven years after the
Closing Date and during which undistributed cash will be used to purchase
additional Equipment for the Partnership) cash distributions to the Class A
Limited Partners, if any, is expected to be an amount equal to 10.5% on an
annual basis (twelve 30-day months), of each investor's Capital Contribution to
the Partnership (a substantial portion of which is expected to be a return of
capital), if funds are available for distribution ("First Cash Distributions").
After the Reinvestment Period, all Cash From Operations and Cash From Sales will
be distributed to the Partners, except for cash used to purchase Equipment that
the General Partner committed during the Reinvestment Period to purchase on
behalf of the Partnership or Upgrades for Equipment already owned by the
Partnership.
The distribution of Cash From Operations and Cash From Sales is subject to
the availability of funds from such sources and, accordingly, there can be no
assurance that any such anticipated distributions will be made or that any or
all of the Capital Contributions of the Class A Limited Partners will be
returned out of Cash From Operations and Cash From Sales.
During the Reinvestment Period, the General Partner will receive 1.0% of
all cash distributed to the Partners, if any. The Class A Limited Partners
(i.e., the investors) will receive cash distributions equal to 10.5%, on an
annual basis, of their Capital Contributions to the Partnership if funds are
available. The Class B Limited Partner will receive cash distributions equal to
10.5%, on an annual basis, of its Capital Contributions to the Partnership if
funds are available.
The Class B Limited Partner will not receive otherwise payable cash
distributions for any month if the Class A Limited Partners (i.e., the
investors) have not received their First Cash Distributions on a cumulative
basis. The Class B Limited Partner's interest is therefore subordinated to the
Class A Limited Partners' (i.e., the investors') interests.
After the Reinvestment Period, the sharing of cash distributions will
continue generally as described in the preceding paragraph until the Limited
Partners (including the investors) have received cash distributions equal to
both (i) their Capital Contributions plus a 10.0% annual, cumulative return
compounded daily, and (ii) 170.0% of their Capital Contributions. Thereafter,
the General Partner will receive 10.0% of all cash distributions, the Class A
Limited Partners (i.e., the investors) will receive 89.1% of all cash
distributions and the Class B Limited Partner will receive 0.9% of all cash
distributions.
At liquidation of the Partnership, Liquidation Proceeds will be distributed
in proportion to the positive balances in each Partner's Capital Account.
EACH CASH DISTRIBUTION MAY CONSIST, IN WHOLE OR IN PART, OF: (i) AN
INVESTOR'S PRO RATA SHARE OF THE PARTNERSHIP'S NET INCOME GENERATED FROM
OPERATIONS, AFTER DEDUCTION OR AMORTIZATION OF NON-CASH EXPENSES (SUCH AS
DEPRECIATION AND INITIAL DIRECT COSTS) AND CASH EXPENSES (SUCH AS INTEREST ON
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INDEBTEDNESS), (AS DETERMINED UNDER GAAP); OR (ii) A RETURN OF INVESTORS'
ORIGINAL CAPITAL INVESTMENT (ON A GAAP BASIS). A SUBSTANTIAL PORTION OF EACH
CASH DISTRIBUTION MAY CONSIST OF AN INVESTOR'S ORIGINAL CAPITAL INVESTMENT,
WHICH, UNDER GAAP, IS DEEMED TO BE THAT PORTION OF CASH DISTRIBUTIONS THAT IS
NOT ATTRIBUTABLE TO PARTNERSHIP NET INCOME FOR THE PERIOD OF THE DISTRIBUTION,
IRRESPECTIVE OF WHETHER SUCH DISTRIBUTIONS HAVE IN FACT BEEN PAID FROM CASH FROM
CURRENT OR PAST OPERATIONS. ACCORDINGLY, CASH DISTRIBUTIONS RECEIVED BY A CLASS
A LIMITED PARTNER MAY NOT, IN ALL INSTANCES, BE CHARACTERIZED SOLELY OR
PRIMARILY AS INVESTMENT INCOME EARNED ON SUCH CLASS A LIMITED PARTNER'S
INVESTMENT IN THE PARTNERSHIP. THE PARTNERSHIP EXPECTS THAT THE PROCEEDS FROM
SALE OR OTHER DISPOSITION OF THE PARTNERSHIP'S EQUIPMENT (WHICH IS EXPECTED TO
OCCUR AT THE END OF EACH RESPECTIVE LEASE OF SUCH EQUIPMENT) WILL BE
SIGNIFICANTLY LESS THAN THE PARTNERSHIP'S ORIGINAL PURCHASE PRICE OF SUCH
EQUIPMENT, IN LARGE PART BECAUSE THE PARTNERSHIP'S EQUIPMENT IS EXPECTED TO
DECLINE IN VALUE (i.e., GENERALLY BE FULLY DEPRECIATED OVER A THREE TO FIVE YEAR
PERIOD). ACCORDINGLY, THE SUCCESS OF THE PARTNERSHIP IN REALIZING BOTH A RETURN
OF CAPITAL AND INVESTMENT INCOME ON ITS EQUIPMENT WILL DEPEND HEAVILY ON: (i)
ITS ABILITY TO (a) GENERATE SIGNIFICANT OPERATING CASH FLOW FROM ITS EQUIPMENT
DURING THE TERMS OF THE LEASES OF SUCH EQUIPMENT, AND (b) REINVEST A SUBSTANTIAL
PORTION OF ITS NET CASH FLOWS (AFTER DISTRIBUTIONS TO INVESTORS) AND EQUIPMENT
SALE PROCEEDS IN ADDITIONAL EQUIPMENT DURING THE REINVESTMENT PERIOD; AND (ii)
THE RESIDUAL VALUE THAT IT REALIZES FROM ITS ENTIRE EQUIPMENT PORTFOLIO DURING
AND AFTER THE REINVESTMENT PERIOD (THE PERIOD THAT ENDS APPROXIMATELY SEVEN
YEARS AFTER THE CLOSING DATE). SEE "RISK FACTORS--BUSINESS RISKS--RESIDUAL VALUE
OF EQUIPMENT." THERE CAN BE NO ASSURANCE THAT INVESTORS WILL RECEIVE THE RETURN
OF THEIR ENTIRE ORIGINAL CAPITAL INVESTMENT IN THE PARTNERSHIP OR ANY INVESTMENT
INCOME ON SUCH INVESTMENT.
THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP WILL BE SUCCESSFUL IN
MEETING ANY OF ITS OBJECTIVES.
Reinvestment of Undistributed Cash in Additional Equipment
The Partnership intends to reinvest substantially all undistributed Cash
From Operations and Cash From Sales throughout the Reinvestment Period in
additional Equipment. However, the Partnership intends to make sufficient cash
distributions to the Class A Limited Partners during the Reinvestment Period to
enable them to pay when due their respective federal income taxes on any gain on
the Sale of Equipment (assuming that each Class A Limited Partner is in a 31.0%
federal income tax bracket).
The Cash From Sales realized by the Partnership from the Sale or other
disposition of an item of Equipment (including indemnity and insurance payments
arising from the loss or destruction of the Equipment), after the payment of, or
provision for, all related Partnership liabilities, may be reinvested at the
sole discretion of the General Partner, during the Reinvestment Period.
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CAPITALIZATION
- --------------------------------------------------------------------------------
The capitalization of the Partnership, as of the date of this Prospectus
and as adjusted to reflect the sale of the Minimum Offering of Units, is as
follows:
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As of
the Date
of This Minimum Offering
Prospectus(1) (12,000 Units)
------------ ----------------
General Partner's
Capital Contribution(1) $100 $ 100
Class A Limited Partners'
Capital Contributions(2) 0 1,200,000
Class B Limited Partner's
Capital Contributions(3) 0 12,000
Original Limited
Partner's Capital
Contribution(1) 20 0(2)
----- ---------
Total Capitalization(4) $120 $1,212,100
(1) The Partnership was originally capitalized by the contribution of $100 by
the General Partner and $20 by the Original Limited Partner.
(2) The Original Limited Partner will withdraw from the Partnership and receive
a return of his original Capital Contribution on the Closing Date upon the
admission of the initial Limited Partners to the Partnership.
(3) The Class B Limited Partner will contribute cash equal to $10,000 for each
$1,000,000 of investors' Capital Contributions.
(4) The amounts shown reflect the Gross Offering Proceeds from the sale of
Units at $100.00 per Unit before deduction of certain fees and expenses
described in "ESTIMATED USE OF PROCEEDS."
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
As reflected above under "CAPITALIZATION," the Partnership currently has
limited funds because none of the capital anticipated to be raised by the
Partnership through the Offering is yet available on the date of this
Prospectus. The Partnership plans to raise funds from investors by means of this
Offering, and then to use approximately 79.0% of those funds, together with up
to 50.0% indebtedness, to invest in Equipment. That is, the Partnership's total
investment in Equipment (including both Net Offering Proceeds and borrowed
funds) is expected to be approximately 156.0% of Gross Offering Proceeds
(assuming the Maximum Offering and 50.0% leverage). See "ESTIMATED USE OF
PROCEEDS."
Pending investment in Equipment, the Net Offering Proceeds of this Offering
will be held in short-term, liquid investments. The Partnership intends to
establish Reserves of approximately 1.0% of the Gross Offering Proceeds, which
the General Partner believes should be sufficient to satisfy the Partnership's
general liquidity requirements. However, liquidity could be adversely affected
by unanticipated operating costs or losses. To the extent that the Reserves are
insufficient to satisfy future cash requirements of the Partnership, the General
Partner expects that additional funds would be obtained from Cash From
Operations, bank loans, short-term loans from the General Partner and Cash From
Sales.
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Following completion of the Minimum Offering of 12,000 Units and upon the
Closing Date, the proceeds of Units sold to Class A Limited Partners admitted at
the Closing will be released to the Partnership from the Escrow Account and
applied to the payment or reimbursement of Dealer-Manager Fees, Sales
Commissions, the O&O Expenses Reimbursement and the Due Diligence Reimbursement,
leaving estimated Net Offering Proceeds available for investment in Equipment
and operations of approximately 85.5% of the Gross Offering Proceeds from sale
of Units. During the Offering period, proceeds of the sale of Units will
increase the Partnership's cash assets rapidly. Investment in Equipment and the
Partnership's capital needs for such purpose will be determined by the rate of
Unit sales. During the balance of the Reinvestment Period, except for infusions
of Cash From Operations and Cash From Sales and reinvestment of those funds in
additional Equipment, the capital needs and resources of the Partnership are
expected to be relatively stable. For more information concerning the
anticipated use of proceeds from the sales of Units, see "ESTIMATED USE OF
PROCEEDS" and "INVESTMENT OBJECTIVES AND POLICIES."
Operations
The Partnership is newly formed and has had no operations to date. It is
expected that on or about _____ __, 1998, CAII will sell certain items of
Equipment worth approximately $__________ to the Partnership. Currently,
specific identification of such Equipment has not been made. This sale shall be
made pursuant to an installment sales contract which shall be paid within twelve
months of its execution by the Partnership from the proceeds of the Offering.
The price paid by the Partnership pursuant to the installment sale contract
shall comply with the limitations set forth under "CONFLICTS OF INTEREST -
Competition with the General Partner and its Affiliates - Limitation on Purchase
Prices". After the receipt and acceptance of subscriptions for the Minimum
Offering of 12,000 Units and the Closing, it is anticipated that Equipment will
be purchased on an all-cash basis or financed by non-affiliated third parties.
During the period commencing with the Closing Date and continuing until the
Partnership is dissolved, the Partnership will be in active operations. The
operations of the Partnership will consist primarily of the ownership and
leasing of the Equipment. See "INVESTMENT OBJECTIVES AND POLICIES."
The Partnership will acquire Equipment with Net Offering Proceeds and
indebtedness of up to 50.0% of the Partnership's aggregate purchase price for
all of its Equipment. The Partnership currently has no arrangements with, or
commitments from, any Lender with respect to any such borrowings. The General
Partner anticipates that any acquisition financing or other borrowings will be
obtained from institutional lenders. See "INVESTMENT OBJECTIVES AND
POLICIES--Leverage."
The Partnership will account for leases of Equipment as either direct
finance or operating leases for financial reporting purposes. Direct finance
leases are defined as those leases which transfer substantially all of the
benefits and risks of ownership of the Equipment to the lessee and, therefore,
are not depreciated. Operating leases are depreciated on a straight-line basis
over the lease term to an amount equal to the estimated residual value at the
lease termination date. In contrast, for tax reporting purposes, the General
Partner anticipates that substantially all of its Equipment will be depreciated
to zero over the Equipment's related tax life (which may differ from the lease
term). Consequently, the differing treatments of depreciation result in (i)
different Partnership income calculated for financial reporting and tax purposes
with the result that the Partnership will likely generate taxable losses in the
early Years and taxable income in the later Years of the Partnership and (ii)
different gain or loss calculated for financial reporting and tax purposes upon
a sale, exchange or other disposition of an item of Equipment. Thus, in many
cases, taxable gains will be realized on the sale of Equipment even though the
proceeds of such sale do not exceed the book value of such Equipment for
financial reporting purposes. See "FEDERAL INCOME TAX CONSEQUENCES--Depreciation
and Depreciation Recapture."
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FEDERAL INCOME TAX CONSEQUENCES
- --------------------------------------------------------------------------------
General
The following discussion is a summary of the anticipated material federal
income tax consequences of an investment in the Partnership to prospective Class
A Limited Partners who are individuals and citizens or residents of the United
States ("U.S.").
All statements set forth below with respect to the federal income tax
consequences of the purchase of Units, and the formation and proposed operations
of the Partnership, are based upon the Code, the applicable Treasury Regulations
promulgated or proposed thereunder, current positions of the IRS and existing
judicial decisions. These authorities are subject to change or modification at
any time. Any such changes or modifications that occur may be retroactive with
respect to pending or completed transactions. See "Tax Laws Subject to Change"
below. The following discussion is also supplemented by the opinion of counsel
to the Partnership (the "Tax Opinion"), Ballard Spahr Andrews & Ingersoll ("Tax
Counsel"), a copy of which is available from the General Partner upon request.
No tax ruling from the IRS has been or will be obtained with respect to any
of the federal income tax matters discussed below. There can be no assurance
that the conclusions set forth below or in the Tax Opinion will not be
successfully challenged by the IRS, or significantly modified (retroactively or
prospectively) by new legislation or interpretive regulations, changes in IRS
positions or judicial decisions.
THE TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP WILL VARY
DEPENDING ON A CLASS A LIMITED PARTNER'S INDIVIDUAL CIRCUMSTANCES. PROSPECTIVE
CLASS A LIMITED PARTNERS, THEREFORE, ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE PURCHASE OF
UNITS. INVESTORS SUBJECT TO SPECIAL TAX RULES, SUCH AS QUALIFIED PLANS, IRAS,
OTHER TAX-EXEMPT ENTITIES AND FOREIGN INVESTORS, ARE SPECIALLY CAUTIONED TO
CONSULT THEIR OWN TAX ADVISORS BEFORE INVESTING IN THE PARTNERSHIP.
Summary
The following is a summary of, and is qualified by, the more extensive
discussion of the federal income tax consequences set forth in this section.
PROSPECTIVE INVESTORS SHOULD REVIEW THE ENTIRE "FEDERAL INCOME TAX CONSEQUENCES"
SECTION OF THIS PROSPECTUS CAREFULLY WITH THEIR PROFESSIONAL ADVISORS BEFORE
MAKING AN INVESTMENT IN THE PARTNERSHIP.
Tax Opinion. Tax Counsel has rendered its opinion to the Partnership
concerning certain material federal income tax consequences. See "Tax Opinion"
below. There are certain other issues as to which Tax Counsel cannot express an
opinion at this time. Those issues, and the reasons why Tax Counsel cannot
render an opinion concerning those issues at this time, are incorporated where
relevant in this "FEDERAL INCOME TAX CONSEQUENCES" Section.
Classification as a Partnership. Subject to certain conditions, Tax Counsel
has opined that the Partnership will be classified as a partnership for federal
income tax purposes. As a result, the Partnership will not be subject to tax,
but each Partner will be required to include on his own federal income tax
return his allocable share of each item of Partnership income, gain, loss and
deduction for each taxable year, without regard to cash distributions (if any)
received by the Partner during such year. See "Classification of the Partnership
and Partnership/Partner Taxation" below.
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Treatment of Partnership Income and Deductions. The Partnership will adopt
the calendar taxable year for federal income tax reporting purposes. The
Partnership's information tax returns will be prepared using the accrual method
of accounting. In general, the Partnership will report its income, when and as
earned, and its deductions, when and as paid or incurred.
Subject to certain conditions, Tax Counsel has opined that the Profit and
Loss allocation provisions in the Partnership Agreement will be respected for
federal income tax purposes. See "Allocation of Partnership Profits and Losses"
below.
Several limitations apply to the deductibility by a Partner of his
allocable share of Partnership losses. Accordingly, losses allocated to a
Partner in any taxable year may not be fully available in that taxable year to
offset the Partner's income from other sources. See "Limitations on Deductions
of Losses" below.
Cash Distributions. Cash distributions to a Partner (including decreases in
a Partner's share of Partnership liabilities) will reduce his adjusted tax basis
in his Units. Cash distributions that exceed a Partner's adjusted basis for his
Units will be taxable to him. See "Cash Distributions" below.
Ownership of Equipment and Status of Leases. The ability of the Partnership
to claim depreciation deductions with respect to its Equipment (see
"Depreciation and Depreciation Recapture" below) depends on the Partnership
being treated as the owner of the Equipment and the Leases being treated as
"true leases," rather than as conditional sales or financing arrangements, for
federal income tax purposes. The General Partner intends to acquire Equipment in
a manner that will permit the Partnership to be treated as the owner of the
Equipment. In addition, the General Partner intends to acquire Leases,
substantially all of which will be "true leases," and not conditional sales or
financing arrangements. See "Ownership of the Equipment and Status of the Leases
as True Leases" below.
Treatment of Organization and Syndication Expenses. Certain costs of
organizing the Partnership may be amortized and deducted over a 60-month period.
However, the costs of selling or promoting the sale of Units are not deductible
or amortizable. See "Organization and Syndication Expenses" below.
Treatment of the Management Fees. Subject to certain limitations, Tax
Counsel has opined that the Management Fees will be deductible for federal
income tax purposes. See "Treatment of Partnership Expenses" below.
Disposition of Equipment. The Partnership's gain or loss on the disposition
of Equipment will be equal to the difference between the proceeds received by
the Partnership on disposition (plus any indebtedness to which the Equipment is
subject) and the Partnership's adjusted tax basis in the Equipment. All of such
gain, if any, is expected to be taxed as ordinary income because of the
depreciation recapture rules. In certain circumstances, a Partner's share of
such gain may exceed his share of cash proceeds from the disposition. See
"Disposition of Equipment" below.
Disposition of Units. On disposition of Units, a Partner generally will
recognize gain or loss equal to the difference between the cash received (plus
the decrease in his share of Partnership indebtedness) and the Partner's
adjusted tax basis in his Units. All of such gain is expected to be taxed as
ordinary income because of the depreciation recapture rules. In certain
circumstances, the amount of such gain may exceed the cash received by the
Partner. See "Sales or Other Dispositions of Units" below.
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Dissolution of the Partnership. On dissolution of the Partnership, a
Partner will recognize gain if the cash received by him (plus the decrease in
his share of Partnership indebtedness) exceeds his adjusted tax basis in his
Units. In certain circumstances, the amount of such gain may exceed the cash
received by the Partner. See "Dissolution of the Partnership" below.
Investment by Qualified Plans or IRAs. The Partnership will generate
unrelated business taxable income to Partners that are Qualified Plans or IRAs.
See "Investment by Qualified Plans or IRAs" below and "INVESTMENT BY QUALIFIED
PLANS."
Large Partnership Election. If eligible, the Partnership intends to make an
election to be treated as an "electing large partnership" for federal income tax
purposes. See "Large Partnership Election" below.
Tax Opinion
Tax Counsel's opinions, which are set forth below, are based on the facts
described in this Prospectus, the discussion set forth in this "FEDERAL INCOME
TAX CONSEQUENCES" Section and certain representations made by the General
Partner. Any changes in these facts, misstatements of fact, inaccuracy in these
representations or omissions to state a material fact may adversely affect Tax
Counsel's opinion.
The opinions set forth below are subject to the conditions, restrictions
and limitations of, and are intended to be read only in conjunction with, the
more detailed discussion set forth below. Tax Counsel has not currently
expressed an opinion as to any issue not specifically identified below.
The Tax Opinion states that, in the opinion of Tax Counsel:
(i) Assuming that the Partnership complies with the restrictions on
transfer of Units set forth in the Partnership Agreement, the
Partnership (a) will be classified as a partnership for federal
income tax purposes, and not as an association taxable as a
corporation, and (b) will not be treated as a "publicly-traded
partnership" (a "PTP") for Code ss. 7704 purposes;
(ii) The allocations of Profits, Losses and items of income, gain,
loss, deduction and credit set forth in the Partnership Agreement
will be respected for federal income tax purposes; and
(iii)The Partnership will be (a) required to capitalize the
Acquisition Fees (other than the Evaluation Fee) into the
adjusted tax basis of the Equipment to which those Acquisition
Fees relate, (b) required to capitalize the Evaluation Fee into
the adjusted tax basis of the Equipment and any indebtedness to
which those fees relate and (c) permitted to deduct the
Management Fee in the Year to which it relates.
The Tax Opinion also states that, in the opinion of Tax Counsel, this
Section of the Prospectus addresses all material federal income tax issues
relating to the formation and proposed operations of the Partnership and an
investment in, and the ownership of, Units by Class A Limited Partners who are
U.S. citizens or residents.
Finally, the Tax Opinion states that, in the opinion of Tax Counsel, this
Section of the Prospectus is in conformity with current provisions of the Code,
Treasury Regulations and other legal authority in effect as of the date of this
Prospectus, as Tax Counsel has interpreted them.
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Prospective Class A Limited Partners should be aware that the Tax Opinion
represents Tax Counsel's best legal judgment as to the issues in question, but
is not binding on the IRS or any court. Accordingly, there can be no assurance
that the IRS will not challenge any of the conclusions reached in the Tax
Opinion, or that any of those conclusions would be sustained in court if
challenged.
As of the date of the Tax Opinion, the Partnership has not acquired any
Equipment or Leases. Accordingly, Tax Counsel has not rendered opinions
regarding, among other things, (i) the status of the Partnership as the owner of
any specific item of Equipment for federal income tax purposes; (ii) the status
of any specific Lease as a "true" lease for federal income tax purposes; or
(iii) the proper depreciation treatment of any specific item of Equipment for
federal income tax purposes. The General Partner does not intend at this time to
seek an advance ruling from the IRS with respect to any of these issues.
However, the General Partner will consult, in its sole and absolute discretion,
with Tax Counsel regarding the aforementioned issues, when and as it deems such
consultation necessary.
Classification of the Partnership and Partnership/Partner Taxation
The availability of the tax benefits from an investment in the Partnership
depends, in the first instance, on the Partnership being classified as a
partnership for federal income tax purposes. Although the Partnership is a
partnership for state corporate and partnership law purposes, it would be
subject to federal income tax in the same manner as a corporation if it were
classified as either (i) an "association" under the Code ss. 7701 Treasury
Regulations or (ii) a PTP under Code ss. 7704.
Code ss. 7701 Treasury Regulations. Under the applicable provisions of the
Code ss. 7701 Treasury Regulations, a business entity that is not described in
one of seven specified categories can elect how it will be classified for
federal income tax purposes. In default of any such election, a domestic entity
that has two or more members will be classified as a "partnership" unless such
entity was in existence prior to January 1, 1997, and such entity claimed a
different classification prior to such date. The Partnership was not in
existence prior to January 1, 1997. The General Partner has represented that it
will make no election under the regulations with regard to its classification
and that the Partnership will at all times have two or more Partners.
Based upon the foregoing representations, Tax Counsel is of the opinion
that the Partnership will satisfy all of the prerequisites of the Treasury
Regulations for default classification as a "partnership", and, therefore, will
be treated as a "partnership" for federal income tax purposes.
PTP Rules. Under Code ss. 7704, PTPs generally are taxed as corporations
for federal income tax purposes. In addition, Code ss. 469 applies special
passive loss limitations (see "Limitations on Deductions of Losses--Passive Loss
Limitation" below) to certain items of income and deduction of PTPs that are not
taxed as corporations.
The Partnership would be a PTP if the Units are (i) "traded on an
established securities market" or (ii) "readily tradable on a secondary market
(or the substantial equivalent thereof)." The Units will not be traded on an
"established securities market." Accordingly, the Partnership will not be
treated as a PTP unless its Units are "readily tradable on a secondary market
(or the substantial equivalent thereof)."
Treas. Reg. ss. 1.7704-1 provides safe-harbor guidelines for determining
whether interests in a partnership are readily tradable on a secondary market or
the substantial equivalent thereof. It is not anticipated that a secondary
trading market or the substantial equivalent thereof will develop for the Units.
Moreover, the Partnership Agreement places significant restrictions on the
transfer of Units that are intended to ensure compliance by the Partnership with
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one or more of the IRS' administrative safe harbors. Accordingly, in the opinion
of Tax Counsel, assuming that the Partnership complies with the restrictions on
transfer of Units set forth in the Partnership Agreement, the Partnership will
not be treated as a PTP for purposes of Code ss.ss. 7704 and 469.
Partnership Taxation. If, as anticipated, the Partnership is treated as a
partnership for federal income tax purposes, each Class A Limited Partner will
be required to report on his own federal income tax return his distributive
share of each item of Partnership income, gain, loss, deduction, credit and tax
preference for any Year of the Partnership ending with or within his own taxable
year, whether or not the Partnership makes any cash distributions to him during
the Year. The taxable year for recognition of each item of Partnership income,
gain, loss, deduction, credit and tax preference will be determined by the
Partnership's accrual method of accounting, rather than under the individual
Class A Limited Partner's method of accounting. See "Method of Accounting"
below. During the Reinvestment Period and any period during which the
Partnership uses funds to repay borrowings, the amount of cash to be distributed
to the Class A Limited Partners may be less than their respective shares of
Partnership taxable income. If the Partnership sustains a net loss for federal
income tax purposes in any Year, each Class A Limited Partner will be entitled
to deduct his distributive share of that loss on his individual federal income
tax return, subject to the limitations discussed in "Limitations on Deductions
of Losses" below, as well as any other applicable loss or deduction limitations.
If the Partnership were taxable as a corporation rather than a partnership,
the Partnership's net losses, if any, would not pass through to and be
deductible by the Class A Limited Partners, and the Partnership's income (net of
available loss carryforwards) would be taxed to the Partnership at the rates
applicable to corporations (up to 35% currently). In that event, cash
distributions by the Partnership generally would be treated as taxable dividends
to the extent of the Partnership's current or accumulated earnings and profits.
Distributions in excess of current or accumulated earnings and profits would be
treated first as a return of basis and the balance generally would be taxable as
capital gain.
Limitations on Deductions of Losses
A Class A Limited Partner may deduct on his own federal income tax return
his distributive share of Partnership losses (if any) in a Year in an amount up
to, but not in excess of, the lesser of (i) his adjusted basis for, or (ii) his
amount at risk with respect to, his Units at the end of the Partnership's Year
in which the loss occurs. Losses in excess of a Class A Limited Partner's
adjusted basis or amount at risk are treated as a deduction in the Class A
Limited Partner's next succeeding taxable year, subject again to the same basis
and at-risk limitations, as discussed below.
It is anticipated that substantially all of a Class A Limited Partner's
share of Partnership losses, if any, will constitute passive losses for purposes
of the passive loss rules. A Class A Limited Partner who is subject to the
passive loss rules will be permitted to deduct his share of any Partnership
losses that are not otherwise limited by the basis and at-risk limitations only
against his passive income. Passive losses in excess of this limitation will be
subject to the carryforward rules discussed below.
A Class A Limited Partner also may be subject to certain limitations on the
deduction of interest and miscellaneous itemized deductions as discussed in more
detail below.
Basis Limitation. A Class A Limited Partner's initial tax basis for his
Units will be equal to the amount of cash contributed by such Class A Limited
Partner to the Partnership. A Class A Limited Partner's initial basis will
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thereafter be increased by (i) any additional cash contributions made by the
Class A Limited Partner to the Partnership (none of which are required by the
Partnership Agreement), (ii) his distributive share of Partnership taxable and
tax-exempt income and (iii) his share (plus subsequent increases, if any, in his
share) of Partnership non-recourse liabilities. A Class A Limited Partner's
initial basis will thereafter be decreased (but not below zero) by his share of
(a) Partnership distributions, (b) Partnership losses and nondeductible
expenditures that are not properly chargeable to capital account and (c)
decreases in his share of Partnership non-recourse liabilities.
The General Partner has represented that the Partnership will not borrow
funds for use by the Partnership from any Partner or any person "related" to a
Partner, within the meaning of the applicable Treasury Regulations. Accordingly,
a Class A Limited Partner should be entitled to include his share of any
Partnership nonrecourse liabilities in the tax basis of his Class A Units.
However, as discussed below, a Class A Limited Partner will not be considered
"at risk" with respect to any Partnership nonrecourse liabilities. Therefore,
the inclusion in basis of any Partnership nonrecourse liabilities will not
enhance a Class A Limited Partner's ability to deduct currently his share of any
Partnership losses.
At-Risk Limitation. The Partnership's Equipment leasing activities will be
subject to the at-risk rules. The at-risk rules will apply to Class A Limited
Partners who are individuals (including individuals who purchase Units directly
or through partnerships or S corporations) or closely-held C corporations. A
Class A Limited Partner who is subject to the at-risk rules generally may not
deduct his share of Partnership losses in excess of his amount at risk with
respect to his Units as of the end of his taxable year.
A Class A Limited Partner's amount at risk will initially be equal to the
amount of money paid for his Units, excluding (with certain exceptions set forth
in the applicable Treasury Regulations) any amounts that the Class A Limited
Partner (i) borrows from a person who has an interest in the Partnership (other
than as a creditor) or a related person to a person (other than the Class A
Limited Partner) who has an interest in the Partnership (other than as a
creditor) or (ii) is protected against loss of by way of nonrecourse borrowings,
guarantees, stop-loss agreements or other similar arrangements. A Class A
Limited Partner's initial amount at risk will thereafter be increased by (a) any
additional cash contributions made by the Class A Limited Partner to the
Partnership (none of which are required by the Partnership Agreement), (b) his
distributive share of Partnership taxable and tax-exempt income and (c) his
share (plus subsequent increases, if any, in his share) of liabilities for which
the Class A Limited Partner is considered to be at risk. A Class A Limited
Partner's initial amount at risk will thereafter be decreased by his share of
(A) Partnership distributions, (B) Partnership losses and nondeductible
expenditures that are not properly chargeable to capital account and (C)
decreases in liabilities for which the Class A Limited Partner is at risk. Class
A Limited Partners will not be personally liable for repayment of any
Partnership-level indebtedness. Accordingly, Class A Limited Partners will not
be permitted to include any portion of any Partnership indebtedness in their
amounts at risk for their Units.
The at-risk rules will apply to each at-risk activity conducted by the
Partnership. In general, all leased personal property placed in service in the
same taxable year must be treated as treated as a single activity. The
Partnership intends to treat all of its leased Equipment, regardless of the Year
in which the Equipment is placed in service, as a single activity for purposes
of the at-risk rules. If the Partnership's Equipment leasing activities were
found to consist of more than one activity for purposes of the at-risk rules, it
is not clear how a Class A Limited Partner would allocate his amount at risk
among such multiple activities.
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If a Class A Limited Partner's amount at-risk is reduced below zero (for
example, because of distributions or changes of Partnership indebtedness from
recourse to non-recourse), he will recognize income to the extent of that
negative reduction, and the amount recaptured will be treated as a deduction
allocable in the next succeeding taxable year. The amount recaptured under the
preceding sentence may not exceed (i) the amount of losses from the activity
previously allowed, if any, reduced by (ii) the amount of losses previously
recaptured, if any.
Passive Loss Limitation. A "passive activity" is (i) any trade or business
activity in which the taxpayer (in this case, a Class A Limited Partner) does
not materially participate or (ii) any rental activity. Under one or both of
these definitions, the Partnership's Equipment leasing activities will be
considered a "passive activity." The passive loss rules will apply to Class A
Limited Partners who are individuals, estates, trusts, personal service
corporations or certain closely-held corporations. A Class A Limited Partner who
is subject to the passive loss rules may only deduct his share of Partnership
passive losses against his passive income from the Partnership and other
sources.
Passive income does not include personal service income, portfolio income
or income from a non-rental trade or business in which the taxpayer materially
participates. Personal service income generally includes, for example, earned
income (i.e., wages, salary, professional fees, etc.), amounts includible in
gross income under Code ss. 83 (property transferred for the performance of
services), amounts includible in gross income under Code ss.ss. 402 and 403
(qualified plan distributions) and certain deferred compensation. Portfolio
income generally includes (with several significant exceptions) interest,
dividends, royalties, annuities and gain or loss from the disposition of (i)
property that is held for investment (and that is not an interest in a passive
activity) and (ii) property that normally produces interest, dividend, annuity,
or royalty income. Interest on the investment of working capital also
constitutes portfolio income.
Passive losses that are disallowed for any taxable year may be carried
forward to succeeding taxable years indefinitely to offset the taxpayer's
passive income, subject to the basis and at-risk limitations discussed above.
Upon a fully taxable disposition of a taxpayer's entire interest in a passive
activity, any suspended passive losses generally may be recognized and allowed
against income (without regard to the characterization of such income as
passive, portfolio, etc.), subject to the basis and at-risk limitations
discussed above.
The Partnership intends to group all of its leasing activities as a single
"activity" for purposes of the passive loss rules. Accordingly, each Class A
Limited Partner will be required to treat his interest in the Partnership as a
single "activity" for purposes of the passive loss rules.
Interest on funds borrowed for use in a passive activity (for example,
Partnership-level borrowings) and on funds borrowed by an investor to acquire an
interest in a passive activity (for example, Class A Limited Partner-level
borrowings to acquire Units) is generally taken into account in determining the
amount of income or loss from a passive activity, and is not subject to the
investment interest limitation. See "--Limitations on the Deductibility of
Interest" below.
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Limitations on the Deductibility of Interest. Code ss. 265 disallows any
deduction for interest on indebtedness that is deemed to have been incurred or
continued to purchase or carry tax-exempt obligations. A Class A Limited Partner
who incurs indebtedness to acquire Units at a time when he owns tax-exempt
obligations could be viewed as having incurred the indebtedness in order to
avoid the necessity of liquidating his tax-exempt holdings. Accordingly,
interest paid or accrued on such indebtedness could be disallowed under Code ss.
265.
Interest expense that is not disallowed under Code ss. 265 is deductible to
the extent permitted under Code ss. 163. Code ss. 163(d) permits a non-corporate
taxpayer to claim a deduction for "investment interest" paid or incurred during
a taxable year only to the extent of the taxpayer's net investment income for
that year. Investment interest disallowed solely by reason of the investment
interest limitation may be carried forward to succeeding taxable years and will
again be subject to the limitation in those years. Interest on indebtedness
incurred to purchase Units and a Class A Limited Partner's share of
Partnership-level interest expense will be treated as (i) investment interest,
to the extent allocable to portfolio income (for example, interest income from
investment of working capital) generated by the Partnership and as (ii) a
passive activity deduction, to the extent allocable to a passive activity (for
example, the Equipment leasing operations) conducted by the Partnership. In
general, interest will be allocated between portfolio investments and passive
activities by tracing the disbursement of the proceeds of such indebtedness.
Limitation on Miscellaneous Itemized Deductions. A non-corporate taxpayer
may deduct miscellaneous expenses only to the extent such expenses exceed, in
the aggregate, two percent (2%) of the taxpayer's adjusted gross income. This
limitation would apply to individual Class A Limited Partners if the proposed
activities of the Partnership do not constitute a trade or business. There is a
risk that the IRS may contend, in any taxable year, that each non-corporate
Class A Limited Partner's share of each of the Partnership's otherwise
deductible expenses constitutes a miscellaneous expense, potentially subject to
the two percent (2%) floor. The General Partner believes that the proposed
activities of the Partnership will constitute a trade or business, but there can
be no assurance that the IRS will not assert a contrary position on audit.
Allocation of Partnership Profits and Losses
Code ss. 704(b) provides that a Partner's distributive share of Partnership
Profits and Losses and each item thereof is to be determined in accordance with
the allocation provisions in the Partnership Agreement, unless the allocations
do not have "substantial economic effect." The Code ss. 704(b) Treasury
Regulations provide that an allocation has substantial economic effect if it
satisfies a two-part test. First, the allocations must have "economic effect."
Second, the economic effect must be substantial when weighed against the shift
in tax consequences resulting from the allocation.
With respect to, and in order to comply with, the "economic effect"
requirement, the Partnership Agreement provides (i) that a Capital Account will
be established for each Partner, (ii) that each Partner's Capital Account will
be maintained in accordance with the applicable Code ss. 704(b) Treasury
Regulations and (iii) for the distribution of Liquidation Proceeds to the
Partners in accordance with the positive balances in their respective Capital
Accounts. The Partnership Agreement does not require Partners to restore deficit
balances in their Capital Accounts upon liquidation of the Partnership; however,
the Partnership Agreement does contain "minimum gain chargeback," "qualified
income offset" and special provisions relating to the allocation of deductions
and losses attributable to nonrecourse indebtedness provisions which apply to
all Partners. Finally, the Partnership Agreement states that its Profit and Loss
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allocation provisions are intended to comply with the Code ss. 704(b) Treasury
Regulations and authorizes the General Partner to make such adjustments to the
allocation provisions (after consulting with Tax Counsel) as are necessary to
comply with the Code ss. 704(b) Treasury Regulations.
Under the Code ss. 704(b) Treasury Regulations, the economic effect of an
allocation is substantial if there is a reasonable possibility that the
allocation will substantially affect the dollar amounts to be received by the
partners from the partnership, independent of tax consequences. The allocations
in the Partnership Agreement should satisfy the "substantiality" requirement.
The Partnership has elected the "traditional method with curative
allocations" for dealing with book/tax disparities for property (other than
cash) contributed to the Partnership. The Class B Limited Partner is the only
Partner who may contribute property other than cash to the Partnership in
exchange for its interest in the Partnership.
Based on the foregoing, in the opinion of Tax Counsel, the allocations of
Profits and Losses and items of income, gain, loss and deduction set forth in
the Partnership Agreement will be respected for federal income tax purposes.
There can be no assurance, however, that the IRS will agree with Tax Counsel's
opinion on this issue. If the allocations in the Partnership Agreement are held
not to have substantial economic effect, the Partnership's Profits and Losses
would be allocated among the Class A Limited Partners in accordance with their
respective interests in the Partnership (as determined in accordance with the
Code ss. 704(b) Treasury Regulations), in which case a Class A Limited Partner
might be credited or charged with a greater or lesser amount of Partnership
Profits or Losses than is set forth in the Partnership Agreement.
Cash Distributions
Cash distributions by the Partnership will not be taxable to a Class A
Limited Partner unless the distributions exceed the Class A Limited Partner's
adjusted tax basis for his Units immediately prior to the distribution; however,
the adjusted tax basis of a Class A Limited Partner's Units will be reduced (but
not below zero) by the amount of each such distribution. Cash distributions to a
Class A Limited Partner in excess of his adjusted basis generally will be
treated as gain from the sale or exchange of his Units, taxable (as capital gain
or ordinary income) in accordance with the rules described in "Sales or Other
Dispositions of Units" below. Additionally, a decrease in a Class A Limited
Partner's share of Partnership nonrecourse liabilities will be treated as a
distribution of cash to the Class A Limited Partner in the amount of the
decrease, with the result that the Class A Limited Partner will recognize gain
(or ordinary income) to the extent that the amount of any deemed cash
distribution (plus the amount of any actual cash distribution) exceeds his
adjusted basis in his Units.
Sales or Other Dispositions of Units
The tax consequences of the disposition of Units will depend, in large
part, on the form of such disposition, i.e., a sale or exchange of Units to a
Person other than the Partnership, a redemption of Units by the Partnership, a
gift of Units to a charitable organization, other gifts of Units, etc. The
federal income tax consequences of a disposition of Units will vary depending on
a Class A Limited Partner's individual circumstances. Prospective Class A
Limited Partners, therefore, are urged to consult their own professional tax
advisors regarding the federal income tax consequences of a disposition of their
Units.
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Sale of Units to a Person Other than the Partnership. A Class A Limited
Partner will recognize gain or loss on the sale or exchange of his Units to a
Person other than the Partnership in an amount equal to the difference between
(i) the sale or exchange proceeds (including the decrease, if any, in the Class
A Limited Partner's share of Partnership nonrecourse liabilities) and (ii) his
adjusted basis in the Units sold or exchanged. Except as discussed below, that
gain or loss will be capital gain or loss if, at the time of disposition, the
Class A Limited Partner holds his Units as capital assets.
Upon a fully taxable disposition of a Class A Limited Partner's entire
interest, the Class A Limited Partner is permitted to recognize losses
previously disallowed under the passive loss rules. Regulations proposed by the
IRS indicate a similar treatment for losses previously disallowed under the
at-risk rules. Unlike losses carried forward under the passive loss and at-risk
rules, losses disallowed under the basis limitation rules are apparently lost
upon disposition of a Class A Limited Partner's entire interest.
The proceeds from the sale or exchange by a Class A Limited Partner of his
Units to a Person other than the Partnership will be treated as an amount
realized from the sale or exchange of property that is not a capital asset to
the extent that the proceeds are attributable to Partnership "unrealized
receivables" and/or "inventory items" ("Ordinary Income Items"). The portion of
the proceeds attributable to Partnership Ordinary Income Items, to the extent in
excess of a Class A Limited Partner's adjusted basis in his Units that is
allocable to his share of these Partnership items, will be taxable as ordinary
income.
Depreciation recapture with respect to the Equipment (see "Depreciation and
Depreciation Recapture" below) will constitute an "unrealized receivable". It is
not anticipated that the Partnership will have any "inventory items." Because of
the depreciation recapture rules, it is anticipated that substantially all of
the income realized, if any, by a Class A Limited Partner on the sale or
exchange of his Units to a Person other than the Partnership will be taxed as
ordinary income.
Redemption of Units. Cash payments made by the Partnership to a Class A
Limited Partner in redemption of all or a portion of his Units will be taxed in
generally the same manner as cash distributions received by a Class A Limited
Partner from the Partnership. See "Cash Distributions" above. The portion of the
redemption proceeds received in exchange for the Class A Limited Partner's
interest in Ordinary Income Items (determined for this purpose to exclude
inventory items that have not appreciated substantially in value), to the extent
in excess of that portion of his adjusted basis in his Units that is allocable
to his share of these items, will be taxed as ordinary income. The remaining
redemption proceeds (i.e., the aggregate redemption proceeds reduced by the
amount of proceeds attributable to the Class A Limited Partner's exchanged
interest in Ordinary Income Assets) will not be taxable to the Class A Limited
Partner unless such remaining redemption proceeds exceed the Class A Limited
Partner's remaining adjusted basis (after reduction for the portion of such
basis allocated to the Ordinary Income Items) for his Units immediately prior to
the distribution; however, the adjusted tax basis of the Class A Limited
Partner's Units will be reduced (but not below zero) by the amount of such
remaining redemption proceeds.
Because of the depreciation recapture rules, it is anticipated that
substantially all of the income realized, if any, by a Class A Limited partner
on a redemption of his Units will be taxed as ordinary income.
In the case of a redemption of all of a Class A Limited Partner's Units,
such Partner may recognize a loss to the extent that his adjusted basis in his
Units exceeds the cash redemption proceeds from the Partnership. No loss will be
recognized in the case of a redemption of less than all of a Class A Limited
Partner's Units.
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Gift(s) of Units. As a general rule, no gain or loss will be recognized by
a Class A Limited Partner as the result of a gift of Units. However, gain or
loss will be recognized if Units are transferred by gift while Partnership
liabilities are outstanding and in other circumstances. Noncharitable gifts of
Units may be subject to a gift tax.
Any losses previously disallowed under the at-risk and passive loss rules
will be added to the transferor's basis immediately prior to a gift transfer of
a Class A Limited Partner's entire interest. Losses previously disallowed under
the basis limitation rules will be lost upon a gift transfer of the Class A
Limited Partner's entire interest.
Changes in Holdings of Units
If changes in holdings of Units occur during a Year (for example, because
of the admission of Class A Limited Partners or as a result of the sale of Units
by Class A Limited Partners), each Class A Limited Partner's distributive share
of Partnership tax items will be determined by taking into account the varying
interests of the Class A Limited Partners during that Year.
The Partnership intends to use the semi-monthly convention to determine the
Class A Limited Partners' respective interests in the Partnership in any Year in
which Class A Limited Partners are admitted to the Partnership after acquiring
Units from the Partnership. Under this convention, a Class A Limited Partner
entering the Partnership on or before the 15th day of the month will be treated
as having entered on the first day of the month, and a Class A Limited Partner
entering the Partnership after the 15th day of a month (and before the end of
the month) will be treated as entering the Partnership on the first day of the
next month.
All transferees of Partnership interests from other Partners will be
treated as entering the Partnership on the first day of the next month, except
in the case where such transferees have acquired the entire interest of the
transferor Partner (in which case the actual date of transfer will be treated as
the date of entry).
The Partnership intends to allocate its income and deduction items for each
Year on a daily basis taking into account the foregoing conventions. Although
these allocation conventions have been sanctioned by the legislative history of
Section 706(d) of the Code, the IRS has failed to issue regulations interpreting
this statutory provision. Accordingly, there can be no assurance that the
allocation conventions employed by the Partnership to account for issuances and
transfers of Partnership interests will be accepted by the IRS.
Dissolution of the Partnership
Upon the dissolution of the Partnership, a Class A Limited Partner will be
required to take into account his distributive share of each item of Partnership
income, gain, loss and deduction for the Year of dissolution. In addition, each
Class A Limited Partner will recognize gain or loss equal to the difference
between any cash received from the Partnership (including, the decrease, if any,
in the Class A Limited Partner's share of Partnership nonrecourse liabilities)
and his adjusted basis in his Units immediately prior to the distribution.
Except as discussed below, that gain or loss generally will be treated as
long-term or short-term capital gain or loss, depending on the Class A Limited
Partner's holding period for his Units.
If fifty percent (50%) or more of the total interests in Partnership
capital and Profits are sold or exchanged within a twelve (12) month period, the
Partnership will be treated for federal income tax purposes as if it had
terminated with the following consequences. The Partnership will be treated as
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if it had contributed all of its assets and liabilities to a new partnership in
exchange for an interest in the new partnership; and, immediately thereafter,
the terminated partnership had distributed interests in the new partnership to
the Partners in proportion to their respective interests in the terminated
partnership and in liquidation of the terminated partnership. Because of the
absence of a market for the Units and the restrictions on transfer of Units set
forth in the Partnership Agreement, it is not anticipated that fifty (50%) or
more of the capital and Profits' interests in the Partnership will be sold or
exchanged within any single twelve (12) month period.
Election to Adjust the Tax Basis of Partnership Assets
Under Code ss. 754, the Partnership may elect to adjust the tax basis of
Partnership assets in the case of a distribution of property to a Partner or in
the event of a transfer of Partnership Interests by sale or exchange or as a
result of the death of a Partner. The General Partner has the authority to make
this election for the Partnership but, because such an election may not be
advantageous to all Class A Limited Partners and because of the accounting
complexities that can result from such an election, the General Partner does not
presently intend to make the election.
Organization and Syndication Expenses
Under Code ss. 709, amounts paid or incurred to organize the Partnership
("Organization Expenses") or to sell or promote the sale of Units ("Syndication
Expenses") are not currently deductible. However, the Partnership may elect to
treat its Organization Expenses (but not its Syndication Expenses) as deferred
expenses and amortize and deduct such expenses over a period of not less than
sixty (60) months, beginning with the month in which the Partnership commences
business. The General Partner intends to treat Sales Commissions, the
Dealer-Manager Fee(s) and substantially all of the O&O Expenses Reimbursement as
nondeductible, non-amortizable Syndication Expenses, and to amortize the
remainder of the O&O Expenses Reimbursement ratably over sixty (60) months.
There can be no assurance that the IRS will not disagree with the General
Partner's characterization of certain portions of the O&O Expenses Reimbursement
as an amortizable Organization Expense.
Ownership of the Equipment and Status of the Leases as True Leases
The federal income tax consequences anticipated from an investment in Units
depend, in substantial part, on the Partnership being treated as the owner of
its Equipment and the Leases being treated as true leases (and not financing
transactions or conditional sales) for federal income tax purposes. The
determination of whether the Partnership will be the owner of its Equipment and
whether the Leases will qualify as true leases (and not financing transactions,
conditional sales or other arrangements) for federal income tax purposes is, in
part, a factual and, in part, a legal determination, based on all the
circumstances.
The General Partner anticipates that the Partnership will be considered the
owner of all of its Equipment for federal income tax purposes. However, due to
the factual nature of each Equipment purchase transaction, Tax Counsel is unable
to express an opinion prior to the Partnership's purchase of a specific item of
Equipment as to whether the Partnership will be treated as the owner of that
item for federal income tax purposes. The General Partner does not intend to
seek an advance ruling from the IRS regarding the Partnership's ownership of any
item of Equipment. However, the General Partner will consult, in its sole and
absolute discretion, with Tax Counsel regarding the tax ownership of a given
item of Equipment, when and as it deems such consultation necessary.
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The General Partner anticipates that all of its Leases will be treated as
true leases (and not financing transactions, conditional sales or other
arrangements) for federal income tax purposes. However, due to the factual
nature of each Lease, Tax Counsel is unable to express an opinion prior to the
Partnership acquiring or entering into a specific Lease as to whether that Lease
will be treated as a true lease for federal income tax purposes. The IRS
requires that a number of conditions be satisfied before it will favorably
consider an advance ruling request that a lease should be treated as a true
lease for federal income tax purposes, and not as a conditional sale or
financing transaction. It is anticipated that most of the Leases will not
satisfy all of these advance ruling guidelines. The General Partner does not
intend to seek an advance ruling from the IRS regarding the status of any Lease
as a true lease. However, the General Partner will consult, in its sole and
absolute discretion, with Tax Counsel regarding the status of a specific Lease
as a true lease, when and as it deems such consultation necessary.
If the Partnership is not treated as the owner of its Equipment or a Lease
is treated as a conditional sale, financing arrangement or other arrangement,
the Partnership and the Class A Limited Partners would not be entitled to
depreciation deductions for that Equipment. Depending on the facts and
circumstances, a Class A Limited Partner's distributive share of income from the
Leases might constitute either passive income or portfolio income for purposes
of the passive loss rules.
Depreciation and Depreciation Recapture
The General Partner anticipates that substantially all of its Equipment
will be eligible for depreciation under the Modified Accelerated Cost Recovery
System ("MACRS") rules described below. However, because the Partnership has not
acquired any Equipment at this time, Tax Counsel is unable to express an opinion
as to whether any specific item of Equipment that the Partnership will acquire
in the future will qualify for MACRS depreciation. The General Partner will
consult, in its sole and absolute discretion, with Tax Counsel regarding the
qualification of specific items of Equipment for depreciation under the MACRS
rules, when and as it deems such consultation necessary.
The Partnership might choose not to depreciate all of its Equipment under
the normal MACRS rules. Instead, the Partnership might elect to depreciate
certain of its Equipment using the alternative MACRS rules, which provide for a
slower rate of depreciation over a longer recovery period, with the result that
the Partnership will generate smaller (or no) taxable losses in the early Years
and smaller taxable income in the later Years of the Partnership.
Classification of Property. MACRS assigns most tangible personal property
to one of the following three classes: (i) "3-year MACRS Property," which is
property with a class life of four years or less, (ii) "5-year MACRS Property,"
which is property with a class life of more than four years and less than 10
years, and (iii) "7-year MACRS Property," which generally includes property with
a class life of between 10 and 16 years and any other tangible personal property
that is not assigned to a specific class life. The General Partner anticipates
that at least ninety percent (90%) of its Equipment will be 3-year, 5-year or
7-year MACRS Property.
Cost Recovery Allowances and Placed-In-Service Conventions. The cost of
MACRS Property is recovered using the applicable (i) depreciation method, (ii)
recovery period and (iii) placed-in-service convention. The cost of 3-year,
5-year and 7-year MACRS Property is recovered over 3, 5 and 7 years,
respectively, using the two hundred percent (200%) declining balance method,
switching to the straight-line method when that method produces a larger annual
depreciation allowance.
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MACRS Property generally is subject to the half-year convention, which
treats all property placed in service or disposed of during a Year as placed in
service or disposed of in the middle of the year. Thus, one-half of the first
year MACRS allowance is allowed in the year the property is placed in service,
regardless of the actual date the property is placed in service, and a half
year's MACRS allowance is allowed for the year in which the property is disposed
of or is otherwise retired from service, regardless of the date of disposition.
However, if more than forty percent (40%) of all MACRS Property placed in
service during a Year is placed in service during the last three months of the
year, all MACRS Property placed in service during the year is considered to be
placed in service at the mid-point of the quarter in which it is actually placed
in service.
Alternative MACRS Rules. Certain types of property must, by statute, be
depreciated using the alternative MACRS rules. The Partnership does not
anticipate that it will acquire any material amount of Equipment that must be
depreciated using the alternative MACRS rules. The Partnership may elect to
depreciate certain of its Equipment using the alternative MACRS rules. Under
this method, the cost of Equipment for which the Partnership has made an
alternative MACRS election is recoverable using the straight-line method over
the statutorily prescribed alternative recovery periods (which are longer than
the normal MACRS recovery periods), taking into account the placed-in-service
conventions discussed above.
First-Year Depreciation/Short Taxable Year Rules. The IRS has promulgated
rules for computing MACRS depreciation allowances for (i) MACRS property placed
in service in a Year consisting of less than twelve (12) full months, (ii) MACRS
property disposed of prior to the end of the recovery period and (iii) MACRS
property when the recovery period for such property includes all or part of a
short Year other than the Year in which the property is placed in service. The
General Partner will comply with these rules to the extent applicable to any of
its Equipment.
Basis for Depreciation. The Partnership will compute the allowable MACRS
depreciation deduction for an item of Equipment for any Year by multiplying the
basis of the Equipment (or adjusted basis, depending on whether the Partnership
is using the MACRS depreciation tables or not) by the recovery percentage
applicable to that Year. The basis of Equipment is equal to the sum of the cash
paid for the Equipment plus the principal amount of any indebtedness and other
capital costs (such as Acquisition and Origination Fees) incurred in connection
with the purchase.
Depreciation Recapture. Under the depreciation recapture provisions of Code
ss. 1245, gain, if any, recognized on the sale or other disposition of an item
of Equipment will generally be treated as ordinary income to the extent of prior
depreciation deductions claimed. See "Cash Distributions," "Sales or Other
Dispositions of Units" above and "Disposition of Equipment" below.
Disposition of Equipment
A sale, exchange or other disposition of an item of Equipment, including a
foreclosure on Equipment securing Partnership indebtedness, generally will
result in gain (or ordinary income) or loss to the extent of the difference
between the amount realized by the Partnership (including any liabilities
assumed or taken subject to by the purchaser) and the Partnership's adjusted tax
basis in the Equipment. It is anticipated that all of the gain realized by the
Partnership on a sale or exchange of (or by reason of a foreclosure on)
Equipment will be treated as ordinary income because of the depreciation
recapture rules discussed above. In the case of a foreclosure or other
disposition of Equipment where the only amount realized by the Partnership is
forgiveness of nonrecourse debt, the Partners may recognize taxable gain without
receiving any cash distribution with which to pay the tax on the gain. The
General Partner does not presently anticipate that the Partnership will sell any
of its Equipment on the installment basis.
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Method of Accounting
The Partnership will report its income for federal income tax purposes
using the accrual method of accounting. Under the accrual method, income is
reportable in the Year when earned, whether or not it has been actually or
constructively received, and expenses are deductible in the Year in which all
events have occurred that determine the fact of the Partnership's liability, the
amount of that liability is determinable with reasonable accuracy and "economic
performance," within the meaning of Code ss. 461(h), has occurred. Class A
Limited Partners will be required to report each item of Partnership income,
gain, loss, deduction, credit and tax preference when it accrues to the
Partnership under the accrual method of accounting. Therefore, a cash method
Class A Limited Partner may be required to report items of Partnership income,
gain, loss, deduction, credit and tax preference, even if these items would not
otherwise be taken into account under the Class A Limited Partner's method of
accounting.
The General Partner does not anticipate that any material amount of the
Leases will be subject to the Code ss. 467 "constant rental accrual" rules. If
these rules were to apply to any Lease, the Partnership might be required to
report more rental income with respect to that Lease than it actually received
from the lessee in a particular Year. The General Partner will consult, in its
sole and absolute discretion, with Tax Counsel regarding the applicability of
the Code ss. 467 "constant rental accrual" rules to a specific Lease, when and
as it deems such consultation necessary.
Taxable Year
The Partnership will adopt a December 31 year end for federal income tax
purposes.
Treatment of Partnership Expenses
As described in "COMPENSATION AND FEES," the General Partner and its
Affiliates will receive certain payments from the Partnership in addition to
their distributive shares of Partnership income.
In the opinion of Tax Counsel, the Partnership should be (i) required to
capitalize the Acquisition Fees and the Origination Fees into the adjusted tax
basis of the Equipment to which those fees relate, (ii) required to capitalize
the Evaluation Fees into the adjusted tax basis of the Equipment and any
indebtedness to which those fees relate and (iii) permitted to deduct the
Management Fee in the year to which it relates.
The Partnership intends to claim the maximum federal income tax deductions
allowable. There can be no assurance, however, that some or all of these
deductions will not be challenged by the IRS.
Investment by Qualified Plans or IRAs
The income earned by a Qualified Plan or by an IRA is generally exempt from
federal income taxation. If, however, a Qualified Plan or IRA earns "unrelated
business taxable income" ("UBTI"), this income is subject to federal income tax
to the extent it exceeds $1,000 during any taxable year, and it generally is
taxable at trust or, in certain cases, corporate income tax rates, and may be
subject to the alternative minimum tax.
The Partnership's Equipment leasing activities generally would be treated
as an unrelated trade or business, and a Class A Limited Partner's distributive
share of income or gain from the Partnership would be treated in the same manner
as if the income were realized directly by the Class A Limited Partner.
Therefore, except as discussed below, a Qualified Plan or IRA that purchases
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Units will be subject to the tax on UBTI to the extent that the Partnership
generates any taxable income or gains from its Equipment leasing activities.
Income from Partnership property subject to acquisition indebtedness also will
be included in the UBTI of a tax-exempt Class A Limited Partner. For this
purpose, a liability will constitute acquisition indebtedness if it was incurred
directly or indirectly in connection with the acquisition or improvement of
property. Finally, depreciation recapture income from the Partnership will be
included in the calculation of UBTI.
As a result of the foregoing, the General Partner believes that a
tax-exempt Class A Limited Partner will be required to include substantially all
of the income derived from the Partnership in the calculation of UBTI.
The Code contains certain limitations on the availability of MACRS
depreciation deductions with respect to property owned by a partnership that has
both tax-exempt entities and individuals and taxable entities as partners. These
limitations may apply to the proportionate share of property owned by the
Partnership that is attributed to the tax-exempt Class A Limited Partners. See
"Depreciation and Depreciation Recapture" above.
Individual Alternative Minimum Tax
An individual taxpayer is subject to a two-tiered, graduated rate
alternative minimum tax ("AMT"). The lower 26% rate applies to the first
$175,000 of alternative minimum taxable income ("AMTI") in excess of the
applicable statutory exemption amount. The higher 28% rate applies to AMTI, less
the applicable statutory exemption amount, in excess of $175,000.
AMTI means taxable income adjusted for the items listed in Code ss.ss. 56
and 58, and increased by the amount of tax preference items under Code ss. 57
for the taxable year. In determining a taxpayer's AMTI, the Code ss. 469 passive
loss rules and the Code ss. 163(d) investment interest limitation apply.
It is anticipated that the only AMT adjustment likely to result from an
investment in the Partnership is the excess of MACRS accelerated depreciation
claimed on Equipment over the depreciation allowable under the AMTI rules with
respect to such Equipment (i.e., the 150% declining balance method, switching to
straight-line when it would produce a larger deduction).
The applicability of the individual AMT to a prospective Class A Limited
Partner will depend upon the investor's particular circumstances. Each
prospective Class A Limited Partner, therefore, is urged to consult his own
professional tax advisors regarding the AMT consequences of investing in the
Partnership.
Preparation and Filing of Tax Returns
The General Partner intends to retain a nationally recognized firm of
public accountants to review the Partnership's annual federal information return
(Form 1065), including Schedules K-1, which the Partnership will be required to
distribute to Class A Limited Partners, and other tax returns that the
Partnership may be required to file. The Schedules K-1 issued by the Partnership
will present investor capital account balance information prepared on a federal
income tax basis and will provide each Class A Limited Partner with the
information necessary to enable the Class A Limited Partner to prepare and file
his own income tax returns (including any unrelated business taxable income
information). However, the actual preparation and filing of those returns will
be the personal responsibility of each Class A Limited Partner.
A Class A Limited Partner will be required to treat all items of
Partnership income, gain, loss and deduction in a manner that is consistent with
the treatment of such items on the Partnership's tax return unless (i) the
Partnership fails to file a return or (ii) the Class A Limited Partner wishes to
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take a position that is inconsistent with the Partnership return position. In
either of these cases, the Class A Limited Partner must file a statement (Form
8082) with his return stating that the Partnership has not filed a return or
identifying the inconsistency, as the case may be.
Partnership Audits; Interest and Penalties
The IRS may audit some or all items reported by the Partnership or the
Class A Limited Partners, either as a result of the selection of the
Partnership's annual information tax return for audit or in connection with the
audit of the personal tax return of one or more Class A Limited Partners. In the
event of an audit, the tax treatment of all Partnership items will be determined
at the Partnership level in a single, unified Partnership audit proceeding,
rather than in separate audit proceedings with each individual Class A Limited
Partner, unless, in unusual circumstances, the Partnership items reported by a
Class A Limited Partner on his return are treated as "non-Partnership items" by
the IRS. A Class A Limited Partner's non-Partnership items and items reported on
his return that are not attributable to the Partnership will continue to be
subject to audit at the individual Partner level, regardless of the outcome of
the Partnership level proceeding.
The Partnership Agreement designates the General Partner as the Tax Matters
Partner of the Partnership. The Tax Matters Partner will be the official
representative of the Partnership in dealings with the IRS regarding Partnership
matters, and will be authorized to take action with respect to the treatment of
Partnership items that will be binding on some or all of the Class A Limited
Partners without their knowledge or consent.
The IRS will be required to furnish notice of the commencement and result
of any Partnership-level audit to each Class A Limited Partner having at least a
one percent (1%) interest in Partnership Profits whose name appears on the
Partnership's return or is furnished to the IRS by the Tax Matters Partner, and
to the designated representative of any group of less-than-1% Class A Limited
Partners having at least a five percent (5%) interest in the aggregate (a
"Notice Group") if notice is expressly requested. Any Class A Limited Partner
having less than a one percent (1%) interest who is not a member of a Notice
Group will not be entitled to notice. Each Class A Limited Partner will have the
right to participate in any Partnership administrative or judicial proceeding
and to enter into a settlement agreement with the IRS with respect to any
Partnership item, which will be binding on all parties to the agreement. The
General Partner will be authorized, as Tax Matters Partner, to enter into a
settlement agreement with the IRS that is binding on a less-than-1% Class A
Limited Partner (other than a member of a Notice Group), unless the Class A
Limited Partner files a statement with the IRS to the contrary.
The rules generally applicable to partnership audits are subject to
modification if the Partnership elects to be treated as an "electing large
partnership" under Section 775 of the Code. See "--Large Partnership Election"
below.
If a deficiency in tax is determined as the result of an audit, each Class
A Limited Partner will be liable for the payment of his share of the deficiency,
plus compound interest at the then-applicable rate. Interest on tax deficiencies
is nondeductible.
Code ss. 6662 imposes an "accuracy-related penalty" in the amount of twenty
percent (20%) of any tax underpayment attributable, among other things, to (i)
negligence or intentional disregard of rules or regulations, (ii) a substantial
understatement of tax or (iii) a substantial valuation overstatement. This
penalty does not apply if the taxpayer can show that there was reasonable cause
for the underpayment and that the taxpayer acted in good faith with respect to
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the underpayment. In the case of a tax underpayment attributable to a
substantial understatement of tax, the penalty also does not apply to the extent
that the taxpayer had "substantial authority" for the position taken on the
return or the facts relevant to that position were adequately disclosed on the
taxpayer's return or in a statement attached to the return and the taxpayer had
a "reasonable basis" for such position. However, in no event will a corporation
be treated as having a "reasonable basis" for its treatment of any item
attributable to any "multiple party financing transaction" (which would include
the transactions contemplated by the Partnership) if such treatment does not
clearly reflect the income of the corporation. There can be no assurance that
the IRS will not disagree with the treatment by a Class A Limited Partner of
certain Partnership and non-Partnership items on his federal income tax return,
and seek to assess an accuracy related penalty against the Class A Limited
Partner by reason of the treatment of such item(s).
Tax Shelter Registration
The General Partner has determined that the Partnership is not a "tax
shelter" for purposes of the tax shelter registration rules. Accordingly, the
Partnership will not be registered with the IRS as a tax shelter.
Large Partnership Election
For taxable years beginning after December 31, 1997, the Taxpayer Relief
Act of 1997 (the "1997 Act") generally permits any partnership that had 100 or
more partners in the preceding taxable year to elect under Section 775 of the
Code to be treated as an electing large partnership ("Large Partnership
Election"). The Large Partnership Election applies to the year for which made
and all subsequent years and cannot be revoked without the consent of the IRS.
The General Partner anticipates that the Large Partnership Election will be made
for the first Year in which the Partnership becomes eligible. INVESTORS SHOULD
REVIEW THIS SECTION CAREFULLY SINCE THE FEDERAL INCOME TAX RULES APPLICABLE TO
AN ELECTING LARGE PARTNERSHIP DIFFER SIGNIFICANTLY FROM THE FEDERAL INCOME TAX
RULES GOVERNING OTHER PARTNERSHIPS THAT HAVE BEEN SET FORTH ABOVE.
If the Partnership makes the Large Partnership Election, the taxable income
of the Partnership will be generally computed in the same manner as that of an
individual, with certain modifications. These modifications include disallowing
the deduction for personal exemptions, the net operating loss deduction and
certain itemized deductions. All limitations and other provisions affecting the
computation of taxable income or any credit (except for the at risk, passive
loss and itemized deduction limitations, and any other provision specified in
Treasury regulations) will be applied at the Partnership (and not the Partner)
level. All elections affecting the computation of taxable income or any credit
generally are made by the Partnership. In addition, the normal rules regarding a
Partnership's determination of the components of the distributive shares of the
Partners will be modified. The nature of these modifications is set forth below.
Capital Gains. Capital gains and losses would be netted at the Partnership
level if the Partnership makes the Large Partnership Election. A Partner would
take into account separately his distributive share of the Partnership's net
capital gain or net capital loss. Such net capital gain or loss would be treated
as long-term capital gain or loss.
Any excess of net short-term capital gain over net long-term capital loss
would be consolidated with the Partnership's other taxable income and would not
be separately reported.
A Partner's distributive share of the Partnership's net capital gain would
be allocated between passive loss limitation activities and other activities.
The net capital gain would be allocated to passive loss limitation activities to
the extent of net capital gain from sales and exchanges of property used in
connection with such activities, and any excess would be allocated to other
activities. A similar rule would apply for purposes of allocating any net
capital loss.
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Any gains and losses of the Partnership under Section 1231 would also be
netted at the Partnership level. Net Section 1231 gain would be treated as
long-term capital gain and would be subject to the rules described above. Net
Section 1231 loss would be treated as ordinary loss and consolidated with the
Partnership's other taxable income.
Deductions. If the Partnership makes the Large Partnership Election, two
special rules would apply in determining a Partner's distributive share of
deductions. First, miscellaneous itemized deductions would not be separately
reported to Partners. Instead, 70 percent of the amount of such deductions would
be disallowed at the Partnership level; the remaining 30 percent would be
allowed at the Partnership level in determining taxable income, and would not be
subject to the two-percent floor at the Partner level.
Second, charitable contributions would not be separately reported to the
Partners. Instead, the charitable contribution deduction would be allowed at the
Partnership level in determining taxable income, subject to the limitations
applicable to corporate donors.
Passive Losses. If the Partnership makes the Large Partnership Election, a
Partner's distributive share of the Partnership's taxable income or loss from
passive loss limitation activities would be treated as an item of income or loss
from the conduct of a trade or business that is a single passive activity. Thus,
the Partnership generally would not be required to report items from multiple
activities separately.
A Partner would take into account separately his distributive share of the
Partnership's taxable income or loss from activities other than passive loss
limitation activities. Such distributive share would be treated as an item of
income or expense with respect to property held for investment. Thus, portfolio
income (e.g., interest and dividends) would be reported separately to a Partner
and would be reduced by portfolio deductions and allocable investment interest
expense.
Alternative Minimum Tax. If the Partnership makes the Large Partnership
Election, AMT adjustments and preferences would be combined at the Partnership
level. The Partnership would report to Partners a net AMT adjustment separately
computed for passive loss limitation activities and other activities. In
determining a Partner's alternative minimum taxable income, a Partner's
distributive share of any net AMT adjustment would be taken into account instead
of making separate AMT adjustments with respect to
Partnership items. The net AMT adjustment would be determined by using the
adjustments applicable to individuals (in the case of Partners other than
corporations), and by using the adjustments applicable to corporations (in the
case of corporate Partners).
Information Returns. If the Large Partnership Election is made, the
Partnership must furnish information returns to Partners by March 15 following
the close of each Year.
No Constructive Partnership Terminations. If the Partnership makes the
Large Partnership election, the Partnership's existence for tax purposes would
not terminate if 50 percent of its interests are sold or exchanged within a
12-month period.
Audit Procedures. If the Partnership makes the Large Partnership Election,
it would be subject to the unified audit rules discussed above. However, any
Partnership audit adjustments generally would flow through to the Partners for
the Year in which the adjustment takes effect. Thus, the current-Year Partners'
share of current-Year Partnership items of income, gains, losses, deductions, or
credits will be adjusted to reflect Partnership adjustments that take effect in
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that Year regardless of whether the current-Year Partner was a Partner in the
Year with respect to which the adjustment was made. The adjustments generally
will not affect prior-Year returns of any Partners (except in the case of
changes to any Partner's distributive share).
In lieu of flowing an audit adjustment through to its Partners, the
Partnership could elect to pay an imputed underpayment. The imputed underpayment
generally would be calculated by netting the adjustments to the income and loss
items of the Partnership and multiplying that amount by the highest federal
income tax rate (whether individual or corporate; currently, the top individual
rate of 39.6 percent). A Partner may not file a claim for credit or refund of
his allocable share of the payment. If the Partnership makes the Large
Partnership Election, the General Partner anticipates that the Partnership will
also elect to pay imputed underpayments on any audit adjustments.
Regardless of whether the Partnership elects to flow audit adjustments
through to its Partners, the Partnership, rather than the Partners individually,
would generally be liable for any interest and penalties that result from a
partnership adjustment if the Large Partnership Election is made. Interest would
be computed for the period beginning on the return due date for the adjusted
Year and ending on the earlier of the return due date for the Year in which the
adjustment takes effect or the date the Partnership pays the imputed
underpayment.
If the Large Partnership Election is made, penalties (such as the accuracy
and fraud penalties) would be determined on a Year-by-Year basis (without
offsets) based on an imputed underpayment. All accuracy penalty criteria and
waiver criteria (such as reasonable cause, substantial authority, etc.) would be
determined as if the Partnership were a taxable individual. Accuracy and fraud
penalties would be assessed and accrue interest in the same manner as if
asserted against a taxable individual.
Any payment for Federal income taxes, interest, or penalties that the
Partnership would be required to make if the Large Partnership Election is made
would be non-deductible (as is the case generally if such payments are made by
an individual).
Administrative Proceedings. If the Large Partnership Election is made, a
Partner would not be permitted to report any Partnership items inconsistently
with the Partnership return, even if the Partner notifies the IRS of the
inconsistency. The IRS may treat a Partnership item that was reported
inconsistently by a Partner as a mathematical or clerical error and immediately
assess any additional tax against that Partner.
As under the unified audit procedures generally, the IRS would be able to
challenge the reporting position of the Partnership by conducting a single
administrative proceeding to resolve the issue with respect to all Partners.
However, Partners would have no right individually to participate in settlement
conferences or to request a refund.
Partnership Representative. The 1997 Act requires each electing large
partnership to designate a partner or other person to act on its behalf for all
federal income tax matters. If the Partnership makes the Large Partnership
Election, the Partnership Agreement designates the General Partner to act on its
behalf for this purpose.
Notice Requirements. If the Large Partnership Election is made, the IRS
would not be required to give notice to individual Partners of the commencement
of an administrative proceeding or of a final adjustment. Instead, the IRS would
only be required to send notice of a partnership adjustment to the Partnership
itself by certified or registered mail. The IRS could give proper notice by
mailing the notice to the last known address of the Partnership, even if the
Partnership had terminated its existence.
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Tax Laws Subject to Change
Frequent and substantial changes have been, and will likely continue to be,
made to the federal income tax laws. The changes made to the Code by such
legislation are pervasive and, in many cases, have yet to be interpreted by the
IRS or the courts. The recent changes that have been made that directly impact
the federal income tax consequences of the purchase of Units and the formation
and operation of the Partnership have been incorporated where relevant in this
"FEDERAL INCOME TAX CONSEQUENCES" Section.
Prospective Class A Limited Partners are urged to consult their own tax
advisors regarding current developments with respect to the recent changes to
the federal income tax laws and other pending and future federal income tax
legislation. State and Local Taxes
A detailed analysis of the state and local tax consequences of an
investment in the Partnership is beyond the scope of this Prospectus.
Accordingly, each prospective Class A Limited Partner is advised to consult with
his own tax advisor regarding these consequences and the preparation of any
state or local tax returns that a Class A Limited Partner may be required to
file.
The Tax Matters Partner is authorized under the Partnership Agreement to
file group or composite state tax returns on behalf of the Class A Limited
Partners if permitted under state law and beneficial to such Partners as a
whole.
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INVESTMENT BY QUALIFIED PLANS
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Fiduciaries Under ERISA
A fiduciary of a Qualified Plan is, as hereinafter described, subject to
certain requirements under ERISA, including the discharge of duties solely in
the interest of, and for the exclusive purpose of providing benefits to, the
Qualified Plan's participants and beneficiaries. A fiduciary is required (i) to
perform the fiduciary's duties with the skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity,
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, (ii) to diversify investments so as to
minimize the risk of large losses unless it is clearly prudent under the
circumstances not to do so, and (iii) to act in accordance with the Qualified
Plan's governing documents insofar as they are consistent with the provisions of
ERISA.
Fiduciaries with respect to a Qualified Plan include any persons who
exercise any discretionary authority or control, respecting the management or
disposition of its funds or other property. For example, any person who is
responsible for choosing a Qualified Plan's investments, or who is a member of a
committee that is responsible for choosing a Qualified Plan's investments, is a
fiduciary of that Qualified Plan. Also, an investment professional who provides
investment advice for a fee and whose advice will serve as a primary basis for a
Qualified Plan's investment decisions may be a fiduciary of the Qualified Plan,
as may any other person with special knowledge or influence with respect to a
Qualified Plan's investment or administrative activities.
While the beneficiary ("owner" or "account holder") of an IRA is generally
treated as a fiduciary of the IRA under the Code, IRAs generally are not subject
to ERISA's fiduciary duty rules. Also, where a participant in a Qualified Plan
exercises control over the participant's individual account in the Qualified
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Plan in a "self-directed investment" arrangement that meets the requirements of
Section 404(c) of ERISA, no person who would otherwise be a fiduciary of the
Qualified Plan may be held responsible for the consequences of the participant's
investment decisions. Finally, certain Qualified Plans of sole proprietors or
partnerships in which at all times (before and after the investment) the only
participants are the sole proprietor and his spouse or the partners and their
spouses, and certain Qualified Plans of corporations in which at all times
(before and after the investment) the only participant(s) is or are an
individual and/or his spouse who own(s) 100.0% of the corporation's stock, are
generally not subject to ERISA's fiduciary duty rules, although they are subject
to the Code's prohibited transaction rules, explained below.
A person subject to ERISA's fiduciary duty rules with respect to a
Qualified Plan should consider those rules in the context of the particular
circumstances of the Qualified Plan before authorizing an investment of a
portion of the Qualified Plan's assets in Units.
Prohibited Transactions Under ERISA and the Code
Code Section 4975 (which applies to all Qualified Plans and IRAs) and
Section 406 of ERISA (which does not apply to IRAs or to certain Qualified Plans
that, under the rules summarized above, are not subject to ERISA's fiduciary
duty rules) prohibit Qualified Plans and IRAs from engaging in certain
transactions involving "plan assets" with parties that are "disqualified
persons" under the Code or "parties in interest" under ERISA ("Disqualified
Persons"). Disqualified Persons include fiduciaries of the Qualified Plan or
IRA, officers, directors, shareholders and other owners of the company
sponsoring the Qualified Plan and natural persons and legal entities sharing
certain family or ownership relationships with other Disqualified Persons.
"Prohibited transactions" include, among others, the following: (i) any
direct or indirect transfer or use of a Qualified Plan's or IRA's assets to or
for the benefit of a Disqualified Person; (ii) any act by a fiduciary that
involves the use of a Qualified Plan's or IRA's assets in the fiduciary's
individual interest or for the fiduciary's own account; and (iii) any receipt by
a fiduciary of consideration for his or her own personal account from any party
dealing with a Qualified Plan or IRA in connection with a transaction involving
the assets of the Qualified Plan or the IRA. Under ERISA, a Disqualified Person
that engages in a prohibited transaction will be required to disgorge any
profits made in connection with the transaction and will be required to
compensate any Qualified Plan that was a party to the prohibited transaction for
any losses sustained by the Qualified Plan. In addition, ERISA authorizes
additional penalties and further relief. Code Section 4975 imposes excise taxes
on a Disqualified Person that engages in a prohibited transaction with a
Qualified Plan or IRA.
In order to avoid the occurrence of a prohibited transaction under Code
Section 4975 or Section 406 of ERISA, Units may not be purchased by a Qualified
Plan or IRA from assets as to which the General Partner or any of its Affiliates
are fiduciaries. Additionally, fiduciaries of, and other Disqualified Persons
with respect to, Qualified Plans and IRAs should be alert to the potential for
prohibited transactions that may occur in the context of a particular Qualified
Plan's or IRA's decision to purchase Units.
Plan Assets
If the Partnership's assets were determined under ERISA or the Code to be
"plan assets" of Qualified Plans or IRAs holding Units, fiduciaries of such
Qualified Plans and IRAs might under certain circumstances be subject to
liability for actions taken by the General Partner or its Affiliates. In
addition, certain of the transactions described in this Prospectus in which the
Partnership might engage, including certain transactions with Affiliates, might
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constitute prohibited transactions under the Code and ERISA with respect to such
Qualified Plans and IRAs, even if their acquisition of Units did not originally
constitute a prohibited transaction. Moreover, fiduciaries with responsibilities
to Qualified Plans (other than IRAs) might be deemed to have improperly
delegated their fiduciary responsibilities to the General Partner in violation
of ERISA.
Although under certain circumstances ERISA and the Code, as interpreted by
the Department of Labor in currently effective regulations, apply a
"look-through" rule under which the assets of an entity in which a Qualified
Plan or IRA has made an equity investment may generally constitute "plan
assets," the applicable regulations except investments in certain publicly
offered securities from the application of the "look-through" principle.
In order to qualify for the exception described above, the securities in
question must be: (i) freely transferable; (ii) owned by at least 100 investors
independent of the issuer and of one another; and (iii) either (a) registered
under Section 12(b) or 12(g) of the Securities Exchange Act, or (b) sold as part
of a public offering pursuant to an effective registration statement under the
Securities Act and registered under the Securities Exchange Act within 120 days
(or such later time as may be allowed by the Commission) after the end of the
issuer's fiscal year during which the offering occurred.
The General Partner believes that the Units will be "freely transferable"
within the meaning of the Department of Labor regulations, and that at least 100
investors independent of the issuer and of one another will subscribe for the
purchase of Units. Finally, no Units will be sold except pursuant to an
effective registration statement under the Securities Act, and the Partnership
intends to make the required filings under the Securities Exchange Act.
Therefore, the Partnership should qualify for the "publicly offered" exception,
so that the Partnership's assets should not be "plan assets" of any Qualified
Plan or IRA investor, and the Partnership's underlying assets should not be
treated as "plan assets" of Qualified Plan or IRA investors for purposes of
determining whether any prohibited transaction has occurred.
Other ERISA Considerations
In addition to the considerations discussed above in connection with the
"plan asset" issue, a fiduciary's decision to cause a Qualified Plan or IRA to
acquire Units should involve, among other factors, considerations that include
whether: (i) the investment is in accordance with the documents and instruments
governing the Qualified Plan or IRA; (ii) the purchase is prudent in light of
the potential difficulties that may exist in liquidating Units; (iii) the
investment will provide sufficient cash distributions in light of the Qualified
Plan's likely required benefit payments and other liquidity needs; (iv) the
investment is made solely in the interests of plan participants; and (v) the
fair market value of Units will be sufficiently ascertainable, with sufficient
frequency, to enable the Qualified Plan to value its assets on an annual basis
in accordance with the Qualified Plan's rules and policies.
Trustees or custodians of IRAs are required annually to report the fair
market value of the IRA's assets. Failure to furnish the required information
may subject the trustee or custodian of an IRA to a fine of $50 for each
failure. Because there is not expected to be a market created in which the Units
are traded, the value of an investment in the Units may not be readily
ascertainable. Neither the Partnership nor the General Partner has any
obligation to value the Units in response to inquiries from trustees or
custodians of IRAs.
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SUMMARY OF THE PARTNERSHIP AGREEMENT
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The Partnership Agreement, which is Exhibit A to this Prospectus, is the
governing instrument that establishes the Partnership's right under the laws of
the State of Delaware to operate as a limited partnership, and contains the
rules under which the Partnership will be operated. The rights and obligations
of the Partners will be governed by the Partnership Agreement. Many of the
principal provisions of the Partnership Agreement have been summarized elsewhere
in this Prospectus under various headings. The following summary and the other
Sections of this Prospectus summarizing the provisions of the Partnership
Agreement do not purport to be complete and are qualified in their entirety by
reference to the Partnership Agreement. Should any discrepancies exist between
the summaries contained in these Sections and the Partnership Agreement, the
latter will govern.
PROSPECTIVE INVESTORS SHOULD STUDY THE PARTNERSHIP AGREEMENT CAREFULLY
BEFORE INVESTING IN THE PARTNERSHIP.
Distribution of Distributable Cash
The Partnership will distribute Distributable Cash to its Partners if funds
are available. "Distributable Cash" is made up of Cash From Operations (i.e.,
total rental proceeds for the month, net of Partnership monthly operating
expenses and Reserves) and Cash From Sales (i.e., net proceeds from the sale of
Partnership Equipment during the month). While the General Partner will have
sole discretion over the timing and amount of cash to be distributed to the
Partners, the Partners may elect whether to have Distributable Cash distributed
to them monthly or quarterly. The First Cash Distributions payable to the Class
A Limited Partners (i.e., cash distributions payable out of Distributable Cash
in an annualized, cumulative preferred amount as explained in the Partnership
Agreement) will be allocated in equal monthly amounts, to the extent of
available funds, computed on the basis of a 360- day year composed of twelve
30-day months. However, payments may be made quarterly if the Partner so elects.
Liquidation Proceeds (i.e., cash available for distribution to the Partners upon
liquidation of the Partnership) will be distributed in the manner described in
"Dissolution and Liquidation of the Partnership" below.
During the Reinvestment Period (which will run seven to eight years
following the Closing Date of this Offering), Distributable Cash generally will
be distributed in the following order and priority: (i) first, 1.0% to the
General Partner and 99.0% to the Class A Limited Partners (as a class) (without
any distributions to the Class B Limited Partner), until the Class A Limited
Partners (as a class) receive an amount equal to their First Cash Distributions
(which amount will be equal to at least 10.5% of their Capital Contributions as
set by the General Partner in accordance with the Partnership Agreement); and
(ii) second, 1.0% to the General Partner and 99.0% to the Class B Limited
Partner (without any distribution to the Class A Limited Partners), until the
Class B Limited Partner receives an amount equal to its Class B Subordinated
Distribution (which amount will be equal to 10.5% of the Class B Limited
Partner's Capital Contributions as set by the General Partner in accordance with
the Partnership Agreement). Distributable Cash, if any, in excess of the amounts
described in (i) and (ii) in the preceding sentence will be reinvested in
Equipment as Reinvested Proceeds. Except, Distributable Cash that would
otherwise be reinvested in Equipment as Reinvested Proceeds shall be distributed
to the Partners as Tax Distributions (99.0% to the Limited Partners (as a class)
and 1.0% to the General Partner) if necessary to provide funds for payment of
income taxes on the Sale of Equipment.
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After the Reinvestment Period, and until such time as the Limited Partners
achieve "Payout" (i.e., generally, an amount equal to such Limited Partner's
capital contributions to the Partnership plus an additional return on
investment) and "170% Recovery" (i.e., generally, the time at which the
cumulative distributions to the Limited Partners equal 170.0% of their Capital
Contributions), Distributable Cash generally will be distributed in the
following order and priority: (i) first, 1.0% to the General Partner and 99.0%
to the Class A Limited Partners (without any distributions to the Class B
Limited Partner), until the Class A Limited Partners receive their First Cash
Distributions; (ii) second, 1.0% to the General Partner and 99.0% to the Class B
Limited Partner (without any distribution to the Class A Limited Partners),
until the Class B Limited Partner receives its Class B Subordinated
Distribution; (iii) third, 1.0% to the General Partner and 99.0% to the Class A
Limited Partners (without any distributions to the Class B Limited Partner),
until the Class A Limited Partners achieve Payout; (iv) fourth, 1.0% to the
General Partner and 99.0% to the Class B Limited Partner (without any
distribution to the Class A Limited Partners), until the Class B Limited Partner
achieves Payout; and (v) fifth, 1.0% to the General Partner and 99.0% to the
Limited Partners (to be shared 99.0% by the Class A Limited Partners and 1.0% by
the Class B Limited Partner), until the Limited Partners achieve 170% Recovery.
All distributions of Distributable Cash to the Limited Partners will be counted
towards achievement of Payout and 170% Recovery.
After the Reinvestment Period, and after the Limited Partners achieve
Payout and 170% Recovery, Distributable Cash will be distributed 10.0% to the
General Partner, 89.1% to the Class A Limited Partners and 0.9% to the Class B
Limited Partner.
Allocation of Profits and Losses
Each item of the Partnership's income, gain, loss, deduction or credit will
be allocated among the General Partner and the Limited Partners, as provided in
Section 4.2 of the Partnership Agreement. In general, these allocations will be
made on the same basis as cash distributions, as described above.
Voting Rights of Limited Partners
The Limited Partners will have no right to participate in the management or
control of the Partnership's business. However, pursuant to the Partnership
Agreement, a Majority Interest of the Class A Limited Partners may vote to: (i)
amend the Partnership Agreement in certain respects; (ii) dissolve the
Partnership; (iii) remove the General Partner and elect a replacement General
Partner in accordance with the terms of the Partnership Agreement; and (iv)
approve or disapprove the Sale of all or substantially all of the assets of the
Partnership, other than in the ordinary course of the Partnership's operations
as described herein. Pursuant to Delaware law, Limited Partners may also vote to
approve a merger or consolidation of the Partnership with another entity
(although Delaware law provides for no appraisal or dissenters' rights for those
Limited Partners who might dissent from a merger or consolidation).
In general, so long as the Class B Limited Partner is an Affiliate of the
General Partner, the Class B Limited Partner has no voting rights. However, any
amendment that would adversely affect the percentage interest of the Class B
Limited Partner in Partnership Profits or Losses, or cash distributions to the
Class B Limited Partner under the Partnership Agreement, requires the Consent of
the Class B Limited Partner, and a Class B Limited Partner that is an Affiliate
of the General Partner may vote with respect to reconstitution of the
Partnership and continuation of its business after dissolution of the
Partnership by formation of an identical new partnership. In addition, a Class B
Limited Partner that is not an Affiliate of the General Partner may vote with
respect to the admission of an additional or successor General Partner.
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Meetings
The General Partner may call a meeting of the Limited Partners at any time.
The General Partner is required to call such a meeting upon receipt of a written
request signed by Class A Limited Partners holding 10.0% or more of the total
outstanding Units. In addition, the General Partner may, and upon written
request of Class A Limited Partners holding 10.0% or more of the Units must,
submit any matter upon which Limited Partners are entitled to vote to the Class
A Limited Partners for a vote by Consent without a meeting. See "Voting Rights
of Limited Partners" above. The Partnership does not intend to hold annual or
other periodic meetings of the Limited Partners.
Books and Records
The fiscal and taxable year of the Partnership will be the year ending
December 31. The books and records of the Partnership will be maintained at the
office of the General Partner, at 7175 West Jefferson Avenue, Suite 4000,
Lakewood, Colorado 80235 and will be available for examination by any Partner or
its duly authorized representatives at all reasonable times. Any Partner or its
duly authorized representatives will be permitted access to all records of the
Partnership at all reasonable times for inspection or copying (at such Partner's
cost). An alphabetical list of the names, addresses, and business telephone
numbers of the Class A Limited Partners along with the number of Units held by
each of them (the "Participant List") will be maintained as a part of the books
and records of the Partnership and will be available for inspection by any Class
A Limited Partner or its designated agent at the home office of the Program upon
the request of the Class A Limited Partner. The Participant List will be updated
at least quarterly to reflect changes in the information contained therein. A
copy of the Participant List will be mailed to any Class A Limited Partner
requesting the Participant List within ten days of the request. The General
Partner is subject to certain sanctions for failure to produce, on request, a
copy of the Participant List for a Class A Limited Partner if the request is
made for the purpose of protecting the Class A Limited Partner's interest in the
Partnership rather than for commercial purposes.
Rights, Obligations and Powers of General Partner
The General Partner has full, complete and exclusive discretion and
authority to manage and control the business of the Partnership. See Article
Five of the Partnership Agreement for a detailed description of the rights and
powers given to the General Partner. However, the General Partner is prohibited
from taking or causing the Partnership to take certain actions, particularly in
areas of potential conflicts of interest. See Section 5.5 of the Partnership
Agreement for a detailed description of these limitations on the rights and
powers of the General Partner. For example, the General Partner is not permitted
to cause the Partnership to participate in a "roll-up" transaction. A "roll-up"
is a transaction in which the Limited Partners would exchange their interests in
the Partnership for ownership interests in a newly-formed entity, which would
acquire all of the Partnership's (and perhaps other partnerships') assets and
the ownership interests in the new entity would be publicly traded (see Section
5.5(a)(xxii) of the Partnership Agreement).
The General Partner is required to take certain actions in managing the
business of the Partnership, including the devotion of sufficient time to the
affairs of the Partnership as required to perform its duties under the
Partnership Agreement. See Section 5.6 of the Partnership Agreement for a
detailed description of the duties of the General Partner.
Restrictions
No loans may be made by the Partnership to the General Partner or any
Affiliate. The General Partner or any Affiliate may lend funds on a short-term
basis to the Partnership, but only with interest rates: (i) not in excess of the
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General Partner's or Affiliate's own cost of borrowing; (ii) in any event, not
in excess of the interest rate charged (without reference to the General
Partner's or any Affiliate's financial abilities or guaranties) by unrelated
lenders on a comparable loan for the same purpose in the same geographic area;
and (iii) that shall not exceed by more than 3.0% per annum the "prime rate"
from time to time announced by The Bank One, Colorado, N.A. Neither the General
Partner nor any Affiliate shall provide Permanent Financing for the Partnership.
For this purpose "Permanent Financing" means that some portion of principal and
interest on the financing provided by the General Partner or any Affiliates is
due and payable more than 12 months after the date of the loan. The Partnership
shall not acquire any Equipment in exchange for Units. The Partnership shall not
acquire Equipment from a Program in which the General Partner or an Affiliate
has an interest. Neither the General Partner nor any Affiliate shall receive any
rebates or give-ups or, nor by the making of any reciprocal business
arrangements, circumvent the restrictions contained in the Partnership
Agreement, the NASAA Guidelines or in applicable state securities laws and
regulations relating to transactions between the Partnership and the General
Partner and its Affiliates.
Partnership Expenses
Except as provided in the Partnership Agreement, all Partnership expenses
will be billed directly to and paid directly by the Partnership. The General
Partner and its Affiliates are entitled to reimbursement for certain expenses
incurred by them in connection with the Partnership. Reimbursement for services,
goods and materials provided to the Partnership will be at actual cost, and
reimbursement for administrative services provided by the General Partner or its
Affiliates will be at the lower of actual cost or the amount customarily charged
for such services in the same geographic location. See Section 5.2 of the
Partnership Agreement.
Liability of Limited Partners; Nonassessability of Units
In general, no Limited Partner will be personally liable for the debts,
liabilities, contracts or other obligations of the Partnership. However, if any
Limited Partner participates in the control of the Partnership's business, he
may jeopardize this limitation on his liability. Consequently, the Partnership
Agreement provides that no Limited Partner may participate in the management or
control of the Partnership's business or have power or authority to bind the
Partnership, subject to certain voting rights summarized below.
No Limited Partner may be assessed for additional Capital Contributions at
any time. Under the Delaware Act, a Limited Partner's Capital Contribution and
his share of the Partnership's assets and undistributed Profits are subject to
the risks of the Partnership's business, but the Limited Partner is not
otherwise responsible for the Partnership's obligations. Notwithstanding the
foregoing, the Delaware Act provides that a Limited Partner may be liable to the
Partnership for the return of distributions for a period of three years from the
date of the distributions when, after giving effect to the distributions, the
liabilities of the Partnership (other than liabilities to Partners on account of
their Partnership Interests and liabilities for which the recourse of creditors
is limited to specified property of the Partnership) exceed the unencumbered
fair value of the assets of the Partnership; however, this is only true if a
Limited Partner knew at the time of the distribution that the distribution was
made in violation of Delaware law. If the laws of one or more jurisdictions
other than Delaware are determined to control their liabilities, Limited
Partners could have more extensive liability for the return of such
distributions.
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Liability of General Partner; Indemnification
The General Partner will be liable for all general obligations of the
Partnership to the extent not paid by the Partnership. However, Affiliates of
the General Partner will not be liable for any such obligations.
The General Partner and its Affiliates are entitled to indemnification from
the Partnership in connection with good-faith actions taken by the General
Partner or its Affiliates that do not constitute negligence or misconduct. See
"FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER" and the detailed
indemnification provisions of Section 5.8 of the Partnership Agreement.
Dissolution and Liquidation of the Partnership
The Partnership will continue in full force and effect until December 31,
2009, unless dissolved earlier as a result of certain events. See Section 9.1 of
the Partnership Agreement for a detailed description of these events.
Upon dissolution of the Partnership, the Partnership's assets will be
liquidated and Liquidation Proceeds will be applied to the payment of
obligations of the Partnership to Partnership creditors, the expenses of
liquidation and the establishment of any reserves for contingencies that the
liquidating trustee considers necessary.
The Sale or other disposition of all or substantially all the assets of the
Partnership is an event of dissolution under the Partnership Agreement. If such
sale or other disposition occurs in the ordinary course of the Partnership's
business as described herein, the Limited Partners are not required to vote upon
such sale or other disposition. Such sale is anticipated to occur after the
Reinvestment Period and the Partnership is anticipated to be liquidated within
eight to ten years after the Initial Closing. After paying all liabilities and
expenses and providing for these reserves, the liquidating trustee will
distribute any remaining Liquidation Proceeds to the Partners in proportion to
their positive Capital Account balances (after all appropriate adjustments to
Capital Accounts are made). See Section 9.3 of the Partnership Agreement for the
detailed rules under which a determination of each Partner's final Capital
Account balance will be made.
Although, as a general matter the Partnership Agreement prohibits the sale
of Equipment to the Sponsor or an Affiliate, the Partnership Agreement does
permit the sale to the Sponsor, upon the Consent of a Majority Interest, of all
of the Partnership's Equipment, at fair market value supported by an appraisal
by an independent appraiser, in connection with the dissolution and liquidation
of the Partnership where the proceeds of such sale are used to redeem or
liquidate 100% of the outstanding Units together with accrued distributions to
the date of such redemption or liquidation.
Withdrawal and Removal of General Partner
The General Partner may not withdraw voluntarily from the Partnership
without the Consent of a Majority Interest of the Class A Limited Partners. The
General Partner is not permitted to sell, transfer or assign all or any portion
of its interest in the Partnership. The transfer must meet the conditions set
out in Section 6.2 of the Partnership Agreement and comply with the provisions
of the Delaware Act with respect to admission of a successor or additional
General Partner.
In this regard, Section 6.2 of the Partnership Agreement provides that,
unless otherwise prohibited by the Delaware Act at the time Consent is
necessary, upon execution of the Partnership Agreement, each Class A Limited
Partner consents to the admission of a successor or additional General Partner,
provided that a Majority Interest already has consented to that admission.
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The Class A Limited Partners may, by vote of a Majority Interest, remove
any General Partner from the Partnership and elect a replacement General
Partner.
Upon the Voluntary Withdrawal of the General Partner or the removal of the
General Partner by the Class A Limited Partners (other than removal for cause),
the Partnership will pay to the departing General Partner the fair market value
of its General Partner Partnership Interest ("Fair Market Value"). Upon the
Voluntary Withdrawal or the removal (other than a removal for cause) of the
General Partner, the Class B Limited Partner will retain the Class B Interest on
the same terms and conditions as if the General Partner had not withdrawn. See
Section 6.4 of the Partnership Agreement for repayment of General Partner
short-term loans and advances in the event of removal by the Class A Limited
Partners.
Upon the removal for cause of a General Partner by the Class A Limited
Partners, the Fair Market Value of the removed General Partner's Partnership
Interest will be deemed to be zero. In this situation, the Class B Limited
Partner will retain the Class B Interest on the same terms and conditions as if
the removal of the General Partner had not occurred. The term "cause" means the
commission of any act or failure to take any action that, as determined by a
court of competent jurisdiction in a final judgment subject to no further
appeals, constitutes gross negligence, willful misconduct or fraud and has a
material adverse effect on the Partnership.
Amendments to the Partnership Agreement
In addition to amendments adopted by a Majority Interest of the Class A
Limited Partners (see "Voting Rights of Limited Partners" above), the
Partnership Agreement may be amended by the General Partner, without the Consent
of the Class A Limited Partners, in certain circumstances if the amendment is
not adverse to the interests of the Class A Limited Partners. In addition, the
power of attorney contained in the Partnership Agreement empowers the General
Partner to amend the Partnership Agreement to admit additional, substitute or
successor General or Limited Partners into the Partnership in accordance with
the terms of the Partnership Agreement. See Section 13.2 of the Partnership
Agreement.
Designation of Tax Matters Partner
Pursuant to Code Section 6231 and the applicable Treas. Regs., the General
Partner will be designated the initial "Tax Matters Partner" for purposes of
federal income tax audits of Partnership income, gain, loss, deduction or
credit. As Tax Matters Partner, the General Partner will also be responsible for
filing, on behalf of the Partnership, all federal, state, local and foreign tax
returns required by applicable law.
Applicable Law
The Partnership Agreement will be governed, construed and enforced in
accordance with the laws of the State of Delaware.
Power of Attorney
Each Class A Limited Partner, by the execution of the Partnership Agreement
by his attorney-in-fact, grants to the General Partner a power of attorney to
enable the General Partner to execute, on the Class A Limited Partner's behalf,
all instruments and documents necessary to carry out all of the purposes of the
Partnership Agreement.
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TRANSFER OF UNITS
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Restrictions on the Transfer of Units
The Partnership Agreement substantially restricts the assignability and
transferability of Units. Consequently, an investor must view an investment in
the Partnership as a long-term, illiquid investment. Except for assignments by
operation of law, a Class A Limited Partner may not assign all or any part of
his Units unless the assignment is approved by the General Partner.
There is no public or secondary market for the Units, and none is expected
to develop. Moreover, Units may only be transferred if certain requirements are
satisfied, and transferees may become Class A Limited Partners only with the
Consent of the General Partner. Under Sections 7.3 and 7.5 of the Partnership
Agreement, the assignment or other transfer of Units will be subject to
compliance with the minimum investment and suitability standards imposed by the
Partnership. See "INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS;
SUBSCRIPTION PROCEDURES."
Under presently applicable state securities law ("Blue Sky") guidelines,
except in the case of a transfer by gift or inheritance or upon family
dissolution or an intra-family transfer, each transferee of Units must generally
satisfy minimum investment and investor suitability standards similar to those
that were applicable to the original Offering of Units and, following a transfer
of less than all of his Units, each Class A Limited Partner must generally
retain a sufficient number of Units to satisfy the minimum investment standards
applicable to his initial purchase of Units. In the case of a transfer in which
a member firm of the NASD is involved, that firm must be satisfied that a
proposed transferee of Units satisfies the suitability requirements as to
financial position and net worth specified in Section 3(b) of Section 34 to the
NASD Rules of Fair Practice and must inform the proposed transferee of all
pertinent facts relating to the liquidity and marketability of the Units during
the term of the investment.
So long as there are adverse federal income tax consequences from being
treated as a "publicly traded partnership," the General Partner will not permit
any interest in a Unit to be assigned on a "secondary public market (or the
substantial equivalent thereof)" as defined under the Code and applicable Treas.
Regs. (a "Secondary Market"). If the General Partner determines, in its sole
discretion, that a proposed assignment was effected on a Secondary Market, the
proposed assignment will be void, and the Partnership and the General Partner
have the right to refuse to recognize any proposed assignment and to take any
action deemed necessary or appropriate, in the General Partner's discretion, so
that the assignment is not in fact recognized. See "FEDERAL INCOME TAX
CONSEQUENCES--Classification of the Partnership--PTP Rules." By becoming Class A
Limited Partners, the investors agree to provide all information that the
General Partner deems necessary in order to determine whether a proposed
transfer was effected on a Secondary Market.
The transfer of a Unit requires that a substitute Class A Limited Partner
be admitted to the Partnership in place of the transferor, and the General
Partner may obtain an opinion of counsel (at its cost and expense) on certain
matters related to the substitution. In addition, the Partnership may require
further payments to the Partnership to cover the costs of the substitution,
including the cost of the opinion. The Partnership also will require that a fee,
set by the General Partner from time to time, be paid to cover in part the
Partnership's cost of processing the assignment. The Assignee must make certain
representations and warranties as set forth in the Partnership Agreement,
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including the agreement of the Assignee to be bound by the provisions of the
Partnership Agreement. The General Partner must otherwise consent to the
substitution, and that consent may be withheld in the sole discretion of the
General Partner. Any transferee will be admitted to the Partnership on the day
they acquire Units for purposes of determining the interest of such Class A
Limited Partners in Profits, Losses and other specifically allocated items
hereunder and in distributions of Distributable Cash hereunder.
The Partnership shall amend the Partnership Agreement at least once each
calendar quarter to effect the substitution of substituted Class A Limited
Partners, although the General Partner may elect to do so more frequently. In
the case of assignments where the assignee does not become a substituted Class A
Limited Partner, the Partnership shall recognize the assignment not later than
the first day of the calendar month following receipt of notice of assignment
and required documentation.
The securities laws of some states impose additional restrictions on
transfers of the Units, including application of certain investor suitability
standards to prospective transferees or assignees. See "PLAN OF DISTRIBUTION."
Redemption of Units
A Class A Limited Partner has a limited right to request that the
Partnership redeem all or part of his Units. This limited redemption procedure
is intended to provide a Class A Limited Partner some relief from the
illiquidity of his Units in extraordinary circumstances. Except in cases of
Personal Emergencies (including the death of a Class A Limited Partner), the
right to request redemption does not arise until 36 months after the Closing
Date. If the General Partner decides, in its sole discretion, to cause the
Partnership to redeem the offered Units, the Partnership will pay to the
requesting Class A Limited Partner an amount equal to the Class A Limited
Partner's Unrecovered Capital Contribution, attributable to that Class A Limited
Partner's redeemed Units as of the last day of the Quarter prior to the Quarter
in which the redemption request was received.
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REPORTS TO CLASS A LIMITED PARTNERS
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The General Partner will perform investor services for the Partnership, and
will furnish the Class A Limited Partners with the information relating to the
Partnership that is required to be set forth in the Class A Limited Partner's
individual federal income tax return no later than March 15. Within 120 days
after the end of each Year, the General Partner, on behalf of the Partnership,
also will furnish each Person who was a Class A Limited Partner during the Year
with an annual report. The annual report will contain financial statements of
the Partnership (prepared in accordance with generally accepted accounting
principles) reported upon by independent public accountants. The General
Partner, on behalf of the Partnership, will also furnish Class A Limited
Partners, within 60 days of the end of the first three Quarters of each Year, a
quarterly report containing the same financial information required for the
report on Form 10-Q to be filed by the Partnership with the Commission.
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PLAN OF DISTRIBUTION
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General
Subject to the conditions set forth in this Prospectus and in accordance
with the terms and conditions of the Partnership Agreement and the
Dealer-Manager Agreement between the Partnership and the Dealer-Manager, the
Partnership will offer, through the Dealer-Manager, on a "best efforts" basis,
the Maximum Offering of 500,000 Units, all of which are priced at $100.00 per
Unit (except for certain Units that may be purchased by a single subscriber
eligible for Volume Discounts or rebated Sales Commissions, as described below).
The Selling Dealers and the Dealer-Manager will sell as many Units as they can,
but there is no guarantee that any specified amount of money will be raised,
except that no Units will be sold unless 12,000 Units are subscribed for. The
Partnership may not commence business until it has received Offering proceeds of
at least $1,000,000 in excess of the expenses incurred in connection with the
registration, offer and public distribution of the Partnership which are
required to be paid. The Minimum Offering is anticipated to provide the
Partnership with this $1,200,000 minimum and allow it to commence business. See
"INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS; SUBSCRIPTION
PROCEDURES--Minimum Investment and Suitability Standards." The Dealer-Manager
will receive an amount equal to 2.0% of the Gross Offering Proceeds on all sales
of Units as a Dealer-Manager Fee.
The General Partner, and the employees (and, at the option of the General
Partner, the spouses and dependent children of employees) of CAI, its wholly
owned subsidiaries and of the Selling Dealers (and, at the option of the General
Partner, spouses and dependent children of such persons) may purchase Units for
investment purposes on the same terms and conditions as other investors, except
that, at the sole option of the General Partner, they may purchase Units net of
Sales Commissions or may apply such Sales Commissions to purchase additional
Units. No Units purchased by the General Partner or Affiliates may be included
in determining whether the Partnership has met the Minimum Offering amount
($1,200,000).
Units will be sold through the Selling Dealers. In the event of the sale of
Units by a Selling Dealer, the Partnership will pay to the Selling Dealer,
through the Dealer-Manager, a Sales Commission equal to 8.0% of the Gross
Offering Proceeds from the sale of Units. Selling Dealers will be given the
option to receive 6.0 percent of their full sales commission at closing and an
additional 0.5 percent per year for five years rather than the full 8.0 percent
sales commission at closing. In no case shall the full sales commission exceed
10.0 percent. These arrangements are set forth more fully in the Selling Dealer
Agreement filed as an exhibit to the Registration Statement, of which this
Prospectus is a part. The Dealer-Manager may reallow up to one-half of its
Dealer-Manager Fee to certain Selling Dealers.
The total marketing compensation to be paid to the Dealer-Manager, all
participating Selling Dealers and all wholesalers in connection with the
Offering of Units in the Partnership (regardless of source), including Sales
Commissions and Dealer-Manager Fees, and wholesale commissions and salaries,
expenses, seminars and sale incentives will not exceed a maximum of 10.0% of the
Gross Offering Proceeds, except that the Partnership may pay the Due Diligence
Reimbursements. Amounts paid or advanced for Sales Commissions and Due Diligence
Reimbursements will be made only for bona fide sales or due diligence activities
as referenced in Section 5(B)(iii) of Section 34 of the NASD Rules of Fair
Practice. See "COMPENSATION AND FEES."
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The Dealer-Manager Agreement and the Selling Dealer Agreements contain
provisions for the indemnification of the Dealer-Manager and the Selling Dealers
by the Partnership with respect to certain liabilities, including liabilities
under the Securities Act.
The Dealer-Manager will provide a discount to the applicable purchaser of
the Units an amount equal to 1.0% of the purchase price per Unit, a discount of
$1.00 on $8.00 Sales Commission (a "Volume Discount"), for all purchases of
$500,000 or more. The Volume Discount applies to an investor's entire purchase
of Units, and the discount will be used to purchase additional Units. Such
reductions reflect the savings of selling expenses expected by the
Dealer-Manager to be achieved in the sale of the quantities of Units specified.
Although due to such discounts, amounts discounted to subscribers may vary, the
proceeds to the Partnership, net of Sales Commissions and Volume Discount, if
any, will remain the same, and the investor's Capital Contribution will be
credited with the full purchase price per Unit in the same manner as all other
Class A Limited Partners.
For purposes of computing the Volume Discount, subscriptions for Units may
be aggregated if: (i) the legal and beneficial ownership of Units to be
purchased is identical to the legal and beneficial ownership of all other Units
to be aggregated; (ii) all such Units are purchased through the same Selling
Dealer; and (iii) the request to combine more than one subscription for Units is
made at the time of the subsequent subscription. Any request for aggregating
subscriptions will be subject to verification by the Dealer-Manager, whose
determination will be final.
The Class A Limited Partners may elect to have their cash distributions
from the Partnership reinvested in Units during the Offering period. During such
Offering period, periodic Supplements containing updated financial and other
information about the Partnership will be provided to those Class A Limited
Partners who elect to have their cash distributions reinvested in Units. The
Partnership may issue partial Units if an investment is not made in multiples of
$100.00.
Continued offering beyond one year from each state's original effective
date is subject to approval by the applicable state securities authorities of
most states.
Escrow Arrangements
Commencing on the effective date of this Prospectus, and until
subscriptions for 12,000 Units have been accepted by the General Partner, all
funds received by the Dealer-Manager from subscriptions for Units will be placed
in an escrow account, at the Partnership's expense, with the Escrow Agent. The
escrow account will be interest-bearing. Prior to the Closing, the escrowed
funds may only be invested in bank accounts, including savings accounts and bank
money market accounts, short-term certificates of deposit issued by a bank
having a net worth of at least $10,000,000 or short-term securities issued or
guaranteed by the United States government.
The General Partner will promptly accept or reject subscriptions for Units
after its receipt of a prospective investor's subscription funds. As soon as
possible after the receipt and acceptance by the General Partner of
subscriptions for the Minimum Offering of 12,000 Units, the Partnership will
admit as Class A Limited Partners all subscribers whose subscriptions have been
received and accepted by the Partnership, and the funds representing their
subscriptions will be released from the escrow account to the Partnership.
Interest earned, if any, on subscription funds of subscribers who are
admitted to the Partnership will be remitted to the subscribers by the General
Partner as soon as practical after their admission. Interest, if any, will be
calculated with the subscription proceeds weighted to reflect the length of time
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each subscriber's funds were held in escrow, prior to their admission. In
addition, the General Partner will pay to each subscriber who is admitted to the
Partnership at the Closing an amount equal to the difference between an interest
rate of 10.5% per annum on such subscriber's subscription payment and the amount
that is earned on such subscriber's subscription payment while it is held in the
escrow account. After the Closing, subscribers' funds will not be held in escrow
and, accordingly, no such amounts will be paid to subscribers.
If the Minimum Offering of 12,000 Units has not been subscribed for by the
Termination Date, then the Partnership will cancel all existing subscriptions
and all subscription funds will be released from escrow and returned promptly to
each subscriber, together with all interest earned on those funds (with the
subscription proceeds weighted to reflect the length of time each subscriber's
funds were held in escrow). At that time, the Partnership will be terminated and
no further attempt will be made to solicit additional subscriptions.
In addition, any Net Offering Proceeds from the sales of Units in the
Partnership (other than Reserves) that have not been invested or committed to
investment in Equipment within 24 months after the date of this Prospectus (in
the case of funds received by the Partnership within twelve months after the
date of this Prospectus) or within twelve months after the Termination Date (in
the case of funds received by the Partnership after twelve months after the date
of this Prospectus) will be returned, without interest, to the Class A Limited
Partners in proportion to their respective Capital Contributions. Any such
returned Net Offering Proceeds will include, in addition, a return of a
proportionate share of the O&O Expenses Reimbursement, Dealer-Manager Fees and
any Sales Commissions paid to the General Partner or its Affiliates.
The General Partner and its Affiliates, including the Dealer-Manager, will
have the right, but not the obligation, to subscribe for and purchase up to 5.0%
of the offered Units, subject to the same terms and conditions contained in this
Prospectus, for their own accounts; none of these Units will be counted toward
ascertaining whether the Minimum Offering of 12,000 Units has been subscribed
for. All Units purchased by the General Partner or its Affiliates will be
purchased solely for investment purposes and not with a present view toward
resale or distribution.
Until subscriptions for the Minimum Offering of 12,000 Units are received
by the Partnership and the Closing is held, all subscription payments should be
made payable to "Capital Preferred Yield Fund - IV, L.P., Escrow Account." The
proceeds of Unit sales prior to the Closing will be deposited in an escrow
account with the Escrow Agent. These investors will become Limited Partners
simultaneously with the release from impound under the Escrow Agreement on the
date of the Closing. After the Closing, all subscription checks should be made
payable to "Capital Preferred Yield Fund - V, L.P." After the Closing,
subscription checks will be delivered to the Partnership by the Dealer-Manager
or Selling Dealers on a daily basis and each investor will become a Class A
Limited Partner as of the date on which his subscription is accepted by the
General Partner, subject to his subscription check "clearing" under the
applicable banking regulations.
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INVESTOR SUITABILITY AND MINIMUM INVESTMENT REQUIREMENTS;
SUBSCRIPTION PROCEDURES
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Individual Investment Suitability Considerations
Among the reasons for establishing investor suitability standards and
minimum dollar amounts of investment is that there is no public market for the
Units and none is expected to develop. Accordingly, only Persons who want to
receive regular cash distributions over the term of the Partnership, are able to
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make a long-term investment and who have adequate financial means and no need
for liquidity with regard to their investment should purchase Units. Investors
subscribing for Units should carefully consider the risk factors and other
special considerations (including the lack of a market for Units and the
resulting long-term nature of an investment in Units) described under "RISK
FACTORS" and "TRANSFER OF UNITS." An investment in Units is not appropriate for
investors who must rely on cash distributions with respect to their Units as a
primary or essential source of income to meet their necessary living expenses.
The Units are subject to substantial transfer restrictions and may be
transferred only in compliance with applicable federal and state securities laws
and regulations, and only after the transferor and transferee submit a duly
executed transfer application in form and content acceptable to the General
Partner. Generally speaking, an investor may only sell Units to a Person who
meets the suitability standards established by the Partnership and any more
stringent suitability standards established by the state of the proposed
transferee's residence or domicile. Other transfers (such as by gift) may also
be subject to the same suitability standards and minimum investment standards as
for an initial purchase of Units. The Partnership will require certain
assurances that these standards are met. Moreover, the General Partner has the
right to impose significant restrictions on the transfer of Units under certain
circumstances. See "TRANSFER OF UNITS" for a more detailed description of the
conditions that must be satisfied in order to transfer Units.
State Requirements Concerning Investor Suitability and Minimum Investment
Units will only be sold to an investor who makes a minimum purchase of 25
Units ($2,500) except for sales to an IRA or Qualified Plan, for which the
minimum purchase (except for residents of the states of Iowa and Minnesota) is
10 Units ($1,000). In addition, Units will be sold only to Persons who: (i)
either have (a) an annual gross income of at least $45,000, plus a net worth of
at least $45,000, or (b) a net worth of at least $150,000; or (ii) satisfy the
suitability standards applicable in the state of their residence or domicile, if
those standards are more stringent. All computations of net worth exclude the
value of the investor's home, home furnishings and personal property and motor
vehicles or automobiles. In the case of sales to IRAs or Qualified Plans, the
foregoing standards must be met by the beneficiary, by the IRA or Qualified
Plan, or by the person who directly or indirectly supplies the funds to purchase
the Units if said person is the IRA or Qualified Plan administrator.
The foregoing standards represent minimum requirements, and a Person's
satisfaction of these standards does not mean that an investment in the
Partnership would be suitable for that Person. A prospective investor should
consult his personal tax and financial advisors to determine whether an
investment in the Partnership would be appropriate for him in light of his
particular tax and investment situation.
An investor need not manually execute a Subscription Agreement in order to
purchase Units unless: (i) the Units are purchased in a discretionary account;
or (ii) the investor resides in one of the states listed in the Subscription
Documents. In either instance, the Selling Dealer will require such investors to
personally execute a Subscription Agreement. Corporations, partnerships, trusts,
IRAs and Qualified Plans subscribing for Units may be subject to additional
subscription requirements. Selling Dealers are prohibited by the Rules of Fair
Practice of the NASD from executing any transaction in a direct participation
program in a discretionary account without prior written approval of the
transaction by the customer.
An investment in the Partnership will not, in and of itself, create an IRA
or Qualified Plan and, in order to create an IRA or Qualified Plan, an investor
must himself comply with all applicable provisions of the Code and ERISA. IRAs
or Qualified Plans, and other tax-exempt organizations, when making a decision
whether to invest in the Partnership, should consider the following: (i)
substantially all income or gain realized by such entity will be "unrelated
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business taxable income" and subject to the unrelated business tax; (ii)
Partnership Equipment might be considered "plan assets" with respect to Class A
Limited Partners that are beneficiaries of Qualified Plans for purposes of ERISA
and the excise taxes imposed by Section 4975 of the Code; and (iii) such
entities, because they are exempt from federal income taxation, will be unable
to take full advantage of the tax benefits, if any, generated by the
Partnership. See "RISK FACTORS," "FEDERAL INCOME TAX CONSEQUENCES--Investment by
Qualified Plans or IRAs" and "INVESTMENT BY QUALIFIED PLANS."
A "Fiduciary" or "Investment Manager" (as these terms are defined in
Sections 3(21) and 3(28) of ERISA, respectively) of a Qualified Plan, or a
fiduciary of another tax-exempt organization, should consider all risks and
investment concerns, including those unrelated to tax considerations, in
deciding whether an investment in the Partnership is appropriate and
economically advantageous for a Qualified Plan or other tax-exempt organization.
See "RISK FACTORS," "INVESTMENT OBJECTIVES AND POLICIES," "FEDERAL INCOME TAX
CONSEQUENCES" and "INVESTMENT BY QUALIFIED PLANS."
Minimum Investment and Suitability Standards
The Selling Dealer Agreement between the Dealer-Manager and each Selling
Dealer and the Dealer-Manager Agreement between the Partnership and the
Dealer-Manager require that the broker-dealer selling Units in the Partnership
make every reasonable effort to determine whether a purchase of Units is a
suitable and appropriate investment for the investor based on the investor's
overall investment objectives and investment portfolio structure and based on
information provided by the purchaser to the broker-dealer regarding his
financial situation and investment objectives and, if so and upon receipt of a
subscription for Units, the broker-dealer must promptly transmit to the General
Partner all subscription payments and duly-executed Subscription Agreements
received by it. Each broker-dealer selling Units shall maintain records of the
information used to determine that an investment in Units is suitable and
appropriate for each investor. Each broker-dealer selling Units shall maintain
these records for at least six years.
In making this determination, the broker-dealer shall ascertain that the
prospective investor:
a. meets the minimum income and net worth standards established
for the Partnership;
b. can reasonably benefit from the Partnership based on the
prospective investor's overall investment objectives and
portfolio structure;
c. is able to bear the economic risk of the investment based on
the prospective investor's overall financial situation; and
d. has apparent understanding of:
(1) the fundamental risks of the investment;
(2) the risk that the investor may lose the entire
investment;
(3) the lack of liquidity of the Units;
(4) the restrictions on transferability of the Units;
(5) the background and qualifications of the Sponsor or the
Persons responsible for directing and managing the
Partnership; and
(6) the tax consequences of the investment.
The Sponsor or any broker-dealer selling the Units on behalf of the Sponsor
or the Partnership may not complete a sale of Units to an investor until at
least five business days after the date the investor receives a final
prospectus. The Sponsor or the broker-dealer shall send each investor a
confirmation of his or her purchase.
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Units will only be sold to investors who represent that they meet the
suitability standards set forth in this Section and in the Subscription
Agreement, attached as Exhibit C to this Prospectus or, if applicable, the
higher standards set forth in the following table. Investors seeking to transfer
Units subsequent to their initial investment may be subject to the securities
laws of the state in which the transfers are deemed to take place, which laws
are subject to change. The Subscription Agreement or a Transferee Agreement with
equivalent transferee representations is required to be executed by each Person
acquiring Units to evidence his compliance with these standards and the
requirements of applicable laws.
All net worth figures in the following table are exclusive of the
investor's home, home furnishings and personal property and motor vehicles and
automobiles.
In the case of sales to fiduciary accounts, these minimum standards shall
be met by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the Units if the donor or
grantor is the fiduciary.
<TABLE>
<CAPTION>
Subscription
Minimum Investment Suitability Standards Agreement
------------------ --------------------------------- -------------
(In Units)
IRAs and Annual
Qualified Net Gross Net Signature
State Regular Plans Worth plus Income or Worth Required
- ----- ------- --------- ----- ---- ------ -- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Alabama 25 10 $45,000 $45,000 $150,000 No
Alaska 25 10 45,000 45,000 150,000 No
Arizona 25 10 45,000 45,000 150,000 No
Arkansas 25 10 45,000 45,000 150,000 No
California 25 10 45,000 45,000 150,000 No
Colorado 25 10 45,000 45,000 150,000 No
Connecticut 25 10 45,000 45,000 150,000 No
Delaware 25 10 45,000 45,000 150,000 No
Dist. of Columbia 25 10 45,000 45,000 150,000 No
Florida 25 10 45,000 45,000 150,000 No
Georgia 25 10 45,000 45,000 150,000 No
Hawaii 25 10 45,000 45,000 150,000 No
Idaho 25 10 45,000 45,000 150,000 No
Illinois 25 10 45,000 45,000 150,000 No
Indiana 25 10 45,000 45,000 150,000 No
Iowa 25 25 45,000 45,000 150,000 Yes
Kansas 25 10 45,000 45,000 150,000 No
Kentucky 25 10 45,000 45,000 150,000 No
Louisiana 25 10 45,000 45,000 150,000 No
Maine 25 10 45,000 45,000 150,000 Yes
Maryland 25 10 45,000 45,000 150,000 No
Massachusetts 25 10 60,000 60,000 225,000 Yes
Michigan* 25 10 45,000 45,000 150,000 Yes
Minnesota 25 20 45,000 45,000 150,000 Yes
Mississippi 25 10 45,000 45,000 150,000 No
Missouri 25 10 60,000 60,000 225,000 Yes
Montana 25 10 45,000 45,000 150,000 No
Nebraska 50 10 45,000 45,000 150,000 Yes
Nevada 25 10 45,000 45,000 150,000 No
New Hampshire 25 10 45,000 45,000 150,000 Yes
New Jersey 25 10 45,000 45,000 150,000 Yes
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<CAPTION>
Minimum Investment Suitability Standards Agreement
------------------ --------------------------------- -------------
(In Units)
IRAs and Annual
Qualified Net Gross Net Signature
State Regular Plans Worth plus Income or Worth Required
- ----- ------- --------- ----- ---- ------ -- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
New Mexico 25 10 45,000 45,000 150,000 Yes
New York 25 10 45,000 45,000 150,000 No
North Carolina 25 10 60,000 60,000** 225,000 Yes
North Carolina 25 10 60,000 60,000** 225,000 Yes
North Dakota 25 10 45,000 45,000 150,000 No
Ohio* 25 10 45,000 45,000 150,000 Yes
Oklahoma 25 10 45,000 45,000 150,000 Yes
Oregon 25 10 45,000 45,000 150,000 No
Pennsylvania* 25 10 45,000 45,000 150,000 No
Rhode Island 25 10 45,000 45,000 150,000 No
South Carolina 25 10 45,000 45,000 150,000 No
South Dakota 25 10 45,000 45,000 150,000 Yes
Tennessee 25 10 45,000 45,000 150,000 Yes
Texas 25 10 45,000 45,000 150,000 Yes
Utah 25 10 45,000 45,000 150,000 No
Vermont 25 10 45,000 45,000 150,000 No
Virginia 25 10 45,000 45,000 150,000 No
Washington 25 10 45,000 45,000 150,000 Yes
West Virginia 25 10 45,000 45,000 150,000 No
Wisconsin 25 10 45,000 45,000 150,000 No
Wyoming 25 10 45,000 45,000 150,000 No
- --------------------
</TABLE>
* The investment in Units may not exceed 10.0% of the investor's net worth.
** In North Carolina, income requirements apply to taxable income, rather than
gross income.
How To Subscribe
An investor who meets the suitability standards described above may
subscribe for Units. Except in cases where execution of a Subscription Agreement
is required, as described in "State Requirements Concerning Investor Suitability
and Minimum Investment" above, a subscriber need only provide his securities
sales representative with a check for the applicable subscription payment, made
payable as provided in the next paragraph, in order to subscribe for Units. The
subscription check should be in an amount equal to $100.00 for each Unit for
which he wishes to subscribe.
Until subscriptions for the Minimum Offering of 12,000 Units are received
by the Partnership and the Closing is held, all subscription payments should be
made payable to "Capital Preferred Yield Fund - V, L.P., Escrow Account." The
proceeds of Unit sales prior to the Closing will be deposited in an escrow
account with the Escrow Agent. These investors will become Limited Partners
simultaneously with the release from impound under the Escrow Agreement on the
date of the Closing. After the Closing, all subscription checks should be made
payable to "Capital Preferred Yield Fund - V, L.P." After the Closing,
subscription checks will be delivered to the Partnership by the Dealer-Manager
or Selling Dealers on a daily basis and each investor will become a Class A
Limited Partner as of the date on which his subscription is accepted by the
General Partner, subject to his subscription check "clearing" under the
applicable banking regulations.
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Each subscription payment held in escrow will begin earning interest upon
the earlier to occur of one business day after receipt and deposit of the funds.
Interest earned will be allocated by the General Partner based on the length of
time each subscriber's funds were held following the bank clearance period.
Interest earned upon each subscriber's subscription payment will be promptly
paid to the subscriber after the Closing.
The General Partner will promptly review, and accept or reject (in its sole
discretion), each subscription within 30 days of receipt. Investors whose
subscriptions are accepted by the General Partner will receive prompt written
confirmations of the acceptance from the General Partner or its agents. Any
rejected subscriptions will be returned to subscribers immediately after the
rejection.
By signing a Subscription Agreement (or by paying for Units in a
jurisdiction where a signature is not required), each investor will make all of
the representations and warranties contained in the Subscription Agreement set
forth in Exhibit C to this Prospectus and will be bound by all the terms of the
Subscription Agreement and the Partnership Agreement.
The Subscription Agreement contains additional representations, including
representations to be made by IRAs and Qualified Plans and by agents and
fiduciaries. In addition, all subscribers, by specifying whether they are U.S.
citizens, U.S. resident aliens or residents of other countries, will make a
representation as to whether they are or are not "United States persons" as
defined in Code Section 7701(a)(30). The Partnership will require these
representations to be made by each subscriber in order to assist NASD-registered
securities sales representatives, Selling Dealers and the Dealer-Manager in
determining whether an investment in Units is suitable for the subscriber. The
General Partner will rely upon the accuracy and completeness of the subscriber's
representations in complying with its obligations under applicable state and
federal securities laws and may assert the representations as a defense against
the subscriber or securities regulatory agencies. The General Partner has the
right to reject a subscription from any subscriber who does not make the
requisite representations or who is otherwise believed not to be a suitable
investor for Units. In addition, each subscription is subject to acceptance and
may be rejected by the General Partner in its sole discretion, in whole or in
part and for any reason.
The NASD's Rules of Fair Practice require that any member of, or person
associated with, the Dealer-Manager or a Selling Dealer who sells or offers to
sell Units must make every reasonable effort to assure that each potential
subscriber is a suitable investor for a Partnership investment in light of the
Person's age, education level, knowledge of investments, need for liquidity, net
worth and other pertinent factors and further requires each Selling Dealer and
subscriber or offeree to make a determination of suitability. The Dealer-Manager
and each Person selling Units cannot rely upon representations made by a
subscriber in a Subscription Agreement alone in making a determination of the
suitability of the investment for the subscriber.
A sale of Units may not be completed by receiving payment for the Units
from an investor until at least five business days after the date the investor
receives a final Prospectus. The broker-dealer selling Units to an investor is
obligated in the Selling Dealer Agreement to send a confirmation of each
purchase by an investor to him or her.
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- --------------------------------------------------------------------------------
EXPERTS
- --------------------------------------------------------------------------------
The balance sheets of Capital Preferred Yield Fund - V, L.P., as of October
15, 1997, CAI Equipment Leasing VI Corp., as of October 15, 1997, and Capital
Associates, Inc., as of May 31, 1997, have been included herein and in the
registration statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
- --------------------------------------------------------------------------------
LEGAL MATTERS
- --------------------------------------------------------------------------------
Certain legal matters have been passed upon for the Partnership and General
Partner by Lyle B. Stewart, P.C., Denver, Colorado, and certain federal income
tax matters have been passed upon for the Partnership and the General Partner by
Ballard Spahr Andrews & Ingersoll, Denver, Colorado. See "CONFLICTS OF
INTEREST--Lack of Separate Representation."
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
A registration statement under the Securities Act has been filed with the
Commission, Washington, D.C. 20549, with respect to the securities offered in
this Prospectus. This Prospectus contains certain information concerning the
Partnership, but does not contain certain other information set forth in the
Registration Statement and exhibits thereto. The omitted information may be
obtained from the principal office of the Commission in Washington, D.C. upon
payment of the fee prescribed by its rules and regulations, or may be examined
there without charge.
- --------------------------------------------------------------------------------
SALES MATERIAL
- --------------------------------------------------------------------------------
In addition to and apart from this Prospectus, the Partnership may utilize
certain sales material in the Offering. This material may include an investor
sales promotion brochure, a question and answer sales booklet, a prepared speech
for public seminars, a videotape and slide presentation for use at public
seminars, an invitation to attend public seminars, prospecting letters, a
mailing card, "tombstone" advertisements and radio and television
advertisements. In certain jurisdictions these sales materials may not be
available. Other than as described in this Prospectus, no other sales material
has been authorized for use in connection with this Offering. This Offering is
made only by means of this Prospectus. Although the information contained in the
sales material does not conflict with any of the information contained in this
Prospectus, the sales material does not purport to be complete and should not be
considered as a part of this Prospectus or the registration statement of which
this Prospectus is a part, as incorporated in this Prospectus or the
registration statement by reference or as forming the basis of the Offering.
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- --------------------------------------------------------------------------------
GLOSSARY
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms shall have the meanings set
forth below.
"Acquisition Expenses" means expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, accounting fees and expenses and miscellaneous expenses relating to
selection and acquisition of Equipment for the Partnership, whether or not
acquired.
"Acquisition Fees" means the total of all fees and commissions paid by
any party in connection with the initial purchase or manufacture of Equipment
acquired by the Partnership, including without limitation the Origination Fee
and the Evaluation Fee, any commission, selection fee, construction supervision
fee, financing fee, non-recurring management fee or any fee of a similar nature,
however designated.
"Adjusted Capital Contribution" means, as of the date of
determination, a Partner's Capital Contribution, reduced to not less than zero
by: (i) any return of Capital Contributions pursuant to Section 3.8; and (ii)
cash distributions from Cash From Operations and Cash From Sales received by the
Partnership during the period subsequent to the Termination Date and actually
paid to Partners after the Termination Date in excess of the Preferred Return. A
Partner's Adjusted Capital Contribution for the purpose of computing Payout
shall not be reduced by any cash distributions made between the Closing Date and
the Termination Date.
"Affiliate" means, when used with reference to a specified Person: (i)
any Person that directly or indirectly controls, is controlled by or is under
common control with the specified Person; (ii) any Person that is an officer,
director or trustee of or partner in, or serves in a similar capacity with
respect to, the specified Person or with respect to which the specified Person
serves in a similar capacity; and (iii) any Person that directly or indirectly
is the beneficial owner of, or controls 10.0% or more of any class of equity
securities of, or otherwise has a substantial beneficial interest in, the
specified Person or of which the specified Person is directly or indirectly the
owner of, or controls 10.0% or more of any class of equity securities or in
which the specified Person otherwise has a substantial beneficial interest.
"Assignee" means a Person to whom an interest in any Partnership
Interest has been assigned in a manner permitted under the Partnership
Agreement.
"CAI" means Capital Associates, Inc., the parent corporation of the
General Partner and the Class B Limited Partner.
"CAII" means Capital Associates International, Inc., a subsidiary of
CAI.
"Capital Account" means the capital account maintained for each
Partner pursuant to Section 3.6 of the Partnership Agreement.
"Capital Contribution" means the amount of investment in the
Partnership whether in cash, cash equivalents or other property that a Partner
contributes to the Partnership, minus any amounts returned pursuant to Section
3.8 of the Partnership Agreement. In the case of Units, the term "Capital
Contribution" shall always mean $100.00 per Unit, minus any amounts returned
pursuant to Section 3.8 of the Partnership Agreement.
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"Cash From Operations" means the cash funds provided from the
Partnership's operations, without deduction for depreciation, but after
deducting cash funds used to pay all other expenses, debt payments, amounts
placed in Reserves (net of any amounts released from Reserves because the need
for such Reserves has ceased), capital improvements, replacements, and
liabilities (other than cash funds withdrawn from Reserves) including without
limitation all fees, reimbursements and other expenses paid to the General
Partner, its Affiliates or any other Person. "Cash From Operations" does not
include Cash From Sales.
"Cash From Sales" means the cash received by the Partnership as a
result of a Sale or refinancing, reduced by: (i) all debts and liabilities of
the Partnership required to be paid as a result of the Sale, whether or not then
payable (including any liabilities on an item of Equipment sold that are not
assumed by the buyer and any remarketing fees required to be paid to Persons who
are not Affiliates of the General Partner) and (ii) any amounts set aside as
Reserves to the extent deemed reasonable by the General Partner. If the
Partnership takes back a promissory note or other evidence of indebtedness in
connection with any Sale, the amount of such obligations shall not be included
in Cash From Sales and all payments subsequently received in cash by the
Partnership with respect to such note or other evidence of indebtedness shall be
included in Cash From Sales only upon receipt, irrespective of the treatment of
such payments by the Partnership for tax or accounting purposes. If the
Partnership has the right to retain insurance proceeds in connection with the
damage or loss of Equipment, such proceeds shall be treated as Cash From Sales.
"Class A Limited Partners" means those Limited Partners designated as
Class A Limited Partners from time to time on the books and records of the
Partnership (in their capacities as Limited Partners).
"Class B Interest" means the Partnership Interest received by the
Class B Limited Partner in exchange for its Capital Contribution.
"Class B Limited Partner(s)" means initially Capital Associates
International, Inc. and any successor Class B Limited Partner(s) designated as
such on the books and records of the Partnership.
"Class B Subordinated Distributions" means cash distributions payable
to the Class B Limited Partner(s) out of Distributable Cash in an annualized,
subordinated amount equal to 10.5% of the Class B Limited Partner's Capital
Contributions.
"Closing" means the sale of Units in an amount equal to at least the
Minimum Offering and the delivery of subscribed funds held in escrow by the
Escrow Agent to the Partnership.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and any successor law.
"Commission" means the Securities and Exchange Commission.
"Consent" means, as the context may require, the: (i) consent given by
a vote at a meeting called and held in accordance with the provisions of Section
11.1 of the Partnership Agreement; (ii) prior written consent of a Person to do
the act or thing for which the consent is solicited; or (iii) act of granting
such consent.
"Controlling Person" means any person, regardless of title, who: (i)
performs executive or senior management functions for the General Partner or its
Affiliates similar to those of executive management or senior management; (ii)
is a director of the General Partner or its Affiliates; (iii) holds a 5.0% or
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more equity interest in the General Partner or its Affiliates; or (iv) has the
power to direct or cause the direction of a General Partner or Affiliates
through ownership of voting securities, by contract or otherwise.
"Cost" means the reasonable, necessary and actual expenses incurred by
the General Partner or its Affiliates, as determined in accordance with
generally accepted accounting principles, in holding title to Equipment on a
temporary or interim basis.
"Dealer-Manager" means CAI Securities Corporation, a California
corporation, and any successor entity.
"Dealer-Manager Agreement" means the Dealer-Manager Agreement among
the Partnership, the General Partner and the Dealer-Manager.
"Dealer-Manager Fee" means the fee payable to the Dealer-Manager by
the Partnership pursuant to Section 5.4(a)(i)(B) of the Partnership Agreement.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. ss.17-101, et seq., as amended and in effect from time to time,
and any successor to such act.
"Disability" means that an individual is unable to perform his or her
duties as an employee at a then existing job by reason of illness, injury or
incapacity for one hundred and twenty (120) consecutive days, or such
individual's employer or disability insurer has determined that such individual
is disabled for the purposes of applicable disability insurance, if any.
"Distributable Cash" means Cash From Operations and Cash From Sales
available to the Partnership during the Period for which distributions to
Partners by the Partnership are to be made.
"Due Diligence Reimbursement" means the bona fide due diligence fees
and expenses payable by the Partnership to Selling Dealers, in an amount equal
to the lesser of: (i) 0.5% of Gross Offering Proceeds; and (ii) the maximum
amount allowable under the NASD Rules of Fair Practice.
"Equipment" means any new, used or reconditioned equipment and related
tangible property acquired by the Partnership and any equity interest of the
Partnership therein, whether directly or indirectly through a nominee, joint
venture or otherwise.
"Equipment Purchase Price" means the price paid upon the purchase or
Sale of a particular item of Equipment, including the amount of Acquisition Fees
and all liens and mortgages on the Equipment, but excluding points and prepaid
interest.
"Equipment Sale Commission" means the brokerage fee paid for services
rendered in connection with the purchase or Sale of Equipment which is
reasonable, customary and competitive in light of the size, type and location of
the Equipment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Bank One, Colorado, N.A., a national banking
association (or another banking institution named by the General Partner in the
event Bank One, Colorado, N.A. is unable to serve as Escrow Agent).
"Evaluation Fee" means the fee paid by the Partnership to the General
Partner pursuant to Section 5.4(a)(iii)(B) of the Partnership Agreement.
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"Fees" means all amounts payable by the Partnership to the General
Partner or its Affiliates in connection with the operations of the Partnership,
including the Evaluation Fee, the Origination Fee, O&O Expenses Reimbursement,
Sales Commissions and Management Fee.
"First Cash Distributions" means cash distributions, payable to the
Class A Limited Partners out of Distributable Cash in an annualized, cumulative
preferred amount equal to 10.5% (based upon a year of 360 days with twelve
months of 30 days each), of the Class A Limited Partners' Capital Contributions,
provided, however, that the General Partner, in its sole discretion, may
increase such percentage from time to time, but not decrease it below 10.5%.
"Front-End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phases,
including without limitation Leasing Fees, Acquisition Expenses, Acquisition
Fees and Organizational and Offering Expenses, including Sales Commissions,
Dealer-Manager Fees, O&O Expenses Reimbursement, Due Diligence Reimbursement and
any other similar fees, however designated (including fees paid with respect to
Equipment purchased with Reinvested Proceeds). Front-End Fees shall not include
any Acquisition Fees or Acquisition Expenses paid by a manufacturer or vendor of
Equipment to any of its employees or contractors unless such Persons are
Affiliates of the Sponsor.
"Full Payout Lease" means a Lease under which the non-cancelable
rental payments due during the initial term of the Lease are sufficient to
permit the Partnership to recover the Equipment Purchase Price of the Equipment
leased thereby.
"General Partner" means CAI Equipment Leasing V Corp. and any
additional or successor general partner admitted to the Partnership pursuant to
Article Six of the Partnership Agreement.
"Gross Offering Proceeds" means the aggregate Capital Contributions of
all Class A Limited Partners admitted to the Partnership.
"Gross Rentals" means the gross dollar amount received by the
Partnership as rental payments for the use of any Equipment subject to a Lease.
"Initial Lease" means the first Lease to which an item of Equipment is
subject immediately following the acquisition of such Equipment by the
Partnership, including Equipment purchased with Net Offering Proceeds as well as
Reinvested Proceeds. The term "Initial Lease" includes the Lease to which an
item of Equipment is subject on the date the Partnership acquires such item of
Equipment.
"Investment in Equipment" means the amount of Gross Offering Proceeds
actually paid or allocated to the purchase, manufacture or renovation of
Equipment acquired by the Partnership, including the purchase of Equipment,
Reserves allocable thereto (except that Reserves in excess of 3.0% shall not be
included) and other cash payments such as interest and taxes but excluding
Front-End Fees.
"IRA" means an Individual Retirement Account.
"IRS" means the Internal Revenue Service.
"Lease" means a Full Payout Lease or an Operating Lease, and includes
all Initial Leases and Subsequent Leases, as well as an executed binding lease
agreement pursuant to which either the Partnership or the General Partner or any
of its Affiliates is the lessor, regardless of whether the lease term has
commenced as of the subject date or is to commence in the future, which
agreement is assignable by the General Partner or such Affiliate to the
Partnership, provided, however, that such agreement shall be held by the General
Partner or Affiliate on a temporary or interim basis, generally not longer than
six months after the acquisition of the Equipment subject to the agreement by
the General Partner or Affiliate.
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"Leasing Fee" means the total of all fees and commissions paid by any
party in connection with the initial lease of Equipment acquired by the
Partnership.
"Lessee" means the lessee under a Lease.
"LIF" means Leastec Income Fund V, a California Limited Partnership,
an Affiliate of the Partnership.
"Limited Partner" means any Class A Limited Partner or the Class B
Limited Partner.
"Liquidation Proceeds" means all cash (from whatever source) available
for distribution to the Partners upon liquidation of the Partnership.
"Majority Interest" means the holders of more than 50.0% of the
aggregate outstanding Units; provided, however, that, in the case of any matter
to be voted on in which the General Partner or its Affiliates has an interest,
the Units held by the General Partner and its Affiliates shall not be treated as
outstanding for this purpose.
"Management of Equipment" means providing the personnel and services
necessary to the leasing activities of the Partnership, including but not
limited to, leasing and re-leasing of Partnership Equipment, arranging for
necessary maintenance and repair of the Equipment, collecting revenues, paying
operating expenses, determining that the Equipment is used in accordance with
all operative contractual arrangements and providing clerical and bookkeeping
services necessary to the operation of the Partnership Equipment pursuant to
Section 5.2 of the Partnership Agreement.
"Management Fee" means the fee payable to the General Partner pursuant
to Section 5.4(a)(iv) of the Partnership Agreement.
"Maximum Offering" means the sale of 500,000 Units by the Partnership.
"Minimum Offering" means the sale of 12,000 Units by the Partnership.
"NASAA Guideline(s)" means the Statement of Policy Regarding Equipment
Programs adopted on November 20, 1986, effective January 1, 1987, as amended on
April 22, 1988 and October 24, 1991 by the North American Securities
Administrators Association, Inc.
"Net Disposition Proceeds" means the proceeds realized by the
Partnership from sale, refinancing or other disposition of Partnership
equipment, including insurance proceeds or lessee indemnity payments arising
from the loss or destruction of the Equipment, less all Partnership liabilities.
"Net Offering Proceeds" means the Gross Offering Proceeds minus Sales
Commissions, Dealer-Manager Fee, O&O Expenses Reimbursement and initial Reserves
in the amount of 1.0% of Gross Offering Proceeds.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of depreciation relative to
any particular asset may be added to the depreciation cost of such asset to
compute total assets. The amount of depreciation may be added only to the extent
that the amount resulting after adding such depreciation does not exceed the
fair market value of such asset.
"170% Recovery" means the time at which the cumulative amount of
Distributable Cash distributed to the Limited Partners (as a class) (taking into
account all prior and concurrent distributions of Distributable Cash to the
Limited Partners (as a class) under Section 4.1(a)(i) and (ii) of the
Partnership Agreement) equals 170.0% of the Capital Contributions of the Limited
Partners (as a class).
106
<PAGE>
"O&O Expenses Reimbursement" means a non-accountable payment by the
Partnership to the General Partner pursuant to Section 5.4(a)(ii) of the
Partnership Agreement.
"Offering" means the offering of Units contemplated by this
Prospectus.
"Operating Lease" means a Lease under which the non-cancelable rental
payments due during the initial term of the Lease are not sufficient to permit
the Partnership to recover the Equipment Purchase Price of the Equipment leased
thereby.
"Organizational and Offering Expenses" means expenses incurred in
connection with preparing the Partnership for registration and subsequently
offering and distributing it to the public, including sales commissions paid to
broker-dealers in connection with the distribution of Units and all advertising
expenses except advertising expenses related to the leasing of the Partnership's
Equipment.
"Origination Fee" means the fee paid by the Partnership to the General
Partner pursuant to Section 5.4(a)(iii)(A) of the Partnership Agreement.
"Partner" means a General Partner or a Limited Partner.
"Partnership" means Capital Preferred Yield Fund - IV, L.P., a
Delaware limited partnership.
"Partnership Agreement" means the Agreement of Limited Partnership
pursuant to which the Partnership was formed, as it may be amended, supplemented
or restated from time to time.
"Partnership Interest" means the interest of a Partner in the
Partnership, whether held by such Partner or an immediate or subsequent Assignee
thereof, including without limitation such Partner's right to: (i) receive a
distributive share of the Profits or Losses and distributions of cash and/or
other Partnership property; (ii) receive a distributive share of the
Partnership's assets; and (iii) if a General Partner, participate in the
management of the business and affairs of the Partnership.
"Payout" means the time(s) when the aggregate amount of distributions
actually paid to the Limited Partners (as a class) from Distributable Cash and
Liquidation Proceeds, if any, during the period subsequent to the Termination
Date (taking into account all prior and concurrent distributions of
Distributable Cash to the Limited Partners (as a class) under Section 4.1(a)(i)
and (ii) of the Partnership Agreement received from the Partnership during the
period subsequent to the Termination Date and excluding allocations for
bookkeeping purposes not actually paid) equals the amount of the Limited
Partners' aggregate Capital Contributions plus their Preferred Return as of the
date of determination.
"Period" means a time period less than or equal to a Quarter.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other legal entity.
"Personal Emergency" means a situation in which a Class A Limited
Partner or his or her spouse or child dies, or is confined to a hospital for a
period of 90 or more consecutive days, or to a nursing home or other long-term
care facility for a period of 30 or more consecutive days, is divorced or
suffers a Disability.
107
<PAGE>
"Preferred Return" means a 10.0% annual, cumulative return, compounded
daily (from whatever sources), on the Limited Partners' Adjusted Capital
Contributions, calculated from the Termination Date.
"Profits" or "Losses" means profits or losses, as the case may be, of
the Partnership as determined for federal income tax purposes, and items of
income, gain, loss, deduction or credit entering into the computation thereof;
provided that if, in keeping with the provisions of Treas. Reg. ss.1.704-1(b)
and Temp. Reg. ss.1.704-1T(b)(4)(iv), any asset of the Partnership is accounted
for on the Partnership books and in the Capital Accounts of the Partners at an
amount other than its adjusted basis for tax purposes, then, for purposes of
accounting for such items on the Partnership books and in the Capital Accounts
of the Partners, items of income, gain, loss, deduction or credit shall be
calculated based upon the carrying value of the asset on the Partnership books;
and provided further that, in determining Profits or Losses for any Year, any
items of income, gain, loss or deduction specially allocated under any of the
provisions of Sections 4.4 and 4.6 of the Partnership Agreement for such Year
shall not be taken into account.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation,
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in equipment.
"Prospectus" means the prospectus on file with the Commission at the
time the registration statement on Form S-1 (File No. 33-80849) becomes
effective (including alternative versions of the prospectus prepared for and
disseminated in different jurisdictions in order to accommodate state securities
considerations). If the prospectus filed on behalf of the Partnership pursuant
to Rule 424 of the rules and regulations of the Commission under the Securities
Act differs from the prospectus on file at the time the registration statement
becomes effective, or if the prospectus is thereafter amended or supplemented
pursuant to such Rule 424, the term "Prospectus" shall refer to the Prospectus
filed pursuant to such Rule 424 from and after the date on which it shall have
been so filed or mailed to the Commission for filing.
"Qualified Plan" means any qualified pension, profit-sharing or stock
bonus plan.
"Quarter" means the three-calendar-month period commencing on the
first day of each Year (or such shorter period ending on the last day of the
Year), and each additional three-calendar-month period included within each Year
(or such shorter period ending on the last day of a Year).
"Reimbursable Organizational and Offering Expenses" means those
expenses incurred in connection with or related to the formation and
qualification of the Partnership or a nominee thereof, the registration and
qualification of the Units under applicable federal and state laws and the
marketing, distribution, sale and processing of the Units, including without
limitation the following: (i) legal fees and disbursements and accounting costs
for the Partnership, the General Partner and the Dealer-Manager, printing costs
and the costs of delivering, mailing or shipping Prospectuses (including any
amendments or supplements thereto) and related sales material; (ii) the costs of
preparing, printing, filing and delivering a registration statement with respect
to the Units (including any amendments or supplements thereto), a "Blue Sky
Survey" and all underwriting and sales agreements; (iii) the cost of filing and
recording such certificates or other documents as are necessary to comply with
the laws of the State of Delaware for the formation of a limited partnership and
thereafter for the continued good standing of a limited partnership; (iv) the
cost of any escrow arrangements, including any compensation to the Escrow Agent;
and (v) filing fees payable to the Commission, to state securities commissions
and to the NASD, but excluding Front-End Fees.
"Reinvested Proceeds" means any Distributable Cash remaining after
First Cash Distributions and Class B Subordinated Distributions and required
distributions to the General Partner, pursuant to Section 4.1 of the Partnership
Agreement, and used to purchase Equipment during the Reinvestment Period.
108
<PAGE>
"Reinvestment Period" means the period from the Closing Date until the
end of the Quarter during which the date that is seven years (unless extended
for an additional one to four fiscal quarters by the General Partner) from the
Closing Date, occurs.
"Reserves" means amounts allocated to reserves maintained for working
capital of the Partnership and contingencies, as provided in Section 5.2(d) of
the Partnership Agreement.
"Residual Value" means the net amount realized upon the Sale of
Equipment.
"Sale" means the sale, exchange, involuntary conversion, casualty
(other than a casualty followed by refurbishing or replacement), condemnation or
other disposition of assets by the Partnership.
"Sales Commission" means the fee payable to the unaffiliated
broker-dealers selling the Units by the Partnership pursuant to Section
5.4(a)(i)(A) of the Partnership Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Selling Dealer Agreement" means the Selling Dealer agreement, the
form of which is included as Exhibit 1(b) to the registration statement on Form
S-1 (No. 33-80849) for this Offering.
"Selling Dealers" means broker-dealers selling the Units.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any Person who shall manage or
participate in the management of the Partnership, and any Affiliate of any such
Person. Sponsor does not include a Person whose only relation with the
Partnership is that of an independent equipment manager and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and broker-dealers whose only
compensation is for professional services rendered in connection with the
offering of Partnership interests.
"Subscription Agreement" means the Subscription Agreement included as
Exhibit C to this Prospectus.
"Subsequent Lease" means any Lease that commences after the
termination, or constitutes an extension, renewal or re-lease, of an Initial
Lease.
"Tax Counsel" means Ballard Spahr Andrews & Ingersoll, or other
recognized tax counsel engaged by the General Partner.
"Tax Distributions" means amounts distributed to the Partners to
provide Partners with amounts to pay federal income taxes (assuming such
Partners are taxed in the 31.0% bracket) with respect to gains from Sales, but
only to the extent that such taxes exceed the amounts distributed pursuant to
Sections 4.1(a)(i)(A) and (B) of the Partnership Agreement.
"Tax Matters Partner" means the Partner designated pursuant to Section
10.5 of the Partnership Agreement.
109
<PAGE>
"Temp. Reg." means temporary regulations issued by the U.S. Treasury
Department pursuant to the Code, including any subsequent amendments thereto, or
any regulations subsequently issued in lieu thereof.
"Termination Date" means the earliest of: (i) the date on which the
Maximum Offering has been sold; (ii) the date twelve months from the date of
this Prospectus if the Minimum Offering has not been sold; (iii) the date 24
months from the date of this Prospectus; and (iv) the date of the termination of
the Offering by the General Partner.
"Treas. Reg." means final regulations issued by the U.S. Treasury
Department pursuant to the Code, including any subsequent amendments thereto, or
any regulations subsequently issued in lieu thereof.
"Triple Net Lease" means a Lease under which the Lessee assumes
responsibility for, and bears the cost of, insurance, taxes, maintenance, repair
and operation of the leased asset and under which the non-cancelable rental
payments pursuant to such Lease are net to the Partnership.
"Unit" means a unit of limited partnership interest in the Partnership
held by a Class A Limited Partner, representing an initial Capital Contribution
of $100.00. The Partnership may issue partial Units if an investment is not made
in multiples of $100.00.
"Unrecovered Capital Contribution" means, with respect to a Unit, the
excess of (i) the Capital Contribution allocable to the Unit over (ii) the
distributions from any source paid by the Partnership with respect to such Unit.
"Upgrade" means Equipment that is designed to be added or connected to
existing Equipment in order to enhance the function and performance of such
Equipment.
"Volume Discount" means the volume discounts described and defined
under "PLAN OF DISTRIBUTION - General."
"Voluntary Withdrawal" means the withdrawal of the General Partner
pursuant to subsections (1), (6), (7), (8), (9) or (10) of Section 17-402 of the
Delaware Act.
"Withdrawal" means those events of withdrawal provided for by Section
17-402 of the Delaware Act, except for subsections (4) and (5) of Section 17-402
of the Delaware Act.
"Year" means the Partnership's annual accounting period for financial
accounting and federal income tax purposes, which ends on December 31.
110
<PAGE>
FINANCIAL STATEMENTS
Page
----
CAI Equipment Leasing VI Corp.
Report of Independent Accountants F - 2
Balance Sheet as of October 15, 1997
and notes to Balance Sheet F - 3
Capital Preferred Yield Fund-V, L.P.
Report of Independent Accountants F - 6
Balance Sheet as of October 15, 1997
and notes to Balance Sheet F - 7
Capital Associates, Inc.
Report of Independent Accountants F - 9
Consolidated Balance Sheet as of May 31, 1997
and notes to Balance Sheet F - 10
Unaudited Consolidated Balance Sheet as of August 31, 1997
and notes to Balance Sheet F - 25
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors
CAI Equipment Leasing VI Corp.:
We have audited the accompanying balance sheet of CAI Equipment Leasing VI Corp.
(a wholly owned subsidiary of Capital Associates, Inc.) as of October 15, 1997.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CAI Equipment Leasing VI Corp. as
of October 15, 1997, in conformity with generally accepted accounting
principles.
/s/KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
October 15, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
CAI EQUIPMENT LEASING VI CORP.
(a wholly-owned subsidiary of Capital Associates, Inc.)
Balance Sheet
October 15, 1997
- ---------------------------------------------------------------------------------------------
Assets
<S> <C>
Cash .......................................................................... $ 900
Investment in Capital Preferred Yield Fund-V, L.P. ............................ 100
-----------
Total assets ............................................................. $ 1,000
===========
Commitments and contingencies (note 1)
Stockholder's equity:
Common stock $.01 par value, authorized
issued and outstanding, 1,000 shares ................................... 10
Additional paid-in capital ............................................... 1,000,990
Less demand note receivable from Capital Associates, Inc. (note 3) ....... (1,000,000)
-----------
Total stockholder's equity ............................................... 1,000
Total liabilities and stockholder's equity ............................... $ 1,000
===========
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE>
CAI EQUIPMENT LEASING VI CORP.
(a wholly-owned subsidiary of Capital Associates, Inc.)
Notes to Balance Sheet
October 15, 1997
- --------------------------------------------------------------------------------
(1) Organization and Purpose
CAI Equipment Leasing VI Corp. (the "Company"), a wholly-owned subsidiary
of Capital Associates, Inc. ("CAI"), was incorporated in the State of
Colorado on September 30, 1997 for the purpose of acting as general partner
of Capital Preferred Yield Fund-V, L.P., a Delaware Limited Partnership
(the "Partnership"). The primary activity of the Partnership is to acquire
equipment on lease to third parties. The fiscal year end of the Company is
May 31. The principal market for the Company's activities is in North
America.
As general partner, the Company is primarily responsible for the
acquisition, leasing and remarketing of the Partnership's equipment. The
Company also provides day-to-day management, accounting, investor relations
and other administrative services to the Partnership. The Company has
agreed to pay all of the Partnership's organization and offering expenses.
The Company is reimbursed by the Partnership for Partnership organization
and offering expenses in an amount equal to 4% of gross offering proceeds,
which may be more or less than the expenses incurred by the Company.
Capital Associates International, Inc. ("CAII"), a wholly-owned subsidiary
of CAI, is committed to contribute cash to the Partnership equal to 1% of
gross offering proceeds from the sale of Class A limited partnership
interest in exchange for a Class B limited partnership interest.
Neither the Company nor the Partnership has had any operations to date.
The Company will receive computer system support and usage, financial
management services and other corporate administrative services from CAII
and its affiliates at no cost.
The Company has guaranteed the repayment of certain indebtedness of CAII
under the terms of a Continuing Guaranty, Security and Subordination
Agreement (the "Agreement"). The amount of the guarantee will not exceed
the net worth of the Company, after deducting the note receivable from CAI
(the "Note") (as discussed in Note 3). The Agreement grants the
counterparty a security interest in all of the existing and future assets
of the Company other than the Note to secure repayment of the indebtedness.
(2) Significant Accounting Policies
Investment in Capital Preferred Yield Fund-V, L.P.
F-4
<PAGE>
CAI EQUIPMENT LEASING VI CORP.
(a wholly-owned subsidiary of Capital Associates, Inc.)
Notes to Balance Sheet (continued)
October 15, 1997
- --------------------------------------------------------------------------------
(2) Significant Accounting Policies, continued
The Company's investment in the Partnership is accounted for using the
equity method. Income related to the Company's Partnership investment is
recorded when earned. Cash distributions received from the Partnership
reduce the Company's investment in the Partnership. Income related to
management and equipment acquisition services is recorded when earned.
(3) Demand Note Receivable
The demand note receivable ("Note") is due, on demand, from CAI and is
non-interest bearing. The Note represents a portion of the initial capital
contribution to the Company by CAI and will be classified as a reduction of
stockholder's equity until paid. In addition, CAI has agreed to contribute
such additional amount or amounts necessary, if any, to maintain the net
worth of the Company and its partnership status for Federal income tax
purposes.
CAI presently funds its operations using its recourse credit facility. CAI
will be required to be in compliance with the terms of such facility in
order to pay the balance of the Note.
F-5
<PAGE>
Independent Auditors' Report
The Partners
Capital Preferred Yield Fund-V, L.P.:
We have audited the accompanying balance sheet of Capital Preferred Yield
Fund-V, L.P. as of October 15, 1997. This financial statement is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Capital Preferred Yield Fund-V,
L.P. as of October 15, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
October 15, 1997
F-6
<PAGE>
<TABLE>
<CAPTION>
CAPITAL PREFERRED YIELD FUND V, L.P.
BALANCE SHEET
October 15, 1997
ASSET
<S> <C>
Cash .............................................................. $120
====
PARTNERS' CAPITAL
Partners' capital:
General partner .......................................... $100
Limited partner .......................................... 20
----
$120
====
</TABLE>
See accompanying notes to balance sheet.
F-7
<PAGE>
CAPITAL PREFERRED YIELD FUND-V, L.P.
NOTES TO BALANCE SHEET
NOTE 1. ORGANIZATION AND OPERATIONS:
Capital preferred Yield Fund-V, L.P. (the "Partnership") was organized
on September 30, 1997 as a limited partnership under the laws of the
State of Delaware pursuant to an agreement of Limited Partnership (the
"Agreement"). The Partnership was formed for the purpose of acquiring
certain types of equipment on lease to third parties. The Partnership
will continue until September 30, 2009 unless sooner terminated in
accordance with the terms of the Agreement. The Partnership has had no
operations to date other than activities relating to its formation. The
Partnership has adopted a December 31 year end.
The general partner of the Partnership is CAI Equipment Leasing VI
Corp., a wholly-owned subsidiary of Capital Associates, Inc. ("CAI").
Capital Associates International, Inc., a wholly-owned subsidiary of
CAI, has committed to contribute cash to the Partnership equal to 1% of
gross offering proceeds in exchange for a subordinated Class B limited
partnership interest.
The general partner has authorized the issuance of up to $50,000,000 of
Class A limited partnership units to be issued at $100 per unit.
The general partner has agreed to pay all of the Partnership's
organization and offering expenses. The Partnership will pay the
general partner a non-accountable reimbursement for all organizational
and offering expenses of the partnership equal to 4% of gross offering
proceeds, which may be more or less than the expenses incurred by the
general partner.
The general partner will have responsibility for all aspects of the
Partnership's operation and will be entitled to receive management fees
as compensation for service performed in connection with managing the
day-to-day operations and equipment.
An origination fee is payable to the general partner, or its
affiliates, for services rendered in connection with the acquisition of
equipment and the negotiation of leases if originated by the general
partner or its affiliates, or the review and any necessary modification
of the lease if the lease is originated by an unaffiliated party. An
evaluation fee is payable to the general partner, or its affiliates,
for services rendered in connection with evaluating the suitability of
the equipment and the creditworthiness of the lessee and negotiation of
non-recourse loans, or the assignment of existing non-recourse loans,
collateralized by the equipment.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Directors
Capital Associates, Inc.:
We have audited the accompanying consolidated balance sheet of Capital
Associates, Inc. and subsidiaries as of May 31, 1997. This consolidated
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit of a balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An audit of a
balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the consolidated
balance sheet provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Capital Associates,
Inc. and subsidiaries as of May 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
July 11, 1997
F-9
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except shares and par value)
ASSETS
May 31, 1997
------------
<S> <C>
Cash and cash equivalents ....................................... $ 6,194
Receivable from affiliated limited partnerships ................. 726
Accounts receivable, net ........................................ 417
Equipment held for sale or re-lease ............................. 1,242
Residual values, net, arising from equipment under
lease sold to private investors ............................ 4,334
Net investment in direct finance leases ......................... 7,700
Leased equipment, net ........................................... 71,443
Investment in affiliated limited partnerships ................... 6,642
Other ........................................................... 3,674
Deferred income taxes ........................................... 2,300
Discounted lease rentals assigned to lenders arising
from equipment sale transactions ........................... 41,845
---------
$ 146,517
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse bank debt .............................................. $ 20,712
Accounts payable - equipment purchases .......................... 30,231
Accounts payable and other liabilities .......................... 10,607
Discounted lease rentals ........................................ 61,466
---------
123,016
---------
Commitments and contingencies (Notes 10, 13 and 14)
Stockholders' equity:
Common stock, $.008 par value, 15,000,000 shares
authorized, 5,157,000 and 5,139,000 shares issued ........ 32
Additional paid-in capital ................................. 16,897
Retained earnings .......................................... 6,854
Treasury stock, at cost .................................... (282)
---------
Total stockholders' equity ........................... 23,501
---------
$ 146,517
=========
</TABLE>
The accompanying notes are an integral part
of this consolidated balance sheet.
F-10
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. Summary of Significant Accounting Policies
General Accounting Principles
Nature of Operations
Capital Associates, Inc. ("CAI" or the "Company") was incorporated as a
holding company in October 1986. Its principal operating subsidiary,
Capital Associates International, Inc. ("CAII"), is primarily engaged in
(1) buying, selling, leasing, and remarketing new and used equipment, (2)
managing equipment on and off lease, (3) sponsoring, co-sponsoring,
managing and co-managing publicly-registered income funds and (4) arranging
equipment-related financing. The principal market for the Company's
activities is the United States.
Use of Estimates
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the balance sheet. For
leasing entities, this is principally the estimate of residual values, as
discussed below. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated balance sheet includes the accounts of CAI and its
subsidiaries. Intercompany accounts and transactions are eliminated in
consolidation.
The Company has investments in affiliated public income funds (the "PIFs",
consisting of both general partnership and subordinated limited partnership
interests) and other 50%-or-less owned entities. Such investments are
primarily accounted for using the equity method.
The parent company's assets consist solely of its investments in
subsidiaries and it has no liabilities separate from its subsidiaries.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.
F-11
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. Summary of Significant Accounting Policies, continued
General Accounting Principles, continued
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
No. 109"). Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or
market value less cost to sell, consists of equipment previously leased to
end users which has been returned to the Company following lease
expiration. The May 31, 1997 carrying value consists primarily of one
aircraft.
Stock Option Plan
Prior to June 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB Opinion No. 25"), and
related interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. On June 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which
permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in fiscal year 1996
and future fiscal years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
F-12
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. Summary of Significant Accounting Policies, continued
General Accounting Principles, continued
Recently Issued Financial Accounting Standards
During fiscal 1997, the Company adopted SFAS No. 125, Accounting for
Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities ("SFAS No. 125"). SFAS No. 125 provides consistent standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The adoption of SFAS No. 125 did not
have a material impact on the Company's financial position or results of
operations.
Equipment Leasing and Sales
Lease Accounting - Statement of Financial Accounting Standards No. 13,
Accounting for Leases, requires that a lessor account for each lease by
either the direct financing, sales-type or operating lease method. Direct
financing and sales-type leases are defined as those leases which transfer
substantially all of the benefits and risks of ownership of the equipment
to the lessee. The Company currently utilizes (i) the direct financing or
the operating lease method for substantially all of the Company's lease
originations and (ii) the sales-type or the operating lease method for
substantially all lease activity for an item of equipment subsequent to the
expiration of the initial lease term. After the origination of a lease, the
Company may engage in financing of lease receivables on a non-recourse
basis (i.e., "non-recourse debt" or "discounted lease rentals") and/or
equipment sale transactions to reduce or recover its investment in the
equipment.
The Company's accounting methods and their financial reporting effects are
described below:
Lease Inception
Direct Financing Leases ("DFLs") - The cost of equipment is recorded as
net investment in DFLs. Residual values are established at lease
inception equal to the estimated value to be received from the equipment
following termination of the initial lease (which in certain
circumstances includes anticipated re-lease proceeds) as determined by
the Company. In estimating such values, the Company considers all
relevant information and circumstances regarding the equipment and the
lessee.
F-13
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. Summary of Significant Accounting Policies, continued
General Accounting Principles, continued
Equipment Leasing and Sales, continued
Operating Leases ("OLs") - The cost of equipment is recorded as leased
equipment and is depreciated on a straight-line basis over the lease
term to an amount equal to the estimated residual value at the lease
termination date. Residual values are established at lease inception
equal to the estimated value to be received from the equipment following
termination of the initial lease (which in certain circumstances
includes anticipated re-lease proceeds) as determined by the Company. In
estimating such values, the Company considers all relevant information
and circumstances regarding the equipment and the lessee.
Transactions Subsequent to Lease Inception
Non-recourse Discounting of Rentals - The Company may assign the future
rentals from leases to financial institutions at fixed interest rates on
a non-recourse basis. In return for such assigned future rentals, the
Company receives the discounted value of the rentals in cash. In the
event of default by a lessee, the financial institution has a first lien
on the underlying leased equipment, with no further recourse against the
Company. Cash proceeds from such financings are recorded on the balance
sheet as discounted lease rentals.
Sales to Private Investors of Equipment Under Lease - The Company may
sell title to leased equipment that in some cases is subject to existing
discounted lease rentals in equipment sale transactions with third-party
investors. In such transactions, the investors obtain ownership of the
equipment as well as rights to equipment rentals. Upon sale, the Company
records equipment sales revenue equal to the sales price of the
equipment which may include a residual interest retained by the Company
(recorded as an asset at present value using an appropriate interest
rate) and records equipment sales cost equal to the carrying value of
the related assets (including remaining unamortized IDC).
Other accounts arising from private equity sales include:
Discounted Lease Rentals, etc. - Pursuant to FASB Technical Bulletin
No. 86-2, although private investors and PIFs may acquire the
equipment sold to them by the Company subject to the associated
non-recourse debt (i.e., discounted lease rentals), the debt is not
removed from the balance sheet unless such debt has been legally
assumed by the third-party investors. If not legally assumed, a
corresponding asset ("discounted lease rentals assigned to lenders
arising from equipment sale transactions") is recorded representing
the present value of the end user rentals receivable relating to such
transactions.
F-14
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
1. Summary of Significant Accounting Policies, continued
General Accounting Principles, continued
Equipment Leasing and Sales, continued
Transactions Subsequent to Initial Lease Termination
After the initial term of equipment under lease expires, the equipment
is either sold or re-leased. When the equipment is sold, the remaining
net book value of equipment sold is removed and gain or loss recorded.
When the equipment is re-leased, the Company utilizes the sales-type
method (described below) or the OL method (described above).
Sales-type Leases
The excess of the present value of (i) future rentals and (ii) the
estimated residual value (collectively, "the net investment") over the
carrying value of the equipment subject to the sales-type lease is
reflected in operations at the inception of the lease. Thereafter, the
net investment is accounted for as a DFL, as described above.
Allowance for Losses
An allowance for losses is maintained at levels determined by management to
adequately provide for any other than temporary declines in asset values.
In determining losses, economic conditions, the activity in used equipment
markets, the effect of actions by equipment manufacturers, the financial
condition of lessees, the expected courses of action by lessees with regard
to leased equipment at termination of the initial lease term, and other
factors which management believes are relevant, are considered.
Recoverability of an asset value is measured by a comparison of the
carrying amount of the asset to future net cash flows expected to be
generated by the asset. If a loss is indicated, the loss to be recognized
is measured by the amount by which the carrying amount of the asset exceeds
the fair value of the asset. Asset chargeoffs are recorded upon the
termination or remarketing of the underlying assets. Assets are reviewed
quarterly to determine the adequacy of the allowance for losses.
The Company evaluates the realizability of the carrying value of its
investment in its PIFs based upon all estimated future cash flows from the
PIFs. As a result of such analyses, certain distributions have been
accounted for as a recovery of cost instead of income.
F-15
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
2. Residual Values Arising from Equipment Under Lease Sold to Private Investors
As of May 31, 1997, the equipment types for which the Company recorded the
present value of the estimated residual values arising from sales of
equipment under lease to private investors were (in thousands):
Description 1997
----------- ----
Material handling .............................................. $ 1,869
Furniture and fixtures ......................................... 1,220
Mining and manufacturing ....................................... 881
Aircraft ....................................................... 160
Other miscellaneous equipment .................................. 204
---------
Total equipment residuals ...................................... $ 4,334
=======
Residual values arising from equipment under lease sold to private
investors were net of an allowance for losses of $157,000 as of May 31,
1997.
In certain sale transactions, the Company agreed to hold backs related to
the lessee's performance. Pursuant to such agreements, a portion of the
sales proceeds was placed in an interest-bearing escrow account until such
time as the performance objectives are met. Escrowed amounts related to
these transactions were $642,000 at May 31, 1997, and are included in other
assets in the accompanying consolidated balance sheet.
During fiscal year 1997, the Company received two promissory notes in
connection with the settlement of litigation, which are also included in
other assets in the accompanying consolidated balance sheets. The carrying
values of these notes were $719,000 at May 31, 1997.
Future payments from the sale proceeds hold backs and promissory notes are
as follows (in thousands):
<TABLE>
<CAPTION>
Years ending Sales Proceeds Promissory
May 31, Hold Backs Notes
------------ -------------- ----------
<S> <C> <C>
1998 $ 42 $ 644
1999 28 483
2000 730 85
2001 - 661
2002 - 165
------- ---------
Total payments 800 2,038
Less future interest income (158) (1,319)
------- ---------
Carrying value at May 31, 1997 $ 642 $ 719
======= ==========
</TABLE>
F-16
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
3. Net Investment in DFLs
The components of the Company's net investment in DFLs as of May 31, 1997
were (in thousands):
1997
----
Minimum lease payments receivable ..................... $ 8,133
Estimated residual values ............................. 692
IDC ................................................... 72
Less unearned income .................................. (1,197)
-------
$ 7,700
=======
4. Leased Equipment, net
The Company's investment in equipment under OLs, by major classes, as of
May 31, 1997 were (in thousands):
1997
----
Material handling equipment ..................................... $ 25,083
Computer equipments and peripheral Computer equipment ........... 21,776
Other technology and communication equipment .................... 21,701
Furniture and fixtures .......................................... 7,227
Other ........................................................... 4,885
Aircraft ........................................................ 1,327
IDC ............................................................. 831
--------
82,830
Less accumulated depreciation ................................... (10,680)
Less allowance for losses ....................................... (707)
--------
$ 71,443
========
F-17
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
5. Future Minimum Lease Payments
Future minimum lease payments receivable from noncancelable leases on
equipment owned by the Company as of May 31, 1997, are as follows (in
thousands):
Years Ending May 31, DFLs OLs
------------------- ---- ---
1998 $ 3,297 $ 20,566
1999 2,663 18,345
2000 1,683 13,619
2001 284 9,142
2002 105 7,569
Thereafter 101 1,991
------- --------
$ 8,133 $ 71,232
======= ========
6. Significant Customer and Concentration of Credit Risk
During fiscal year 1997 and 1996, payments from one lessee accounted for
13% and 11%, respectively, of total leasing revenue. In addition, other
equipment sales revenue related to equipment leased to that lessee
accounted for 77% and 88% of total other equipment sales revenue during
fiscal years 1997 and 1996, respectively. No lessee accounted for 10% or
more of the Company's revenues in fiscal year 1995.
The Company leases various types of equipment to companies in diverse
industries throughout the United States. To minimize credit risk, the
Company generally leases equipment to (i) companies that have a credit
rating of not less than Baa as determined by Moody's Investor Services,
Inc., or comparable credit ratings as determined by other recognized credit
rating services, or (ii) companies, which although not rated by a
recognized credit rating service or rated below Baa, are believed by the
Company to be sufficiently creditworthy to satisfy the financial
obligations under the lease. At May 31, 1997, substantially all equipment
under OLs and DFLs owned by the Company was leased to companies meeting the
above credit criteria.
7. Discounted Lease Rentals
Discounted lease rentals outstanding at May 31, 1997 bear interest at rates
between 5% to 15% with a weighted average rate of 8.8%. Aggregate
maturities of such non-recourse obligations are (in thousands):
Years Ending May 31:
-------------------
1998 $ 33,418
1999 21,024
2000 6,711
2001 313
--------
$ 61,466
========
F-18
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
8. Recourse Bank Debt
The Company extended its recourse bank debt and revolving credit facilities
(the "Bank Facility") on November 27, 1996. The lender group currently
consists of Norwest Bank Colorado, National Association, Agent, Norwest
Equipment Finance, Inc., Collateral Agent, The Sumitomo Bank, Limited and
The First National Bank of Boston. The Borrower under the Bank Facility is
Capital Associates International, Inc.
("CAII"), a wholly-owned subsidiary of the Company.
The Bank Facility consists of three components, a term loan facility (the
"Term Loan"), a revolving working capital credit facility (the "Working
Capital Facility") and a revolving warehousing credit facility (the
"Warehouse Facility"). The principal terms of the three facilities are as
follows (in thousands):
<TABLE>
<CAPTION>
Working Capital Total
Term Loan Facility Warehouse Facility Borrowings
---------------- ------- ------------------ ----------
<S> <C> <C> <C> <C>
Maturity Date November 30, 1997 November 30, 1997 November 30, 1997 N/A
Maximum amount N/A $ 7,500 Lesser of $ 22,805 N/A
or borrowing base
Borrowings at May 31, 1997 $ 2,167 -- $ 18,545 $ 20,712
======= ------- ======== ========
Potential availability
at May 31, 1997 N/A $ 7,500 $ -- $ 7,500
======= ======= ======== ========
Borrowings at May 31, 1996 $ 6,500 $ -- $ 11,038 $ 17,538
======= ======= ======== ========
Interest rate at May 31, 1997 Prime* plus .75% Prime* plus .75% Prime* plus .50%
</TABLE>
* Agent's Prime at May 31, 1997 was 8.25%.
The Bank Facility (1) is collateralized by all of CAII's assets and (2) is
senior, in order of priority, to all of CAII's indebtedness, subject to
certain limited exceptions. The Company and certain of the Company's and
CAII's subsidiaries have guaranteed CAII's obligations under the Bank
Facility and have pledged all of their assets, with limited exceptions, to
collateralize their guarantees. The Bank Facility restricts CAII's ability
to pay dividends or loan or advance funds to the Company.
As of May 31, 1997, the Company was in compliance with the terms of the
Bank Facility.
F-19
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
9. Related Parties
PIFs:
The Company sponsors or co-sponsors seven PIFs (five of which purchased
equipment under lease from the Company during fiscal year 1997). The
Company, through its PIF general partner subsidiaries, acts as either a
general partner or co-general partner of each PIF for which it receives
general partner distributions and management fees. The Company, through
CAII, also acts as the Class B limited partner of each PIF for which it
receives Class B limited partner distributions. The Class B limited
partner is required to make subordinated limited partnership investments
in the PIFs. The Class B limited partner has a maximum remaining
obligation to make further cash contributions of approximately $0.2
million, relating solely to CPYF IV.
10. Income Taxes
Significant components of the Company's deferred tax liabilities and
assets as of May 31, 1997 were as follows (in thousands):
<TABLE>
1997
----
<S> <C>
Deferred income tax liabilities:
Direct finance leases accounted for as operating leases
for income tax purposes, and equipment depreciation
for tax purposes in excess of financial reporting depreciation .................. $ --
Residual values and other receivables arising from equipment
under lease sold to private investors recognized for financial
reporting purposes, but not for tax reporting purposes .......................... 1,700
-------
Total deferred income tax liabilities .................................................... 1,700
Deferred income tax assets:
Other assets and liabilities, net ............................................... 600
Investment tax credit carryforwards ............................................. 1,300
AMT credit carryforwards ........................................................ 3,300
--------
Total deferred income tax assets ......................................................... 5,200
Valuation allowance for deferred income tax assets ....................................... (1,200)
--------
Net deferred income tax assets .................................................. 4,000
--------
Net deferred income tax asset ............................................................ $ 2,300
========
</TABLE>
The Company has established a valuation allowance for deferred taxes due
to the uncertainty that the full amount of the ITC carryforward will be
utilized prior to expiration. The Company believes that it is more likely
than not that the results of future operations will generate sufficient
taxable income to realize the remaining deferred tax assets.
F-20
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
10. Income Taxes, continued
At May 31, 1997, the Company has an ITC carryforward of $1.3 million,
which expires from 1998 through 2001, and AMT credits of $3.3 million.
Under present federal tax law, AMT credits may be carried forward
indefinitely and may be utilized to reduce regular tax liability to an
amount equal to AMT liability. Due to a change in control, provisions of
the Internal Revenue Code limit the annual future ITC carryforward and AMT
credit carryforward utilization to approximately $300,000 per year.
11. Common and Preferred Stock
The Company has authority to issue 2,500,000 shares of preferred stock at
$0.008 par value. At May 31, 1997, no shares of preferred stock had been
issued.
12. Stock Options
The Company has a qualified incentive stock option plan whereby stock
options may be granted to employees to purchase shares of the Company's
common stock at prices equal to the market price of the Company's stock on
date of grant. The Company has a non-qualified plan covering all directors
except the CEO. Common stock received through the exercise of qualified
incentive stock options which are sold by the optionee within two years of
grant or one year of exercise result in a tax deduction for the Company
equivalent to the taxable gain recognized by the optionee.
During July 1996, the Company purchased 104,000 outstanding options issued
to non-employees at a cost to the Company of $138,000, which was equal to
the difference of $2.45 and the exercise price of each option purchased.
The cost was reflected as a charge to additional paid-in capital in the
accompanying May 31, 1997 consolidated balance sheet.
The Company applies APB Opinion No. 25 in accounting for its stock option
plans. Accordingly and since the Company awards stock options at fair
market value, no compensation cost has been recognized for its stock
options in the financial statements.
F-21
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
12. Stock Options, continued
Additional information on shares subject to options is as follows:
1997
---------------------------------
Number of Weighted-average
options exercise price
--------- ----------------
Outstanding at beginning of year ........... 693,000 $ 1.23
Granted .................................... 90,000 2.88
Exercised .................................. (19,000) .81
Purchased .................................. (104,000) 1.13
Forfeited .................................. (11,000) 2.10
-------
Outstanding at the end of the year ......... 649,000 1.47
=======
Options exercisable at year-end ............ 606,000
Weighted-average fair value of options
granted during the year ............... $ 2.35
The following table summarizes information about stock options outstanding
at May 31, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------- ------------------------
Weighted-
average Weighted Weighted
Number remaining average Number average
Range of of contractual exercise of exercise
exercise prices options life price options price
--------------- ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 1.00 128,000 4.5 years $ 0.71 128,000 $ 0.71
$ 1.01 - $ 2.00 375,000 5.0 years 1.29 373,000 1.29
$ 2.01 - $ 3.00 146,000 8.0 years 2.62 105,000 2.48
------- -------
649,000 5.5 years 1.47 606,000 1.37
======= =======
</TABLE>
F-22
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
13. Legal Proceedings
The Company is involved in the following legal proceedings:
a. The Company is involved in certain arbitration proceedings pursuant to
the requirements of the National Association of Securities Dealers
("NASD"), representing three claims against CAI Securities Corporation,
a wholly owned subsidiary of the Company. All three claims allege
breach of fiduciary duty, breach of contract, negligence and
misrepresentation with regard to the sale of limited partnership units
in Leastec Income Fund V ("LIFV"), a limited partnership whose general
partner is an affiliate of the Company. The three claims involve
investments in LIFV of approximately $625,000 and seek damages of
$838,000 and special punitive and exemplary damages (one claim
specifies $1,500,000 in such damages while the other two claims do not
specify an amount). All three claims have been brought by the same
company on behalf of three investors. Management has been of the belief
that it has good and substantial defenses against these claims and that
the Company's subsidiary will prevail. In July 1997, one of the cases,
seeking $500,000 in damages and $1,500,000 in punitive damages, was
heard by an NASD arbitration panel and that arbitration panel has now
determined that there was no breach of fiduciary duty, no breach of
contract, no negligence and no misrepresentation with regard to the
sale of limited partnership units of LIFV and the subsequent financial
reporting thereof and that no award is due the claimant under any of
his claims. The claimant was assessed $7,300 in forum fees by the NASD
for the arbitration proceeding.
b. The Company is involved in other routine legal proceedings incidental
to the conduct of its business. Management believes that none of these
legal proceedings will have a material adverse effect on the financial
condition or operations of the Company
14. Commitments
The Company leases office space under long-term and short-term
non-cancelable operating leases. The leases contain renewal options and
provide for annual escalation for utilities, taxes and service costs.
Minimum future rental payments required by such leases are as follows (in
thousands):
Year Ending May 31,
------------------
1998 $ 452
1999 395
2000 367
-------
$ 1,214
=======
F-23
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
15. Disclosures about Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments was made in accordance with Statements of Financial Standards
No. 107 ("SFAS No. 107"), Disclosures about Fair Value of Financial
Instruments. SFAS No. 107 specifically excludes certain items from its
disclosure requirements such as the Company's investment in leased assets.
Accordingly, the aggregate fair value amounts presented are not intended
to represent the underlying value of the net assets of the Company.
The carrying amounts at May 31, 1997 for cash and cash equivalents,
accounts receivable, recourse bank debt, accounts payable-equipment
purchases and accounts payable and other liabilities approximate their
fair values due to the short maturity of these instruments, or because the
related interest rates approximate current market rates.
As of May 31, 1997, discounted lease rentals and discounted lease rentals
assigned to lenders arising from equipment sale transactions of
$61,466,000 and $41,845,000, respectively, have fair values of $57,817,000
and $39,361,000, respectively. The fair values were estimated utilizing
market rates of comparable debt having similar maturities and credit
quality as of May 31, 1997.
F-24
<PAGE>
<TABLE>
<CAPTION>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Dollars in thousands)
ASSETS
August 31,
1997
---------
<S> <C>
Cash and cash equivalents ......................................... $ 5,331
Receivables from affiliated limited partnerships .................. 520
Accounts receivable, net .......................................... 462
Equipment held for sale or re-lease ............................... 891
Residual values and other receivables arising from
equipment under lease sold to private investors ............... 4,734
Net investment in direct finance leases ........................... 7,002
Leased equipment, net ............................................. 64,300
Investments in affiliated limited partnerships .................... 5,874
Other ............................................................. 3,776
Deferred income taxes ............................................. 2,300
Discounted lease rentals assigned to lenders
arising from equipment sale transactions ...................... 35,181
---------
$ 130,371
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse bank debt ................................................ $ 16,613
Accounts payable - equipment purchases ............................ 25,373
Other liabilities ................................................. 8,478
Discounted lease rentals .......................................... 56,265
---------
106,729
---------
Stockholders' equity:
Common stock .................................................. 32
Additional paid-in capital .................................... 16,897
Retained earnings ............................................. 6,994
Treasury stock ................................................ (281)
---------
Total stockholders' equity ........................................ 23,642
---------
$ 130,371
=========
</TABLE>
The accompanying notes are an
integral part of this
consolidated balance sheet.
F-25
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated balance sheet has been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, it does not include all of the information and
disclosures required by generally accepted accounting principles for annual
balance sheet. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. For further information, please refer to
the financial statements of Capital Associates, Inc. (the "Company"), and
the related notes, included within the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1997 (the "1997 Form 10-K"), previously
filed with the Securities and Exchange Commission.
F-26
<PAGE>
SCHEDULE I
[Equipment list to be inserted at time Registration Statement is declared
effective]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution*
Filing Fees - Securities and Exchange Commission.............$ 15,152.00
Filing Fee - NASD............................................ 5,500.00
Accounting Fees and Expenses................................. 30,000.00
Legal Fees and Expenses...................................... 100,000.00
Blue Sky Fees and Expenses................................... 50,000.00
Printing Expenses (including Sales Materials)................ 180,000.00
Marketing.................................................... 1,000,000.00
Miscellaneous................................................ 84,000.00
------------
Total Expenses....................................$1,439,652.00
- ---------------------
* All amounts are estimated maximums except Securities and Exchange
Commission and NASD filing fees. The Partnership will pay to the General
Partner a non-accountable reimbursement equal to 4% of the Gross Offering
Proceeds. Accordingly, the General Partner is assuming without recourse to
the Partnership responsibility for the payment of all Reimbursable
Organizational and Offering Expenses of the Partnership, including any
amounts which exceed such reimbursement.
ITEM 14. Indemnifications of Directors and Officers
The Partnership's Partnership Agreement contains certain indemnification
provisions indemnifying the General Partner and its Affiliates including any
directors and officers of the General Partner against certain liabilities.
Reference is made to Section 5.8 of the Partnership Agreement (Exhibit A to the
Prospectus). The Bylaws of the General Partner provide for indemnification of
its directors and officers and the Articles of Incorporation provide for
limitation of liability of the directors to the fullest extent permitted under
Colorado law. The officers and directors of the General Partner, the General
Partner, the General Partner itself and the Partnership will benefit from a
standard general partner liability and limited partnership reimbursement
insurance policy which will reimburse the Partnership or make direct payments
for certain claims which the Partnership may be obligated to pay under Section
5.8 of the Partnership Agreement.
II-1
<PAGE>
ITEM 15. Recent Sales of Unregistered Securities
In connection with the formation of the Partnership, the
General Partner will make nominal contributions to the capital of the
Partnership, and Capital Associates International, Inc., a Colorado corporation,
as Class B Limited Partner, has agreed to contribute cash to the Partnership
equal to approximately 1% of the Partnership's capital. These sales are exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as they do not involve any public offering.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits. See Exhibit Index.
(b) Financial Statements Schedules. All schedules have been
omitted as the required information is inapplicable or is presented in the
Prospectus, in the balance sheets or related notes.
ITEM 17. Undertakings
1. The undersigned Registrant hereby undertakes:
A. To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
B. That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
C. To remove from registration by means of a post-
effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
2. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to the General Partner or other
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by the General Partner or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by the General Partner or controlling persons in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
EXHIBIT A
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL PREFERRED YIELD FUND - V, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE DEFINITIONS.............................................. 1
ARTICLE TWO CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE
AND TERM................................................. 18
SECTION 2.1 Continuation of Partnership.............................. 18
SECTION 2.2 Name, Principal Office and Name and Address of
Registered Agent for Service of Process.................. 18
SECTION 2.3 Purpose.................................................. 18
SECTION 2.4 Term..................................................... 18
ARTICLE THREE PARTNERS AND CAPITAL..................................... 19
SECTION 3.1 General Partner.......................................... 19
SECTION 3.2 Original Limited Partner................................. 19
SECTION 3.3 Class B Limited Partner.................................. 19
SECTION 3.4 Class A Limited Partners................................. 19
SECTION 3.5 Partnership Capital...................................... 21
SECTION 3.6 Capital Accounts......................................... 21
SECTION 3.7 Loans By Partners........................................ 22
SECTION 3.8 Return of Capital........................................ 22
SECTION 3.9 Liability of Limited Partners............................ 23
SECTION 3.10 Investment in Equipment.................................. 23
ARTICLE FOUR DISTRIBUTIONS AND ALLOCATIONS............................ 24
SECTION 4.1 Distributions............................................ 24
SECTION 4.2 Allocations of Profits and Losses........................ 27
SECTION 4.3 Special Allocations...................................... 30
SECTION 4.4 Tax Allocations.......................................... 32
SECTION 4.5 Curative Allocations; Uniformity of Units................ 34
SECTION 4.6 Changes in Units or Partnership Interests................ 35
ARTICLE FIVE RIGHTS, OBLIGATIONS AND POWERS OF GENERAL
PARTNER.................................................. 36
SECTION 5.1 Multiple General Partners................................ 36
SECTION 5.2 Management of Partnership................................ 36
SECTION 5.3 Authority of General Partner............................. 38
SECTION 5.4 Authority of General Partner and Its
Affiliates to Deal With Partnership...................... 43
SECTION 5.5 Limitations and Restrictions on Exercise of
Powers of General Partner................................ 46
SECTION 5.6 Duties and Obligations of General Partner................ 51
SECTION 5.7 Other Activities......................................... 52
SECTION 5.8 Limitation on Liability of General Partner and
Affiliates; Indemnification.............................. 53
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ARTICLE SIX CHANGES IN GENERAL PARTNER............................... 55
SECTION 6.1 Certain Withdrawals of General Partner................... 55
SECTION 6.2 Admission of Additional or Successor General
Partner.................................................. 56
SECTION 6.3 Consent of Class A Limited Partners to
Admission of Additional or Successor General
Partner.................................................. 56
SECTION 6.4 Effect of Voluntary Withdrawal of General
Partner or Removal of General Partner by
Class A Limited Partners................................. 57
ARTICLE SEVEN ASSIGNMENT OF PARTNERSHIP INTERESTS
OF LIMITED PARTNERS................. 59
SECTION 7.1 Assignment............................................... 59
SECTION 7.2 Withdrawal of Limited Partners........................... 59
SECTION 7.3 Assignment of Partnership Interests...................... 59
SECTION 7.4 Distributions............................................ 60
SECTION 7.5 Restrictions on Assignment............................... 60
SECTION 7.6 Redemption of Partnership Units.......................... 61
ARTICLE EIGHT ADMISSION OF LIMITED PARTNERS AND SUBSTITUTED
LIMITED PARTNERS......................................... 63
SECTION 8.1 Admission of Limited Partners............................ 63
SECTION 8.2 Admission of Substituted Limited Partners................ 63
ARTICLE NINE DISSOLUTION AND LIQUIDATION OF PARTNERSHIP............... 64
SECTION 9.1 Events Causing Dissolution............................... 64
SECTION 9.2 Continuation of Business of Partnership After
Dissolution.............................................. 65
SECTION 9.3 Liquidation.............................................. 66
SECTION 9.4 Cancellation of Certificate of Limited
Partnership.............................................. 68
SECTION 9.5 Reasonable Time for Winding Up........................... 68
SECTION 9.6 Return of Capital........................................ 68
SECTION 9.7 No Capital Account Restoration........................... 68
ARTICLE TEN BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX
ELECTIONS................................................ 69
SECTION 10.1 Books and Records........................................ 69
SECTION 10.2 Accounting Method........................................ 70
SECTION 10.3 Bank Accounts............................................ 70
SECTION 10.4 Reports.................................................. 70
SECTION 10.5 Designation, Duties and Expenses of Tax Matters
Partner.................................................. 72
SECTION 10.6 Authority of Tax Matters Partner......................... 73
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ARTICLE ELEVEN MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS........... 74
SECTION 11.1 Meetings................................................. 74
SECTION 11.2 Voting Rights of Limited Partners........................ 75
SECTION 11.3 Management of the Partnership............................ 77
SECTION 11.4 Other Activities......................................... 77
ARTICLE TWELVE NON-FOREIGN STATUS....................................... 78
SECTION 12.1 Certification of Non-Foreign Status...................... 78
SECTION 12.2 Withholding on Certain Amounts Attributable
to Interests of Non-Resident Alien Partners.............. 78
ARTICLE THIRTEEN MISCELLANEOUS PROVISIONS........................ 78
SECTION 13.1 Appointment of General Partner As Attorney-
In-Fact.................................................. 78
SECTION 13.2 Signatures; Amendments................................... 80
SECTION 13.3 Ownership By Limited Partners of General
Partner or Its Affiliates................................ 81
SECTION 13.4 Notices.................................................. 81
SECTION 13.5 Binding Provisions....................................... 82
SECTION 13.6 Applicable Law........................................... 82
SECTION 13.7 Counterparts............................................. 82
SECTION 13.8 Separability of Provisions............................... 82
SECTION 13.9 Captions................................................. 82
SECTION 13.10 Partnership Property; No Partition....................... 82
SECTION 13.11 No Benefit to Third Parties.............................. 83
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL PREFERRED YIELD FUND - V, L.P.
This Amended and Restated Agreement of Limited Partnership of Capital
Preferred Yield Fund - V, L.P. (the "Partnership") is made as of ___________ __,
1998 by and among CAI Equipment Leasing VI Corp., a Colorado corporation (the
"General Partner"), as the General Partner, Capital Associates International,
Inc., a Colorado corporation (the "Class B Limited Partner"), as the Class B
Limited Partner, John F. Olmstead (the "Original Limited Partner"), as the
original Limited Partner, and those Persons admitted to the Partnership from
time to time as Class A Limited Partners (the "Class A Limited Partners").
Recitals
A. The General Partner executed a Certificate of Limited Partnership, dated
as of September 30, 1997, establishing the Partnership pursuant to the Delaware
Act (as defined below) and the General Partner and the Original Limited Partner
entered into an Agreement of Limited Partnership, dated as of September 30,
1997, setting forth certain of the terms and conditions of their agreements and
understandings regarding the Partnership.
B. The parties hereto desire to enter into this Amended and Restated
Agreement of Limited Partnership to provide for the: (i) continuation of the
Partnership; (ii) admission of Class A Limited Partners and the Class B Limited
Partner; (iii) withdrawal of John F. Olmstead as the Original Limited Partner;
and (iv) terms and conditions for the operation of the Partnership.
Agreement
In consideration of the premises and mutual covenants and agreements set
forth below, the parties hereto, intending to be legally bound, hereby agree as
follows:
ARTICLE ONE
DEFINITIONS
Defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified below. Certain additional defined terms
are set forth elsewhere in this Agreement. Unless the context requires
<PAGE>
otherwise, the singular includes the plural and the masculine gender includes
the feminine and neuter, and vice versa, and "Article" and "Section" references
are references to the Articles and Sections of this Agreement.
"Accountants" means KPMG Peat Marwick LLP, or such other nationally
recognized firm of independent public accountants as may be engaged from time to
time by the General Partner on behalf of the Partnership.
"Acquisition Expenses" means expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, accounting fees and expenses and miscellaneous expenses relating to
selection and acquisition of Equipment for the Partnership, whether or not
acquired.
"Acquisition Fees" means the total of all fees and commissions paid by
any party in connection with the initial purchase or manufacture of Equipment
acquired by the Partnership, including without limitation the Origination Fee
and the Evaluation Fee, any commission, selection fee, construction supervision
fee, financing fee, non-recurring management fee or any fee of a similar nature,
however designated.
"Adjusted Capital Account Deficit" means, with respect to any Capital
Account as of the end of any Year, the amount by which the balance in such
Capital Account is less than zero, after giving effect through the end of such
Year to all of the capital account adjustments required under Treas. Reg.
ss.ss.1.704-1(b), 1.704-2 and 1.752-1 through -5.
"Adjusted Capital Contribution" means, as of the date of
determination, a Partner's Capital Contribution, reduced to not less than zero
by: (i) any return of Capital Contributions pursuant to Section 3.8; and (ii)
cash distributions from Cash From Operations and Cash From Sales received by the
Partnership during the period subsequent to the Termination Date and actually
paid to Partners after the Termination Date in excess of the Preferred Return. A
Partner's Adjusted Capital Contribution for the purpose of computing Payout
shall not be reduced by any cash distributions made between the Closing Date and
the Termination Date.
"Affiliate" means, when used with reference to a specified Person: (i)
any Person that directly or indirectly controls, is controlled by or is under
common control with the specified Person; (ii) any Person that is an officer,
director or trustee of or partner in, or serves in a similar capacity with
respect to, the specified Person or with respect to which the specified Person
serves in a similar capacity; and (iii) any Person that directly or indirectly
is the beneficial owner of or controls 10.0% or more of any class of equity
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securities of, or otherwise has a substantial beneficial interest in, the
specified Person or of which the specified Person is directly or indirectly the
owner of or controls 10.0% or more of any class of equity securities or in which
the specified Person otherwise has a substantial beneficial interest.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Assign" or "Assignment" means, with respect to any Partnership
Interest or any part thereof, to offer, sell, assign, transfer, give or
otherwise dispose of, whether voluntarily or by operation of law, except that,
in the case of a bona fide pledge or other hypothecation, no Assignment shall be
deemed to have occurred unless and until the secured party has exercised his
right of foreclosure with respect thereto.
"Assignee" means a Person to whom an interest in any Partnership
Interest has been Assigned in a manner permitted under this Agreement.
"Bankruptcy" or "Bankrupt" as to any Person means the: (i) filing of a
petition for relief as to such Person as debtor or bankrupt under the Bankruptcy
Code of 1978 or like provision of law (except if such petition is contested by
such Person and has been finally dismissed within 120 days); (ii) insolvency of
such Person as finally determined by a court proceeding; (iii) filing by such
Person of a petition or application for a determination of insolvency or for the
appointment of a receiver or a trustee for such Person or a substantial part of
his assets; or (iv) commencement of any proceedings relating to such Person
under any other reorganization, arrangement, insolvency, adjustment-of-debt or
liquidation law of any jurisdiction, whether now in existence or hereinafter in
effect, either by such Person or by another, provided that if such proceeding is
commenced by another, such Person indicates his approval of such proceeding,
consents thereto or acquiesces therein or such proceeding is contested by such
Person and has not been finally dismissed within 120 days.
"Basis" means, with respect to an item of property, the adjusted tax
basis of such property for federal income tax purposes.
"Book Value" means, with respect to any Partnership property, the
Partnership's adjusted basis for federal income tax purposes, adjusted from time
to time to reflect the adjustments required or permitted by Treas. Reg.
ss.1.704-1(b)(2)(iv)(d)-(g).
"CAI" means Capital Associates, Inc., the parent corporation of the
General Partner and the Class B Limited Partner.
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"Capital Account" means the capital account maintained for each
Partner pursuant to Section 3.6.
"Capital Contribution" means the amount of investment in the
Partnership whether in cash, cash equivalents or other property that a Partner
contributes to the Partnership, minus any amounts returned pursuant to Section
3.8. In the case of Units, the term "Capital Contribution" shall always mean
$100.00 per Unit, minus any amounts returned pursuant to Section 3.8.
"Cash From Operations" means the cash funds provided from the
Partnership's operations, without deduction for depreciation, but after
deducting cash funds used to pay all other expenses, debt payments, amounts
placed in Reserves (net of any amounts released from Reserves because the need
for such Reserves has ceased), capital improvements, replacements and
liabilities (other than cash funds withdrawn from Reserves), including without
limitation all fees, reimbursements and other expenses paid to the General
Partner, its Affiliates or any other Person. "Cash From Operations" does not
include Cash From Sales.
"Cash From Sales" means the cash received by the Partnership as a
result of a Sale or refinancing, reduced by: (i) all debts and liabilities of
the Partnership required to be paid as a result of the Sale, whether or not then
payable (including any liabilities on an item of Equipment sold that are not
assumed by the buyer and any remarketing fees required to be paid to Persons who
are not Affiliates of the General Partner) and (ii) any amounts set aside as
Reserves to the extent deemed reasonable by the General Partner. If the
Partnership takes back a promissory note or other evidence of indebtedness in
connection with any Sale, the amount of such obligations shall not be included
in Cash From Sales and all payments subsequently received in cash by the
Partnership with respect to such note or other evidence of indebtedness shall be
included in Cash From Sales only upon receipt, irrespective of the treatment of
such payments by the Partnership for tax or accounting purposes. If the
Partnership has the right to retain insurance proceeds in connection with the
damage or loss of Equipment, such proceeds shall be treated as Cash From Sales.
"Certificate" means the certificate of limited partnership for the
Partnership, as amended, restated or otherwise modified from time to time.
"Class A Limited Partners" means those Limited Partners designated as
Class A Limited Partners from time to time on the books and records of the
Partnership (in their capacities as Limited Partners).
4
<PAGE>
"Class B Interest" means the Partnership Interest received by the
Class B Limited Partner in exchange for its Capital Contribution.
"Class B Limited Partner(s)" means initially Capital Associates
International, Inc. and any successor Class B Limited Partner(s) designated as
such on the books and records of the Partnership.
"Class B Majority" means Class B Limited Partners who (in their
capacities as Class B Limited Partners), at any time, have aggregate Adjusted
Capital Contributions representing more than 50.0% of the total aggregate
Adjusted Capital Contributions of all Class B Limited Partners (in their
capacities as Class B Limited Partners) at such time.
"Class B Subordinated Distributions" means cash distributions payable
to the Class B Limited Partner(s) out of Distributable Cash in an annualized,
subordinated amount equal to 10.5% of the Class B Limited Partner's Capital
Contributions.
"Closing" means the sale of Units in an amount equal to at least the
Minimum Offering and the delivery of subscribed funds held in escrow by the
Escrow Agent to the Partnership.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and any successor law.
"Commission" means the Securities and Exchange Commission.
"Consent" means, as the context may require, the: (i) consent given by
a vote at a meeting called and held in accordance with the provisions of Section
11.1; (ii) prior written consent of a Person to do the act or thing for which
the consent is solicited; or (iii) act of granting such consent.
"Controlling Person" means any person, regardless of title, who: (i)
performs executive or senior management functions for the General Partner or its
Affiliates similar to those of executive management or senior management; (ii)
is a director of the General Partner or its Affiliates; (iii) holds a 5.0% or
more equity interest in the General Partner or its Affiliates; or (iv) has the
power to direct or cause the direction of a General Partner or Affiliates
through ownership of voting securities, by contract or otherwise.
5
<PAGE>
"Cost" means the reasonable, necessary and actual expenses incurred by
the General Partner or its Affiliates, as determined in accordance with
generally accepted accounting principles, in holding title to Equipment on a
temporary or interim basis.
"Dealer-Manager" means CAI Securities Corporation, a California
corporation, and any successor entity.
"Dealer-Manager Agreement" means the Dealer-Manager Agreement among
the Partnership, the General Partner and the Dealer-Manager.
"Dealer-Manager Fee" means the fee payable to the Dealer-Manager by
the Partnership pursuant to Section 5.4(a)(i)(B).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. ss.17-101, et seq., as amended and in effect from time to time,
and any successor to such Act.
"Depreciation," for any Year or other period, shall mean the
depreciation, amortization or other cost recovery deduction allowable with
respect to an item of property for such Year or other period as determined for
federal income tax purposes; provided, however, that, if the Value of such item
of property differs from its Basis at the beginning of such Year or other
period, Depreciation shall be determined as provided in Treas. Reg.
ss.1.704-1(b)(2)(iv)(g)(3).
"Distributable Cash" means Cash From Operations and Cash From Sales
available to the Partnership during the Period for which distributions to
Partners by the Partnership are to be made.
"Due Diligence Reimbursement" means the bona fide due diligence fees
and expenses payable by the Partnership to Selling Dealers, in an amount equal
to the lesser of: (i) 0.5% of Gross Offering Proceeds; and (ii) the maximum
amount allowable under the NASD Rules of Fair Practice.
"Equipment" means any new, used or reconditioned equipment and related
tangible property acquired by the Partnership and any equity interest of the
Partnership therein, whether directly or indirectly through a nominee, joint
venture or otherwise.
"Equipment Purchase Price" means the price paid upon the purchase or
Sale of a particular item of Equipment, including the amount of Acquisition Fees
and all liens and mortgages on the Equipment, but excluding points and prepaid
interest.
6
<PAGE>
"Equipment Sale Commission" means the brokerage fee paid for services
rendered in connection with the purchase or sale of Equipment which is
reasonable, customary and competitive in light of the size, type and location of
the Equipment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Bank One, Colorado, N.A., a Colorado banking
association (or another banking institution named by the General Partner in the
event Bank One is unable to serve as Escrow Agent).
"Evaluation Fee" means the fee paid by the Partnership to the General
Partner pursuant to Section 5.4(a)(iii)(B).
"Fees" means all amounts payable by the Partnership to the General
Partner or its Affiliates in connection with the operations of the Partnership,
including the Evaluation Fee, the Origination Fee, O&O Expenses Reimbursement,
Sales Commissions and Management Fee.
"First Basic Rent Date" means, with respect to any Lease, the date
upon which the first periodic rent payment is due, following installation of all
of the Equipment under the Lease.
"First Cash Distributions" means cash distributions, payable to the
Class A Limited Partners out of Distributable Cash in an annualized, cumulative
preferred amount equal to 10.5% for the two-year period beginning with the date
of the Prospectus, provided that after the termination of such period the
General Partner, at its sole discretion, may reset such percentage to 11.0% for
the succeeding two-year period, and/or may reset such percentage to 12.0% for
the remaining term of the Partnership after the date four years from the date of
the Prospectus (based upon a year of 360 days with twelve months of 30 days
each), of the Class A Limited Partners' Capital Contributions.
"Front-End Fees" means the fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phases,
including without limitation Leasing Fees, Acquisition Expenses, Acquisition
Fees and Organizational and Offering Expenses, including Sales Commissions,
Dealer-Manager Fees, O&O Expenses Reimbursement, Due Diligence Reimbursement and
any other similar fees, however designated (including fees paid with respect to
Equipment purchased with Reinvested Proceeds). Front-End Fees shall not include
any Acquisition Fees or Acquisition Expenses paid by a manufacturer or vendor of
Equipment to any of its employees or contractors unless such Persons are
Affiliates of the Sponsor.
7
<PAGE>
"Full Payout Lease" means a Lease under which the non-cancelable
rental payments due during the initial term of the Lease are sufficient to
permit the Partnership to recover the Equipment Purchase Price of the Equipment
leased thereby.
"General Partner" means CAI Equipment Leasing V Corp. and any
additional or successor general partner admitted to the Partnership pursuant to
Article Six.
"Gross Offering Proceeds" means the aggregate Capital Contributions of
all Class A Limited Partners admitted to the Partnership.
"Gross Rentals" means the gross dollar amount received by the
Partnership as rental payments for the use of any Equipment subject to a Lease.
"Initial Lease" means the first Lease to which an item of Equipment is
subject immediately following the acquisition of such Equipment by the
Partnership, including Equipment purchased with Net Offering Proceeds as well as
Reinvested Proceeds. The term "Initial Lease" includes the Lease to which an
item of Equipment is subject on the date the Partnership acquires such item of
Equipment.
"Investment in Equipment" means the amount of Gross Offering Proceeds
actually paid or allocated to the purchase, manufacture or renovation of
Equipment acquired by the Partnership, including the purchase of Equipment,
Reserves allocable thereto (except that Reserves in excess of 3.0% shall not be
included) and other cash payments such as interest and taxes but excluding
Front-End Fees.
"IRA" means an Individual Retirement Account.
"IRS" means the Internal Revenue Service.
"Lease" means a Full Payout Lease or an Operating Lease, and includes
all Initial Leases and Subsequent Leases, as well as an executed binding lease
agreement pursuant to which either the Partnership or the General Partner or any
of its Affiliates is the lessor, regardless of whether the lease term has
commenced as of the subject date or is to commence in the future, which
agreement is assignable by the General Partner or such Affiliate to the
Partnership, provided, however, that such agreement shall be held by the General
Partner or Affiliate on a temporary or interim basis, generally not longer than
six months after the acquisition of the Equipment subject to the agreement by
the General Partner or Affiliate.
"Leasing Fee" means the total of all fees and commissions paid by any
party in connection with the initial lease of Equipment acquired by the
Partnership.
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<PAGE>
"Lessee" means the lessee under a Lease.
"Limited Partner" means any Class A Limited Partner or the Class B
Limited Partner.
"Liquidation Period" means the period beginning on the first day after
the end of the Reinvestment Period, and ending on the date on which the
Partnership is finally liquidated.
"Liquidation Proceeds" means all cash (from whatever source) available
for distribution to the Partners upon liquidation of the Partnership.
"Majority Interest" means the holders of more than 50.0% of the
aggregate outstanding Units; provided, however, that, in the case of any matter
to be voted on in which the General Partner or its Affiliates has an interest,
the Units held by the General Partner and its Affiliates shall not be treated as
outstanding for this purpose.
"Management of Equipment" means providing the personnel and services
necessary to the leasing activities of the Partnership, including but not
limited to, leasing and re-leasing of Partnership Equipment, arranging for
necessary maintenance and repair of the Equipment, collecting revenues, paying
operating expenses, determining that the Equipment is used in accordance with
all operative contractual arrangements and providing clerical and bookkeeping
services necessary to the operation of the Partnership Equipment pursuant to
Section 5.2.
"Management Fee" means the fee payable to the General Partner pursuant
to Section 5.4(a)(iv).
"Maximum Offering" means the sale of 500,000 Units by the Partnership.
"Minimum Offering" means the sale of 12,000 Units by the Partnership.
"NASAA Guidelines" means the Statement of Policy Regarding Equipment
Programs adopted on November 20, 1986, effective January 1, 1987, as amended on
April 22, 1988 and October 24, 1991, by the North American Securities
Administrators Association, Inc.
"Net Capital Contributions" means the Capital Contributions of the
Class A Limited Partners, reduced by the Sales Commissions, Dealer-Manager Fee
and O&O Expenses Reimbursement allocated to the Limited Partners under Section
4.3(f) (excluding any of these items that are amortizable under Code Section
709).
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<PAGE>
"Net Disposition Proceeds" means the proceeds realized by the
Partnership from sale, refinancing or other disposition of Partnership
equipment, including insurance proceeds or lessee indemnity payments arising
from the loss or destruction of the Equipment, less all Partnership liabilities.
"Net Offering Proceeds" means the Gross Offering Proceeds minus Sales
Commissions, Dealer-Manager Fee, O&O Expenses Reimbursement and initial Reserves
in the amount of 1.0% of Gross Offering Proceeds.
"Net Worth" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles, except that if any of
such assets have been depreciated, then the amount of depreciation relative to
any particular asset may be added to the depreciated cost of such asset to
compute total assets. The amount of depreciation may be added only to the extent
that the amount resulting after adding such depreciation does not exceed the
fair market value of such asset.
"Nonrecourse Deductions" means losses, deductions or Code
ss.705(a)(2)(B) attributable to "Nonrecourse Liabilities" (as defined in Treas.
Reg. ss.1.752-1(a)(2)) of the Partnership. The amount of Nonrecourse Deductions
shall be determined pursuant to Treas. Reg. ss.1.704-2(c).
"Notice" means a writing containing the information required by this
Agreement to be communicated to any Person, personally delivered to such Person,
sent by courier service and receipted for or sent by registered or certified
mail, postage prepaid, to such Person at the last known address of such Person.
"170.0% Recovery" means the time at which the cumulative amount of
Distributable Cash distributed to the Limited Partners (as a class) (taking into
account all prior and concurrent distributions of Distributable Cash to the
Limited Partners (as a class) under Section 4.1(a)(i) and (ii)) equals 170.0% of
the Capital Contributions of the Limited Partners (as a class).
"O&O Expenses Reimbursement" means a non-accountable payment by the
Partnership to the General Partner pursuant to Section 5.4(a)(ii).
"Offering" means the offering of Units contemplated by this Agreement.
"Operating Lease" means a Lease under which the non-cancelable rental
payments due during the initial term of the Lease are not sufficient to permit
the Partnership to recover the Equipment Purchase Price of the Equipment leased
thereby.
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<PAGE>
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership) acceptable to the General Partner.
"Organizational and Offering Expenses" means expenses incurred in
connection with preparing the Partnership for registration and subsequently
offering and distributing it to the public, including sales commissions paid to
broker-dealers in connection with the distribution of Units and all advertising
expenses except advertising expenses related to the leasing of the Partnership's
Equipment.
"Origination Fee" means the fee paid by the Partnership to the General
Partner pursuant to Section 5.4(a)(iii)(A).
"Partner" means a General Partner or a Limited Partner.
"Partner Nonrecourse Deductions" means losses, deductions or Code
ss.705(a)(2)(B) expenditures attributable to Partner Nonrecourse Debt (as
defined in Treas. Reg. ss.1.704-2(b)(4)). The amount of Partner Nonrecourse
Deductions shall be determined pursuant to Treas. Reg. ss.1.704-2(i)(2).
"Partnership Interest" means the interest of a Partner in the
Partnership, whether held by such Partner or an immediate or subsequent Assignee
thereof, including without limitation such Partner's right to: (i) receive a
distributive share of the Profits or Losses and distributions of cash and/or
other Partnership property; (ii) receive a distributive share of the
Partnership's assets; and (iii) if a General Partner, participate in the
management of the business and affairs of the Partnership.
"Payout" means the time(s) when the aggregate amount of distributions
actually paid to the Limited Partners (as a class) from Distributable Cash and
Liquidation Proceeds, if any, during the period subsequent to the Termination
Date (taking into account all prior and concurrent distributions of
Distributable Cash to the Limited Partners (as a class) under Section 4.1(a)(i)
and (ii) received from the Partnership during the period subsequent to the
Termination Date and excluding allocations for bookkeeping purposes not actually
paid) equals the amount of the Limited Partners' aggregate Capital Contributions
plus their Preferred Return as of the date of determination.
"Period" means a time period less than or equal to a Quarter.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other legal entity.
11
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"Personal Emergency" means a situation in which a Class A Limited
Partner or his or her spouse or child dies, or is confined to a hospital for a
period of 90 or more consecutive days, or to a nursing home or other long-term
care facility for a period of 30 or more consecutive days, or the Class A
Limited Partner is divorced.
"Preferred Return" means a 10.0% annual, cumulative return, compounded
daily (from whatever sources), on the Limited Partners' Adjusted Capital
Contributions, calculated from the Termination Date.
"Profits" or "Losses" means profits or losses, as the case may be, of
the Partnership as determined for federal income tax purposes, and items of
income, gain, loss, deduction or credit entering into the computation thereof,
with the following adjustments:
(a) any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits
and Losses shall be added to such taxable income;
(b) Code ss.705(a)(2)(B) expenditures of the Partnership that are
not otherwise taken into account in computing Profits and Losses shall
be subtracted from such taxable income;
(c) if the Value of any property is adjusted pursuant to the
definition of "Value", the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such property for
purposes of computing Profits and Losses;
(d) gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Value of such property,
notwithstanding that the Basis of such Property differs from its
Value;
(e) in lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or
loss, Depreciation shall be taken into account in computing Profits
and Losses;
(f) to the extent of any adjustment of the Basis of any Property
pursuant to Code ss.ss.734(b) or 743(b) is required pursuant to Treas.
Reg. ss.1.704-1(b)(2)(iv)(m) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of Partner's Partnership Interest, the amount of such
adjustment shall be treated as an item of gain or loss, as the case
may be, from the disposition of the property and shall be taken into
account in computing Profits and Losses;
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(g) notwithstanding anything in this Agreement to the contrary,
any items of income, gain, loss or deduction specially allocated under
any provisions of Sections 4.4 and 4.6 shall not be taken into account
in computing Profits and Losses; and
(h) for purposes of this Agreement, any deduction for loss on a
sale or exchange of property which is disallowed to the Partnership
under Code ss.ss.267(a)(1) or 707(b) shall be treated as a Code
ss.705(a)(2)(B) expenditure.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation,
formed and operated for the primary purpose of investment in and the operation
of or gain from an interest in equipment.
"Prospectus" means the prospectus on file with the Commission at the
time the registration statement on Form S-1 (File No. ________) becomes
effective (including alternative versions of the prospectus prepared for and
disseminated in different jurisdictions in order to accommodate state securities
considerations). If the prospectus filed on behalf of the Partnership pursuant
to Rule 424 of the rules and regulations of the Commission under the Securities
Act differs from the prospectus on file at the time the registration statement
becomes effective, or if the prospectus is thereafter amended or supplemented
pursuant to such Rule 424, the term "Prospectus" shall refer to the Prospectus
filed pursuant to such Rule 424 from and after the date on which it shall have
been so filed or mailed to the Commission for filing.
"Qualified Plan" means any qualified pension, profit-sharing or stock
bonus plan.
"Quarter" means the three-calendar-month period commencing on the
first day of each Year (or such shorter period ending on the last day of the
Year), and each additional three-calendar-month period included within each Year
(or such shorter period ending on the last day of a Year).
"Record Date" means the date established by the General Partner for
determining the identity of: (i) Class A Limited Partners entitled to receive
notice of or vote at any meeting of Class A Limited Partners or entitled to vote
by ballot or give approval of Partnership action in writing without a meeting;
or (ii) Partners entitled to receive any notice, report or distribution of
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Liquidation Proceeds or, with respect to distributions of Distributable Cash,
the first business day in New York, New York after the end of the Period with
respect to which such distributions shall be made.
"Record Holder" means the Limited Partner or Assignee in whose name a
Unit or the Class B Interest, as the case may be, or interest therein is
registered on the books of the Partnership, as of the close of business on a
Record Date.
"Reimbursable Organizational and Offering Expenses" means those
expenses incurred in connection with or related to the formation and
qualification of the Partnership or a nominee thereof, the registration and
qualification of the Units under applicable federal and state laws and the
marketing, distribution, sale and processing of the Units, including without
limitation the following: (i) legal fees and disbursements and accounting costs
for the Partnership, the General Partner and the Dealer-Manager, printing costs
and the costs of delivering, mailing or shipping Prospectuses (including any
amendments or supplements thereto) and related sales material; (ii) the costs of
preparing, printing, filing and delivering a registration statement with respect
to the Units (including any amendments or supplements thereto), a "Blue Sky
Survey" and all underwriting and sales agreements; (iii) the cost of preparing
and printing this Agreement, other solicitation material and related documents
and the cost of filing and recording such certificates or other documents as are
necessary to comply with the laws of the State of Delaware for the formation of
a limited partnership and thereafter for the continued good standing of a
limited partnership; (iv) the cost of any escrow arrangements, including any
compensation to the Escrow Agent; and (v) filing fees payable to the Commission,
to state securities commissions and to the NASD, but excluding Front-End Fees.
"Reinvested Proceeds" means any Distributable Cash remaining after
First Cash Distributions and Class B Subordinated Distributions and required
distributions to the General Partner, pursuant to Section 4.1, and used to
purchase Equipment during the Reinvestment Period.
"Reinvested Profits" means Profits, if any, for each Year (or Period)
in excess of the aggregate Profits described in Section 4.2(a)(i) and (ii).
"Reinvestment Period" means the period from the Closing Date until the
end of the Quarter during which the date that is seven years from the Closing
Date occurs, unless extended up to an additional four Quarters by election of
the General Partner.
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"Removal Effective Date" means the effective date of removal of a
General Partner as provided herein or as otherwise agreed between the removed
General Partner and any successor General Partner(s).
"Reserves" means amounts allocated to reserves maintained for working
capital of the Partnership and contingencies, as provided in Section 5.2(d).
"Residual Value" means the net amount realized upon the Sale of
Equipment.
"Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not include:
(a) a transaction involving Partnership securities that have
been for at least 12 months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust
or association form of only the Partnership if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following:
(i) Limited Partner voting rights;
(ii) the term of existence of the Partnership;
(iii) General Partner compensation; or
(iv) the Partnership's investment objectives.
"Roll-Up Entity" means the partnership, corporation, trust, or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up transaction.
"Sale" means the sale, exchange, involuntary conversion, casualty
(other than a casualty followed by refurbishing or replacement), condemnation or
other disposition of assets by the Partnership.
"Sales Commission" means the fee payable to the unaffiliated
broker-dealers selling the Units by the Partnership pursuant to Section
5.4(a)(i)(A).
"Schedule A" means the schedule of the General and Class B Limited
Partners' names and addresses.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any Person who shall manage or
participate in the management of the Partnership, and any Affiliate of any such
Person. Sponsor does not include a Person whose only relation with the
Partnership is that of an independent equipment manager and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and broker-dealers whose only
compensation is for professional services rendered in connection with the
offering of Partnership interests.
"Subscription Agreement" means the Subscription Agreement included as
Exhibit C to the Prospectus.
"Subsequent Lease" means any Lease that commences after the
termination, or constitutes an extension, renewal or re-lease, of an Initial
Lease.
"Tax Counsel" means Ballard Spahr Andrews & Ingersoll, or other
recognized tax counsel engaged by the General Partner.
"Tax Distributions" means amounts distributed to the Partners to
provide Partners with amounts to pay federal income taxes (assuming such
Partners are taxed in the 31.0% bracket) with respect to gains from Sales, but
only to the extent that such taxes exceed the amounts distributed pursuant to
Sections 4.1(a)(i)(A) and (B).
"Termination Date" means the earliest of: (i) the date on which the
Maximum Offering has been sold; (ii) the date 12 months from the date of the
Prospectus if the Minimum Offering has not been sold; (iii) the date 24 months
from the date of the Prospectus; and (iv) the date of the termination of the
Offering by the General Partner.
"Treas. Reg." means final regulations issued by the U.S. Treasury
Department pursuant to the Code, including any subsequent amendments thereto, or
any regulations subsequently issued in lieu thereof.
"Triple Net Lease" means a Lease under which the Lessee assumes
responsibility for, and bears the cost of, insurance, taxes, maintenance, repair
and operation of the leased asset and under which the non-cancelable rental
payments pursuant to such Lease are net to the Partnership.
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"Unit" means a unit of limited partnership interest in the Partnership
held by a Class A Limited Partner, representing an initial Capital Contribution
of $100. The Partnership may issue partial Units if an investment is not made in
multiples of $100.00.
"Unrecovered Capital Contribution" means, with respect to a Unit, the
excess of (i) the Capital Contribution allocable to the Unit over (ii) the
distributions from any source paid by the Partnership with respect to such Unit.
"Upgrade" means Equipment that is designed to be added or connected to
existing Equipment in order to enhance the function and performance of such
Equipment.
"Value" with respect to any property shall mean:
(a) The fair market value of any property on the date a Partner
contributes such property to the Partnership;
(b) The fair market value of:
(i) any property on the date the Partnership distributes
all or any portion of such property to a Partner as
consideration for all or a portion of the Partner's
Partnership Interest (see Treas. Reg. ss.1.704-
1(b)(2)(iv)(f)(5)(ii));
(ii) all of the Partnership's properties on the date of
liquidation of the Partnership (see Treas. Reg.
ss.1.704-1(b)(2)(iv)(f)(5)(ii)); or
(c) The Basis of an item of property in all other circumstances.
See Section 3.6 (a) below for a discussion of instances in which the Partnership
shall increase the Capital Accounts of the Partners to reflect revaluations of
Partnership property in accordance with Treas. reg. ss.1.704-1(b)(2)(iv)(d), (f)
and (g). The Value of Property shall be increased or decreased, as the case may
be, to reflect any adjustments to the Basis of such Property pursuant to Code
ss.ss.734(b) or 743(b), but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Treas. Reg.
ss.1.704-1(b)(2)(iv); provided, however, that no adjustment shall be made under
this paragraph in respect of any matter as to which an adjustment has been made
under paragraphs (i), (ii) or (iii) above.
"Voluntary Withdrawal" means the withdrawal of the General Partner
pursuant to subsections (1), (6), (7), (8), (9) or (10) of Section 17-402 of the
Delaware Act.
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"Withdrawal" means those events of withdrawal provided for by Section
17-402 of the Delaware Act, except for subsections (4) and (5) of Section 17-402
of the Delaware Act.
"Year" means the Partnership's annual accounting period for financial
accounting and federal income tax purposes, which ends on December 31.
ARTICLE TWO
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
SECTION 2.1 Continuation of Partnership.
The parties hereto hereby enter into and continue the Partnership
pursuant to the provisions of the Delaware Act, and such other provisions of
applicable law as shall pertain to limited partnerships organized pursuant to
the Delaware Act.
SECTION 2.2 Name, Principal Office and Name and Address of
Registered Agent for Service of Process.
The Partnership shall continue to be conducted under the name "Capital
Preferred Yield Fund - V, L.P." The principal place of business and office of
the Partnership shall be 7175 West Jefferson Avenue, Suite 4000, Lakewood,
Colorado 80235. The registered office of the Partnership in the State of
Delaware shall be 1209 Orange Street, Corporation Trust Center, Wilmington,
Delaware 19801. The registered agent of the Partnership for service of process
at such address shall be The Corporation Trust Company.
SECTION 2.3 Purpose.
The Partnership is organized for the object and purpose of: (i)
acquiring, upgrading, purchasing, exchanging, leasing, assigning, owning,
modifying, financing, borrowing, maintaining, operating, improving, selling,
creating security interests in, pledging, reinvesting in, transferring or
otherwise disposing of Equipment and other personal property of all kinds, in
any part of the world; and (ii) establishing, acquiring, conducting and carrying
on any business or businesses suitable, necessary, useful or convenient in
connection therewith.
SECTION 2.4 Term.
The Partnership shall continue in full force and effect until December
31, 2009, unless dissolved prior thereto pursuant to this Agreement or by law.
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ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1 General Partner.
The address of the General Partner is 7175 West Jefferson Avenue,
Suite 4000, Lakewood, Colorado 80235. Its Capital Contribution from time to time
shall be the amount reflected in the books and records of the Partnership. The
General Partner shall not be required to make any additional Capital
Contributions to the Partnership, other than as provided in Section 9.3.
SECTION 3.2 Original Limited Partner.
By his execution hereof, the Original Limited Partner hereby withdraws
as the Original Limited Partner and the parties hereto agree to the return to
him of his Capital Contribution.
SECTION 3.3 Class B Limited Partner.
The address of the Class B Limited Partner is 7175 West Jefferson
Avenue, Suite 4000, Lakewood, Colorado 80235. The Class B Limited Partner agrees
to contribute, from time to time on or immediately after each date on which the
Partnership acquires Equipment, cash as its Capital Contributions to the
Partnership in an aggregate amount equal to $10,000 for every $1,000,000 in
Gross Offering Proceeds received by the Partnership as of that date; provided
that, as of the Termination Date, the aggregate amount of the cash shall equal
1.0% of Gross Offering Proceeds as of the Termination Date. The Class B Limited
Partner's Capital Contribution from time to time shall be the amount reflected
in the books and records of the Partnership. The Class B Limited Partner shall
not be required to make any other Capital Contributions to the Partnership. The
Class B Limited Partner shall not purchase any Units.
SECTION 3.4 Class A Limited Partners.
(a) The General Partner is authorized to admit Class A Limited
Partners to the Partnership from time to time by selling not more than the
Maximum Offering, provided that no Class A Limited Partners shall be admitted to
the Partnership until acceptable subscriptions for the Minimum Offering have
been received.
(b) The minimum investment of each Class A Limited Partner shall be 25
Units (10 Units for IRAs and Qualified Plans) representing a Capital
Contribution of $2,500 ($1,000 for IRAs and Qualified Plans). Such Capital
Contribution shall be made in full in cash. Aggregate purchases of Units by the
General Partner, the Dealer-Manager, their respective Affiliates and employees
of any of them must be less than 5.0% of total Units sold.
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(c) The names and addresses of the Class A Limited Partners admitted
as provided herein, and their Capital Contributions from time to time, shall be
as reflected in the books and records of the Partnership. The Partnership shall
not be required to recognize any Class A Limited Partner as a nominee, agent or
representative of any beneficial owner, but shall treat all Class A Limited
Partners as the beneficial owners of their respective Units.
(d) The offering of Units for sale shall terminate on the Termination
Date.
(e) All funds in respect of Units for which subscriptions have been
received prior to the Closing Date shall be deposited in an interest-bearing
escrow account with the Escrow Agent. Subscriptions for Units shall be accepted
or rejected by the General Partner within 30 days after their receipt. The
General Partner retains the unconditional right to refuse to accept any
subscriber as a Class A Limited Partner, in which event the funds delivered by
such subscriber shall be promptly returned to the subscriber without deduction.
Upon receipt of subscriptions acceptable to the General Partner for not less
than the Minimum Offering prior to the Termination Date and the determination of
the General Partner to proceed to Closing, the Closing Date shall be set by the
General Partner, and the Escrow Agent shall release such subscription funds to
the Partnership at the Closing. Before commencing business, the Partnership
shall have received gross proceeds from the offering of not less than $1,200,000
after payment of all Organizational and Offering Expenses. Any interest earned
on monies paid by each subscriber during the period that such monies are held in
escrow prior to the Closing shall be paid to each such subscriber following
release of subscription funds. If the Escrow Agent does not receive acceptable
subscriptions for at least the Minimum Offering on or before the Termination
Date, the Escrow Agent shall return all monies deposited by subscribers,
together with any interest earned thereon. Subject to Section 3.4(b), the
General Partner and its Affiliates shall have the right to subscribe for Units
for their own accounts, but any such subscriptions shall not be included for
purposes of determining whether the Minimum Offering has been achieved.
After the Closing Date, additional subscribers whose subscriptions are
acceptable to the General Partner shall be admitted to the Partnership as Class
A Limited Partners at such times as the General Partner shall determine.
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(f) To accomplish the purpose of this Section 3.4, the General Partner
is hereby authorized to do all things necessary to admit such Class A Limited
Partners, including without limitation registering the Units under the
Securities Act, qualifying the Units for sale with state securities regulatory
authorities or perfecting exemptions from qualification and entering into
underwriting or selling arrangements with the Dealer-Manager for the
solicitation of the Units, upon such terms and conditions as the General Partner
may deem advisable.
(g) Each subscriber whose subscription is acceptable to the General
Partner as contemplated by Section 3.4(e) shall become a Class A Limited Partner
as of the Closing Date or, in the case of subscriptions accepted after the
Closing Date, such later date as the General Partner shall determine. Any
subscriber shall be admitted to the Partnership within 15 days after release of
his funds from escrow to the Partnership. Any Partner whose subscription is
accepted by the General Partner after the Closing Date shall be admitted to the
Partnership not later than the last day of the calendar month following the date
their subscription was accepted by the General Partner.
SECTION 3.5 Partnership Capital.
(a) No Partner shall be paid interest on any Capital Contribution.
(b) Except as otherwise provided in this Agreement, the Partnership
shall not redeem or repurchase any Unit, no Partner shall have the right to
withdraw, or receive any return of, his Capital Contribution and no Capital
Contribution may be returned in the form of property other than cash.
(c) No Class A Limited Partner shall have priority over any other
Class A Limited Partner, either as to the return of his Capital Contribution or
as to Profits or Losses or distributions, except as otherwise specifically
provided herein.
(d) The General Partner shall have no personal liability for the
repayment of the Capital Contribution of any Limited Partner.
(e) A creditor who makes a nonrecourse loan to the Partnership shall
not have or acquire at any time, solely as a result of making the loan, any
direct or indirect interest in the profits, capital or property of the
Partnership, other than as a creditor or secured creditor, as the case may be.
SECTION 3.6 Capital Accounts.
(a) The Partnership shall establish and maintain a separate Capital
Account for each Partner according to the rules of Treas. Reg.
ss.1.704-1(b)(2)(iv). For this purpose, the Partnership shall, upon the
occurrence of the events specified in Treas. Reg. ss.1.704-1(b)(2)(iv)(d) and
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(f), increase or decrease the Capital Accounts in accordance with the rules of
such regulation and Treas. Reg. ss.1.704-1(b)(2)(iv)(g) to reflect a revaluation
of Partnership property; provided, however, that the admission of an additional
subscriber to the Partnership as a Class A Limited Partner in accordance with
Section 3.4(e) shall not be treated, for purposes of this Agreement, as an event
specified in Treas. Reg. ss.1.704-1(b)(2)(iv)(d), (f) or (g).
(b) For purposes of computing the amount of any item of Partnership
income, gain, loss or deduction to be allocated pursuant to Article Four, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
purposes (including any method of Depreciation used for this purpose).
(c) Profit or Loss shall be charged or credited to the Capital
Accounts in accordance with the manner in which such items are allocated
pursuant to Article Four, taking into account the special allocations of
Sections 4.4 and 4.6.
(d) Upon the transfer of all or any portion of a Unit, Class B
Interest or a General Partner Partnership Interest, the portion of the Capital
Account of the transferor that is attributable to the transferred Unit, Class B
Interest or General Partner Partnership Interest shall carry over to the
transferee. However, if the transfer causes a termination of the Partnership
under Code ss.708(b)(1)(B), the Capital Account that carries over to the
transferee shall be adjusted in accordance with the constructive liquidation and
reconstitution rules under Treas. Reg. ss.1.708-1.
SECTION 3.7 Loans By Partners.
Loans by Partners to the Partnership shall not be considered Capital
Contributions. If any Partner advances funds to the Partnership in excess of his
Capital Contribution, such advances shall not increase the Capital Account
balance of such Partner. The amount of any such advances shall be a debt of the
Partnership to such Partner and shall be payable or collectible only out of
Partnership assets in accordance with the terms and conditions upon which such
advances are made.
SECTION 3.8 Return of Capital.
Without any deductions for sales commissions and other Front-End Fees
payable to any Person, any portion of the Class A Limited Partners' Capital
Contributions received by the Partnership within 12 months after the date of the
Prospectus (except for any amounts set aside for Reserves) and not invested in
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or committed to the purchase of Equipment within 24 months after the date of the
Prospectus, and any portion of the Class A Limited Partners' Capital
Contributions received by the Partnership after 12 months after the date of the
Prospectus and not invested in or committed to the purchase of Equipment within
12 months after the Termination Date, shall be distributed pro rata to all Class
A Limited Partners (in proportion to their Capital Contributions) as a return of
capital. Any funds with respect to which the Partnership has executed, within
the applicable period described in the preceding sentence, a written agreement
in principle, commitment letter, letter of intent or understanding, option
agreement or other similar understanding or contract contemplating the
acquisition by the Partnership of Equipment, shall be deemed committed to
investment on that date for purposes hereof but shall subsequently be required
to be returned to the Class A Limited Partners if the investment of such funds
is not consummated or the contingent payments are not made.
SECTION 3.9 Liability of Limited Partners.
The liability of each Limited Partner for the losses, debts,
liabilities and obligations of the Partnership shall, so long as such Limited
Partner complies with the provisions of Section 11.3, be limited to his Capital
Contribution and his share of the assets and any undistributed Profits of the
Partnership. No Limited Partner shall be required to lend funds to the
Partnership or, after his Capital Contribution has been paid, make any further
capital or other contribution to the Partnership. It is the intent of the
Partners that no distribution (or any part of any distribution) made to any
Limited Partner pursuant to Article Four shall be deemed, for the purposes of
the Delaware Act only, a return or withdrawal of capital, even if such
distribution represents, in full or in part, an allocation of depreciation or
any other non-cash item accounted for as a loss or deduction from or offset to
the Partnership's income, and that no Limited Partner shall be obligated to pay
any such amount to or for the account of the Partnership or any creditor of the
Partnership. If any court of competent jurisdiction holds, however, that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to make any such payment, such obligation shall be the obligation of
such Limited Partner and not of the General Partner.
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SECTION 3.10 Investment in Equipment.
The General Partner shall cause Investment in Equipment to be at least
an amount that is the greater of (a) 80.0% of Gross Offering Proceeds reduced by
.0625% for each 1.0% of indebtedness encumbering Partnership Equipment, or (b)
75.0% of Gross Offering Proceeds. The percentage of indebtedness encumbering
Partnership Equipment shall be calculated by dividing the amount of indebtedness
by the aggregate Equipment Purchase Price of Partnership Equipment, excluding
any Front-End Fees. The amount of indebtedness encumbering Partnership Equipment
shall be calculated as of the date on which the level of Investment in Equipment
is being tested, after giving effect to any transaction occurring on such date
that would affect the level of Investment in Equipment. To the extent that such
limitation is not otherwise satisfied, any Acquisition Fees payable or paid to
the General Partner by the Partnership shall be reduced or refunded by the
General Partner to the Partnership to the extent necessary to comply with such
limitation. Any such refund shall bear interest calculated at a rate of 1.0% per
month if such refund is not made within 30 days after the end of any calendar
quarter in which the Partnership's Investment in Equipment fails to satisfy such
minimum investment.
ARTICLE FOUR
DISTRIBUTIONS AND ALLOCATIONS
SECTION 4.1 Distributions.
(a) Distributable Cash. Distributable Cash for each Period shall be
distributed to the Partners on the Payment Date (see Section 4.1(f) below) in
the order and priority set forth in Section 4.1(a)(i), (ii) and (iii).
(i) During the Reinvestment Period. During the
Reinvestment Period, Distributable Cash shall be distributed or
reinvested (as the case may be) in the following order and priority:
(A) First, 1.0% to the General Partner and
99.0% to the Class A Limited Partners (as a class), on a pari
passu basis, until such time as the Class A Limited Partners
(as a class) receive an amount of Distributable Cash equal to
the First Cash Distributions;
(B) Second, any remaining Distributable Cash
(after taking into account distributions described in Section
4.1(a)(i)(A)) 1.0% to the General Partner and 99.0% to the
Class B Limited Partners (as a class), on a pari passu basis,
until such time as the Class B Limited Partners (as a class)
receive an amount of Distributable Cash equal to the Class B
Subordinated Distributions; and
(C) Third, all remaining Distributable Cash
(after taking into account distributions described in Section
4.1(a)(i)(A) and (B)) shall be treated as Reinvested Proceeds
reinvested according to the reinvestment guidelines set forth
in Section 5.2(h).
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Notwithstanding the foregoing, during the
Reinvestment Period, Distributable Cash, in excess of amounts
distributed pursuant to Section 4.1(a)(i)(A) and (B), shall be
distributed to the Partners as Tax Distributions, if necessary to
provide funds for payment of income taxes on the sale of Equipment. Tax
Distributions shall be distributed 1.0% to the General Partner and
99.0% to the Limited Partners (as a class), on a pari passu basis.
(ii) After the Reinvestment Period and Prior to
Achievement of Payout and 170.0% Recovery. After the Reinvestment
Period and until achievement by the Limited Partners of Payout and
170.0% Recovery, Distributable Cash for each Period shall be
distributed in the following order and
priority:
(A) First, 1.0% to the General Partner and
99.0% to the Class A Limited Partners (as a class), on a pari
passu basis, until such time as the Class A Limited Partners
(as a class) receive an amount of Distributable Cash equal to
the First Cash Distributions;
(B) Second, any remaining Distributable Cash
(after taking into account distributions described in Section
4.1 (a)(ii)(A)) 1.0% to the General Partner and 99.0% to the
Class B Limited Partners (as a class), on a pari passu basis,
until such time as the Class B Limited Partners (as a class)
receive an amount of Distributable Cash equal to the Class B
Subordinated Distributions;
(C) Third, any remaining Distributable Cash
(after taking into account distributions described in Section
4.1(a)(ii)(A) and (B)) 1.0% to the General Partner and 99.0%
to the Class A Limited Partners (as a class), on a pari passu
basis, until such time as the Class A Limited Partners (as a
class) achieve Payout;
(D) Fourth, any remaining Distributable Cash
(after taking into account distributions described in Section
4.1(a)(ii)(A)-(C)) 1.0% to the General Partner and 99.0% to
the Class B Limited Partners (as a class), on a pari passu
basis, until such time as the Class B Limited Partners (as a
class) achieve Payout; and
(E) Fifth, any remaining Distributable Cash
(after taking into account distributions described in Section
4.1(a)(ii)(A)-(D)) 1.0% to the General Partner and 99.0% to
the Limited Partners (as a class), on a pari passu basis,
until such time as the Limited Partners (as
a class) achieve 170.0% Recovery.
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(iii) After the Reinvestment Period and After Achievement of
Payout and 170.0% Recovery. After the Reinvestment Period and after
achievement by the Limited Partners of Payout and 170.0% Recovery,
Distributable Cash for each Period shall be distributed 10.0% to the
General Partners (as a class) and 90.0% to the Limited Partners (as a
class), on a pari passu basis.
Notwithstanding anything in Section 4.1(a)(ii) or
(iii) to the contrary, after the Reinvestment Period, Distributable
Cash available for distribution to the Partners (after taking into
account distributions described in Section 4.1(a)(ii)(A) and (B)),
shall be distributed to the Partners, on a pari passu basis, to the
extent of and in proportion to the aggregate amount of Reinvested
Profits previously allocated to the General Partner and the Limited
Partners (as a class) pursuant to Section 4.2(a). All distributions
under this paragraph shall be applied toward the distributions of
Distributable Cash under Section 4.1(a)(ii)(C)-(E) and 4.1(a)(iii).
(b) Liquidation Proceeds. Liquidation Proceeds shall be
distributed to the Partners, on a pari passu basis, in proportion to the
positive balances in their Capital Accounts at the time of such distribution as
provided in Section 9.3(b).
(c) Sharing of Distributions to Partners.
(i) General Partners. All distributions of
Distributable Cash to the General Partners (as a class) shall be shared
by the General Partners, on a pari passu basis, in proportion to their
respective percentage General Partner Partnership Interests as of the
Record Date for the distribution.
(ii) Class A Limited Partners. All distributions of
Distributable Cash to the Class A Limited Partners (as a class) shall
be shared by the Class A Limited Partners, on a pari passu basis, in
proportion to their respective holdings of Units as of the Record Date
for the distribution; however, notwithstanding the foregoing,
Distributable Cash relating to Periods during which one or more Class A
Limited Partners are admitted to the Partnership shall be shared by the
Limited Partners pro rata based on the number of days during such
Period that each Class A Limited Partner is a Partner of the
Partnership and on the number of Units that each Class A Limited
Partner holds during such Period.
(iii) Class B Limited Partners. All distributions of
Distributable Cash to the Class B Limited Partners (as a class) shall
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be shared by the Class B Limited Partners, on a pari passu basis, in
proportion to their respective percentage Class B Interests as of the
Record Date for the distribution.
(iv) Limited Partners. All distributions of Distributable
Cash to the Limited Partners (as a class) shall be shared 99.0% by the
Class A Limited Partners (as a class) and 1.0% by Class B Limited
Partners (as a class), on a pari passu basis.
(d) Determination of Distributees. All distributions pursuant
to Section 4.1 shall be made to the Persons shown on the Partnership's books and
records as Partners as of the Record Date for the distribution.
(e) Withholding. The General Partner may withhold from
distributions to any Partner any amount required to be withheld pursuant to the
Code or any other law, rule or regulation. Any amount so withheld shall be
treated as a distribution to the affected Partner.
(f) Payment Dates. Distributable Cash for each Period shall be
accrued in the name of the Partners not later than 30 days after the end of each
such Period. However, the Partners may elect to have such cash distributed to
them either monthly or quarterly by the General Partner.
SECTION 4.2 Allocations of Profits and Losses.
(a) Profits. After first giving effect to the allocations, if
any, pursuant to Sections 4.3, 4.4 and 4.5, Profits for any Year shall be
allocated in the following order and priority:
(i) First, Profit shall be allocated to the Partners in
proportion to, and to the extent of, Losses allocated to the Partners
pursuant to Section 4.2(b) for all prior Years, in reverse
chronological order and priority (as set forth in Section 4.2(b)). To
the extent any allocations of Losses are offset pursuant to this
Section 4.2(a)(i), such Losses shall be disregarded for purposes of
computing subsequent allocations as described in this Section
4.2(a)(i);
(ii) Second, any remaining Profit (after taking into
account allocations described in Section 4.2(a)(i)) 1.0% to the General
Partner and 99.0% to the Class A Limited Partners (as a class), on a
pari passu basis, until such time as the General Partner and the Class
A Limited Partners (as a class) are allocated an amount of Profit for
the Year equal (when added to the Profit allocated to the General
Partner and the Class A Limited Partners (as a class) under this
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Section 4.2(a)(ii) for all prior Years) to the aggregate distributions
of Distributable Cash made to them under Section 4.1(a)(i)(A) and
(a)(ii)(A) for the Year and all prior Years;
(iii) Third, any remaining Profit (after taking into account
allocations described in Section 4.2(a)(i) and (ii)) 1.0% to the
General Partner and 99.0% to the Class B Limited Partners (as a class),
on a pari passu basis, until such time as the General Partner and the
Class B Limited Partners (as a class) are allocated an amount of Profit
for the Year equal (when added to the Profit allocated to the General
Partner and Class B Limited Partners (as a class) under this Section
4.2(a)(iii) for all prior Years) to the aggregate distributions of
Distributable Cash made to them under Section 4.1(a)(i)(B) and
(a)(ii)(B) for the Year and all prior Years;
(iv) Fourth, any remaining Profit (after taking into
account allocations described in Section 4.2(a)(i)-(iii)) 1.0% to the
General Partner and 99.0% to the Class A Limited Partners (as a class),
on a pari passu basis, until such time as the General Partner and the
Class A Limited Partners (as a class) are allocated an amount of Profit
for the Year equal (when added to the Profit allocated to the General
Partner and the Class A Limited Partners (as a class) under this
Section 4.2(a)(iv) for all prior Years) to the aggregate distributions
of Distributable Cash made to them under Section 4.1(a)(ii)(C) for the
Year and all prior Years;
(v) Fifth, any remaining Profit (after taking into account
allocations described in Section 4.2(a)(i)-(iv)) 1.0% to the General
Partner and 99.0% to the Class B Limited Partners (as a class), on a
pari passu basis, until such time as the General Partner and the Class
B Limited Partners (as a class) are allocated an amount of Profit for
the Year equal (when added to the Profit allocated to the General
Partner and the Class B Limited Partners (as a class) under this
Section 4.2(a)(v) for all prior Years) to the aggregate distributions
of Distributable Cash made to them under Section 4.1(a)(ii)(D) for the
Year and all prior Years;
(vi) Sixth, any remaining Profit (after taking into account
allocations described in Section 4.2(a)(i)-(v)) 1.0% to the General
Partner and 99.0% to the Limited Partners (as a class), on a pari passu
basis, until such time as the General Partner and the Limited Partners
(as a class) are allocated an amount of Profit for the Year equal (when
added to the Profit allocated to the General Partner and the Limited
Partners (as a class) under this Section 4.2(a)(vi) for all prior
Years) to the aggregate distributions of Distributable Cash made to
them under Section 4.1(a)(ii)(E) for the Year and all prior Years; and
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(vii) Seventh, any remaining Profit (after taking into account
allocations described in Section 4.2(a)(i)-(vi)) 10.0% to the General
Partner and 90.0% to the Limited Partners (as a class).
Reinvested Profits shall be allocated in the same
manner described in Section 4.2(a)(iv)-(vii) as if the Reinvested Proceeds to
which such Reinvested Profits relate had actually been distributed to the
Partners, in such Year, as Distributable Cash in accordance with Section
4.1(a)(ii)(C)-(E) and Section 4.1(a)(iii). All allocations under this paragraph
shall be applied toward the allocations of Profit under Section
4.2(a)(iv)-(vii).
All allocations of Profit for each Year shall be
made after giving effect to all distributions of Distributable Cash made on or
before the date of such allocations.
All Profits relating to transactions resulting in
Liquidation Proceeds shall be allocated in the manner set forth in this Section
4.2(a) as if the Liquidation Proceeds relating thereto constituted Distributable
Cash and had been previously distributed in the same manner described in Section
4.1(a)(ii) and (iii) as Distributable Cash.
(b) Losses. After giving effect to the allocations, if any,
described in Sections 4.3, 4.4 and 4.5, Losses for any Year shall be allocated
in the following order and priority:
(i) First, to the Partners in proportion to, and to
the extent of, any Profits allocated as described in Section 4.2(a)(ii)
for the Year and all prior Years, in reverse chronological order and
priority (as set forth in Section 4.2(a)(ii)-(vii)). To the extent any
allocations of Profits are offset as described in this Section
4.2(b)(i), such Profits shall be disregarded for purposes of computing
subsequent allocations as described in this Section 4.2(b)(i); and
(ii) Second, 1.0% to the General Partner and 99.0% to the
Limited Partners (as a class), on a pari passu basis.
(c) Sharing of Allocations to Partners.
(i) General Partners. All allocations of Profit and
Loss (including allocations under Sections 4.3, 4.4, 4.5 and 4.6) to
the General Partners (as a class) shall be shared by the General
Partners, on a pari passu basis, in proportion to their respective
percentage General Partner Partnership Interests as of the date of
such allocations.
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(ii) Class A Limited Partners. All allocations of Profit
and Loss (including allocations under Sections 4.3, 4.4, 4.5 and 4.6)
to the Class A Limited Partners (as a class) shall be shared by the
Class A Limited Partners, on a pari passu basis, in proportion to their
respective holdings of Units as of the date of such allocations;
however, notwithstanding the foregoing, Profit or Loss relating to
Periods during which one or more Class A Limited Partners are admitted
to the Partnership shall be shared by the Limited Partners pro rata
based on the number of days during such Period that each Class A
Limited Partner is a Partner of the Partnership and on the number of
Units that each Class A Limited Partner holds during such Period.
(iii) Class B Limited Partners. All allocations of Profit
and Loss (including allocations under Sections 4.3, 4.4, 4.5 and 4.6)
to the Class B Limited Partners (as a class) shall be shared by the
Class B Limited Partners, on a pari passu basis, in proportion to their
respective percentage Class B Limited Partner Class B Interests as of
the date of such allocations.
(iv) Limited Partners. All allocations of Profit and Loss
(including allocations under Sections 4.3, 4.4, 4.5 and 4.6) to the
Limited Partners (as a class) shall be shared 99.0% by the Class A
Limited Partners (as a class) and 1.0% by the Class B Limited Partners
(as a class), on a pari passu basis.
SECTION 4.3 Special Allocations.
(a) Losses allocated pursuant to Section 4.2(b) to any Partner
for any Year shall not exceed the maximum amount of Losses that can be so
allocated without causing or increasing a Capital Account deficit with respect
to such Partner as of the end of such Year. To the extent that Losses allocated
to a Limited Partner pursuant to Section 4.2(b) would, but for this Section
4.3(b), exceed the limitation of the preceding sentence, such Losses shall be
allocated first to other Partners in proportion to, and to the extent of, their
positive Capital Account balances (computed with the adjustments taken into
account in determining a Partner's Capital Account deficit, but disregarding the
General Partner's obligation to make contributions to the Partnership upon
liquidation), and then to the General Partner. The General Partner shall have
the authority to allocate items of income and gain for subsequent Years so as to
offset, as quickly as possible, any allocation of Losses under this Section
4.3(b).
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(b) Notwithstanding anything in this Agreement to the
contrary, items of Company income and gain shall be allocated, before any other
allocation of Partnership items is made pursuant to this Agreement, so as to
comply with the minimum gain chargeback requirements of Treas. Reg.
ss.ss.1.704-2(f) and 1.704-2(i)(4), and this Section 4.3(c) shall be interpreted
consistently therewith.
(c) Notwithstanding anything in this Agreement to the
contrary, items of Company income and gain shall be allocated, before any other
allocation of Partnership items is made pursuant to this Agreement, so as to
comply with the "qualified income offset" rules of Treas. Reg.
ss.1.704-1(b)(2)(ii)(d), and this Section 4.3(d) shall be interpreted
consistently therewith. The General Partners shall have the authority to
allocate items of deduction and loss for subsequent Years so as to offset, as
quickly as possible, any prior allocation of income and/or gain under this
Section 4.3(d).
(d) If, and to the extent that, any Partner is deemed to
recognize any item of income, gain, loss or deduction as a result of any
transaction between such Partner and the Partnership pursuant to Code
ss.ss.1272-1274, 7872, 483, 482 or any similar provision now or hereafter in
effect, any corresponding item of income, gain, loss or deduction recognized by
the Partnership shall be allocated to the Partner who was charged with such
item.
(e) The Dealer-Manager Fees, Sales Commissions and O&O
Expenses Reimbursement (except to the extent amortizable under Code ss.709)
shall, immediately upon their payment by the Partnership, be allocated 1.0% to
the General Partner and 99.0% to the Class A Limited Partners (as a class), on a
pari passu basis. Items of income and gain for subsequent Years shall be
allocated to the General Partner equal to the aggregate allocations to it under
this Section 4.3(f), so as to offset, as quickly as possible, the allocations to
the General Partner under this Section 4.3(f). Reimbursable Organizational and
Offering Expenses in excess of the O&O Expenses Reimbursement shall, as such
costs are amortized or deducted by the Partnership in accordance with the Code
(or, if not amortizable or deductible, then immediately upon their payment on
behalf of the Partnership), be allocated 100.0% to the General Partner.
(f) All items of Depreciation with respect to the Equipment
and all items of loss resulting from Sales ("Loss On Sale") shall be allocated
100.0% to the Limited Partners (as a class), until such time as the cumulative
amount of Depreciation and Loss On Sale allocated under this Section 4.3(g) to
the Limited Partners equals their aggregate Net Capital Contributions.
(g) Notwithstanding anything in this Agreement to the
contrary, and before any other allocation is made under Section 4.2, this
Section 4.3, or Sections 4.4 and 4.5, items of income and gain for the current
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Year (or Period) shall be allocated, as quickly as possible, to the General
Partner to the extent of any deficit balance existing in the General Partner's
Capital Account as of the closing of the immediately preceding Year, in order to
restore the balance in the General Partner's Capital Account to zero.
(h) The General Partners shall allocate Profits, Losses and
other items properly allocable to any Year or other period using any method
approved by the General Partners and permitted by Code ss.706 and the Treasury
Regulations thereunder.
(i) Nonrecourse Deductions for any Year or other period shall
be specially allocated among the Partners in proportion to their interest in the
Depreciation deductions attributable to the Equipment giving rise to such
Nonrecourse Deductions as set forth in Section 4.3(g) above.
(j) Any Partner Nonrecourse Deductions for any Year or other
period shall be specially allocated to the Partner who bears the economic risk
of loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions relate in accordance with Treas. Reg. ss.1.704-2(i).
(k) The purpose and the intent of the special allocations
provided for in this Section 4.3 are to comply with the provisions of Code
ss.ss.704 and 752 and the Treasury Regulations thereunder, and such special
allocations are to be made so as to accomplish that result. However, to the
extent possible, the General Partners, in allocating items of income, gain,
loss, or deduction among the Partners, shall take into account the special
allocations in such a manner that the net amount of allocations to each Partner
shall be the same as such Partner's distributive share of Profits and Losses
would have been had the events requiring the special allocations not taken
place. The General Partners shall apply the provisions of this Section 4.3 in
whatever order the General Partners reasonably believe will minimize any
economic distortion that otherwise might result from the application of the
special allocations and still comply with the requirements of Code ss.ss.704 and
752 and the Treasury Regulations thereunder.
SECTION 4.4 Tax Allocations.
(a) Except as otherwise provided in this Section 4.4, items of
Partnership taxable income, gain, loss and deduction shall be determined in
accordance with Code ss.703, and the Partners' distributive shares of such items
for purposes of Code ss.702 shall be determined according to their respective
shares of Profits or Losses to which such items relate in accordance with Code
ss.704 and the Treasury Regulations thereunder.
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(b) Items of Partnership taxable income, gain, loss and
deduction with respect to any property contributed to the capital of the
Partnership shall be allocated among the Partners in accordance with Code
ss.704(c) and Treas. Reg. ss.1.704-3(c) (the traditional method with curative
allocations), so as to take account of any variation between the adjusted basis
of such property to the Partnership for federal income tax purposes and its Book
Value.
(c) If the Book Value of any Partnership asset is adjusted
pursuant to Section 3.6, subsequent allocations of items of taxable income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code ss.704(c).
(d) Allocations of tax credits, tax credit recapture and any
items related thereto shall be allocated to the Partners according to their
interests in such items as determined by the General Partner taking into account
the principles of Treas. Reg.
ss.1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 4.4 are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing, any Partner's Capital Account or share of
Profits, Losses, distributions or other Partnership items pursuant to any
provision of this Agreement.
(f) The Partners' shares of nonrecourse liabilities of the
Partnership shall be determined in accordance with Treas. Reg. ss.1.752-3. For
purposes of Treas. Reg. ss.1.752-3(a)(3), the interest of the General Partner in
Profits and the interest of the Limited Partners (as a class) in Profits shall
be determined in accordance with the Partners' respective interests in the
Depreciation deductions attributable to the Equipment giving rise to such
Nonrecourse Deductions as set forth in Sections 4.3(g) and (j) above.
(g) In the event the Partnership recognizes gain from the
disposition of any property described in Section 1245 of the Code ("Section 1245
Property"), each Partner's distributive share of the gain recognized by the
Partnership under Section 1245(a)(1) of the Code is equal to the lesser of the
Partner's share of the total gain from the disposition of such Section 1245
Property or the Partner's share of the depreciation or amortization previously
allowed to the Partnership with respect to such Section 1245 Property. Any gain
recognized by the Partnership under Section 1245(a)(1) of the Code that is not
allocated under the preceding sentence of this paragraph shall be allocated
among the Partners whose shares of total gain from the disposition of such
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Section 1245 Property exceed their shares of depreciation or amortization with
respect to such Section 1245 Property and is allocated to those Partners in
proportion to (but not in excess of) their shares of the total gain (including
gain recognized under Section 1245(a)(1) of the Code) from the disposition of
such Section 1245 Property.
(h) In the event that Section 1245 Property has been
contributed to the Partnership by a Partner, such Partner's share of
depreciation or amortization with respect to such Section 1245 Property shall,
for purposes of Section 4.4(g) above, include the amount of depreciation or
amortization allowed or allowable to the Partner for the period prior to the
contribution of such Section 1245 Property. A Partner's share of depreciation or
amortization with respect to property contributed by a Partner shall for this
purpose be further adjusted to account for any curative allocations made under
Section 704(c) subsequent to the contribution of such property in accordance
with the following rules:
(i) The contributing Partner's share of depreciation
or amortization with respect to the contributed property shall be decreased (but
not below zero) by the amount of any curative allocation of ordinary income to
the contributing Partner with respect to such property and by the amount of any
curative allocation of deduction or loss (other than capital loss) to the
noncontributing Partners with respect to such property.
(ii) A noncontributing Partner's share of deprecia-
tion or amortization with respect to the contributed property shall be increased
by the noncontributing Partner's share of any curative allocation of ordinary
income to the contributing Partner with respect to such property and by the
amount of any curative allocation of deduction or loss (other than capital loss)
to the noncontributing Partner with respect to such property.
(iii) The Partners' share of depreciation or amorti-
zation with respect to property from which curative allocations of depreciation
or amortization are taken is determined without regard to such curative
allocations.
(i) Sections 4.4(g) and 4.4(h) are intended to comply
with Treas. Reg. ss. 1.1245-1(e)(2) and shall be interpreted in a manner
consistent therewith.
SECTION 4.5 Curative Allocations; Uniformity of Units.
If the General Partner determines, after consultation with Tax
Counsel, that (a) the allocation of any item of Partnership income, gain, loss,
deduction or credit is not specified in this Article Four (an "unallocated
item"), or (b) the allocation of any item of Partnership income, gain, loss,
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deduction or credit hereunder is clearly inconsistent with the Partners'
economic interests in the Partnership (determined by reference to Treas. Reg.
ss.ss.1.704-1(b) and 1.704-2(c), Treas. Reg. ss.1.752-1 through -5 (a
"misallocated item"), or (c) the allocation of an item of Partnership income,
gain, loss, deduction or credit is inconsistent with the general intent and
purposes of this Article Four, as determined by the General Partner, in its sole
and absolute discretion acting in its fiduciary capacity as a General Partner of
the Partnership (an "erroneously allocated item"), then the General Partner may
allocate such unallocated items, or reallocate such misallocated items, or
reallocate such erroneously allocated items to reflect such economic interests
and general intent and purposes of this Article Four. In addition, the General
Partner is authorized to allocate specially items of income or gain to the
extent necessary to achieve and maintain the financial uniformity of the Units
for purposes of determining Payout for the Class A Limited Partners.
SECTION 4.6 Changes in Units or Partnership Interests.
(a) Except as otherwise provided in Section 4.6(b), the
Partnership shall use a semi-monthly convention to determine the Class A Limited
Partners' respective interests in Profits, Losses, other specially allocated
items and distributions of Distributable Cash hereunder in any Year in which
additional Class A Limited Partners are admitted to the Partnership. Under the
convention, a Class A Limited Partner entering the Partnership on or before the
15th day of the month shall be treated as having entered on the first day of the
month, and a Class A Limited Partner entering the Partnership after the 15th,
and on or before the last day of the month, shall be treated as having entered
on the first day of the next month.
(b) Class A Limited Partners who acquire Units during any
month, other than from the Partnership, shall (except in cases where such Class
A Limited Partners have acquired all of the Units held by a Class A Limited
Partner) be treated as entering the Partnership on the first day of the next
month for purposes of determining the interest of such Class A Limited Partners
in Profits, Losses and other specially allocated items hereunder, and
distributions of Distributable Cash.
(c) A Class A Limited Partner whose Units are repurchased by
the Partnership pursuant to Section 7.6 shall, for purposes of the foregoing
allocation provisions, be treated as having reduced or eliminated his Units as
of the first day of the month immediately following the effective date of the
repurchase.
(d) Notwithstanding the provisions of paragraphs (a) and (b)
above, the General Partner shall treat Class A Limited Partners as being
admitted to the Partnership on the day they acquire Units for purposes of
determining the interest of such Class A Limited Partners in Profits, Losses and
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other specifically allocated items hereunder and in distributions of
Distributable Cash hereunder in cases where the new Class A Limited Partners
have acquired all the Units of former Class A Limited Partners and may, in its
sole discretion, choose to apply the Actual Day Convention to other cases in
which Class A Limited Partners are admitted to the Partnership.
ARTICLE FIVE
RIGHTS, OBLIGATIONS AND POWERS OF GENERAL PARTNER
SECTION 5.1 Multiple General Partners. If, at any time during the term of
the Partnership, there is more than one General Partner, all rights, obligations
and powers of the General Partner under this Agreement shall be shared among the
then-existing General Partners as they may agree.
SECTION 5.2 Management of Partnership.
(a) The General Partner, within the authority granted to it
under this Agreement, shall have full, complete and exclusive right, power,
authority and discretion to manage and control the business of the Partnership.
In so doing, the General Partner shall take all actions and do all things
necessary or appropriate to effectuate the purposes of the Partnership and to
protect the interests of the Limited Partners. The General Partner shall devote
such time as is necessary to the affairs of the Partnership and shall receive no
compensation from the Partnership, other than as expressly provided in this
Agreement. The General Partner shall, except as otherwise provided in this
Agreement, have all the rights and powers and shall be subject to all the
restrictions and liabilities of a partner in a partnership without limited
partners.
(b) All decisions made by the General Partner on behalf of the
Partnership, pursuant to the authority granted in this Agreement and in the
Delaware Act, shall be binding upon the Partnership.
(c) No Limited Partner (except one who may also be a General
Partner, and then only in his capacity as General Partner) shall participate in
or have any control over Partnership business or shall have any authority or
right to act for or bind the Partnership.
(d) The General Partner shall, after the release of
subscriptions for Units pursuant to Section 3.4(e), establish initial Reserves
out of Capital Contributions in an amount equal to 1.0% of the Gross Offering
Proceeds. Reserves shall be varied from time to time by the General Partner to
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such levels as the General Partner deems necessary and appropriate to serve the
best interests of the Partnership, but in no case less than 1.0% of the Gross
Offering Proceeds. The General Partner shall have the authority to pay
Partnership operating expenses from such Reserves.
(e) All of the Partnership's expenses shall be billed directly
to and paid by the Partnership; provided that the General Partner hereby agrees
to pay any and all Reimbursable Organizational and Offering Expenses, including
any amounts in excess of the O&O Expenses Reimbursement. The General Partner and
its Affiliates shall be reimbursed for the actual cost to the General Partner
and its Affiliates of services, goods and materials used for and by the
Partnership and obtained from entities unaffiliated with the General Partner for
use by the Partnership. The General Partner and its Affiliates shall be
reimbursed for the administrative services provided by them necessary to the
prudent operation of the Partnership; provided that such reimbursement shall be
at the lower of the General Partner's and Affiliates' actual cost or the amount
the Partnership would be required to pay to independent parties for comparable
administrative services in the same geographic location.
(f) The General Partner and its Affiliates shall not be
reimbursed by the Partnership for the following expenses:
(i) Services for which the General Partner or its
Affiliates are entitled to compensation in the form of a separate fee;
(ii) Rent or depreciation, utilities, capital equipment,
other administrative items and salaries, fringe benefits, travel
expenses or other administrative items incurred by or allocated to any
Controlling Person of the General Partner or its Affiliates;
(iii) Reimbursable Organizational and Offering Expenses in
excess of the O&O Expenses Reimbursement; and
(iv) Any expenses that are unrelated to the business of
the Partnership.
(g) Subject to Section 5.2(e) and (f), the Partnership shall
pay all expenses of the Partnership and all expenses of the General Partner and
its Affiliates relating to the Partnership (none of which shall be deducted from
compensation and fees to which the General Partner or its Affiliates are
entitled as set forth in Section 5.4(a)), including without limitation: (i) all
costs of borrowed money, taxes and assessments on Partnership property and other
taxes applicable to the Partnership; (ii) legal, appraisal, audit, accounting,
brokerage and other third party fees, including permitted Acquisition Expenses;
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(iii) printing and other expenses and taxes incurred in connection with the
issuance, distribution, transfer and recording of documents evidencing ownership
of an interest in the Partnership or in connection with the business of the
Partnership; (iv) fees and expenses paid to independent contractors, bankers,
brokers, servicers, leasing agents and consultants; (v) expenses payable to
unaffiliated third parties in connection with the disposition, replacement,
alteration, repair, re-leasing, refinancing and operation of Equipment
(including the costs and expenses of insurance premiums, brokerage and leasing
commissions and maintenance of such property); (vi) costs of insurance as
required in connection with the business of the Partnership; (vii) expenses of
revising or amending this Agreement or converting, modifying or terminating the
Partnership; (viii) expenses in connection with distributions made by the
Partnership to, and communications and bookkeeping and clerical work necessary
in maintaining relations with, Limited Partners, including the costs of printing
and mailing to such persons certificates for Units and reports of meetings of
the Partnership, and expenses of preparation of proxy statements and
solicitations of proxies in connection therewith; (ix) expenses in connection
with preparing and mailing reports necessary or appropriate to be furnished to
Limited Partners for tax reporting or other purposes; (x) costs in connection
with reports on the operations and activities of the Partnership; (xi) costs of
preparation and dissemination of informational material relating to potential
sale, refinancing, leasing or disposition of Equipment; (xii) costs and expenses
incurred in qualifying the Partnership to do business in any jurisdiction,
including fees and expenses of any resident agent appointed by the Partnership;
and (xiii) costs incurred in connection with any litigation or regulatory
proceedings in which the Partnership is involved.
(h) During the Reinvestment Period, the General Partner shall
reinvest all Distributable Cash available, after the distributions provided for
in Section 4.1(a)(i), in Equipment, unless it determines that such reinvestment
is not in the best interests of the Partnership. After the Reinvestment Period,
the General Partner may reinvest such amount of Distributable Cash that is
available, after the distributions provided for in Section 4.1(a)(ii)(A) and (B)
and before any distributions described in Section 4.1(a)(iii), as it determines
to be reasonable in Equipment that it made commitments to purchase on behalf of
the Partnership during the Reinvestment Period.
SECTION 5.3 Authority of General Partner.
(a) The General Partner, in the name and on behalf of the
Partnership, is hereby specifically authorized, without limitation, to:
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(i) acquire, hold, re-lease, finance and refinance,
upgrade, sell, exchange or otherwise dispose of Equipment (except as
limited by Section 5.5), provided that the General Partner and its
Affiliates shall give the Partnership a right of first refusal with
respect to all Upgrades leased by any of them with respect to Equipment
owned by the Partnership and, provided, further, that Equipment that is
used by a Lessee outside of the United States of America, Canada or
Mexico shall, in the aggregate, have a total Equipment Purchase Price
of less than 10.0% of the aggregate Equipment Purchase Price of all of
the Partnership's Equipment at the time of the purchase of any
Equipment to be used by the Lessee outside of said three countries;
(ii) maintain and operate the Equipment so as to comply
with the provisions of any Lease or any indebtedness secured by the
Equipment or by any receivable;
(iii) ensure the proper application of revenues of the
Partnership;
(iv) maintain proper books of account for the Partnership
and prepare all reports of operations and tax returns that are to be
furnished to the Partners and Assignees pursuant to this Agreement or
that are required by taxing bodies or other governmental agencies;
(v) maintain or cause to be maintained, to the extent
deemed necessary by the General Partner, adequate insurance with
respect to general liability of the Partnership and with respect to
the Equipment and any other insurable assets of the Partnership
pursuant to policies of insurance in form and coverage customary to
property similar to the Equipment and such other insurable assets;
(vi) supervise the offer and sale of Units;
(vii) designate depositories of the Partnership's funds,
and the terms and conditions of such deposits and drawings thereon;
(viii) invest Net Offering Proceeds and, during the
Reinvestment Period, reinvest Cash From Operations and Cash From Sales,
pursuant to the policies and objectives set forth in the Prospectus;
(ix) hold all or any portion of the Equipment and other
assets of the Partnership in the name of one or more trustees, nominees
or other agents of or for the Partnership for the purpose of
facilitating transactions involving those assets or permitting those
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assets or the owner of those assets to be registered as required by
any applicable law, statute or regulation;
(x) establish and maintain sufficient Reserves for such
purposes and in such amounts as the General Partner deems appropriate
from time to time and to increase, reduce or eliminate Reserves as it
deems appropriate from time to time, subject to the minimum Reserve
requirements set forth in Section 5.2(d);
(xi) determine the appropriate accounting method or
methods to be used by the Partnership;
(xii) execute and file with any state tax authority, if
necessary or appropriate to comply with or minimize withholding
obligations under the law of any state, a statement on behalf of the
Partners acknowledging and confirming their obligations to file tax
returns with such state;
(xiii) determine the timing and amount of distributions to
the Partners;
(xiv) amend this Agreement to reflect the addition or
substitution of Partners or the reduction of Capital Contributions or
Adjusted Capital Contributions
without action by the Limited Partners;
(xv) make any expenditures, borrow money as provided in
Section 5.3(a)(xxv), guarantee or assume or contract for indebtedness
and other liabilities, issue evidences of indebtedness and secure the
same by mortgage, deed of trust or other lien or encumbrance, and incur
any obligations it deems necessary for the conduct of the activities of
the Partnership;
(xvi) subject to Section 5.5(a)(vi) and (a)(xxii), acquire,
dispose of (including through an installment sale or other
owner-financed sale), mortgage, pledge, encumber, hypothecate or
exchange any or all of the assets of the Partnership and merge the
Partnership with or into another entity in accordance with the
requirements of the Delaware Act and any other applicable law;
(xvii) use the assets of the Partnership (including without
limitation cash on hand) for any purpose and on any terms that are
consistent with the investment objectives and policies of the
Partnership, including without limitation to repay obligations of the
Partnership incurred by borrowing as provided in Section 5.3(a)(xxv);
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(xviii) negotiate, execute and perform any contracts,
conveyances or other instruments (e.g., notes, evidences of
indebtedness, agreements, assignments, deeds, Leases, loan agreements,
mortgages, security instruments, etc.) that are useful or necessary to
the conduct of Partnership operations and that are consistent with the
investment objectives and policies of the Partnership;
(xix) select and dismiss employees, appraisers, attorneys,
accountants, consultants and contractors, appoint agents to provide
administrative and reporting services to the Partnership and determine
their compensation and other terms of employment or hiring;
(xx) control any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation and
the incurring of legal fees and expenses and the settlement of claims
and litigation;
(xxi) bring and defend actions at law or in equity and
indemnify any Person against liabilities and contingencies to the
extent permitted by law and by this Agreement;
(xxii) make or revoke tax elections on behalf of the
Partnership, including without limitation the elections provided by
Code ss.ss.754 and 775;
(xxiii) engage in any kind of activity and perform and carry
out contracts of any kind necessary to carry out the activities
authorized in the preceding clauses of this subsection;
(xxiv) prepare and file "group" or "composite" state income
tax returns on behalf of non-resident investors in states where the
Partnership conducts business;
(xxv) borrow cash as it deems appropriate for the business
of the Partnership, including, but not limited to, nonrecourse loans
secured by items of Equipment and the refinancing of Equipment, whether
or not such Equipment secures prior borrowings, provided that such
borrowings shall not, in the aggregate, exceed 50.0% of the aggregate
Equipment Purchase Price (excluding the amount of any Acquisition Fees
included therein) of Equipment purchased by the Partnership as of the
date of the borrowing;
(xxvi) allocate "unallocated items," reallocate "misallocated
items" and/or"reallocate "erroneously allocated items" in accordance
with Section 4.5 above; and
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(xxvii) allocate specially items of income or gain to the
extent necessary to achieve and maintain the financial uniformity of
the Units for purposes of determining Payout for the Class A Limited
Partners in accordance with Section 4.5 above.
(xxviii) elect to treat Class A Limited Partners as being
admitted to the Partnership on the day they acquire Units for purposes
of determining the interest of such Class A Limited Partners in
Profits, Losses and other specifically allocated items and in
distributions of Distributable Cash hereunder.
(b) Any Person dealing with the Partnership may rely upon a
certificate signed by the General Partner as to:
(i) the identity of any Partner;
(ii) the existence or non-existence of any fact or facts
that constitute a condition precedent to acts by the General Partner or
are in any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver
any instrument or document of or on behalf of the Partnership; or
(iv) any act or failure to act by the Partnership or as to
any other matter whatsoever involving the Partnership or any Partner.
(c) Except as otherwise provided under this Agreement or by
law, the General Partner may delegate all or any of its duties under this
Agreement to any of its own officers, employees and agents and in furtherance of
such delegation may elect, employ, contract or deal with any Person (including
any Affiliate of the General Partner), provided that any fees payable in
connection with any such delegation shall be paid by the General Partner.
(d) The General Partner shall use its best efforts to meet
such requirements of the Code, as interpreted from time to time by the IRS, as
necessary to assure that the Partnership shall be classified as a partnership
for federal income tax purposes. Subject to the restriction provided in Section
5.5(a)(xxii), if, as a result of either existing or subsequently enacted federal
tax legislation, Treasury Regulations or other IRS pronouncements, the
Partnership is or would become taxable as a corporation, or if the General
Partner determines that there is a material risk of such a result, the General
Partner, with the Consent of a Majority Interest, may take any and all such
actions it deems necessary or appropriate to prevent such result. Such actions
may include without limitation amending this Agreement or reorganizing the
Partnership into some other form of association such as a corporation or a
business trust. The General Partner shall effectuate any such amendment or
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reorganization so that, to the extent possible and legally permissible under the
circumstances, the respective interests of the Partners in the assets and income
of the Partnership (or successor entity) immediately following such
qualification, amendment or reorganization are substantially equivalent to such
interests immediately prior thereto.
SECTION 5.4 Authority of General Partner and Its
Affiliates to Deal With Partnership.
(a) Without limiting the other powers set forth herein, the
General Partner, in the name and on behalf of the Partnership, is expressly
authorized to:
(i) pay to the Dealer-Manager (A) Sales Commissions
in an amount equal to 8.0% of the Gross Offering Proceeds, which shall
be reallowed to broker-dealers who make sales of Units to Class A
Limited Partners, as set forth in the Dealer-Manager Agreement, and (B)
the Dealer-Manager Fee in an amount equal to 2.0% of the Gross Offering
Proceeds, as set forth in the Dealer-Manager Agreement;
(ii) pay to itself the O&O Expenses Reimbursement in an
amount equal to 4.0% of Gross Offering Proceeds;
(iii) subject to the limitations of Section 3.10 hereof,
pay to itself (A) the Origination Fee for arranging the acquisition of
the Equipment and the negotiation of the Lease, if originated by the
General Partner or its Affiliates, or the review and any necessary
modification of the Lease if the Lease is originated by an unaffiliated
party in an amount equal to 1.5% of the Equipment Purchase Price
(excluding the amount of any Acquisition Fees included therein); and
(B) the Evaluation Fee for services rendered in connection with
evaluating the suitability of the Equipment and the credit worthiness
of the Lessee and negotiation of nonrecourse loans, or the assignment
of existing nonrecourse loans, secured by the Equipment in an amount
equal to 2.0% of the Equipment Purchase Price (excluding the amount of
any Acquisition Fees included therein); provided, however, that if the
Partnership, or the General Partner or its Affiliates, in connection
with the purchase of any Equipment pays any fees or reimburses any fees
to unaffiliated finders and brokers, such fees shall be deducted from
the Origination Fee otherwise payable to the General Partner in
connection with the Equipment acquired through the efforts of such
finders and brokers until such Origination Fee is reduced to zero, but
the Partnership must bear the cost of the third-party Acquisition Fee
to the extent that it exceeds the Origination Fee otherwise payable to
the General Partner; provided, further, however that in no case
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shall any Acquisition Fees of any type be paid by the Partnership with
respect to the purchase of Equipment by the Partnership, directly, with
the funds contributed to the Partnership by the Class B Limited
Partner;
(iv) pay to itself the Management Fee, monthly in
arrears, equal to 2.0% of monthly Gross Rentals paid pursuant to all
Leases, as compensation for services actually rendered in connection
with the management of the Partnership's Equipment; provided if for any
month the Class A Limited Partners do not receive the First Cash
Distributions in full, then the General Partner shall subordinate and
defer its receipt of Management Fees for such month, without any
interest, until the receipt by the Class A Limited Partners of all
accrued but previously unpaid and current installments of First Cash
Distributions, provided, further, that any fees paid by the Partnership
to third parties for equipment management shall be deducted from the
General Partner's Management Fee;
(v) reimburse itself, as provided in Section 5.2(e) and
(g);
(vi) pay interest on funds borrowed from the General Partner
or any of its Affiliates, on terms consistent with Section 5.5(d); and
(vii) pay the Equipment Purchase Price on any item of
Equipment to an Affiliate of the General Partner.
(b) Other than as specifically authorized in this Article
Five, the General Partner is prohibited from entering into any agreements,
contracts or arrangements on behalf of the Partnership with itself or any
Affiliate. In addition, any agreements, contracts or arrangements specifically
authorized in this Article Five shall be subject to the following prohibitions:
(i) neither the General Partner nor any Affiliate
shall be given an exclusive right to sell or exclusive employment to
sell any Equipment for the Partnership;
(ii) the Sponsor shall not be paid, directly or
indirectly, a commission or fee (except as permitted under Section IV
of the NASAA Guidelines or the provisions of this Agreement) in
connection with the distribution or reinvestment of Cash From
Operations and Cash From Sales or the proceeds of the resale, exchange
or refinancing of the Program Equipment; and
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(iii) neither the General Partner nor any Affiliate shall
receive any rebates or give-ups or, nor by the making of any reciprocal
business arrangements, circumvent the restrictions contained in this
Agreement the NASAA Guidelines or in applicable state securities laws
and regulations relating to transactions between the Partnership and
the General Partner and its Affiliates.
(c) Any agreements, contracts and arrangements with the
General Partner or its Affiliates permitted by this Agreement shall be subject
to the following conditions (except that Section 5.4(c)(iii), (iv) and (v) shall
not apply to the fees and reimbursements set forth in Sections 5.2 and 5.4(a),
provided, however, that Section 5.4(c)(iii) shall apply to any such agreements,
contracts and arrangements for goods and services including those provided for
in Section 5.2(e));
(i) any such agreements, contracts or arrangements
shall be embodied in a written contract (which may be this Agreement)
that precisely describes the services to be rendered and all
compensation to be paid;
(ii) any such agreements, contracts or arrangements shall
be fully disclosed in the Prospectus, dated _________ __, 1998, unless
the goods and services are provided in extraordinary circumstances.
(Where the services are available elsewhere from unaffiliated parties,
there would be a presumption that there are no extraordinary
circumstances. Extraordinary circumstances would only be presumed where
there is an emergency situation requiring immediate action by the
Sponsor, and the service is not immediately available from unaffiliated
parties. Extraordinary circumstances shall, in no event, include
general and administrative expenses, expect as otherwise provided
herein.);
(iii) any such agreements, contracts or arrangements shall
be terminable by either party, without penalty, upon 60 days prior
written notice and may be modified only by vote of a Majority Interest
of the Class A Limited Partners;
(iv) the compensation, price or fee charged for
providing such services may not exceed the lesser of cost of such
services to the General Partner or Affiliate of any General Partner or
90.0% of the competitive compensation, price or fee of any other Person
who is rendering comparable services or selling or leasing comparable
goods and materials in the same or comparable geographic location that
could reasonably be made available to the Partnership; and
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(v) the Person providing such services must be
independently engaged in the business of rendering such services to
Persons other than the Partnership or its Affiliates and at least 75.0%
of such Person's gross revenue from providing such services must be
derived from sources other than the General Partner or its Affiliates.
SECTION 5.5 Limitations and Restrictions on Exercise of Powers
of General Partner.
(a) Notwithstanding anything in this Agreement to the
contrary, the General Partner shall not:
(i) do any act in contravention of this Agreement or the
Delaware Act;
(ii) invest Partnership funds in limited partnership
interests or capital stock of other limited partnerships, corporations
or other entities or associations, except as permitted under Sections
5.3(a)(ix) and 10.3;
(iii) admit a Person as a General or Limited Partner,
except as permitted hereby;
(iv) underwrite or cause the Partnership to underwrite
the securities of other issuers;
(v) perform any act required to be approved or
ratified in writing by all or part of the Limited Partners under the
Delaware Act, unless the right to do so is expressly granted in this
Agreement;
(vi) without the Consent of a Majority Interest, sell,
pursuant to a single transaction or a series of related transactions,
all or substantially all of the assets of the Partnership other than in
the ordinary course of its business as set forth in the Prospectus,
except for sales in connection with the liquidation and winding up of
Partnership business upon its dissolution;
(vii) borrow or allow an Affiliate to borrow from the
Partnership;
(viii) without the Consent of a Majority Interest (or such
greater number of Limited Partners as may then be required under the
Delaware Act), elect to dissolve the Partnership;
(ix) perform any act that would make it impossible to
carry on the ordinary business of the Partnership;
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(x) confess a judgment against the Partnership;
(xi) possess Partnership property, or assign the
Partnership's right in specific Partnership property, for other than a
Partnership purpose;
(xii) knowingly perform any act that the General Partner is
aware would subject any Limited Partner to liability as a general
partner in any jurisdiction;
(xiii) cause the Partnership to reinvest Cash From
Operations or Cash From Sales, other than as permitted in this
Agreement;
(xiv) change the Partnership's purposes from those set
forth in Section 2.3;
(xv) without the Consent of a Majority Interest, amend
this Agreement, except as provided in Sections 5.3(a)(xiv), 13.1 and
13.2;
(xvi) commingle the funds of the Partnership with those of
any other Person;
(xvii) cause the Partnership to distribute any Partnership
assets in kind;
(xviii) permit any payment or award or commissions or other
compensation to be paid directly or indirectly to any person engaged by
a potential investor for investment advice as an inducement to such
advisor to advise such prospective purchaser to invest in the
Partnership except as described in the Prospectus;
(xix) pay, or cause the Partnership to pay, any Acquisition
Fee other than the Origination Fee, the Evaluation Fee and any
additional fee described in Section 5.4(a)(iii);
(xx) cause the Partnership to enter into any contract or
agreement with the General Partner or any Affiliate, except as provided
in this Agreement;
(xxi) cause the Partnership to distribute Distributable
Cash over the term of the Partnership to the General Partner pursuant
to Section 4.1 of this Agreement in an aggregate amount in excess of
the aggregate amount of such distributions that would be permitted
under Section IV.D(1) of the NASAA Guideline;
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(xxii) cause or permit the Partnership to engage in any
transaction that is a Roll-Up; or
(xxiii) cause the Partnership to borrow funds solely for the
purpose of making cash distributions to the Partners and use such funds
to make distributions to the Partners.
(b) The General Partner shall cause the Partnership to follow
the criteria under "Equipment Investment Criteria" set forth in the Prospectus.
All funds held by the Partnership that are not invested in Equipment shall be
invested by the General Partner as provided in Section 10.3.
(c) The Partnership may not acquire Equipment in which the
Sponsor either has, or in the past has had, an interest, except for Equipment
acquired on a temporary or interim basis (generally not longer than six months)
by the Sponsor for the purpose of facilitating the acquisition by the
Partnership of the Equipment or obtaining financing for the Partnership or any
other purpose related to the business of the Partnership. The Partnership may
acquire any such Equipment only if the Sponsor determines that: (i) such
acquisition is in the best interests of the Partnership; (ii) such Equipment is
to be purchased by the Partnership for a price no greater than the Cost of such
Equipment to the Sponsor minus any rents or other proceeds that are received by
the Sponsor in connection with the leasing of, or other arrangement with respect
to, the Equipment, except compensation in accordance with Section IV of the
NASAA Guidelines, unless the current value of Equipment to be acquired from it
or an Affiliate is less than the price so calculated, in which case such
Equipment shall be acquired at the lesser of (A) such price so calculated or (B)
the then fair market value of such Equipment, as determined by an independent
nationally-recognized equipment appraiser selected by the Sponsor; (iii) there
is no difference in interest terms of the loans secured by the Equipment at the
time acquired by the Sponsor and the time acquired by the Partnership; and (iv)
no other benefit arises out of such transaction to the Sponsor apart from
compensation otherwise permitted by this Agreement. The Sponsor shall not
purchase Equipment from an affiliated Program for sale to the Partnership under
the preceding sentence. The Partnership shall neither purchase nor lease
Equipment from, nor lease or sell Equipment to, the Sponsor, except as provided
above and in accordance with Section V of the NASAA Guidelines. Any profits
earned on Equipment temporarily held by the Sponsor will be paid to the
Partnership.
(d) No loans may be made by the Partnership to the General
Partner or any Affiliate. The General Partner or any Affiliate may lend funds on
a short-term basis to the Partnership, but only with interest rates: (i) not in
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excess of the General Partner's or Affiliate's own cost of borrowing; (ii) in
any event, not in excess of the interest rate charged (without reference to the
General Partner's or any Affiliate's financial abilities or guaranties) by
unrelated lenders on a comparable loan for the same purpose in the same
geographic area; and (iii) that shall not exceed by more than 3.0% per annum the
"prime rate" from time to time announced by Bank One Colorado, N.A. Neither the
General Partner nor any Affiliate shall provide Permanent Financing for the
Partnership. For this purpose "Permanent Financing" means that some portion of
principal and interest on the financing provided by the General Partner or any
Affiliates is due and payable more than 12 months after the date of the loan.
Neither the General Partner nor any Affiliates may receive points or other
financial charges or fees in any amount in respect of any loans to the
Partnership, although the General Partner's compensation (such as the Evaluation
Fees and the Management Fee) may be increased as an indirect result of such
loans.
(e) If the Sponsor purchases Equipment in its own name and
with its own funds in order to facilitate the ultimate purchase of such
Equipment by the Partnership, the Sponsor shall be entitled to receive interest
from the Partnership on the funds expended for such purpose on behalf of the
Partnership as provided in the definition of "Cost," but interest shall not be
paid for any period in excess of the six-month period permitted by Section
5.5(c) with respect to any item of Equipment. Interest on any such temporary
purchases shall be at a rate not to exceed the Sponsor's own cost of borrowing
and in any event shall not be in excess of the amounts that are charged (without
reference to the Sponsor's financial abilities or guaranties) by unrelated banks
on comparable loans for the same purpose in the same geographic area, and the
annual interest charged on any such loan shall not exceed by more than 3.0% the
"prime rate" from time to time announced by Bank One Colorado, N.A. until the
purchase of the Equipment by the Partnership.
(f) The Partnership shall not acquire any Equipment in
exchange for Units.
(g) The Partnership shall not acquire Equipment from a Program
in which the General Partner or an Affiliate has an interest.
(h) The Partnership shall not make investments in affiliated
general or limited partnership interests of any other affiliated Program, nor
shall the Partnership enter into a joint venture or general partnership with an
unaffiliated Person except for a general or limited partnership, joint venture,
trust, or other Person or arrangement (collectively, a "Joint Venture") with
respect to which each of the following conditions is satisfied. First, the
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Partnership shall acquire a controlling interest in any such Joint Venture,
which interest, in the case of a limited partnership, shall be as a general
partner. For purposes hereof, the Partnership shall be deemed to have a
"controlling interest" in the Joint Venture if the Partnership holds an interest
of not less than 50.0% in the capital and profits of the Joint Venture, and the
Joint Venture agreement or related documents grant to the Partnership the joint
(or exclusive) right to make basic management decisions concerning the leasing,
re-leasing, financing, refinancing, sale or other disposition of the Equipment.
Second, no such Joint Venture shall be entered into by the Partnership that
involves the payment of duplicative equipment management or other fees or that
would have the effect of circumventing any of the restrictions on and
prohibitions of transactions involving conflicts of interest contained in this
Agreement. The Partnership may enter into Joint Ventures that satisfy the
preceding requirements with respect to any item or items of Equipment at any
time prior to the end of the Reinvestment Period.
Notwithstanding the foregoing, the Partnership may enter into
Joint Ventures with Affiliates of the General Partner or Persons sponsored by
the General Partner or their Affiliates (including Joint Ventures organized
after the Partnership's Initial Closing Date) but only if (i) such Joint
Ventures have substantially identical investment objectives and management
compensation provisions to those of the Partnership, (ii) such Joint Venture
does not involve the payment of duplicative equipment management or other fees
and does not have the effect of circumventing any of the restrictions on and
prohibitions of transactions involving conflicts of interest contained in this
Agreement, (iii) the compensation to the General Partner and its Affiliates with
respect to such Joint Ventures is substantially identical to the compensation
described in this Agreement, (iv) in the event of a proposed Sale of the
Equipment or interest therein initiated by another Joint Venture partner, the
Partnership has a right of first refusal, pro rata with the remaining parties,
to purchase the other party's or parties' interest, (v) the Joint Venture is
entered into either for the purpose of effecting appropriate diversification for
the Partnership or for the purpose of relieving the General Partner or any
Affiliate thereof from a commitment entered into in connection with the
acquisition of Equipment which was acquired for subsequent transfer to the
Partnership, and (vi) the investment by each party is on substantially the same
terms and conditions, except as result from varying percentage interests in the
Joint Venture. The parties to a Joint Venture must agree in writing as to the
allocation of profits and losses and the distribution of cash from the Joint
Venture. The Partnership may enter into Joint Ventures that satisfy the
preceding requirements with respect to any item or items of Equipment at any
time prior to the end of the Reinvestment Period.
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The Partnership may also enter into a Joint Venture with one
or more unaffiliated Persons and one or more Persons that are Affiliates of a
General Partner, or a Person sponsored by a General Partner or its Affiliates
(such joint venturers being referred to as the "Affiliated Venturers"), provided
that (i) the Partnership and its Affiliated Venturers acquire collectively a
"controlling interest" (as such term is described above) in such Joint Venture;
(ii) the conditions set forth in clauses (i)-(iii), (v) and (vi) of the
foregoing paragraph are satisfied; (iii) the Joint Venture Agreement or related
documents grant to the Partnership and its Affiliated Venturers the joint right
to make basic management decisions concerning the leasing, financing,
refinancing, sale or other disposition of the Equipment, and (iv) in the event
of a proposed Sale of the Equipment or interest therein initiated by another
Joint Venture partner, the Partnership has a right of first refusal, pro rata
with the other Affiliated Venturers only, to purchase such other joint
venturer's interest therein.
SECTION 5.6 Duties and Obligations of General Partner.
(a) The General Partner shall devote to the affairs of the
Partnership such time as may be necessary for the proper performance of its
duties hereunder, but neither the General Partner nor the officers, directors or
shareholders of the General Partner shall be expected to devote their full time
to the performance of such duties. The General Partner shall provide both
equipment management and additional services relating to the continued and
active operation of the Equipment, such as on-going marketing and re-leasing of
equipment and maintenance, repair and storage services.
(b) The General Partner shall take such action as may be
necessary or appropriate for the continuation of the Partnership's valid
existence under the laws of the State of Delaware and in order to form or
qualify the Partnership under the laws of any jurisdiction in which the
Partnership is doing business or in which such formation or qualification is
necessary to protect the limited liability of the Limited Partners or in order
to continue in effect such formation or qualification. The General Partner shall
file or cause to be filed for recordation in the office of the appropriate
authorities of the State of Delaware, and in the proper office or offices in
each other jurisdiction in which the Partnership is formed or qualified, such
certificates, including limited partnership and fictitious name certificates and
other documents as are required by the applicable statutes, rules or regulations
of any such jurisdiction.
(c) The General Partner shall prepare or cause to be prepared
and shall file on or before the due date (or any extension thereof) any federal,
state or local tax returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the Partnership.
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(d) The General Partner shall have fiduciary responsibility
for the safekeeping and use of all funds and assets of the Partnership, whether
or not in its immediate possession or control. The General Partner shall not
employ, or permit another to employ, such funds or assets in any manner except
for the exclusive benefit of the Partnership and Partnership funds shall not be
deposited with affiliated financial institutions or be used in compensating
balance arrangements for the benefit of any entity other than the Partnership.
The General Partner shall not delegate to any party the fiduciary duty owed by
it to any Partner. In addition, no Partner shall be permitted to contract away
the fiduciary duty owed to such Partner by the General Partner under the common
law.
(e) Subject to Section 5.8(c), the General Partner is
authorized, in its sole discretion, to cause the Partnership to acquire policies
of limited partnership liability insurance, insuring the General Partner, its
officers, directors, employees, shareholders and certain of its Affiliates
against certain liabilities in connection with the business of the Partnership
and insuring the Partnership against certain liabilities with respect to any
indemnification that it is legally required or permitted to provide under this
Agreement to such General Partner, its officers, directors, employees,
shareholders and such Affiliates.
(f) Subject to the provisions of this Article Five, the
General Partner may delegate any or all of the powers, rights and obligations
hereunder, and may appoint, employ, contract or otherwise deal with any Person
for the transaction of the business of the Partnership, which Person may, under
supervision of the General Partner, perform any acts or services for the
Partnership as the General Partner may approve.
(g) The General Partner shall use its best efforts to meet
such requirements of the Code, as interpreted from time to time by the IRS, as
necessary to assure that the Partnership shall be classified as a partnership
for federal income tax purposes.
SECTION 5.7 Other Activities.
The General Partner and its Affiliates may engage
independently or with others in other business ventures of every nature and
description, including without limitation the rendering of advice or services of
any kind to other investors and the making or management of other investments,
including investments in equipment. Neither the Partnership nor any Partner
shall have any right, by virtue of this Agreement or the partnership
relationship created hereby, in or to such other ventures or activities, or to
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the income or proceeds derived therefrom, and the pursuit of such ventures, even
if competitive with the business of the Partnership, shall not be deemed
wrongful or improper. Neither the General Partner nor any of its Affiliates
shall be obligated to present any particular investment opportunity to the
Partnership even if such opportunity is of a character that, if presented to the
Partnership, could be taken by the Partnership and each of such Persons shall
have the right to take for its own account (individually or as a trustee) or to
recommend to others any such particular investment opportunity. Whenever a
conflict of interest arises between another investment entity sponsored by a
General Partner or its Affiliates, and the Partnership or any Limited Partner,
the General Partner shall, in resolving such conflict, consider the relative
interests of the parties involved in such conflict or affected by such action,
any customary or accepted industry practices and any applicable generally
accepted accounting practices or principles.
SECTION 5.8 Limitation on Liability of General Partner and
Affiliates; Indemnification.
(a) Neither the General Partner nor its Affiliates, performing
services for, or acting on behalf of, the Partnership and acting within the
scope of the General Partner's authority as set forth in this Agreement (the
"Indemnitees"), shall have any liability, responsibility or accountability in
damages or otherwise to any Partners or the Partnership for any loss or
liability suffered by the Partnership that arises out of any act or omission
performed or omitted by such Indemnitee where such Indemnitee has determined, in
good faith, that the course of conduct which caused the loss or liability was in
the best interests of the Partnership, and the Indemnitee was acting on behalf
of or performing services for the Partnership, and such liability or loss was
not the result of negligence or misconduct by such Indemnitee. Each Indemnitee
shall be indemnified by the Partnership and the Partnership hereby agrees to
indemnify and hold harmless each Indemnitee from and against any and all
liabilities, losses, damages, judgments, costs, and expenses ("Liabilities")
provided that the same were not the result of negligence or misconduct on the
part of the Indemnitee and the Indemnitee has determined, in good faith, that
the course of conduct which caused the Liability was in the best interests of
the Partnership, including without limitation all reasonable legal fees.
Notwithstanding the foregoing, each Indemnitee shall be liable, responsible and
accountable, and the Partnership shall not be liable to any such Indemnitee, for
any portion of such Liabilities that resulted from such Indemnitee's own fraud,
negligence, misconduct or, if applicable, breach of fiduciary duty to the
Partnership or any Partner. Subject to Section 5.8(d), such Indemnitee shall
have the right to employ separate counsel of its choice in such legal action and
the reasonable legal expenses of such counsel and other costs incurred as a
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result of such legal action shall constitute disbursements for the purposes of
advances from the Partnership pursuant to Section 5.8(d). Such indemnification
or agreement to hold harmless is recoverable only out of the assets of the
Partnership and not from the Limited Partners. The payment of all such
obligations shall be made before any distributions are made from Cash from
Operations or Cash from Sales.
(b) Notwithstanding anything to the contrary contained in
Section 5.8(a), the Partnership shall not furnish indemnification to an
Indemnitee or to any person acting as a broker-dealer for any Liabilities
imposed by judgment, and costs associated therewith, including attorney's fees,
arising from or out of a violation of federal or state securities laws unless: a
court either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (ii) approves indemnification of
litigation costs if a successful defense is made; and in either case, (iii) the
court shall have been apprised by the Indemnitee seeking indemnification
hereunder as to the current positions of the Commission, the Massachusetts
Securities Division, and any state securities regulatory authority which is
specifically set forth in this Agreement and in which plaintiffs claim they were
offered or sold Units with respect to the issue of indemnification for
securities laws violations.
(c) The Partnership shall not incur the cost of that portion
of any liability insurance which insures any Indemnitee for any Liability as to
which such Indemnitee is prohibited from being indemnified under this Section
5.8.
(d) Advances from Partnership funds to an Indemnitee, for
legal expenses and other costs incurred as a result of any legal action
initiated against the Indemnitee by a Limited Partner of the Partnership in his
capacity as such, are prohibited. Except as provided in the foregoing sentence,
advances from Partnership funds to an Indemnitee for legal expenses and other
costs incurred as a result of any initiated legal action, are permissible if the
following conditions are satisfied: (i) such legal action relates to any action
or inaction on the part of the Indemnitee in the performance of its duties or
provision of its services on behalf of the Partnership; (ii) such legal action
is initiated by a third party who is not a Limited Partner; and (iii) such
Indemnitee undertakes to repay any funds advanced in cases in which such
Indemnitee would not be entitled to indemnification pursuant to Section 5.8(a).
If advances are permissible under Sections 5.8(a) and 5.8(d), the Indemnitee
shall furnish the Partnership with an undertaking as set forth in subsection
(iii) of the foregoing sentence and shall thereafter have the right to bill the
Partnership for, or otherwise request that the Partnership pay, at any time and
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from time to time after such Indemnitee has become obligated to make payment
therefor, any and all amounts for which such Indemnitee has determined in good
faith that such Indemnitee is entitled to indemnification under Section 5.8(a).
The Partnership shall pay any and all such bills and honor any and all such
requests for payment for which the Partnership is liable as determined in
Section 5.8(a). In any case wherein the General Partner disputes such
Indemnitee's entitlement to indemnification, the General Partner shall seek a
final determination from the applicable court as to whether the Partnership is
obligated to a particular Indemnitee. If a final determination is made by the
applicable court that the Partnership is not so obligated in respect to any
amount paid by it, such Indemnitee shall refund such amount, plus interest
thereon at the then prevailing market rate of interest, within 60 days of such
final determination and, if a final determination is made by the applicable
court that the Partnership is so obligated in respect to any amount not paid by
the Partnership to a particular Indemnitee, the Partnership shall pay such
amount to such Indemnitee.
ARTICLE SIX
CHANGES IN GENERAL PARTNER
SECTION 6.1 Certain Withdrawals of General Partner.
(a) The Voluntary Withdrawal of the General Partner pursuant
to Section 17-602 of the Delaware Act is not permitted without the Consent of a
Majority Interest. The designation of an Assignee to be a successor or
additional General Partner, whose Partnership Interest in the Partnership shall
be such as is agreed upon by the General Partner and such a successor or
additional General Partner, is permitted, provided that the conditions contained
in Section 6.2 have been met.
(b) If there is a Voluntary Withdrawal of the General Partner
from the Partnership or such General Partner Assigns its entire Partnership
Interest, such General Partner shall be and shall remain liable for all
obligations and liabilities incurred by the Partnership before such Voluntary
Withdrawal or Assignment becomes effective but, so long as such Voluntary
Withdrawal or Assignment was effected in accordance with the terms of this
Agreement, such General Partner shall be free of any obligation or liability for
wrongful withdrawal or incurred on account of the activities of the Partnership
from and after such Voluntary Withdrawal or Assignment becomes effective.
(c) There shall be no Voluntary Withdrawal of the General
Partner from the Partnership pursuant to Section 17-602 of the Delaware Act
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unless at least 60 days notice is given to each Limited Partner at his record
address, or at such other address that he may have furnished in writing to the
General Partner.
(d) The General Partner may be removed by the vote of the
Class A Limited Partners as provided in Section 11.2(a)(iv).
SECTION 6.2 Admission of Additional or Successor General
Partner.
A Person shall be admitted as an additional or successor
General Partner of the Partnership only if each of the following conditions is
satisfied:
(a) the admission of such Person shall have been Consented to,
or ratified, in accordance with the terms of Section 11.2, by a Majority
Interest, in accordance with the terms of Section 11.2 and a Class B Majority,
taking into account only those Class B Limited Partners that are not Affiliates
of the General Partner;
(b) such Person shall have accepted and agreed to be bound by
the terms and provisions of this Agreement, by executing a counterpart hereof,
and such other documents or instruments as may be required or appropriate in
order to effect the admission of such Person as a General Partner shall have
been filed for recording, and all other actions required by law in connection
with such admission shall have been performed;
(c) if such Person is a corporation, it shall have provided
the Partnership with evidence satisfactory to counsel for the Partnership of its
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion
to the Partnership that the admission of such Person as a General Partner is in
conformity with the Delaware Act and that none of the actions taken in
connection with the admission of such Person is in violation of the Delaware
Act, shall impair the limited liability of the Limited Partners, shall cause the
termination or dissolution of the Partnership for tax purposes or otherwise,
shall cause the Partnership to be classified other than as a partnership
(including as a publicly-traded partnership) for federal income tax purposes or
shall violate federal or state securities laws.
SECTION 6.3 Consent of Class A Limited Partners to
Admission of Additional or Successor General
Partner.
Unless otherwise prohibited by the Delaware Act at the time
that such Consent is necessary, each of the Class A Limited Partners, by the
execution of this Agreement, Consents to the admission of any Person as a
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successor or additional General Partner upon which there has been given the
express Consent of a Majority Interest. Upon receipt of such Consent, such
admission shall, without any further Consent or approval of the Class A Limited
Partners, be the act of all the Class A Limited Partners.
SECTION 6.4 Effect of Voluntary Withdrawal of General Partner
or Removal of General Partner by Class A Limited
Partners.
(a) Upon the Voluntary Withdrawal of the General Partner or
the removal of the General Partner by the Class A Limited Partners (other than
removal for cause, as defined in Section 6.4(b)), the following shall apply:
(i) The Partnership shall pay the departing General
Partner the then present fair market value of its General Partner
Partnership Interest ("Fair Value"). The Fair Value of the departing
General Partner's Partnership Interest shall be determined by agreement
between the departing General Partner and the Partnership. If the
departing General Partner and the Partnership cannot agree on such Fair
Value within 30 days of the date of a Voluntary Withdrawal, or the date
of the Notice referred to in Section 11.2(a)(iv), in the case of a
removal, the Fair Value thereof shall be determined by arbitration in
accordance with the then current rules of the American Arbitration
Association, i.e., the departing General Partner to choose one
arbitrator, the Partnership to choose one arbitrator and the two
arbitrators so chosen to choose a third arbitrator. The decision of a
majority of such arbitrators as to the Fair Value shall be final and
binding and may be enforced by legal proceedings. The departing General
Partner and the Partnership shall each compensate the arbitrator
appointed by it. The compensation of the third arbitrator shall be
borne equally by such parties. Upon the Voluntary Withdrawal of the
General Partner or the removal of the General Partner by the Class A
Limited Partners (other than removal for cause), the Class B Limited
Partner shall retain the Class B Interest on the same terms and
conditions as if the General Partner had not withdrawn.
(ii) Where the departing General Partner is removed
by the Class A Limited Partners, payment of the Fair Value shall be in
the form of an interest bearing promissory note maturing in no less
than five years, which may be paid, unless the Partnership's capital
would be impaired, in five equal annual installments, the first of
which shall be paid on the first business day after the date one year
after the date of such removal. The unpaid portion of such amount shall
bear interest at the publicly announced "prime rate," from time to
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time, of Bank One Colorado, N.A. from the date such first installment
is to be paid, such interest to accrue and be paid annually in
addition to each such annual installment. Where the departing General
Partner effects a Voluntary Withdrawal, payment of the Fair Value
shall be in the form of a non-interest bearing unsecured promissory
note with principal payable, if at all, from distributions that the
departing General Partner otherwise would have received under this
Agreement had the General Partner not voluntarily withdrawn. All loans
and advances from the departing General Partner shall be repaid in the
ordinary course according to their terms.
(iii) Subject to this Section 6.4, the departing
General Partner shall, as of the effective date of a Voluntary
Withdrawal or removal by the Class A Limited Partners, cease to share
in any Partnership allocations or distributions with respect to its
Partnership Interest as a General Partner.
(b) Upon the removal for cause of the General Partner by the
Class A Limited Partners, the provisions of Section 6.4(a) shall apply, except
that "Fair Value" of the removed General Partner's Partnership Interest for
purposes of this Section 6.4(b) shall be zero. The Class B Limited Partner shall
retain the Class B Interest on the same terms and conditions as if the removal
of the General Partner had not occurred. As used in this Section 6.4(b), the
term "cause" shall mean the commission of any act or the failure to take any
action that, as determined by a court of competent jurisdiction in a final
judgment subject to no further appeals, constitutes gross negligence, willful
misconduct or fraud and has a material adverse effect on the Partnership.
(c) Following the Withdrawal of the General Partner, the
remaining General Partners (including a successor General Partner, if any) shall
receive and have transferred to one or more of them, and the departing General
Partner shall transfer to one or more remaining General Partners (including a
successor General Partner, if any), without cost, such Partnership Interest as
the remaining General Partners (including a successor General Partner, if any)
deem necessary to assure that the remaining General Partners (including a
successor General Partner, if any) retain, in the aggregate, a Partnership
Interest representing at least 1.0% interest in all items of Partnership Profit
or Loss and cash distributions.
(d) If, at the time of Withdrawal of the General Partner, the
departing General Partner was not the sole General Partner of the Partnership,
the remaining General Partner or Partners shall immediately: (i) give Notice to
the Limited Partners of such Withdrawal; and (ii) prepare such amendments to
this Agreement and execute and file for recording such amendments or documents
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or other instruments necessary to reflect the assignment, transfer or
termination (as the case may be) of the Partnership Interest of the departing
General Partner.
(e) All parties hereto hereby agree to take all actions and to
execute all documents necessary or appropriate to effect the foregoing
provisions of this Section 6.4.
ARTICLE SEVEN
ASSIGNMENT OF PARTNERSHIP INTERESTS
OF LIMITED PARTNERS
SECTION 7.1 Assignment.
There shall be no Assignment of a Limited Partner's
Partnership Interest, in whole or in part, except in accordance with the terms
and conditions set forth in this Article Seven. Any Assignment or purported
Assignment of any such Partnership Interest not made in accordance with this
Article Seven shall be null and void.
SECTION 7.2 Withdrawal of Limited Partners.
No Limited Partner shall have any right to withdraw from the
Partnership; provided that when an Assignee of a Limited Partner's Units or
Class B Interest, as the case may be, becomes a Record Holder, the rights of the
assignor Limited Partner shall cease with respect to such rights or interests in
the Units or Class B Interest so Assigned, but until such Assignee becomes a
substituted Limited Partner such assignor Limited Partner shall continue to be
the Limited Partner on the books and records of the Partnership and shall
continue to have the rights provided in Article Eleven, which rights shall not
be assignable.
SECTION 7.3 Assignment of Partnership Interests.
Except for Assignments by operation of law, a Limited Partner
may not Assign all or any part of his Units or Class B Interest and, in
addition, no such Assignment may be effected unless such Limited Partner shall
file with the Partnership, in form and substance satisfactory to the General
Partner, a duly executed counterpart of the instrument making such Assignment,
and such instrument: (i) evidences the written acceptance by the Assignee of all
of the terms and provisions of this Agreement; (ii) represents that such
Assignee has authority to enter into, and agrees to comply with and be bound by,
all the provisions of this Agreement; (iii) gives the Consents, approvals, and
waivers set forth herein; (iv) grants the Power of Attorney in Section 13.1; (v)
represents that such Assignee is not an entity exempt from federal income tax,
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and is not controlled by any such entity, unless written notice thereof has been
received by the Partnership; (vi) represents that such Assignment was made in
accordance with all applicable laws and regulations (including without
limitation such minimum investment and investor suitability requirements as may
then be applicable under state securities laws); and (vii) is accompanied by a
fee set by the General Partner from time to time, in partial reimbursement of
the Partnership's costs respecting the Assignment. All Assignments shall be
effective for record purposes as of the first day of the month following the
date upon which all of the conditions of this Section 7.3 shall have been
satisfied.
SECTION 7.4 Distributions.
The Partnership shall be required to make each distribution in
respect of Units or the Class B Interest only to the Record Holders thereof as
of the Record Date set for the distribution. Such payment shall constitute full
payment and satisfaction of the Partnership's liability in respect of such
payment, regardless of any claim of any Person who may have an interest in such
payment, by reason of an Assignment or otherwise.
SECTION 7.5 Restrictions on Assignment.
(a) Unless in each of the following instances the General
Partner shall give its express written approval, no Units or Class B Interests
may be Assigned or otherwise transferred:
(i) to a minor or incompetent (unless a guardian,
custodian or conservator has been appointed to handle the affairs of
such Person);
(ii) to any Person not permitted to be an Assignee under
applicable law, including without limitation applicable federal and
state securities laws;
(iii) to any Assignee of Units if such Assignee would hold
after such Assignment an interest in fewer than 20 Units (8 Units in
the case of an IRA or Qualified Plan) or if, following an Assignment of
an interest in fewer than all his Units, an assignor would retain an
interest in fewer Units than would have satisfied the minimum
investment standards applicable to his initial purchase of Units;
(iv) to any Person if, in the opinion of Tax Counsel, such
Assignment would result in the termination under the Code of the
Partnership's Year or its status as a partnership for federal income
tax purposes; or
(v) to any Person if such Assignment would affect the
Partnership's existence or qualification as a limited partnership
under the Delaware Act or the applicable laws of any other
jurisdiction in which the Partnership is then conducting business.
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In the case of a proposed Assignment that is prohibited solely
under Section 7.5(a)(iv), however, the Partnership shall be obligated to permit
such Assignment to become effective if and when, in the opinion of Tax Counsel,
such Assignment would no longer have either of the adverse consequences under
the Code that are specified in Section 7.5(a)(iv).
(b) The General Partner is expressly authorized to suspend
transfers of Units if and when any such transfer would result in the transfer of
50.0% or more of the Units within a 12-month period.
So long as there are adverse federal income tax consequences
from being treated as a "publicly traded partnership" for federal income tax
purposes, the General Partner shall not permit any interest in a Unit to be
Assigned on a secondary public market (or a substantial equivalent thereof) as
defined under the Code and any regulations promulgated thereunder (a "Secondary
Market") and, if the General Partner determines, in its sole discretion, that a
proposed Assignment was effected on a Secondary Market, the Partnership and the
General Partner have the right to refuse to recognize any such proposed
Assignment and to take any action deemed necessary or appropriate in the General
Partner's reasonable discretion so that such Assignment is not in fact
recognized. For purposes of this Section 7.5(b), an Assignment that results in a
failure to meet one or more of the "safe harbor" provisions of Treas. Reg.
ss.1.7704-1, or any substitute safe-harbor provisions subsequently established
by Treasury Regulation, shall be treated as causing the Units to be traded on a
Secondary Market. The Class A Limited Partners agree to provide all information
respecting Assignments that the General Partner deems necessary in order to
determine whether a proposed transfer occurred on a Secondary Market. The
General Partner shall incur no liability to any investor or prospective investor
for any action or inaction by it in connection with the foregoing, provided that
it acted in good faith.
SECTION 7.6 Redemption of Partnership Units.
(a) A Class A Limited Partner shall have the right, at any
time after the expiration of 36 months from the Closing Date, to request that
the Partnership repurchase all or any number of Units by submitting a written
request to the General Partner. A Class A Limited Partner who has a Personal
Emergency (or his representative) may request a repurchase of Units prior to the
expiration of the 36-month period described in the preceding sentence. To the
extent permitted by applicable laws and regulations and, if in the sole and
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absolute discretion of the General Partner, such repurchase shall not (i) cause
the Partnership to be taxed as a corporation (or cease to be taxed as a
partnership) under Code ss.7704 or under any other provision of the Code, (ii)
impair the capital or operations of the Partnership or (iii) result in payment
of an excessive price for the Units redeemed, the Partnership shall repurchase
Units from one or more Class A Limited Partners (or assignees) who so request,
up to a maximum of 2.0% of total outstanding Units per year. The Partnership may
redeem Units in excess of this 2.0% amount if, in the General Partner's sole
discretion, the standards set forth in the preceding sentence shall remain
satisfied.
(b) No earlier than 60 days nor later than 75 days after
receipt of a written request for redemption, the General Partner shall accept or
deny the request. The General Partner shall, in its sole and absolute
discretion, decide whether a repurchase is in the best interest of the
Partnership and shall not be required to provide any reason for the denial of a
repurchase request.
(c) The repurchase price for repurchased Units shall be
determined by the General Partner as of the last day of the Quarter prior to the
Quarter during which such request was received. The repurchase price per Unit
shall equal the Unrecovered Capital Contribution of such Unit as of such day,
reduced by all distributions after the date of determination of the Unrecovered
Capital Contribution made with respect to the tendered Units.
(d) The Class A Limited Partner shall tender the repurchased
Units upon the acceptance of the repurchase request by the General Partner, and
the Partnership shall pay the repurchase price for the tendered Units in cash
within 30 days after the end of the Quarter during which the request was
received.
(e) Upon the repurchase of any Units by the Partnership, the
tendered Units shall be cancelled and shall no longer be deemed to represent an
interest in the Partnership.
(f) The General Partner shall, if necessary or appropriate,
cause this Agreement or the Certificate to be amended to reflect the change in
the interests of the Class A Limited Partners (including the person whose Units
were repurchased) in the Partnership.
(g) Neither the General Partner nor its Affiliates may request
the Partnership to repurchase any Units owned by them.
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ARTICLE EIGHT
ADMISSION OF LIMITED PARTNERS
AND SUBSTITUTED LIMITED PARTNERS
SECTION 8.1 Admission of Limited Partners.
On the Closing Date or the date provided in Section 3.4(g),
the General Partner shall admit the Class A and Class B Limited Partners to the
Partnership. Each such party shall either execute a counterpart of this
Agreement (either individually or through the General Partner that is granted a
power-of-attorney by such party in the Subscription Agreement and in Section
13.1 hereof) and thereby agree to be bound by the terms hereof, or, without such
execution, take the actions required by Section 17-101(10) of the Delaware Act
to become bound by the terms hereof.
SECTION 8.2 Admission of Substituted Limited Partners.
An Assignee of Units or the Class B Interest shall be admitted
to the Partnership if all of the following conditions are satisfied:
(a) the instrument of Assignment provided for in
Section 7.3 sets forth the intentions of the assignor that the Assignee
succeed to the assignor's interest as a Limited Partner in his place,
and such assignor is a Limited Partner;
(b) the Assignee shall have fulfilled the require-
ments of Section 7.3 and Section 13.2;
(c) the Assignee shall have paid all actual,
necessary and reasonable administrative and filing expenses incurred by
the Partnership in connection with his substitution as a Limited
Partner;
(d) the General Partner shall have consented in
writing to such substitution, which Consent may be withheld or given in
the sole discretion of the General Partner; and
(e) if requested by the General Partner, the
Partnership shall have received an Opinion of Counsel (at the cost and
expense of the General Partner) to the effect that such substitution
shall not cause the Partnership to cease to be treated as a partnership
that is not a publicly-traded partnership for federal income tax
purposes or cause a termination of the Partnership pursuant to Code
ss.708 or applicable state law.
If all of the conditions of Section 7.3 and this Section 8.2
shall have been met, the Assignee of Units or the Class B Interest shall become
a substituted Limited Partner on the date as of which the General Partner
Consents in writing to his admission to the Partnership as a substituted Limited
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Partner, which consent shall be evidenced by the filing, if required by law, of
an amendment to the Certificate listing the name of such substituted Limited
Partner, and the entry of the name of the Assignee on the books and records of
the Partnership. Such an amendment, if any, shall be filed no later than the
first day of the month following the completion of any Quarter of the
Partnership during which all of the conditions of this Section 8.2 shall have
been satisfied. All substitutions shall be effective for record purposes, and
for purposes of Article Four, upon the filing of such amendment or, if not
required, on the date of admission to the Partnership as a substituted Limited
Partner. At least once each calendar quarter the General Partner shall prepare
an Amendment to this Agreement reflecting any substitutions of Limited Partners
as of the last business day of the prior calendar quarter.
An Assignee of Units or Class B Interest who does not become a
substituted Limited Partner in accordance with this Section 8.2 and who desires
to make a further Assignment of his Units or the Class B Interest shall be
subject to all of the provisions of Sections 7.3, 7.5(c) and this Section 8.2 to
the same extent and in the same manner as any Limited Partner desiring to make
an Assignment of his Units or Class B Interest. Failure or refusal of the
General Partner to admit an Assignee as a substituted Limited Partner shall in
no way affect the right of such Assignee to receive distributions of Cash From
Operations, Cash From Sales or Liquidation Proceeds and the share of the Profits
or Losses for tax purposes to which his predecessor in interest would have been
entitled in accordance with Articles Four and Nine or to receive Partnership
reports to which his predecessor would have been entitled in accordance with
Section 10.4.
The admission of an Assignee as a substituted Limited Partner
shall be effected without the Consent of any of the Partners, other than the
General Partner.
ARTICLE NINE
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
SECTION 9.1 Events Causing Dissolution.
(a) The Partnership shall dissolve upon the happening
of any of the following events:
(i) the Withdrawal of the General Partner from the
Partnership, unless the remaining General Partner or General Partners
agree in writing to continue the business of the Partnership within 90
days after the occurrence of such an event, but the Partnership is not
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dissolved and is not required to be wound up by reason of any
Withdrawal if, within 90 days after the Withdrawal, all Partners agree
in writing to continue the business of the Partnership and to the
appointment, effective as of the date of Withdrawal, of one or more
additional General Partners if necessary or desired;
(ii) the Sale or other disposition of all or substan-
tially all the assets of the Partnership;
(iii) the election by the General Partner, with the Consent
of a Majority Interest or the vote by the Limited Partners pursuant to
Section 11.2(a)(iii), to dissolve the Partnership;
(iv) the expiration of the term of the Partnership speci-
fied in Section 2.4; or
(v) any other event causing the dissolution of the
Partnership under the Delaware Act.
(b) Dissolution of the Partnership shall be effective on the
day on which the event occurs giving rise to the dissolution, but the
Partnership shall not terminate until after its affairs are wound up pursuant to
the Delaware Act, the assets of the Partnership are distributed as provided in
Section 9.3 and a certificate of cancellation is filed with the Secretary of
State of the State of Delaware. Notwithstanding the dissolution of the
Partnership, prior to the termination of the Partnership the business of the
Partnership and the affairs of the Partners shall continue to be governed by
this Agreement.
SECTION 9.2 Continuation of Business of Partnership After
Dissolution.
Upon dissolution of the Partnership in accordance with Section
9.1 and, in the case of Section 9.1(a)(i), a failure of all Partners to agree to
continue the business of the Partnership and appoint a successor General Partner
90 days after such event, then within 90 days thereafter, a Majority Interest
and a Class B Majority may elect to reconstitute the Partnership and continue
its business on the same terms and conditions set forth in this Agreement by
forming a new limited partnership on terms identical to those set forth in this
Agreement and having as a general partner a Person elected by a Majority
Interest and a Class B Majority. Upon any such election by a Majority Interest
and a Class B Majority, all Partners shall be bound thereby and shall be deemed
to have consented thereto and to have requested that the records of the new
limited partnership reflect their admission thereto as partners. In determining
a Class B Majority for purposes of this Section 9.2, the Partnership Interest of
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a Class B Limited Partner that is an Affiliate of a General Partner or a
withdrawing General Partner shall not be considered. If all Class B Limited
Partners are Affiliates of a General Partner or a withdrawing General Partner, a
Class B Majority shall not be necessary for purposes of this Section 9.2. Unless
such an election is made within 180 days after dissolution, the Partnership
shall conduct only activities necessary to wind up its affairs. If such an
election is made within 180 days after dissolution, then:
(a) the reconstituted limited partnership shall
continue until the end of the term set forth in Section 2.4 unless
earlier dissolved in accordance with this Article Nine; and
(b) all necessary steps shall be taken to cancel
the Certificate and file a new Certificate, and the successor general
partner may for this purpose exercise the powers of attorney granted
the General Partner pursuant to Section 13.1, provided that the right
of a Majority Interest to select a successor General Partner and to
reconstitute and to continue the business of the Partnership shall not
exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that: (i) the exercise of the right would not result
in the loss of limited liability of any Limited Partner or any
materially adverse federal income tax consequences to the Limited
Partners; and (ii) neither the Partnership nor the reconstituted
limited partnership would cease to be treated as a partnership that is
not a publicly traded partnership, for federal income tax purposes upon
the exercise of such right to continue.
SECTION 9.3 Liquidation.
(a) Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 9.2, the General Partner or, if all General
Partners have withdrawn from the Partnership, then a liquidator or liquidating
committee approved by a Majority Interest, shall be the liquidating trustee (the
"Liquidating Trustee").
(b) The Liquidating Trustee (if other than a General Partner)
shall be entitled to receive such compensation for its services as may be
approved by a Majority Interest. The Liquidating Trustee shall agree not to
resign at any time without 15 days' prior written notice and may be removed at
any time, with or without cause, by notice of removal approved by a Majority
Interest. Upon dissolution, removal or resignation of the Liquidating Trustee, a
successor and substitute Liquidating Trustee (who shall have and succeed to all
rights, powers and duties of the original Liquidating Trustee) shall within 30
days thereafter be approved by a Majority Interest. The right to approve a
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successor or substitute Liquidating Trustee in the manner provided herein shall
be recurring and continuing for so long as the functions and services of the
Liquidating Trustee are authorized to continue under the provisions hereof, and
every reference herein to the Liquidating Trustee shall be deemed to refer also
to any such successor or substitute Liquidating Trustee approved in the manner
herein provided. Except as expressly provided in this Article Nine, the
Liquidating Trustee approved in the manner provided herein shall have and may
exercise, without further authorization or approval of any of the parties
hereto, all of the powers conferred upon the General Partner under the terms of
this Agreement to the extent reasonable and necessary to carry out the duties
and functions of the Liquidating Trustee hereunder for and during such period of
time as shall be reasonably required to complete the winding up and liquidation
of the Partnership as provided for herein and only for such purposes. The
Liquidating Trustee shall liquidate the assets of the Partnership, and apply and
distribute the proceeds of such liquidation, in the following order or priority
(provided that no such distributions shall be made in kind), unless otherwise
required by mandatory provisions of applicable law:
(i) First, to the payment to creditors of the
Partnership, including Partners and Assignees who are creditors, in
order of priority provided by law, and to the creation of a reserve of
cash or other assets of the Partnership for contingent or unforeseen
liabilities in an amount, if any, determined by the Liquidating Trustee
to be appropriate for such purposes (which reserve shall be distributed
as provided in Section 9.3(b)(ii) at such times as the Liquidating
Trustee determines that it is no longer necessary); and
(ii) to the Partners, on a pari passu basis, in proportion
to the positive balances in the Partners' respective Capital Accounts
on the Record Date of the distribution, as determined after giving
effect to all adjustments to Capital Accounts, including without
limitation adjustments for allocations of Profits or Losses relating to
the Liquidation Proceeds. Distributions of Liquidation Proceeds to
Partners shall be made by the end of the Year of the Partnership in
which the final liquidation occurs or, if later, within 90 days after
the date of the final liquidation.
(c) Notwithstanding the foregoing, if the Liquidating Trustee
determines that an immediate sale of part or all of the Partnership's assets
would cause undue loss to the Partners, the Liquidating Trustee may, after
giving Notice to all the Limited Partners, to the extent not then prohibited by
an applicable law of any jurisdiction in which the Partnership is then formed or
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qualified, defer liquidation of and withhold from distribution for a reasonable
time any assets of the Partnership except those necessary to satisfy the
Partnership's debts and obligations.
(d) Each holder of Limited Partner Partnership Interests shall
look solely to the assets of the Partnership for all distributions with respect
to the Partnership and his Capital Contribution thereto and shall have no
recourse therefor, upon dissolution or otherwise, against the General Partner or
any other Limited Partner. No Partner shall have any right to demand or receive
property other than cash upon dissolution and termination of the Partnership.
SECTION 9.4 Cancellation of Certificate of Limited
Partnership.
Upon the completion of the distribution of Partnership assets
as provided in Section 9.3, the Partnership shall be terminated, and the
Certificate and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be cancelled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
SECTION 9.5 Reasonable Time for Winding Up.
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 9.3 in order to minimize any losses otherwise attendant upon
such winding up.
SECTION 9.6 Return of Capital.
The General Partner shall not be personally liable for the
return of the Capital Contributions of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
SECTION 9.7 No Capital Account Restoration.
No Limited Partner or Assignee shall have any obligation to
restore any negative balance in its Capital Account upon liquidation of the
Partnership.
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ARTICLE TEN
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
SECTION 10.1 Books and Records.
(a) The books and records of the Partnership shall be
maintained at the office of the General Partner, at 7175 West Jefferson Avenue,
Suite 4000, Lakewood, Colorado 80235 and shall there be available for
examination by any Partner or his duly authorized representatives at all
reasonable times. Any Partner or his duly authorized representatives shall be
permitted access to all records of the Partnership at all reasonable times for
inspection or copying.
(b) An alphabetical list of the names, addresses, and business
telephone numbers of the Class A Limited Partners along with the number of Units
held by each of them (the "Participant List") shall be maintained as a part of
the books and records of the Partnership and shall be available for inspection
by any Class A Limited Partner or its designated agent at the home office of the
Program upon the request of the Class A Limited Partner.
(c) The Participant List shall be updated at least quarterly
to reflect changes in the information contained therein.
(d) A copy of the Participant List shall be mailed to any
Class A Limited Partner requesting the Participant List within ten days of the
request. The copy of the Participant List shall be printed in alphabetical
order, on white paper, and in a readily readable type size (in no event smaller
than 10-point type). A reasonable charge for copy work may be charged by the
Partnership.
(e) The purposes for which a Class A Limited Partner may
request a copy of the Participant List include, without limitation, matters
relating to Class A Limited Partners' voting rights under this Agreement and the
exercise of their rights under federal proxy laws.
(f) If the General Partner of the Partnership neglects or
refuses to exhibit, produce, or mail a copy of the Participant List as
requested, the General Partner shall be liable to any Class A Limited Partner
requesting the list for the costs, including attorneys' fees, incurred by that
Class A Limited Partner for compelling the production of the Participant List,
and for actual damages suffered by any Class A Limited Partner by reason of such
refusal or neglect. It shall be a defense that the actual purpose and reason for
the requests for inspection or for a copy of the Participant List is to secure
such list or other information for the purpose of selling such list or copies
thereof, or of using the same for a commercial purpose other than in the
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interest of the applicant as a Class A Limited Partner relative to the affairs
of the Partnership. The General Partner may require the Class A Limited Partner
requesting the Participant List to represent that the list is not requested for
a commercial purpose unrelated to the Class A Limited Partner's interest in the
Partnership. The remedies provided hereunder to Class A Limited Partners
requesting copies of the Participant List are in addition to, and shall not in
any way limit, other remedies available to Class A Limited Partners under
federal law, or the laws of any state.
(g) The General Partner, at the Partnership's expense, shall
retain for five years any appraisal obtained with respect to the value of the
Equipment.
(h) The General Partner or the Dealer-Manager, at the
Partnership's expense, shall retain for the term of the Partnership all
subscription agreements received from Class A Limited Partners and any
additional written information utilized by the General Partner in determining
that all subscribers who have been admitted as Class A Limited Partners have
satisfied the suitability standards as set forth in the Prospectus.
SECTION 10.2 Accounting Method.
The books of the Partnership initially shall be kept on the
accrual basis.
SECTION 10.3 Bank Accounts.
Except as otherwise provided in this Agreement, the bank
accounts of the Partnership shall be maintained in such banking institutions as
the General Partner shall determine. All deposits and other funds not needed in
the operation of the Partnership's business may be invested in United States
government securities, securities issued or guaranteed by United States
government agencies, certificates of deposit and time or demand deposits in
state or national banks having capital (including subordinated capital notes),
surplus and undivided profits aggregating more than $100,000,000, securities
issued or guaranteed by states or municipalities, bank repurchase agreements,
banker's acceptances, commercial paper having investment grade ratings,
securities of mutual funds that invest either in government securities or
tax-exempt securities, and other similar investments. The funds of the
Partnership shall not be commingled with the funds of any other Person.
SECTION 10.4 Reports.
(a) Within 60 days after the end of each of the first 3
Quarters of each Year, the Partnership shall send to each Person who was a
Record Holder during such Quarter: (i) a balance sheet; (ii) a statement of
income for the Quarter then ended; (iii) a statement of Cash From Operations and
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Cash From Sales for the Quarter then ended (none of which need be audited); (iv)
if the Partnership is registered or required to file reports under Section 12 or
Section 15(d) of the Securities Exchange Act, any other financial information
contained or required to be contained in the Partnership's Quarterly Report on
Form 10-Q for such Quarter, pursuant to such Exchange Act; and (v) other
pertinent information regarding the Partnership and its activities during such
Quarter, including a detailed statement concerning fees received in such Quarter
by the General Partner or its Affiliates for services rendered to the
Partnership. Within 60 days following the end of each Quarter, until the
proceeds of the offering pursuant to the Prospectus are fully invested or
returned to the Partners, each Partner shall be furnished a report detailing
Equipment purchases, which shall include a statement of the Equipment Purchase
Price, the terms of the purchase, a statement of the total amount of cash
expended by the Partnership to acquire such Equipment (including and itemizing
all commissions, fees, expenses and the name of each payee), and a statement of
the amount of Offering Proceeds that remain unexpended or uncommitted.
(b) The Partnership shall send to each Person who was a Record
Holder at any time during the Year then ended such tax information as shall be
necessary for inclusion by such Record Holder in his federal income tax return
and required state income tax return and other tax information with regard to
jurisdictions in which the Partnership is formed or qualified or owns
investments. The Partnership shall send this information within 75 days after
the end of each calendar Year.
(c) Within 120 days after the end of each Year, the General
Partner shall send to each person who was a Record Holder at any time during the
Year then ended an annual report, including: (i) the balance sheet of the
Partnership as of the end of such Year and statements of operations, changes in
Partners' capital, cash flow, Cash From Operations and Cash From Sales, all of
which, except the statements of Cash From Operations and Cash From Sales, shall
be prepared in accordance with generally accepted accounting principles
consistently applied and accompanied by a report of the Accountants containing
an opinion of the Accountants; (ii) a report of the activities of the
Partnership during the period covered by the report; (iii) a breakdown of
distributions to Partners for the period covered, showing separately (A) Cash
From Operations, (B) Cash From Operations of previous periods that had been held
as Reserves, (C) proceeds from disposition of Equipment and investments, and (D)
Reserves attributable to the Gross Proceeds of the Offering; (iv) a detailed
statement of any transactions with the General Partner or its Affiliates, and of
fees, commissions, compensation and other benefits paid, or accrued to the
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General Partner or its Affiliates for the Year completed, showing the amount
paid or accrued to each recipient and the services performed; and (v) a
breakdown of the goods, material and services provided by, and the amounts
actually reimbursed to, the General Partner. Within the scope of the annual
audit of the General Partner's financial statements, the Accountants shall issue
a special report on the allocation of reimbursed costs to the Partnership in
accordance with the Partnership Agreement. The special report shall at a minimum
provide:
(i) a review of the time records of individual
employees, the costs of whose services were reimbursed; and
(ii) a review of the specific nature of the work
performed by each such employee.
The special report shall be in accordance with the American Institute of
Certified Public Accountants United States Auditing standards relating to
special reports. The additional costs of such special report shall be itemized
on a Partnership by Partnership basis and may be reimbursed to the General
Partner by the Partnership only to the extent that such reimbursement, when
added to the cost for administrative services rendered does not exceed the
competitive rate for such services as determined above.
For each piece of Equipment acquired by the Partnership which
individually represents at least 10.0% of the Partnership's total investment in
Equipment, the General Partner shall include a status report as part of the
annual report, which status report shall indicate: (i) condition of Equipment,
(ii) how equipment is being utilized as of the end of year (leased, operated,
held for lease, repair, or sale), (iii) remaining term of leases, (iv) projected
use of Equipment for next year (renew lease, lease, retire, or sell), and (v)
such other information relevant to the value or utilization of the Equipment as
the General Partner deems appropriate. The status report shall describe the
method used or basis for valuation.
(d) A copy of each report referred to in this Section 10.4
shall be filed with all securities commissions requiring such filing at the time
required by such commissions.
SECTION 10.5 Designation, Duties and Expenses of Tax Matters
Partner.
(a) The General Partner shall be the Tax Matters Partner
pursuant to Code ss.6231 and, if an election is made under ss.775, the partner
designated to have sole authority to act on behalf of the Partnership pursuant
to ss.6255 (in either capacity, the "Tax Matters Partner").
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(b) The Tax Matters Partner shall have the following duties:
(i) To the extent and in the manner required by
applicable law and regulations, to furnish the name, address, profits
interest and taxpayer identification number of each Partner to the
Secretary of the Treasury or his delegate (the "Secretary"); and
(ii) To the extent and in the manner required by
applicable law and regulations, to keep each Partner informed of
administrative and judicial proceedings for the adjustment at the
Partnership level of any item required to be taken into account by a
Partner for income tax purposes ("Judicial Review").
(c) Subject to Section 5.8, the Partnership shall indemnify
and reimburse the Tax Matters Partner for all expenses, including legal and
accounting fees, claims, liabilities, losses and damages, incurred in connection
with any administrative or judicial proceeding with respect to the tax liability
of the Partners. The payment of all such expenses shall be made before any
distributions are made from Cash From Operations or Cash From Sales. Neither the
General Partner nor any Affiliate, nor any other Person, shall have any
obligation to provide funds for such purpose. The taking of any action and the
incurring of any expense by the Tax Matters Partner in connection with any such
proceeding, except to the extent required by law, is a matter in the sole
discretion of the Tax Matters Partner; and the provisions on limitations of
liability of the General Partner and indemnification set forth in Section 5.8
shall be fully applicable to the Tax Matters Partner in its capacity as such.
SECTION 10.6 Authority of Tax Matters Partner.
The Tax Matters Partner is hereby authorized, but not
required:
(a) to enter into any settlement with the IRS or the Secretary
with respect to any tax audit or Judicial Review, in which agreement the Tax
Matters Partner may expressly state that such agreement shall bind the other
Partners, except that such settlement agreement shall not bind any Partner who
(within the time prescribed pursuant to the Code and regulations thereunder)
files a statement with the Secretary providing that the Tax Matters Partner
shall not have the authority to enter into a settlement agreement on the behalf
of such Partner (but only to the extent such a filing is permitted under the
Code and Regulations);
(b) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the Tax Matters Partner, to
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seek further Judicial Review of such final adjustment, including the filing of a
petition for determination with the Tax Court, the District Court of the United
States for the district in which the Partnership's principal place of business
is located or the United States Claims Court;
(c) to intervene in any action brought by any other Partner
for Judicial Review of a final adjustment;
(d) to file a request for an administrative adjustment with
the Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for further Judicial Review with respect to such
request;
(e) to enter into an agreement with the IRS to extend the
period for assessing any tax that is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected by such
item; and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial tax proceeding to
the extent permitted by applicable law or regulations.
ARTICLE ELEVEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 11.1 Meetings.
(a) Meetings of the Limited Partners for any purpose may be
called by the General Partner at any time and shall be called by the General
Partner following receipt of a written request for such a meeting signed by the
holders of 10.0% or more of the Units (a "Written Request"). A Written Request
shall state the purpose of the proposed meeting and the matters proposed to be
acted upon at such meeting. Meetings called by Written Request shall be held at
such reasonable time and place specified by the General Partner. All other
meetings shall be held at the principal office of the Partnership or at such
other place as may be designated by the General Partner. In addition, the
General Partner may, and upon written request of Class A Limited Partners
holding 10.0% or more of the Units shall, submit any matter upon which the
Limited Partners are entitled to act to the Limited Partners for a vote by
written Consent without a meeting.
(b) Notice of any meeting to be held pursuant to Section
11.1(a) shall be given to each Limited Partner at his record address, or at such
other address that he may have furnished in writing to the General Partner.
Written Notice (either in person or by certified mail) shall be given within 10
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days following receipt of a Written Request. Such Notice shall state the place,
date and hour of the meeting (which shall be held on a date not less than 15
days nor more than 60 days after distribution of such Notice, at the time and
place specified in a Written Request, or if none, at a time and place convenient
to the Class A Limited Partners) and shall indicate that the Notice is being
issued at or by the direction of the Partner or Partners calling the meeting.
The Notice shall state the purpose or purposes of the meeting. If a meeting is
adjourned to another time or place, and if any announcement of the adjournment
of time or place is made at the meeting, it shall not be necessary to give
Notice of the adjourned meeting. The presence in person or by proxy of a
Majority Interest shall constitute a quorum at all meetings of the Limited
Partners; provided that if there be no such quorum, holders of a majority of
Units so present or represented may adjourn the meeting from time to time
without further Notice, until a quorum is obtained. No Notice of the time, place
or purpose of any meeting of Limited Partners need be given to any Limited
Partner who attends in person or is represented by proxy, except for a Limited
Partner attending a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business on the ground that
the meeting is not lawfully called or convened, or to any Limited Partner
entitled to such Notice, who, in writing, executed and filed with the records of
the meeting, either before or after the time thereof, waives such Notice.
(c) For the purpose of determining the Limited Partners
entitled to vote at any meeting of the Limited Partners, or any adjournment
thereof, or to vote by written Consent without a meeting, the General Partner or
the Limited Partners requesting such meeting or vote may fix, in advance, a date
as the Record Date of any such determination of Limited Partners. Such date
shall not be more than 50 days nor less than 10 days before any such meeting or
submission of a matter to the Limited Partners for a vote by written Consent.
(d) At each meeting of Limited Partners, the Limited Partners
present or represented by proxy shall elect such officers and adopt such rules
for the conduct of such meeting as they shall deem appropriate.
SECTION 11.2 Voting Rights of Limited Partners.
(a) Without the concurrence of the General Partner and any
Affiliates, Class A Limited Partners may, by the vote of a Majority Interest:
(i) amend this Agreement, subject to the conditions that
such amendment may not (A) in any manner allow the Limited Partners to
take part in the management or control of the Partnership's business
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or otherwise modify their limited liability, (B) without the Consent
of the General Partner affected, alter any of the rights, powers and
duties of such General Partner as set forth in Article Five, the
percentage interest of such General Partner in Profits or Losses or
distributions as set forth in this Agreement, or (C) without the
Consent of a Class B Majority, adversely affect the percentage
interest of the Class B Limited Partner in Profits or Losses or
distributions as set forth in this Agreement;
(ii) approve or disapprove the sale of all or
substantially all of the assets of the Partnership, other than in the
ordinary course of its business as set forth in the Prospectus or sales
in connection with the liquidation and winding up of Partnership
business upon its dissolution;
(iii) dissolve the Partnership; or
(iv) remove any General Partner and elect a replacement
therefor, which replacement shall become a General Partner only in
accordance with Section 6.2. If the Limited Partners vote to remove a
General Partner pursuant to this Section 11.2, they shall provide the
removed General Partner with notice thereof, which notice shall set
forth the Removal Effective Date, which under this Article Eleven,
shall be the date of the vote of a Majority Interest to remove any
General Partner. Any General Partner removed pursuant to this Article
Eleven shall remain liable for all obligations and liabilities incurred
by it as a General Partner arising out of events occurring before the
Removal Effective Date, but shall be free of any obligation or
liability as a General Partner incurred on account of the activities of
the Partnership from and after the Removal Effective Date.
(b) A Class A Limited Partner shall be entitled to cast one
vote for each Unit that he owns: (i) at a meeting, in person, by written proxy
or other signed writing directing the manner in which he desires that the vote
be cast ("Proxy"), which writing must be received by the General Partner prior
to such meeting; or (ii) without a meeting, by a Proxy, which must be received
by the General Partner prior to the date upon which the votes of Limited
Partners are to be counted. Every Proxy must be signed by the Class A Limited
Partner or his attorney-in-fact. A Proxy shall not be valid after the expiration
of 12 months from the date thereof, unless otherwise provided in the Proxy, and
shall be revocable at any time at the pleasure of the Class A Limited Partner
executing it. Only the votes of Limited Partners of record on the Record Date,
whether at a meeting or otherwise, shall be counted. The General Partner shall
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not be entitled to vote in its capacity as General Partner. In matters submitted
to Limited Partners regarding the removal of a General Partner or any
transaction between the Partnership and a General Partner, units beneficially
owned by a General Partner (or its Affiliates) which (i) is proposed to be
removed by the vote of a Majority Interest, or (ii) has an interest in the
transaction which is the subject of the vote, shall not be voted on any such
question and shall not be counted as outstanding in calculating whether the vote
of a Majority Interest has been obtained. The laws of the State of Delaware
pertaining to the validity and use of corporate proxies shall govern the
validity and use of proxies given by the Limited Partners.
(c) The Class B Limited Partner shall not be permitted a vote
on any matter except as provided in Sections 6.2(a), 9.2 and 11.2(a)(i). To the
extent the Class B Limited Partner is not permitted a vote on any matter
pursuant to this Section 11.2(c), the General Partner may execute any amendment
hereto or other required document on its behalf pursuant to the
power-of-attorney granted in Section 13.1.
SECTION 11.3 Management of the Partnership.
No Limited Partner in his capacity as such shall take part in
the management or control of the business of the Partnership or transact any
business in the name of the Partnership. No Limited Partner shall have the power
or authority to bind the Partnership or to sign any agreement or document in the
name of the Partnership. No Limited Partner shall have any power or authority
with respect to the Partnership except insofar as the Consent of the Limited
Partners shall be expressly required by this Agreement. The exercise by the
Limited Partners of any of their voting or other rights pursuant to and in
accordance with this Agreement shall not constitute participating in or
management or control over Partnership business.
SECTION 11.4 Other Activities.
The Limited Partners may engage in or possess interests in
other business ventures of any kind and description for their own accounts.
Neither the Partnership nor any of the Partners shall have any rights by virtue
of this Agreement in or to such business ventures or to the income or profits
derived therefrom.
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ARTICLE TWELVE
NON-FOREIGN STATUS
SECTION 12.1 Certification of Non-Foreign Status.
(a) Each Limited Partner shall, upon subscribing for a Unit,
certify whether he is a "United States Person" within the meaning of Code
ss.7701(a)(30) on forms to be provided by the General Partner at the time of
subscription. If at any time a Unit is transferred or Assigned, the transferee
shall certify as to whether he is a United States Person.
(b) Each Partner shall notify the General Partner if he is no
longer a United States Person within 30 days of such change.
(c) Prior to a distribution by the Partnership (or other event
that may create an obligation on the Partnership to withhold tax under Chapter 3
of the Code), each Partner may be required by the General Partner to certify as
to whether he is a United States Person.
(d) All certifications under this Section 12.1 shall be made
on a form to be provided by the General Partner.
SECTION 12.2 Withholding on Certain Amounts Attributable
to Interests of Non-Resident Alien Partners.
Any tax required to be withheld under Chapter 3 of the Code
shall be charged to that non-resident alien Partner's Capital Account as if the
amount of such tax had been distributed to such Partner. For purposes of this
Section 12.2, any person who fails to provide a certification that he is a
United States Person when requested to do so by the General Partner shall be
treated as a non-resident alien.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.1 Appointment of General Partner As Attorney-
In-Fact.
(a) Each Limited Partner, by the execution of this Agreement,
irrevocably constitutes and appoints, with full power of substitution, the
General Partner, the President and any Vice-President or Director of any
corporate General Partner, the general partner of any partnership General
Partner and each of them acting singly, his true and lawful attorney-in-fact
with full power and authority in his name, place and stead, to execute, certify,
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acknowledge, deliver, swear to, file and record at the appropriate public
offices such documents as may be necessary or appropriate to carry out the
provisions of this Agreement, including without limitation the following:
(i) execution and filing of all certificates and other
instruments (including counterparts of this Agreement and the
Certificate, and any amendment thereof, that any such Person deems
appropriate to form, qualify or continue the Partnership as a limited
partnership (or a partnership in which the Limited Partners shall have
limited liability comparable to that provided by the Delaware Act on
the date hereof) in any jurisdiction in which the Partnership may
conduct business or in which such formation, qualification or
continuation is, in the opinion of any such Person, necessary to
protect the limited liability of the Limited Partners;
(ii) execution and filing of any other instrument or
document that may be required to be filed by the Partnership under the
laws of any state or that any such Person deems advisable to file;
(iii) execution and filing of all amendments to this
Agreement and the Certificate adopted in accordance with the terms
hereof and all instruments that any such Person deems appropriate to
reflect a change or modification of the Partnership in accordance with
the terms of this Agreement; and
(iv) execution and filing of any instrument or document,
including amendments to this Agreement and the Certificate, that may be
required to effect the continuation of the Partnership, the admission
of a Limited Partner or substituted Limited Partner or an additional or
successor General Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement), or to
reflect any reductions in the amount of Capital Contributions.
(b) The appointment by each Limited Partner of each such
Person as his attorney-in-fact is irrevocable and shall be deemed to be a power
coupled with an interest, in recognition of the fact that each of the Partners
under this Agreement shall be relying upon the power of such Person to act as
contemplated by this Agreement in any filing and other action by such Person on
behalf of the Partnership, and shall survive the Bankruptcy, death, incompetence
or dissolution of any Person hereby giving such power and the transfer or
assignment of all or any part of the Partnership Interests of such Person;
provided that, in the event of the transfer by a Limited Partner of all or any
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part of his Partnership Interests, the foregoing power of attorney of a
transferor Limited Partner shall survive such transfer only until such time, if
any, as the transferee shall have been admitted to the Partnership as a
substituted Limited Partner and all required documents and instruments shall
have been duly executed to effect such substitution.
SECTION 13.2 Signatures; Amendments.
(a) Each Limited Partner, General Partner, additional General
Partner and successor General Partner shall become a signatory hereto by
signing, directly or by an attorney-in-fact, this Agreement and such other
instrument or instruments, and in such manner and at such time, as the General
Partner shall determine. By so signing, each such Limited Partner, General
Partner, or additional or successor General Partner shall be deemed to have
adopted, and to have agreed to be bound by, all the provisions of this
Agreement, as amended from time to time; provided that no such counterpart shall
be binding until it shall have been accepted by the General Partner.
(b) In addition to any amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the General
Partner, without the Consent of the Limited Partners, to: (i) add to the
representations, duties or obligations of the General Partner or surrender any
right or power granted to the General Partner herein; (ii) cure any ambiguity,
correct or supplement any provision herein that may be inconsistent with any
other provision herein or make any other provision with respect to matters or
questions arising under this Agreement that shall not be inconsistent with the
provisions of this Agreement; (iii) change the name of the Partnership; and (iv)
delete or add any provision of this Agreement required to be deleted or added by
the staff of the Commission or other federal agency or by a state securities
commissioner or other governmental official, which deletion or addition is
deemed by such Commission, agency or official to be for the benefit or
protection of, or not adverse to, the Limited Partners; provided that no
amendment shall be adopted pursuant to this Section 13.2(b) unless the adoption
thereof (A) is for the benefit of or not adverse to the interests of the Limited
Partners, (B) is consistent with Section 11.3, (C) does not affect the
distribution of Cash From Operations, Cash From Sales, Liquidation Proceeds or
the allocation of Profits and Losses for tax purposes among the Limited
Partners, and (D) does not affect the limited liability of the Limited Partners
or the status of the Partnership as a partnership for federal income tax
purposes.
(c) If this Agreement shall be amended as a result of adding
or substituting a Limited Partner, the amendment to this Agreement need only be
signed by one General Partner. If this Agreement or the Certificate shall be
80
<PAGE>
amended to reflect the designation of an additional General Partner, such
amendment shall be signed by at least one General Partner and by such additional
General Partner. If this Agreement or the Certificate shall be amended to
reflect the Withdrawal of a General Partner when the business of the Partnership
is being continued, such amendment shall be signed by at least one General
Partner other than the withdrawing General Partner; provided that, in each such
case, such signature shall have been authorized by all General Partners other
than the withdrawing General Partner.
(d) In making any amendments, there shall be prepared and
filed by the General Partner for recording such documents and certificates as
shall be required to be prepared and filed under the Delaware Act and under the
laws of any other jurisdictions under which the Partnership is then formed or
qualified.
(e) Any provision to the contrary herein notwithstanding, the
General Partner may, without the consent of a Majority Interest, make any
technical changes to the provisions of this Agreement to conform the allocations
set forth in Article Four to the requirements of regulations under Code
ss.ss.704(b) and 704(c). Any amendment made by the General Partner in accordance
with this Section 13.2(e) shall be made pursuant to appropriate advice of
counsel, and shall be deemed to have been made pursuant to the fiduciary
obligations of the General Partner to the Partnership and the Limited Partners.
SECTION 13.3 Ownership By Limited Partners of General Partner
or Its Affiliates.
Except as to the holding of any Class A Units by the General
Partner and its Affiliates for their own accounts, as permitted by Section 3.4,
no Limited Partner shall at any time, either directly or indirectly, own any
stock or other interest in any General Partner or in any Affiliate of any
General Partner if such ownership by itself or in conjunction with the stock or
other interest owned by other Limited Partners would, in the Opinion of Counsel,
jeopardize the classification of the Partnership as a partnership for federal
income tax purposes. Each Limited Partner shall promptly supply any information
requested by the General Partner in order to establish compliance by the Limited
Partner with the provisions of this Section 13.3.
SECTION 13.4 Notices.
All Notices under this Agreement shall be in writing and shall
be given to the Partners entitled thereto by personal service or by certified or
registered mail, return receipt requested, to the Limited Partners, at their
respective addresses on file with the General Partner and, to the General
Partner, at the principal place of business of the Partnership as set forth in
81
<PAGE>
this Agreement or as changed by Notice given pursuant hereto. The date of
personal delivery or the third business day after the date of mailing thereof,
as the case may be, shall be deemed the date of receipt of Notice.
SECTION 13.5 Binding Provisions.
The covenants and agreements contained herein shall be binding
upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto.
SECTION 13.6 Applicable Law.
This Agreement shall be governed and construed and enforced in
accordance with the laws of the State of Delaware without regard to principles
of conflict of laws; provided, however, that causes of action for violations of
federal or state securities laws shall not be governed by this Section 13.6.
SECTION 13.7 Counterparts.
This Agreement may be executed in several counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not executed the same counterpart,
except that no counterpart shall be binding unless executed by the General
Partner.
SECTION 13.8 Separability of Provisions.
Each provision of this Agreement shall be considered separable
and if, for any reason, any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement that are
valid.
SECTION 13.9 Captions.
Article and Section titles and any table of contents are for
convenience of reference only and shall not control or alter the meaning of this
Agreement as set forth in the text.
SECTION 13.10 Partnership Property; No Partition.
No Partner or successor in interest to any Partner may have
any property of the Partnership partitioned or, except as provided by applicable
law, file a complaint or institute any proceeding at law or in equity to have
the property partitioned, and each Partner, for itself, its successors,
representatives and permitted assigns, hereby waives any right to proceed under
any applicable law or otherwise to partition any Partnership property. Any
82
<PAGE>
creditor of a Partner shall have recourse only against such Partner's interest
in the Partnership, but such creditor shall not have any recourse against the
property of the Partnership.
SECTION 13.11 No Benefit to Third Parties.
The provisions of this Agreement shall not be construed for
the benefit of or enforceable by a Person not a party hereto, including without
limitation limited to any creditor of any Partner or any of their Affiliates.
83
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
GENERAL PARTNER:
CAI Equipment Leasing VI Corp.
By:
------------------------------------------
John F. Olmstead, President
CLASS B LIMITED PARTNER:
Capital Associates International, Inc.
By:
------------------------------------------
Title: Vice President
WITHDRAWING ORIGINAL LIMITED PARTNER:
---------------------------------------------
John F. Olmstead
CLASS A LIMITED PARTNERS:
By: CAI Equipment Leasing VI Corp.
By:
------------------------------------
John F. Olmstead, President
As Attorney-in-Fact for such Class A
Limited Partners
84
<PAGE>
EXHIBIT B
PRIOR PERFORMANCE TABLES
The following unaudited Tables update certain information relating to the six
prior public programs sponsored by CAI. See "PERFORMANCE OF PRIOR INVESTMENT
PROGRAMS" in the text of the Prospectus and Exhibit B to the Prospectus for
earlier information about such programs. All of the six prior public programs
were structured as limited partnerships, purchased a diversified portfolio of
equipment subject to Triple Net Leases to the end users of such equipment,
reinvested substantial portions of cash from operations by purchasing additional
equipment subject to Triple Net Leases and expect to liquidate their portfolios
and make liquidating distributions to investors within eight years of the date
their respective offering period is terminated. Thus, they have investment
objectives similar to those of the Partnership.
The Tables consist of:
Table I Experience in Raising and Investing Funds: Presents general
information relating to prior partnerships.
Table II Compensation to General Partner and Affiliates: Summarizes
compensation paid in connection with prior partnerships.
Table III Annual Operating Results: Summarizes certain operating results for
the last five years for each prior partnership.
Table IV Sales or Dispositions of Equipment by Prior Public Programs:
Summarizes sales proceeds, profit or loss and holding periods for
equipment sold.
Table V Historic Cash Distributions: Presents annual gross cash
distributions for each prior partnership.
Table VI Historic Taxable Gain (Loss): Presents gross annual taxable gain
(loss) for each prior partnership.
Table VII Information Regarding Prior Program Lessees: Lists names of
Lessees and distribution of equipment by industry.
PURCHASERS OF UNITS WILL HAVE NO OWNERSHIP INTEREST IN THE INVESTMENTS DESCRIBED
IN THE FOLLOWING TABLES. PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE INCLUSION
OF THIS INFORMATION AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE PARTNERSHIP.
B-1
<PAGE>
<TABLE>
<CAPTION>
TABLE I
Experience in Raising and Investing Funds
(on a Percentage Basis)(1)
(Unaudited)
As of June 30, 1997
Page 1 of 2
Leastec PaineWebber Capital
Income Fund Northstar Preferred Preferred
V Income Fund I Yield Fund (2) Yield Fund
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollar Amount Offered $55,000,000 $150,000,000 $75,000,000 $100,000,000
Dollar Amount Raised (100%) $50,368,000 $52,401,000 $71,064,000 $ 63,660,750
Less Offering Expenses:
Selling Commissions 10.00% 10.00% 9.70% 10.00%
Retained by Affiliates 0.00% 0.00% 0.00% 0.00%
Organizational Expenses 0.26% 0.00% 0.00% 0.00%
Offering Expenses 4.74% 3.00%(3) 3.00%(3) 3.14%(3)
Reserves 0.00% 1.00% 0.25% 0.00%
------- ------- ------- -------
Percent Available for Investment 85.00% 86.00% 87.05% 86.86%
Acquisition Costs:
Cash Down Payment 81.69% 83.85% 84.87% 83.47%
Acquisition Fees 3.31% 2.15% 2.18% 3.39%
------- ------- ------- -------
Total Acquisition Cost (4) 85.00% 86.00% 87.05% 86.86%
Percent Leverage (5) 39.00% 0.00% 0.00% 45.00%
Date Offering Began 10/01/87 11/23/88 05/21/90 01/05/90
Length of Offering 24 mos. 6 mos. 11 mos. 24 mos.
Months to invest 90% of amount
available for investment (measured
from beginning of offering) 26 mos. 6 mos. 22 mos. 28 mos.
</TABLE>
(1) The percentages are based on the assumption that all fees and expenses of
the offering were paid from the proceeds of the offering and not from the
proceeds of borrowings.
(2) As of December 31, 1996
(3) Combined Organizational and Offering Expenses.
(4) Includes amounts allocated to working capital reserves.
(5) Percentage leverage is calculated by dividing the principal amount of
indebtedness by the total cost of the equipment.
B-2
<PAGE>
<TABLE>
<CAPTION>
TABLE I
Experience in Raising and Investing Funds
(on a Percentage Basis)(1)
(Unaudited)
As of June 30, 1997
Page 2 of 2
Capital Capital Capital
Preferred Preferred Preferred
Yield Fund II Yield Fund III Yield Fund IV
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar Amount Offered $65,000,000 $50,000,000 $50,000,000
Dollar Amount Raised (100%) $33,943,500 $50,000,000 $31,125,349
Less Offering Expenses:
Selling Commissions 10.00% 10.00% 10.00%
Retained by Affiliates 0.00% 0.00% 0.00%
Organizational Expenses 0.00% 0.00% 0.00%
Offering Expenses 4.37% (3) 4.37% 4.39%
Reserves 1.00% 1.00% 1.00%
------- -------- --------
Percent Available for Investment 84.63% 84.63% 84.61%
Acquisition Costs:
Cash Down Payment 81.45% 81.82% 81.80%
Acquisition Fees 3.18% 2.81% 2.81%
------- ------- --------
Total Acquisition Cost (4) 84.63% 84.63% 84.61%
Percent Leverage (5) 42.89% 42.02% 50.00%
Date Offering Began 04/15/92 04/16/94 04/16/96
Length of Offering 24 mos. 24 mos. 24 mos.
Months to invest 90% of amount
available for investment (measured
from beginning of offering) 26 mos. 26 mos. 12 mos.
</TABLE>
(1) The percentages are based on the assumption that all fees and expenses of
the offering were paid from the proceeds of the offering and not from the
proceeds of borrowings.
(2) As of December 31, 1996
(3) Combined Organizational and Offering Expenses.
(4) Includes amounts allocated to working capital reserves.
(5) Percentage leverage is calculated by dividing the principal amount of
indebtedness by the total cost of the equipment.
B-3
<PAGE>
<TABLE>
<CAPTION>
TABLE II
Compensation to General Partner and Affiliates
(Unaudited)
As of June 30, 1997
Page 1 of 2
Leastec Northstar PaineWebber Capital
Income Income Preferred Preferred
Fund V Fund I Yield Fund (3) Yield Fund
------- -------- -------------- -----------
<S> <C> <C> <C> <C>
Date offering commenced 10/01/87 11/23/88 5/21/90 1/05/90
Dollar amount raised $50,368,000 $52,401,000 $71,064,000 $63,660,750
Amount paid to General Partner and Affiliates:
Commissions (1) 5,036,800 5,240,100 6,893,208 6,366,075
Acquisition fees 3,631,407 1,593,944 2,907,477 5,146,564
Organization and offering expense allowance 2,518,400 1,572,030 2,131,920 2,000,061
Dollar amount of cash generated from operations
before deducting payments to General Partner
and Affiliates 77,416,544 65,957,080 95,104,756 118,278,119
Amount paid to General Partner and Affiliates
from operations:
Management fees 4,639,855 2,017,804 3,597,678 6,977,439
Reimbursements 1,111,406 735,850 110,673 788,306
Dollar amount of property sales before deducting
payments to General Partner and Affiliates 12,646,588 12,294,185 11,133,550 17,890,788
Amount paid to General Partner and Affiliates
from property sales:
Resale fees -0- -0- -0- -0-
Management fees -0- -0- -0- -0-
Promotional interest (cash distribution) to 2,350,666 2,103,433 3,541,088 2,869,546
General Partner
</TABLE>
(1) Affiliates of the sponsor re-allocated $4,153,665; $5,240,100; $6,893,208;
$5,577,777; $2,980,399 and $4,316,003 of commissions to unaffiliated
broker-dealers with respect to Leastec Income Fund V, Northstar Income Fund
I, PaineWebber Preferred Yield Fund, Capital Preferred Yield Fund, Capital
Preferred Yield Fund-II and Capital Preferred Yield Fund-III.
(2) Reflects aggregate payments to the sponsor in 1985 through 1993 with
respect to nine other programs.
(3) As of December 31, 1996
B-4
<PAGE>
<TABLE>
<CAPTION>
TABLE II
Compensation to General Partner and Affiliates
(Unaudited)
As of June 30, 1997
Page 2 of 2
Capital Capital Capital
Preferred Preferred Preferred Other
Yield Fund-II Yield Fund-III Yield Fund-IV Programs
------------- -------------- ------------- --------
<S> <C> <C> <C> <C>
Date offering commenced 4/15/92 4/16/94 04/16/96
Dollar amount raised $33,943,500 $50,000,000 $31,124,349 -0-
Amount paid to General Partner and Affiliates:
Commissions (1) 3,394,350 5,000,000 3,112,535 -0-
Acquisition fees 2,795,933 2,850,554 1,504,171 -0-
Organization and offering expense allowance 1,483,994 2,184,603 1,364,877 -0-
Dollar amount of cash generated from operations
before deducting payments to General Partner
and Affiliates 45,911,637 35,546,634 5,244,777 -0-
Amount paid to General Partner and Affiliates
from operations:
Management fees 1,074,117 771,912 108,386 -0-
Reimbursements 471,961 272,719 82,786 -0-
Dollar amount of property sales before deducting -0- -0-
payments to General Partner and Affiliates 4,601,870 3,571,020
Amount paid to General Partner and Affiliates from property sales:
Resale fees -0- -0- -0- -0-
Management fees -0- -0- -0- -0-
Promotional interest (cash distribution) to
General Partner 161,571 109,731 15,909 754,288 (2)
</TABLE>
(1) Affiliates of the sponsor re-allocated $4,153,665; $5,240,100; $6,893,208;
$5,577,777; $2,980,399 and $4,316,003 of commissions to unaffiliated
broker-dealers with respect to Leastec Income Fund V, Northstar Income Fund
I, PaineWebber Preferred Yield Fund, Capital Preferred Yield Fund, Capital
Preferred Yield Fund-II and Capital Preferred Yield Fund-III.
(2) Reflects aggregate payments to the sponsor in 1985 through 1993 with
respect to nine other programs.
(3) As of December 31, 1996
B-5
<PAGE>
<TABLE>
<CAPTION>
TABLE III
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 1 of 6
PaineWebber
Preferred Yield
Leastec Income Fund V Northstar Income Fund I Fund (6)
------------------------- -------------------------- ---------------
1996 1997 1996 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues $2,425,882 $ 686,033 $1,826,527 $ 521,874 $11,757,293
Profit (loss) on sale of properties 525,245 121,950 940,938 91,906 572,568
Less: Operating expenses 466,480 157,127 373,176 140,643 1,421,266
Interest expense 122,830 29,043 -0- -0- 820,851
Depreciation 1,172,100 242,484 1,142,542 290,807 7,116,362
Direct Services from General Partner(s) 66,223 32,744 65,750 30,282 18,750
Net income (loss) 1,123,494 346,585 1,185,997 152,048 2,952,632
Taxable income (loss) 2,036,484 (5) 1,753,483 (5) 2,012,679
- - from operations 1,214,458 (5) 806,795 (5) 951,937
- - from gain (loss) on sale 822,026 (5) 946,688 (5) 1,060,742
Cash generated (deficiency) from operations 2,546,972 760,919 2,368,893 (101,094) 8,857,119
Cash generated from sales 1,226,238 157,950 2,396,640 173,886 2,343,133
Cash generated from refinancing -0- -0- -0- -0- -0-
Cash generated from operations, sales and
refinancing 3,773,210 918,869 4,765,533 72,792 11,200,252
Less cash distributions to investors:
- - from operating cash flows 2,403,187 782,862 4, 038,489 1,489,574 8,547,640
- - from sales and refinancing -0- -0- -0- -0-
- - from other -0- -0- -0- -0- -0-
Cash generated (deficiency) after cash
distributions 1,370,023 136,007 727,044 (1,416,782) 2,652,612
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
TABLE III
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 2 of 6
Capital Preferred Yield Fund Capital Preferred Yield Fund-II
-------------------------------- ---------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenues $ 9,969,567 $ 3,725,036 $ 10,680,648 $ 5,109,049
Profit (loss) on sale of properties 1,350,258 237,562 189,435 94,620
Less: Operating expenses 2,263,507 639,904 1,471,396 440,080
Interest expense 591,457 125,223 1,151,707 512,666
Depreciation 6,124,604 1,944,767 7,856,952 3,869,628
Direct Services from General Partner(s) 101,145 84,149 158,770 54,728
Net income (loss) 2,239,112 1,168,555 231,258 326,567
Taxable income (loss) 1,193,887 (5) 643,311 (5)
- - from operations 2,424,935 (5) 830,977 (5)
- - from gain (loss) on sale (1,231,048) (5) (187,666) (5)
Cash generated (deficiency) from operations 11,544,754 4,377,732 9,887,732 4,846,593
Cash generated from sales 4,825,150 1,478,046 2,865,442 489,422
Cash generated from refinancing -0- -0- -0- -0-
Cash generated from operations, sales and
refinancing 16,369,904 5,855,778 12,753,174 5,336,015
Less cash distributions to investors:
- - from operating cash flows 11,744,201 5,287,568 4,104,137 2,048,303
- - from sales and refinancing -0- -0- -0- -0-
- - from other -0- -0- -0- -0-
Cash generated (deficiency) after cash
distributions 4,625,703 568,210 8,649,037 3,287,712
</TABLE>
B-7
<PAGE>
<TABLE>
<CAPTION>
TABLE III
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 3 of 6
Capital Preferred Yield Fund-III Capital Preferred Yield Fund-IV
---------------------------------- ---------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenues $ 17,134,300 $ 9,704,101 $ 940,346 $ 4,544,454
Profit (loss) on sale of properties 110,831 908,899 -0- -0-
Less: Operating expenses 705,819 377,489 110,227 163,323
Interest expense 1,785,640 826,686 26,542 508,849
Depreciation 12,585,981 7,194,029 659,574 3,497,553
Direct Services from General Partner(s) 93,690 48,556 41,376 41,410
Net income (loss) 2,074,001 2,166,240 102,627 333,319
Taxable income (loss) (1,675,210) (5) (5) (5)
- - from operations (1,810,672) (5) (5) (5)
- - from gain (loss) on sale 135,462 (5) (5) (5)
Cash generated (deficiency) from operations 17,781,264 9,881,741 1,432,667 3,812,110
Cash generated from sales 454,045 3,116,975 -0- -0-
Cash generated from refinancing -0- -0- -0- -0-
Cash generated from operations, sales and
refinancing 18,235,309 12,998,716 1,432,667 3,182,110
Less cash distributions to investors:
- - from operating cash flows 5,030,230 2,658,663 319,339 1,099,277
- - from sales and refinancing -0- -0- -0- -0-
- - from other -0- -0- -0- -0-
Cash generated (deficiency) after cash
distributions 13,205,079 10,340,053 1,113,328 2,712,833
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
TABLE III (Continued)
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 4 of 6
PaineWebber
Preferred Yield
Leastec Income Fund V Northstar Income Fund I Fund (6)
----------------------------- ---------------------------- ---------------
1996 1997 1996 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Less Special items
(not including sales and refinancing):
Purchase of equipment -0- -0- -0- -0- 8,649,624
Net change in partnership debt 1,339,784 243,466 -0- -0- 1,585,298
Other (1) 11,685 -0- -0- -0- (792,092)
Cash generated (deficiency) after
cash distributions and special items 18,554 (107,459) 727,044 (1,416,782) (6,790,218)
Tax & Distribution Data per $1,000
Invested (2):
Federal Income Tax Results:
Ordinary income (loss) 41 (5) 33 (5) 33
- from operations 22 (5) 11 (5) 15
- from recapture 19 (5) 22 (5) 18
Capital gain (loss) -3 (5) -6 (5) -5
Cash distribution to Investors
Source (on GAAP basis):
- investment income 22.69 6.99 22.63 2.90 41.55
- return of capital 25.85 8.80 54.44 25.52 78.73
Source (on cash basis):
- sales -0- -0- -0- -0- -0-
- refinancing -0- -0- -0- -0- -0-
- operations 48.54 15.79 77.07 28.43 120.28
- other -0- -0- -0- -0- -0-
Original portfolio remaining (3) 22% 20% -20% -22% 29%
Current portfolio amount as a
percentage of original portfolio (4) 42% 40% 10% 9% 103%
</TABLE>
(1) Includes increases/decreases to direct finance leases and/or redemption of
capital units.
(2) Excludes the units redeemed by the partnership pursuant to the Limited
Partnership Agreement, if any.
(3) Original total acquisition cost of original equipment retained, divided by
original total acquisition cost of all original equipment acquired.
(4) Current portfolio amount is calculated by dividing original cost of
equipment portfolio at year end by total cost of the original equipment
acquired.
(5) To be calculated for the annual period ended December 31, 1997.
(6) As of December 31, 1996.
B-9
<PAGE>
<TABLE>
<CAPTION>
TABLE III (Continued)
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 5 of 6
Capital Preferred Yield Fund Capital Preferred Yield Fund-II
-------------------------------- -----------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Less Special items
(not including sales and refinancing):
Purchase of equipment 1,142,624 -0- 7,887,705 749,703
Net change in partnership debt 5,048,721 1,604,591 842,214 2,560,486
Other (1) 254,733 15,669 242,985 22,469
Cash generated (deficiency) after
cash distributions and special items (1,820,375) (1,052,050) (323,867) (44,946)
Tax & Distribution Data per $1,000
Invested (2):
Federal Income Tax Results:
Ordinary income (loss) 48 (5) 35 (5)
- from operations 26 (5) 25 (5)
- from recapture 22 (5) 10 (5)
Capital gain (loss) -40 (5) -16 (5)
Cash distribution to Investors
Source (on GAAP basis):
- investment income 35.53 18.56 6.89 9.75
- return of capital 150.85 65.44 115.35 51.40
Source (on cash basis):
- sales -0- -0- -0- -0-
- refinancing -0- -0- -0- -0-
- operations 186.38 84.00 122.24 61.15
- other -0- -0- -0- -0-
Original portfolio remaining (3) 40% 36% 77% 72%
Current portfolio amount as a
percentage of original portfolio (4) 71% 67% 101% 98%
</TABLE>
(1) Includes increases/decreases to direct finance leases and/or redemption of
capital units.
(2) Excludes the units redeemed by the partnership pursuant to the Limited
Partnership Agreement, if any.
(3) Original total acquisition cost of original equipment retained, divided by
original total acquisition cost of all original equipment acquired.
(4) Current portfolio amount is calculated by dividing original cost of
equipment portfolio at year end by total cost of the original equipment
acquired.
(5) To be calculated for the annual period ended December 31, 1997.
(6) As of December 31, 1996.
B-10
<PAGE>
<TABLE>
<CAPTION>
TABLE III (Continued)
Annual Operating Results
For the Six Months Ended June 30, 1997
(Unaudited)
Page 6 of 6
Capital Preferred Yield Fund-III Capital Preferred Yield Fund-IV
----------------------------------- ----------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Less Special items
(not including sales and refinancing):
Purchase of equipment 23,483,867 2,434,938 12,939,697 13,968,184
Net change in partnership debt 4,794,494 5,804,527 (1,915,995) (1,536,311)
Other (1) (9,097,350) 92,613 (13,196,446) (13,035,376)
Cash generated (deficiency) after
cash distributions and special items (5,975,932) 2,007,975 3,286,072 3,316,336
Tax & Distribution Data per $1,000
Invested (2):
Federal Income Tax Results:
Ordinary income (loss) -31 (5) (5) (5)
- from operations -35 (5) (5) (5)
- from recapture 4 (5) (5) (5)
Capital gain (loss) -2 (5) (5) (5)
Cash distribution to Investors
Source (on GAAP basis):
- investment income 41.76 43.68 6.64 10.71
- return of capital 59.52 9.93 14.03 24.61
Source (on cash basis):
- sales -0- -0- -0- -0-
- refinancing -0- -0- -0- -0-
- operations 101.28 53.61 20.67 35.32
- other -0- -0- -0- -0-
Original portfolio remaining (3) 99% 89% 100% 100%
Current portfolio amount as a
percentage of original portfolio (4) 142% 137% 100% 100%
</TABLE>
(1) Includes increases/decreases to direct finance leases and/or redemption of
capital units.
(2) Excludes the units redeemed by the partnership pursuant to the Limited
Partnership Agreement, if any.
(3) Original total acquisition cost of original equipment retained, divided by
original total acquisition cost of all original equipment acquired.
(4) Current portfolio amount is calculated by dividing original cost of
equipment portfolio at year end by total cost of the original equipment
acquired.
(5) To be calculated for the annual period ended December 31, 1997.
(6) As of December 31, 1996.
B-11
<PAGE>
TABLE IV
Sales or Dispositions of Equipment by Prior Public Programs
(Unaudited)
For the Six Months Ended June 30, 1997
Page 1 of 4
The following table sets forth the sales and dispositions of equipment by the
Prior Public Programs on various types of equipment.
<TABLE>
<CAPTION>
Holding Period(4)
Year Excess GAAP Profit ---------------------
of Net Unrecovered (Deficiency) (Loss) on Average Range
Equipment Sales Proceeds (1) Cost (2) of Proceeds Sales (3) Term (mos.) (Months)
--------- ----- ------------ ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Leastec Income Fund V
Data Processing Equipment 1996 $ 171,959 $ (8,598) $ 180,557 $ 96,608 60 27 - 92
Furniture & Fixtures 1996 69,464 (65,174) 134,638 0 60 60
Medical Equipment 1996 200,000 118,857 81,143 194,884 45 45
Transportation Equipment 1996 502,500 39,778 462,722 229,973 49 49
Mining Equipment 1996 284,000 (137,626) 421,625 1,500 66 64 - 67
Manufacturing Equipment 1996 316 174,081 (173,765) 281 57 35 - 84
----------- ------------- ----------- ---------------
TOTALS $ 1,228,238 $ 121,318 $ 1,106,920 $ 525,245
=========== ============= =========== ============
Data Processing Equipment 1997 $ 56,530 $ (278,663) $ 335,193 $ 56,530 69 41 - 96
Manufacturing Equipment 1997 101,420 45,323 56,097 54,450 74 54 - 91
----------- ------------- ----------- ---------------
TOTALS $ 157,950 $ (233,340) $ 391,290 $ 110,980
=========== ============ =========== ============
Northstar Income Fund I
Manufacturing Equipment 1996 $ 1,341,965 $ (737,554) $ 2,079,519 $ 452,931 50 35 - 80
Transportation Equipment 1996 235,000 (247,023) 482,023 171,991 49 41 - 54
Data Processing Equipment 1996 819,675 (558,036) 1,377,711 325,343 63 57 - 80
----------- --------- ----------- -------------
TOTALS $ 2,396,640 $ (1,542,613) $ 3,939,253 $ 950,266
=========== ============ =========== ============
Manufacturing Equipment 1997 $ 122,418 $ 199,563 $ (77,145) $ 50,425 41 28 - 50
Transportation Equipment 1997 51,467 6,392 45,076 30,341 65 65 - 65
----------- -------------- ------------- ------------
TOTALS $ 173,886 $ 205,955 $ (32,069) $ 80,767
=========== ============= ============ ===========
PaineWebber Preferred Yield Fund
Data Processing Equipment 1996 $ 132,940 $ (81,360) $ 214,300 $ 134,267 46 36 - 66
Manufacturing Equipment 1996 1,139,072 (85,765) ,224,837 326,439 56 24 - 79
Transportation Equipment 1996 74,900 (546) 75,446 33,297 53 53
Office Technology Equipment 1996 50,000 (125,869) 175,869 42,983 66 63 - 69
Furniture & Fixtures 1996 873,142 941,864 (68,723) 0 26 26
Medical Equipment 1996 59,000 (202,391) 261,391 32,517 51 12 - 66
----------- ------------ ----------- ------------
TOTALS $ 2,329,054 $ 445,933 $ 1,883,121 $ 569,502
=========== ============ =========== ============
</TABLE>
B-12
<PAGE>
<TABLE>
<CAPTION>
TABLE IV
Sales or Dispositions of Equipment by Prior Public Programs
(Unaudited)
For the Six Months Ended June 30, 1997
Page 2 of 4
Holding Period(4)
Year Excess GAAP Profit ---------------------
of Net Unrecovered (Deficiency) (Loss) on Average Range
Equipment Sales Proceeds (1) Cost (2) of Proceeds Sales (3) Term (mos.) (Months)
--------- ----- ------------ ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Preferred Yield Fund
Data Processing Equipment 1996 $ 393,218 $ 21,555 $ 371,662 $ 182,502 40 27 - 68
Manufacturing Equipment 1996 3,771,978 282,409 3,489,570 912,656 49 19 - 71
Transportation Equipment 1996 63,299 9,592 53,707 31,550 48 38 - 57
Mining Equipment 1996 125,000 21,944 103,056 0 59 59
Furniture & Fixtures 1996 515,332 (110,930) 626,262 267,228 57 24 - 70
Medical 1996 0 (30,544) 30,544 0 66 66
----------- ------------- ------------- ------------
TOTALS $ 4,868,827 ($ 194,026) $ 4,674,801 $ 1,393,936
=========== ============== ============= ============
Data Processing Equipment 1997 $ 236,547 $ (82,811) $ 319,358 $ 76,281 38 37 - 72
Manufacturing Equipment 1997 1,167,443 719,620 447,823 134,649 58 9 - 83
Transportation Equipment 1997 24,826 (70,561) 95,388 23,187 65 65
Mining Equipment 1997 14,000 4,235 9,765 6,488 75 75
Furniture & Fixtures 1997 27,230 (137,369) 164,599 (5,602) 82 79 - 85
Medical 1997 8,000 ( 1,924) 9,924 (14,493) 60 60
---------------------------- ------------- ------------
TOTALS $ 1,478,046 $ 431,190 $ 1,046,856 $ 220,511
=========== ============== ============= ============
Capital Preferred Yield Fund II
Data Processing Equipment 1996 $ 804,414 $ 2,558,463 $ (1,754,049) $ 58,458 33 22 - 44
Manufacturing Equipment 1996 551,300 141,853 409,447 4,760 36 35 - 38
Furniture & Fixtures 1996 889,990 8,752 881,239 7,132 36 26 - 43
Transportation Equipment 1996 336,738 158,314 178,423 104,523 26 26
Medical Equipment 1996 283,000 113,251 169,749 15,009 38 37 - 38
-------- ------------ ------------- ------------
TOTALS $ 2,865,442 $ 2,980,634 $ (115,192) $ 189,883
=========== ============ ============= ============
Data Processing Equipment 1997 $ 144,612 $ (75,958) $ 220,570 $ 15,670 34 23 - 43
Manufacturing Equipment 1997 322,410 118,719 203,691 (24,615) 38 32 - 49
Furniture & Fixtures 1997 22,400 7,741 14,659 (3,106) 7 7 - 7
------------ --------------- ------------- --------------
TOTALS $ 489,422 $ 50,502 $ 438,920 $ (12,051)
============ ============== ============= =============
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
TABLE IV
Sales or Dispositions of Equipment by Prior Public Programs
(Unaudited)
For the Six Months Ended June 30, 1997
Page 3 of 4
Holding Period(4)
Year Excess GAAP Profit ---------------------
of Net Unrecovered (Deficiency) (Loss) on Average Range
Equipment Sales Proceeds (1) Cost (2) of Proceeds Sales (3) Term (mos.) (Months)
--------- ----- ------------ ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Preferred Yield Fund III
Manufacturing Equipment 1996 $ 53,730 $ 187,328 $ (133,598) $ 0 21 21 - 22
Transportation Equipment 1996 311,123 215,873 95,251 93,520 15 15
Furniture and Fixtures 1996 77,795 62,714 15,081 9,833 11 11
Data Processing Equipment 1996 11,397 5,530 5,867 7,478 12 12
------------ ------------ ------------- -----------
TOTALS $ 454,045 $ 471,445 $ (17,399) $ 110,831
============ ============ ============ ===========
Manufacturing Equipment 1997 $ 1,432,330 $ 876,989 $ 555,341 $ 449,477 23 4 - 35
Transportation Equipment 1997 14,135 16,053 (1,918) (2,665) 12 12
Furniture and Fixtures 1997 68,662 157,446 (88,783) 24,245 16 9 - 23
Mining Equipment 1997 1,004,320 528,564 475,756 396,603 24 22 - 26
Data Processing Equipment 1997 597,528 63,083 534,445 28,062 20 18 - 22
------------ ------------ ------------- -----------
TOTALS $ 3,116,975 $ 1,642,135 $ 1,474,841 $ 895,722
============ ============ ============= ===========
</TABLE>
(1) Proceeds received at disposition, net of direct selling cost.
(2) Original equipment investment less rents received from operations.
(3) Net proceeds received at disposition less the net book value of the
equipment at time of disposition.
(4) Holding Period is the number of months the assets are owned by the
Partnership. This is expressed as the average period for assets sold and
the range from shortest to longest period for assets sold.
B-14
<PAGE>
TABLE IV
Sales or Dispositions of Equipment by Prior Public Programs
(Unaudited)
As of June 30, 1997
4 of 4
The following table sets forth the total annual ordinary and capital gains
from the sales and disposition of equipment by the Prior Public Programs.
<TABLE>
<CAPTION>
Ordinary Capital
Gain/(Loss) Gain/(Loss)
---------- ----------
<S> <C> <C>
Leastec Income Fund V
1996 .................................................. $ 822,026 $ 0
1997 .................................................. (1) (1)
Northstar Income Fund I
1996 .................................................. $ 946,688 $ 0
1997 .................................................. (1) (1)
PaineWebber Preferred Yield Fund
1996 ................................................... $ 1,060,742 $ 0
1997 ................................................... (1) (1)
Capital Preferred Yield Fund
1996 ................................................... $(1,231,048) $ 0
1997 ................................................... (1) (1)
Capital Preferred Yield Fund-II
1996 .................................................. $ (187,666) $ 0
1997 .................................................. (1) (1)
Capital Preferred Yield Fund-III
1996 ................................................. $ 135,462 $ 0
1997 ................................................. (1) (1)
</TABLE>
(1) To be calculated for the annual period ended December 31, 1997.
B-15
<PAGE>
<TABLE>
TABLE V
Historic Cash Distributions
(Unaudited)
For the Six Months Ended June 30, 1997
Page 1 of 5
<CAPTION>
Leastec Income Fund V
- --------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 122,105 $ 2,320,000 $ -0- $ 2,442,105
1997 $ 34,737 $ 660,000 $ -0- $ 694,737
<CAPTION>
Northstar Income Fund I
- ----------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 157,559 $ 4,112,842 $ 231,276 $ 4,501,676
1997 $ 14,662 $ 387,463 $ 16,780 $ 418,905
<CAPTION>
PaineWebber Preferred Yield Fund (as of December 31, 1996)
- -------------------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 525,812 $ 9,118,932 $ 871,487 $ 10,516,231
<CAPTION>
Capital Preferred Yield Fund
- ---------------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 544,780 $ 10,960,526 $ 600,923 $ 12,106,229
1997 $ 217,952 $ 4,320,681 $ 304,634 $ 4,843,268
<CAPTION>
Capital Preferred Yield Fund-II
- ------------------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 41,018 $ 4,024,490 $ 36,300 $ 4,101,808
1997 $ 20,483 $ 2,009,670 $ 18,150 $ 2,048,303
</TABLE>
B-16
<PAGE>
<TABLE>
TABLE V
Historic Cash Distributions
(Unaudited)
For the Six Months Ended June 30, 1997
Page 2 of 5
<CAPTION>
Capital Preferred Yield Fund-III
- -------------------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 51,487 $ 5,052,804 $ 50,389 $ 5,154,680
1997 $ 26,582 $ 2,605,349 $ 26,250 $ 2,658,181
<CAPTION>
Capital Preferred Yield Fund-IV
- ------------------------------- Class A Class B
General Partner(s) Limited Partners Limited Partners Total
----------------- ---------------- ---------------- -----
<S> <C> <C> <C> <C>
1996 $ 3,968 $ 439,720 $ 4,550 $ 448,237
1997 $ 11,941 $ 1,238,420 $ 12,600 $ 1,262,962
</TABLE>
B-17
<PAGE>
TABLE V
Historic Cash Distributions
(Unaudited)
For the Six Months Ended June 30, 1997
Page 2 of 5
The following tables compare the distributions paid, income or loss allocated
for tax purposes and cumulative income/loss for tax purposes for a $10,000
investment in each of the funds listed below, assuming that such investment was
made on the investment date indicated in parenthesis in the heading for each
table. Tax losses allocated for a particular year are carried forward and may
shelter tax income generated in subsequent years.
<TABLE>
<CAPTION>
Leastec Income Fund V (11/16/87)(1)
----------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1987 $ 138.63 $ (291.94) $ (291.94)
1988 1,150.52 (1,831.75) (2,123.69)
1989 1,200.02 0 (2,123.69)
1990 1,200.01 (350.29) (2,473.98)
1991 1,300.00 175.55 (2,298.43)
1992 1,400.04 504.37 (1,794.06)
1993 1,500.00 211.64 (1,582.42)
1994 1,046.31 1,026.97 (555.45)
1995 344.70 1,202.92 647.47
1996 468.00 381.00 1,028.00
1997 (2) (2) (2)
<CAPTION>
Northstar Income Fund (12/08/88)
----------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1987 $ 0 $ 0 $ 0
1988 0 0 0
1989 1,380.56 83.74 83.74
1990 1,493.41 (282.96) (199.22)
1991 1,769.38 258.68 59.46
1992 1,400.00 488.24 547.70
1993 1,400.00 295.33 843.03
1994 1,407.66 410.75 1,253.78
1995 859.53 377.59 1,631.37
1996 785.00 274.00 1,905.00
1997 (2) (2) (2)
</TABLE>
B-18
<PAGE>
<TABLE>
TABLE V
Historic Cash Distributions
(Unaudited)
For the Six Months Ended June 30, 1997
Page 4 of 5
<CAPTION>
PaineWebber Preferred Yield Fund
----------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1990 $ 735.33 $ (377.00) $ (377.00)
1991 1,398.75 (296.00) (673.00)
1992 1,400.00 257.00 (416.00)
1993 1,400.00 317.00 99.00
1994 1,400.00 134.00 35.00
1995 1,400.00 1,838.00 1,873.00
1996 1,400.00 276.00 2,149.00
1997 (2) (2) (2)
<CAPTION>
Capital Preferred Yield Fund (01/24/90)
----------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1990 $ 1,029.03 $(1,825.54) $(1,825.54)
1991 1,200.01 (192.71) (2,018.25)
1992 1,200.01 1,373.04 (645.21)
1993 1,291.50 1,110.59 465.38
1994 1,299.99 92.81 558.19
1995 1,299.99 844.30 1,402.49
1996 1,736.00 82.00 1,484.00
1997 (2) (2) (2)
<CAPTION>
Capital Preferred Yield Fund-II (05/04/92)
-----------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1990 $ 0 $ 0 $ 0
1991 0 0 0
1992 662.29 158.21 158,21
1993 1,200.00 (1,661.33) (1,503.12)
1994 1,200.00 (572.78) (2,075.90)
1995 1,200.00 320.09 (1,755.81)
1996 1,200.00 197.00 (1,559.00)
1997 (2) (2) (2)
</TABLE>
B-19
<PAGE>
<TABLE>
TABLE V
Historic Cash Distributions
(Unaudited)
For the Six Months Ended June 30, 1997
Page 4 of 4
<CAPTION>
Capital Preferred Yield Fund-III (04/29/94)
------------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1994 $ 612.50 $ (753.87) $ (753.87)
1995 1,050.00 (961.60) (1,715.47)
1996 1,050.00 (334.00) (2,049.00)
1997 (2) (2) (2)
<CAPTION>
Capital Preferred Yield Fund-IV (04/16/96)
------------------------------------------
Distributions Income/ Cumulative
Paid Loss Income/Loss
------------- ------ -----------
<S> <C> <C> <C>
1996 706.00 (548.00) (548.00)
1997 (2) (2) (2)
</TABLE>
(1) Due to the sale of all or substantially all of the assets of Leastec
Income Fund V, ("Partnership") the General Partner has determined that
final termination and dissolution of the Partnership will occur on or
before December 31, 1997. Based upon the remaining assets of the
Partnership, it is the General Partner's estimate that the Partnership
will return to its Limited Partners approximately 90% of their original
investment.
(2) To be calculated for the annual period ended December 31, 1997.
B-20
<PAGE>
TABLE VI
Historic Taxable Gain (Loss)
(Unaudited)
Typically, the Partnerships have generated taxable losses to be allocated to
their partners during the first two years of operations. After that taxable
income is allocated to the partners annually.
<TABLE>
<CAPTION>
Leastec Northstar Preferred
Date Income Fund V Income Fund I Yield Fund
- ---- ------------- ------------- ----------
<S> <C> <C> <C>
1996 $ 2,036,484 $ 1,753,483 $ 2,012,679
1997 (1) (1) (1)
</TABLE>
<TABLE>
<CAPTION>
Capital Capital Capital Capital
Preferred Preferred Preferred Preferred
Date Yield Fund Yield Fund-II Yield Fund-III Yield Fund-IV
- ---- ---------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
1996 $ 1,193,887 $ 643,311 $ (1,675,210) $ ( 358,106)
1997 (1) (1) (1) (1)
</TABLE>
(1) To be calculated for the annual period ended December 31, 1997.
B-21
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 1 of 11
The following is a list of all lessees of equipment owned by Capital Preferred
Yield Fund as of June 30, 1997:
AMPCO Pittsburgh Dow Chemical
AO Smith Corp. Dun & Bradstreet
Addington E I Dupont
Aetna Life Embrex
Air National Guard Empire Blue Cross
Alliant Techsystems Exel Logistics
Allied Signal FMC Corp.
Ambrose Federal Paper Board
American Freightways Financial News Network
Anchor Glass First Bank of Illinois
Apache Corporation Ford Motor Company
Apple River Hospital Fourth Financial Corp.
Aristech Chemical Fred Meyer
Avon GE (Aero)
BSE Management GE (Transport)
Ball Corp. GM Powertrain
Bartow Memorial Hospital General Electric
BioSafe, Inc. General Felt
Boeing Computer equipment General Motors Corp.
Boston University Georgia Power
Branham & Baker Coal Glamis Gold
Cablec Corporation Goodyear
Carrier Corp. Gottschalks, Inc.
Chambers Development Gould, Inc.
Chrysler Corp. HM Investment
Citibank N.A. HP Casino Management
Commercial Union Insurance HP, Inc.
Community General Hospital Hamline University
Compression Labs Hartford Fire
Computer equipment Science Hartz Foods
Con Agra Helvetia Coal
Conner Peripherals Henry General Hospital
Consolidated Diesel Hoyle, Morris & Kerr
Costain Coal Hughes Aircraft
Cyprus Tonopah Mining Hughes Network
Danskin, Inc. Hyplains Beef
Door County Hospital IBM
B-22
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 2 of 11
ICF Phoenix Mutual
ICI Americas Plasma Quest
ITO Corp of Baltimore Prudential
International Rectifier Quaker Fabric
Isomedix Quality Products
Jamesway Corp. Ralph's Grocery
Kaiser Cement Reliance Insurance
Key Services Rorer Group
Kimberly-Clark Rose Acres Farm
Kraft Sarif, Inc.
LAM Research Savannah Electric
LSI Logic Schneider National
Lakeview Hospital Science Applications
Lever Brothers Sears Technology
Lockheed Shareholder Services
Louisiana Workers Comp. Shell Mining
Marriott Sigma Designs
Marshalls Skywest Airlines
Maryland Casualty Smitty's Super Valu
Maxtor Corp. Springfield Sugar & Products
McCray Memorial Southern Pacific Trans
Miami Dade Southwest Health Center
Miltope Southwest Health Center
Motorola Spring Arbor
National Recovery Standish Community
Neenah Foundry Stater Brothers
Niagara Mohawk Stress Management
Norcross Footwear TRW
North American Chemical The Company Store
Norton Company Thompson Pipe & Steel
Occidental Chemical Thomson Saginaw
Otis Elevator Timken Company
Pentagon Systems Tokos
Phillips Petroleum Triad International
B-23
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 3 of 11
Tyler Corp. Wayne Farms
US Navy Western Digital
United Tech Wharf Resources
United Track (Wembley) Williamsport Hospital
United Waste Wisconsin Packaging
USS/Kobe Steel Woodward & Lothrup
Valley Camp Coal Xerox
Wagner College
The percentage breakdown by the industry of equipment owned and leased by
Capital Preferred Yield Fund as of June 30, 1997:
<TABLE>
<S> <C> <S> <C>
Above ground mining 2.36 Medical 2.00
Agriculture/food process 2.99 Manufacturing - other 2.70
Banking 0.23 Miscellaneous packaging 0.73
Below ground mining 5.30 Modular 1.14
Boot manufacturing 0.49 Networking equipment 0.54
CPU'S - DEC 4.45 Office automation 1.23
CPU'S - IBM 3.62 PBX Systems 3.36
CPU'S - other 1.87 Point-of-sale 0.95
Communication 5.19 Peripherals-controllers 0.96
Construction 2.64 Peripherals-disk 3.68
Desktop PC 4.04 Peripherals-printers 0.04
Dry vans 0.56 Printed circuit board 0.17
Forklifts 5.59 Research 3.04
Furniture 5.44 Semiconductor test 4.13
Glass packaging 1.16 Textile equipment 1.25
Grocery 3.31 Truck leasing 2.89
Loan 2.02 Transport aircraft/truck 5.29
Locomotives 0.64 Wafer fabrication 5.37
Machine tools 0.71 Warehousing 0.97
Maintenance 3.63 Workstations 3.32
--------
100.00
</TABLE>
B-24
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 4 of 11
The following is a list of all lessees of equipment owned by Capital Preferred
Yield Fund-II as of June 30, 1997:
Alliant Techsystems, Inc. International Rectifier
Allied Waste Industries JP Food Service
Anchor Glass James D. Hughes Insurance
Atlantic Steel Industries Kaman Corporation
Auto Alliance LSI Logic
Barney's Lever Brothers
Basic Vegetable Products Lexmark International
Blue Cross & Blue Shield Londonderry
CIBA Geigy Maryland Casualty
Chrysler Corporation Mascotech Braun
Chyron Corporation Matsushita Electric
Communicorp, Inc. Miami Dade
Community General Hospital Norcross Footwear
Consolidated Diesel Northern Telecom
Danskin Owens-Corning Fiberglass
Diamond Shamrock Pacific Coast Producers
Dow Jones Parke-Davis Pharmaceutical
E-Trade Group Pen Interconnect
Ernst Home Center Pepperidge Farm
First Miss Steel Plexus Corporation
G.E. Industrial Power Ralph's Grocery
G.E. (Aero-Eng) Robertshaw Controls Company
G.E. Regional Electronics Rose Acres Farm
GM Powertrain Savannah Electric & Power
General Motors Sears Technology
Georgia Power Smithfield Foods
Goodings Supermarket Solectron Corporation
HBO & Company Southern Pacific
H.E. Butt Grocery Southwestern States Bank
HP Casino Management Staples
Hartford Fire State Street
Hexcel Stone Container
Honeywell Space Systems Sybron Chemicals
IBM Corporation System One Information Management
ICI America's Teledyne Industries, Inc.
ITO Corp. The Budd Company
Ina Bearing Company The Cerplex Group
B-25
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 5 of 11
The Falkirk Mining Company United Track Racing
The Forum Corporation USS/Kobe Steel
The Good Guys Westchester County
The Stop and Shop Supermarkets Westinghouse
Timken Company Wharf Resources
Tip Top Nurseries, Inc. Whirlpool
Town of Wellsley Wolfe Nursery
United States Sugar Corporation Walker Manufacturing
United Technologies Xerox
The percentage breakdown by the industry of equipment owned and leased by
Capital Preferred Yield Fund-II as of June 30, 1997:
<TABLE>
<S> <C> <S> <C>
Above ground mining 2.34 Modular 1.75
Agriculture/food process 1.15 Networking equipment 4.20
Banking 3.56 Office automation 2.24
Boot manufacturing 0.76 PBX systems 0.18
Communication 0.29 PC's networking 0.23
Construction 2.15 Peripherals-disk 0.66
CPU's - DEC 0.15 Peripherals-printers 0.91
CPU's - IBM 0.30 Peripherals-tape 0.19
CPU's -other 6.36 Portable PC's 1.54
Desktop PC's 10.95 Point-of-sale 4.22
Forklifts 9.29 Printed circuit board 5.38
Furniture 1.07 Printing equipment 0.01
Glass Packaging 1.53 Research 1.01
Grocery FF&E 2.20 Retail 2.89
Injection molding 9.83 Semiconductor test 4.48
Loan 1.03 Textile equipment 0.33
Locomotives 1.26 Track leasing 1.54
Medical 0.95 Transport trucks 3.64
Machine tools 3.45 Wafer fabrication 0.96
Manufacturing - semiconductor 0.11 Workstations 2.24
--------
Manufacturing - other 2.67 100.00
</TABLE>
B-26
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 6 of 11
The following is a list of all lessees of equipment owned by Capital Preferred
Yield Fund-III as of June 30, 1997:
Acme Battery Manufacturing Compsource, Inc.
Alliant Techsystems, Inc. Consolidated Diesel
Allied Signal Consolidated Systems
Allied Waste Industries Container Care
Alloy Polymers, Inc. Country Cupboard
Alterations Plus Crystal Ford & Mercury
American Assoc. of Retired People D.L. Phillips Investment
American Laminates, Inc. DSL Transportation Service
Anchor Glass Dairymans Cooperative
Appalachian Power David Tire Co.
Applied Graphics Decamps, William
Applied Radiological Control Diamond Shamrock
Atlantic Steel E&R, Inc.
Autry Greer & Sons, Inc. Eastern Associated Coal
Ball-Foster Glass Container Ebenoburg Power
Barber-Coleman Company Elmore-Pisgah, Inc.
Basic Vegetable Envirosafe Services
Bell South Telecommunications Equimed Leasing
Bickerstaff Imports Esselte Pendaflex Corp.
Bob King Pontiac GMC F&M Distributors
Bojangles Restaurants Feurer, Dennis
Bonar Fabrics Fingerhut
Brickhouse Enterprises Floyd Marine Storage
Bristol-Myers Squibb Foote & Davies, Inc.
Brown Strauss Steel Freestate Petroleum
C&H Knit Products GM Powertrain
CIBA Geigy General Motors Corp.
CT Harris, Inc. Georgetown Steel
Calgon Carbon Georgia Power
Canoak USA Good Times Drive Thru
Cardiac Pacemakers HBO & Company
Central Air Freight HK Systems, Inc.
Ceradyne, Inc. HP Casino Management
Champion Business Forms Haldex Corp.
Chesebrough Ponds Harry's Farmer's Market
Columbus Southern Power Heilig Meyers
B-27
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 7 of 11
Hokkins Systemation National Beef Packing Co.
Home Depot National Broadcasting Co.
Honeywell North American Packaging
Hough Petroleum Ohio Power Company
IBM Corp. Oklahoma Dept. of Tourism
ICI Americas Owens-Corning Fiberglass
ITT Automotive Electrical Pacific Coast Producers
ITT Corporation Paramount Packaging Corp.
In Home Health Peabody Coal Company
Indiana Michigan Power Pen Interconnect
Indy Electronics Perimeter Oil Company
Interactive Marketing Plexus Corp.
Intergraph Pretech Corporation
International Paper Co. Prudential
JJ Collins Sons, Inc. PTC Aerospace
Jack Eckerd Company Quaker Coal Company
KOVCO Quality Oil Company
Kansas Oxide Corp. Rainbow Marketers
Kelley, Donald Ralph's Grocery
Kentucky Power Co. Rawling Sporting Goods
Kessel Food Markets Recycled Materials Company
Keystone Consolidated Riverside Chrysler Plymouth
Keystone Investment Management Roadmaster Corporation
Kop. Flex, Inc. Rogers Petroleum
Lakeland Chrysler SOS Transport
Land O'Lakes Saturn Corp.
Lane Steel, Inc. Scott Company
Lever Brothers Company Sea-Lect Wholesale Seafood
Louisiana Workers Compensation Shapiro Packing
Lucas Industries Shoex, Inc.
Lucas Western Shroeder's Wholesale
Lucent Technologies Silverado Foods
Lykins Oil Co. Smoky Jennings Chevrolet
Madden Services Southway Tire & Automotive
Major Brands Stampede Meat, Inc.
Marriott Staples
Maryland Casualty Straight-Line Water Sports
McGavren Guild, Inc. System One Information Management
McKay, Dave TRW
Merrit, Ford Television City
Midstate Construction Tennessee River
B-28
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 8 of 11
Texas Utilities Co. Tracy-Locke
The Cerplex Group Trammel Crow Distribution
The Falkirk Mining Company Tricord Systems
The Foxboro Company United Artists Theatre
The Hanson-Whitney Company United States Mineral
The Iams Company USS/Kobe Steel
The Robert Plan Corp. VFL Technology
The Stop & Shop Supermarket Valley Innovative Management
The Warehouse, Inc. Visionart Design
Thomson Industries Wayne Farms
Thomson Micron Whaley, Jane Co.
Thomson Saginaw Ball Screw Co. White Consolidated
Three Rivers Motor Co. Williams-Sonoma Stores
Tom's Tire & Service Center Xerox
The percentage breakdown by the industry of equipment owned and leased by
Capital Preferred Yield Fund-III as of June 30, 1997:
<TABLE>
<S> <C> <S> <C>
Above ground mining 3.17 PBX systems 0.95
Agriculture/food processing 4.34 Peripherals - controllers 0.03
Automotive FF&E 0.46 Peripherals - printers 0.39
Below ground mining 2.90 Peripherals - tape 0.03
Communication 2.02 Peripherals - terminals 0.24
Construction 2.60 Portable PC's 1.38
CPU's - DEC 0.32 Point-of-sale 1.83
CPU's - other 0.24 Printed circuit board 2.84
Desktop PC's 6.43 Printing equipment 6.94
Dry vans 1.12 Research 0.22
Forklifts 15.19 Restaurant FF&E 1.01
Furniture 6.67 Retail FF&E 1.79
Golf course equipment 0.60 Semiconductor test equipment 2.93
Grocery FF&E 5.35 Software 0.90
Injection molding 0.15 Textile equipment 1.12
Machine tools 8.10 Track leasing 0.04
Manufacturing - other 4.82 Transportation - containers 0.15
Manufacturing - semiconductor 0.32 Transportation - trucks 0.36
Miscellaneous - packaging 0.49 Wafer fabrication 1.70
Networking equipment 4.85 Warehouse - miscellaneous 0.99
Office automation 2.15 Workstations 1.87
--------
100.00
</TABLE>
B-29
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 9 of 11
The following is a list of all lessees of equipment owned by Capital Preferred
Yield Fund-IV as of June 30, 1997:
Addison Wesley Longman Lexmark International
Alcoa Alumina Louisiana Workers Comp.
Alcoa Fujikura Lucas Industries
Alliant Techsystems, Inc. Lucent Technologies, Inc.
Applied Magnetics Matsushita Electric
Arqule Medtronic, Inc.
Ball-Foster Glass Container Morgan Construction
Basic Vegetable Products Nabisco
Brown Strauss Steel National Broadcasting Co.
Burlingame Industries Northwestern University
Christy's Market Oklahoma Gas & Electric
Chrysler Corporation Owens-Corning Fiberglass
Consolidated Diesel Precision Castparts
Daugold Robertshaw Controls Company
Enogex Staples, Inc.
GM Powertrain Division Texas Instruments
GS Technologies The Dewolfe Company
General Motors Corporation The Foxboro Company
Genetics Institute The New York Hospital
Georgetown Steel Thomson Industries, Inc.
Harsco Corporation Total System Services
Heluva Good Cheese Triconex Corporation
Home Depot, Inc. Unicco Service Co.
Hughes Aircraft United Artist Theatre
Hughes Space & Comm. United States Sugar Corp.
ITT Automotive Electrical Universal Forest Products
In Home Health USS/Kobe Steel
International Paper Company Xerox
Lear Corporation
B-30
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 10 of 11
The percentage breakdown by the industry of equipment owned and leased by all of
Capital Preferred Yield Fund-IV as of June 30, 1997:
<TABLE>
<S> <C> <S> <C>
Communication 1.00 Modular 5.15
Construction 2.18 Networking equipment 4.84
Desktop PC's 13.33 Office automation 8.30
Dry vans 0.09 PBX systems 0.87
Forklifts 1 2.53 Peripherals - disk 0.27
Forklifts 2 17.83 Portable PC's 1.29
Forklifts 3 1.10 Printed circuit board manufacturing 2.96
Furniture 2.11 Research 8.47
Grocery FF&E 1.44 Retail FF&E 1.52
Machine tools 10.94 Semiconductor test 0.91
Medical 0.52 Software 0.35
Manufacturing - other 8.26 Wafer fabrication manufacturing 2.71
--------
Miscellaneous packaging 1.03 100.00
</TABLE>
B-31
<PAGE>
TABLE VII
PROGRAM LESSEES
(Unaudited)
Page 11 of 11
The percentage breakdown by the industry of equipment owned and leased by
Capital Preferred Yield Fund, Capital Preferred Yield Fund-II, Capital Preferred
Yield Fund-III and Capital Preferred Yield Fund-IV as of June 30, 1997:
<TABLE>
<S> <C> <S> <C>
Above ground mining 2.19 Miscellaneous packaging 0.51
Agriculture/food process 2.47 Modular buildings 1.47
Automotive FF&E 0.11 Networking equipment 2.96
Banking 0.84 Office automation 2.56
Below ground mining 2.80 PBX systems 1.71
Boot manufacturing 0.36 Peripherals - controllers 0.39
Communication 2.74 Peripherals - disk 1.63
CPU's - DEC 1.88 Peripherals - printers 0.30
CPU's - IBM 1.54 Peripherals - tape 0.05
CPU's - Other 0.27 Peripherals - terminals 0.06
CPU's - Teredata 1.86 Portable PC's 0.92
Desktop PC's 7.36 Point-of-Sale 2.67
FF&E 0.63 Printed circuit board manufacturing 2.57
Forklifts 1 2.14 Printing equipment 1.69
Forklifts 2 8.14 Research 2.56
Forklifts 3 0.70 Restaurant FF&E 0.25
Furniture 3.68 Retail FF&E 1.24
Glass packaging 0.78 Semiconductor test equipment 3.44
Golf Course equipment 0.15 Software 0.27
Grocery FF&E 3.25 Textile equipment 0.84
Industrial - construction 2.42 Track leasing 1.48
Industrial - maintenance 1.44 Transportation - aircraft 0.59
Injection molding 2.10 Transportation - container 0.04
Loan 1.02 Transportation - dry vans 0.50
Locomotives 0.52 Transportation - trucks 2.40
Machine tools 4.38 Wafer fabrication 3.15
Manufacturing - semiconductor 0.10 Warehousing - miscellaneous 0.63
Manufacturing - other 3.86 Workstations 2.24
--------
Medical 1.15 100.00
</TABLE>
B-32
<PAGE>
CAPITAL PREFERRED YIELD FUNDS
SAMPLE LESSEES BY REGION
(Unaudited)
1 of 2
Northeastern Region Southeastern Region
------------------- -------------------
Avon Products Anchor Glass
BioSafe, Inc. Appalachian Power Co.
Bristol-Myers Squibb Co. Bartow Memorial Hospital
Columbus Southern Power Branham & Baker Coal Co.
Dow Jones & Company Ciba Geigy
G.E. Regional Electronics Center Compression Labs
Lever Brothers General Electric Supply
Marriott Corp. Georgia Power Company
Maryland Casualty HBO & Company
Ohio Power Co. Honeywell Space Systems, In.
Otis Elevator ICF, Inc.
Pepperidge Farm Intergraph Corporation
Shareholder Services Kentucky Power Co.
Staples, Inc. Kraft, Inc.
State Street Peabody Coal Co.
Thomson Saginaw Ball Screw Co. Plexus Corp.
TRW Savannah Electric & Power Co.
Shell Mining Co.
Western Region Timken Co.
-------------- Whirlpool
Boeing Computer Equipment Systems
Brown-Strauss Steel Division Midwestern Region
-----------------
Chesebrough-Ponds, Inc.
Chyron Corporation Alliant Techsystems, Inc.
Fred Meyers, Inc. Allied Signal, Inc.
General Felt Industries Apache Corp.
Hughes Aircraft Company Applied Graphics Technologies
General Motors Corporation Blue Cross & Blue Shield of Texas
Hughes Network Systems, Inc. Cardiac Pacemakers, Inc.
International Rectifier Corp. Carrier Corp.
Kaiser Cement Diamond Shamrock Refining
Lam Research Corp. Fingerhut
LSI Logic Corp. First Bank of Illinois
Lucas Western, Inc. Ford Motor Company
B-33
<PAGE>
CAPITAL PREFERRED YIELD FUNDS
SAMPLE LESSEES BY REGION
(Unaudited)
2 of 2
Western Region Midwestern Region
-------------- -----------------
Marshalls Fourth Financial Corp.
Northern Telecom, Inc. General Motors Corporation
Ralph's Grocery Hyplains Beef, L.C.
Southern Pacific Indiana Michigan Power Co.
Stater Brothers Land O'Lakes
Teledyne Industries, Inc. Motorola
Valley Camp Coal Occidental Chemical Corp.
Wharf Resources USA, Inc. Reliance Insurance
Sears Technology
B-34
<PAGE>
EXHIBIT C
CAPITAL PREFERRED YIELD FUND - V, L.P.
SUBSCRIPTION AGREEMENT
<PAGE>
INSTRUCTIONS FOR COMPLETING
CAPITAL PREFERRED YIELD FUND - V, L.P. SUBSCRIPTION AGREEMENT
Please be certain that all applicable sections of the Subscription Agreement are
complete.
1. Month, day and year application is signed.
2. It is imperative that all CHECKS BE MADE PAYABLE to "CAPITAL PREFERRED
YIELD FUND - V, L.P., Escrow Account" or "CAPITAL PREFERRED YIELD FUND
- V, L.P." as applicable.
Amount of Investment: Dollar amount invested.
Unit amount: ($100 per unit).
Are you a "United States Person": Mark yes or no.
Additional investment: If you previously invested in this Fund, mark
yes; include your account number.
Point of sale: The state where purchase is made.
3. Social Security/Tax Identification Number: Please provide your Social
Security Number here. Any tax identification number should be provided
in addition to your Social Security Number when applicable (i.e. family
trust, corporation, etc.).
4. Registration: Please mark one box only.
5. Name(s) in which ownership is to be registered: Please complete this
section exactly as it should appear on your certificate (i.e. Investors
Bank, FBO John Jones IRA DTD 7/1/93).
6. Investor(s) Signature: Please sign where indicated. If you are using a
trustee, the authorized trustee signature must appear.
7. Investor(s) Legal Residence: Legal address.
8. Custodian or Trust Company Address: Address of Custodian or Trust
Company. If you choose to direct your distributions to multiple payees,
please complete and sign a Split Distribution Form. In the event your
check amount does not equal the minimum deposit requirement of your
financial institution and is returned to us a $5.00 service charge will
be deducted from the amount of your check.
9. Mailing Address for Checks: You may wish for your checks to be
deposited directly to a bank account (include account number, address
C-1
<PAGE>
of bank, etc.). If a custodian or trust company is named, checks will
be mailed to #8 above. If you would like distributions to be sent to
two persons, complete all information under #9.
10. Check here if you would like your distributions reinvested during the
Offering Period.
11. You may elect to receive payment of your cash distributions from the
Partnership on a monthly basis or a quarterly basis. Please indicate
your choice clearly in response to this question.
TO THE BROKER/DEALER
12. Please complete the Broker/Dealer section in full. This application
must be signed by a Registered Principal or Branch Manager of the firm.
The order cannot be completed without such a signature.
13. Please direct all copies as noted on the application. Note: When a
trustee is used, both original and trustee copy should be sent to the
trustee for signature and forwarding to CAI Securities Corporation. If
you have any questions, please call toll free in the Continental U.S.:
(800) 821-2456.
C-2
<PAGE>
CAPITAL PREFERRED YIELD FUND - V, L.P. SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY
SIGNATURE PAGE
Please type or print
1. IN WITNESS WHEREOF, I have executed this subscription on this ---- day
of 19 .
--------- --
2. Make checks payable to: "CAPITAL PREFERRED YIELD FUND-V, L.P., Escrow
Account" (if before the Minimum Offering of 12,000 Units) or "CAPITAL
PREFERRED YIELD FUND-V, L.P." (if after the Minimum Offering).
(Investors investing through a Qualified Retirement Plan should furnish
a check from the Plan's Custodian/Trustee.)
Amount of this investment ($100 per unit): $-----------
No. of Units ---- United States Person* ----- Yes ------ No
Add'l Investment ------- Yes --------- No Acct. # --------------------
Point of Sale (State):
------------------------------------------------
3. Social Security Number:
OR
Tax Identification Number:
Custodian Tax Identification Number
-----------------------------------
4. REGISTRATION (Check one)
IRA Profit Sharing Plan Community Property
--- --- ---
Tenants in Common Individual KEOGH
--- --- ---
Other Partnership Trust
--- ---------- --- ---
(Specify)
Joint Tenants Custodian Pension Plan
--- --- ---
- --------------
* "United States Person" means a citizen or resident of the United States, a
partnership or corporation formed under the laws of any State and a trust
or estate the income from which is partly or wholly subject to U.S. federal
income tax. A "resident" of the United States is defined in Internal
Revenue Code Section 7701(b) to include permanent residents of the United
States, certain part-time residents and certain persons who elect to be
taxed as residents. Non-U.S. citizens should consult their tax advisors
regarding these residency rules.
5. NAME(S) IN WHICH UNITS ARE TO BE REGISTERED: (Use only spaces provided if
abbreviation is necessary use preferred abbreviation)
------------------------------------------------------------------
------------------------------------------------------------------
C-3
<PAGE>
6. X X
----------------------------- -----------------------------------
Investor's Signature Authorized Signature (Custodian or
Trustee)
X X
----------------------------- -----------------------------------
Investor's Signature Please print name and title of
above
7. LEGAL RESIDENCE OF INVESTOR(S)
------------------------------------------------------------------------
Street Address
------------------------------- ------ ----- - ----
City State Zip Code
--- - --- - ---- ------------
Day Telephone No. Evening Telephone No.
8. CUSTODIAN OR TRUST COMPANY ADDRESS:
------------------------------------------------------------------------
Street Address
------------------------------- ----- ------ - ----
City State Zip Code
--- - --- - ----
Telephone No.
9. MAILING ADDRESS FOR CHECKS: (if different than #7 above)
If you want to split the distribution by dollar amount or percentage,
indicate these numbers below.
Check #1 $ or % Check #2 $ or %
--------- --------- --------- ----------
Company or Bank Name Company or Bank Name
----------- ------------
Account Number Account Number
----------------- ------------------
Street Address Street Address
----------------- ------------------
City, State, Zip City, State, Zip
--------------- ----------------
Telephone Telephone
---------------------- -----------------------
10. Check here if you elect to have distributions of the Partnership
reinvested in additional units during the Offering Period. ____
You will receive updated Supplements throughout the Offering Period.
11. FREQUENCY OF CASH DISTRIBUTIONS:
I elect to receive payment of cash distributions from the Partnership
(choose one): Monthly ____ or Quarterly ____.
C-4
<PAGE>
To be completed by Broker/Dealer
The undersigned Firm Principal and Registered Representative under his or her
supervision hereby represents the following with regard to the investor named in
the Subscription Agreement and Power of Attorney.
1. The required suitability verification has been conducted in
accordance with Rule 2810(b)(2) of the NASD Conduct Rules.
2. The required disclosure of all pertinent facts relating to
the liquidity and marketability of the program during the term of the investment
has been done in accordance with Rule 2810(b)(3) of the NASD Conduct Rules.
3. The investor will receive a final prospectus at least five
business days prior to the completion of the sale.
4. The investor will receive a confirmation of his or her
purchase.
-----------------------------------------------------------------------
12. | Name of Registered - |
| Representative: --- --- ---- |
| ------------------------ Telephone |
| Soliciting Broker Firm: |
| ------------------ |
| Registered Representative's |
| Office Address: |
| ----------------------- |
| City: |
| ------------------------ |
| State and Zip Code: |
| ------------------- |
| -------------------------------------------------------- |
| Registered Representative's Signature |
| |
| -------------------------------------------------------- |
| Authorized Signature of Registered Principal or Branch |
| Manager |
| (ORDER CANNOT BE COMPLETED WITHOUT SIGNATURE) |
-----------------------------------------------------------------------
C-5
<PAGE>
----------------------------------------
| FOR FUND USE ONLY: |
| ----------------- |
| |
| ADMIT DATE |
| ----------------- |
| AMOUNT |
| ----------------- |
| BLUE SKY |
| ----------------- |
| TERRITORY |
| ----------------- |
| ORDER NO. |
| ----------------- |
| SALES CODE |
| ----------------- |
| TRUST CO. |
| ----------------- |
----------------------------------------
Accepted: Capital Preferred Yield Fund - V, L.P.
By: CAI Equipment Leasing VI Corp., General Partner
By:
--------------------------------------------
Authorized Officer
13. WHITE COPY - Mail to: YOUR BROKER/DEALER OR CAI SECURITIES CORP. at
7175 West Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235 GREEN
COPY - Investor CANARY COPY - Sales Representative PINK COPY -
Broker/Dealer GOLDENROD COPY - Trustee
C-6
<PAGE>
CAPITAL PREFERRED YIELD FUND - V, L.P.
SUBSCRIPTION AGREEMENT
CAI Equipment Leasing VI Corp.
General Partner of Capital Preferred Yield Fund - V, L.P.
7175 West Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
The undersigned hereby makes application to purchase limited
partnership interests ("Units") in Capital Preferred Yield Fund - V, L.P., a
Delaware limited partnership. The undersigned will sign the attached Signature
Page to the Subscription Agreement and Power of Attorney indicating thereon the
number of Units applied for ($100 per Unit; minimum subscription $2,500 except
that, in the case of an IRA or qualified plan, the minimum investment may be
$1,000), and enclose a check made payable to "CAPITAL PREFERRED YIELD FUND - V,
L.P., Escrow Account" (if before the Minimum Offering of 12,000 Units) or
"CAPITAL PREFERRED YIELD FUND -V, L.P." (if after the Minimum Offering).
The sale of Units may not be completed until five days after
the investor has received the final Prospectus. An investor may receive a refund
of his or her investment within five days after subscribing if that investor
received a final Prospectus only at the time of subscription.
The undersigned hereby acknowledges receipt of a copy of the
Prospectus, dated __________ __, 1998.
The undersigned hereby represents and warrants to you as
follows (Michigan, Nebraska, Ohio, Oklahoma and Texas investors must initial
each representation in the space provided in the left
margin):
(1) I have received the Prospectus and the form of
- ----- the Agreement of Limited Partnership (the "Partnership
Agreement") attached as Exhibit A thereto, and hereby
specifically adopt every provision of the Partnership Agreement
and agree to be bound thereby;
(2) I (a) am purchasing Units for my own account
- ----- and have a minimum annual gross income of $45,000 and a net worth
(exclusive of home, home furnishings and personal property and
motor vehicles or automobiles) at least equal to $45,000 in
excess of my capital contribution, or (b) am purchasing Units for
my own account and have net worth (exclusive of home, home
furnishings and personal property and motor vehicles or
automobiles) at least equal to $150,000 in excess of my capital
contribution, or (c) am purchasing in a fiduciary capacity for a
person or entity, and either each beneficiary of the fiduciary
C-7
<PAGE>
account or the donor who is directly or indirectly supplying the
funds to purchase the Units subscribed for meets the suitability
standards set forth in clause (a) or clause (b). If I am
purchasing in a state requiring suitability standards different
from those set forth above, I represent that I meet, or am
purchasing in a fiduciary capacity for a person or entity that
meets, the suitability standards set forth for such state as
reflected in the following table;
C-8
<PAGE>
<TABLE>
<CAPTION>
Subscription
Minimum Investment Suitability Standards Agreement
------------------ --------------------------------- -------------
(In Units)
IRAs and Annual
Qualified Net Gross Net Signature
State Regular Plans Worth plus Income or Worth Required
- ----- ------- --------- ----- ---- ------ -- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Alabama 25 10 $45,000 $45,000 $150,000 No
Alaska 25 10 45,000 45,000 150,000 No
Arizona 25 10 45,000 45,000 150,000 No
Arkansas 25 10 45,000 45,000 150,000 No
California 25 10 45,000 45,000 150,000 No
Colorado 25 10 45,000 45,000 150,000 No
Connecticut 25 10 45,000 45,000 150,000 No
Delaware 25 10 45,000 45,000 150,000 No
Dist. of Columbia 25 10 45,000 45,000 150,000 No
Florida 25 10 45,000 45,000 150,000 No
Georgia 25 10 45,000 45,000 150,000 No
Hawaii 25 10 45,000 45,000 150,000 No
Idaho 25 10 45,000 45,000 150,000 No
Illinois 25 10 45,000 45,000 150,000 No
Indiana 25 10 45,000 45,000 150,000 No
Iowa 25 25 45,000 45,000 150,000 Yes
Kansas 25 10 45,000 45,000 150,000 No
Kentucky 25 10 45,000 45,000 150,000 No
Louisiana 25 10 45,000 45,000 150,000 No
Maine 25 10 45,000 45,000 150,000 Yes
Maryland 25 10 45,000 45,000 150,000 No
Massachusetts 25 10 60,000 60,000 225,000 Yes
Michigan* 25 10 45,000 45,000 150,000 Yes
Minnesota 25 20 45,000 45,000 150,000 Yes
Mississippi 25 10 45,000 45,000 150,000 No
Missouri 25 10 60,000 60,000 225,000 Yes
Montana 25 10 45,000 45,000 150,000 No
Nebraska 50 10 45,000 45,000 150,000 Yes
Nevada 25 10 45,000 45,000 150,000 No
New Hampshire 25 10 45,000 45,000 150,000 Yes
New Jersey 25 10 45,000 45,000 150,000 Yes
New Mexico 25 10 45,000 45,000 150,000 Yes
New York 25 10 45,000 45,000 150,000 No
North Carolina 25 10 60,000 60,000** 225,000 Yes
North Dakota 25 10 45,000 45,000 150,000 No
Ohio* 25 10 45,000 45,000 150,000 Yes
Oklahoma 25 10 45,000 45,000 150,000 Yes
Oregon 25 10 45,000 45,000 150,000 No
Pennsylvania* 25 10 45,000 45,000 150,000 No
Rhode Island 25 10 45,000 45,000 150,000 No
South Carolina 25 10 45,000 45,000 150,000 No
South Dakota 25 10 45,000 45,000 150,000 Yes
Tennessee 25 10 45,000 45,000 150,000 Yes
Texas 25 10 45,000 45,000 150,000 Yes
Utah 25 10 45,000 45,000 150,000 No
Vermont 25 10 45,000 45,000 150,000 No
Virginia 25 10 45,000 45,000 150,000 No
Washington 25 10 45,000 45,000 150,000 Yes
West Virginia 25 10 45,000 45,000 150,000 No
Wisconsin 25 10 45,000 45,000 150,000 No
Wyoming 25 10 45,000 45,000 150,000 No
- --------------------
</TABLE>
* The investment in Units may not exceed 10.0% of the investor's net worth.
** In North Carolina, income requirements apply to taxable income, rather than
gross income.
- --------------------
C-9
<PAGE>
(3) I have reached the age of majority in my state
- ------ of residence;
(4) I acknowledge that this is not a liquid
- ------ investment (this representation shall not apply to Minnesota
or Missouri investors);
(5) If I am acting in a representative capacity for
- ------ a corporation, partnership, trust or other entity, or as agent
for any person or entity, I hereby represent and warrant that
I have full authority to enter into this agreement in such
capacity; and
(6) In the case of investment by a qualified plan
- ------ or IRA: (a) I am the fiduciary of the qualified plan or IRA;
and (b) the acquisition and holding of Units by the qualified
plan or IRA will not violate the provisions of ERISA or
constitute a "prohibited transaction" under ERISA or the
Internal Revenue Code.
Disclosures to Investors.
(1) The assignability and transferability of the
- ----- Units will be governed by the Agreement and all applicable
laws. You should consider that the Units may not be sold if
necessary to provide liquidity and whether you have adequate
means of providing for your current needs and personal
contingencies.
(2) If you are purchasing the Units subscribed for
- ----- hereby in a fiduciary capacity, the representations and
warranties herein shall be deemed to have been made on behalf
of the person or persons for whom you are so purchasing.
(3) The General Partner of the Partnership may rely
- ------ on the representations and warranties made by you in this
Subscription Agreement.
IN STATES WHERE (AS REFLECTED IN THE FOREGOING TABLE)
INVESTORS ARE NOT REQUIRED TO EXECUTE SUBSCRIPTION AGREEMENTS, AND SUBJECT TO
ACCEPTANCE OF THE INVESTOR'S SUBSCRIPTION FOR UNITS, PAYMENT TO THE
DEALER-MANAGER OR A SELLING DEALER FOR THE UNITS PURCHASED SHALL CONSTITUTE THE
INVESTOR'S AGREEMENT TO THE TERMS AND CONDITIONS OF THIS SUBSCRIPTION AGREEMENT
AND THE PARTNERSHIP AGREEMENT, THE AUTHORITY OF THE GENERAL PARTNER TO EXECUTE
THIS SUBSCRIPTION AGREEMENT AND THE IRREVOCABLE APPOINTMENT OF THE GENERAL
PARTNER AS THE INVESTOR'S ATTORNEY-IN-FACT TO EXECUTE ON BEHALF OF THE INVESTOR
THE PARTNERSHIP AGREEMENT AND SUCH OTHER DOCUMENTS AS MAY BE REQUIRED TO CARRY
OUT THE BUSINESS OF THE PARTNERSHIP.
C-10
<PAGE>
The undersigned hereby acknowledges that by his, her or its
signature below, whether personally, pursuant to the authority set forth in the
preceding paragraph or otherwise, the undersigned irrevocably constitutes and
appoints the General Partner of the Partnership the true and lawful
attorney-in-fact of such person with full power and authority in the name, place
and stead of such person to execute, acknowledge, swear to, file and record at
the appropriate public offices the Partnership Agreement and amendments thereof
and to take such other actions as may be necessary or appropriate to carry out
the provisions of the Partnership Agreement and the Prospectus of the
Partnership as the General Partner deems appropriate.
The power of attorney contained in the preceding paragraph is
irrevocable and shall survive and not be affected by the subsequent death,
disability or incapacity of the undersigned investor.
The undersigned hereby agrees that the undersigned is not
entitled to cancel, terminate or revoke this subscription or any agreements of
the undersigned hereunder and that such subscription and agreements shall
survive the death or disability of the undersigned.
This Subscription Agreement and all rights hereunder shall be
governed by, and interpreted in accordance with, the laws of the State of
Delaware. If for any reason any provision or provisions hereof are determined to
be invalid or contrary to any existing or future law, such invalidity shall not
impair the provisions of the Agreement that are valid.
IN WITNESS WHEREOF, the undersigned executes and agrees to be
bound by this Subscription Agreement by executing the Signature Page (which may
be executed through the authorization granted to the General Partner only in the
case of a purchase of Units through the Dealer-Manager or a Selling Dealer, and
only in states that permit such execution, as described herein) on the date
therein indicated.
WHITE COPY - Mail to: YOUR BROKER/DEALER OR CAI SECURITIES
CORP. at 7175 West Jefferson Avenue, Suite 4000, Lakewood,
Colorado 80235
GREEN COPY - Investor CANARY COPY - Sales Representative PINK COPY -
Broker/Dealer GOLDENROD COPY - Trustee
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the 20th day of October, 1997.
CAPITAL PREFERRED YIELD FUND-V, L.P.
By: CAI EQUIPMENT LEASING VI CORP.
a Colorado corporation and
a General Partner of the Registrant
By: /s/ John F. Olmstead
----------------------------------------
John F. Olmstead, President
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below on October 20, 1997 by the
following persons in the capacities indicated.
Know all by these presents, that each person whose signature
appears below constitutes and appoints John F. Olmstead, Anthony M. DiPaolo and
Dennis J. Lacey, and each of them, with full power to act, without the other, as
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place and
stead, in any and all capacities, to sign the Registration Statement on Form S-1
under the Securities Act of 1933, as amended, of Capital Preferred Yield Fund -
V, L.P. and any and all amendments (including post-effective amendments) to such
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission and state securities agencies, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substititutes, may lawfully do or
cause to be done by virtue thereof.
Signature Title
--------- -----
/s/ John F. Olmstead President (Principal Executive Officer) and
- ------------------------------- Director of CAI Equipment Leasing VI Corp.,
John F. Olmstead the General Partner of the Registrant
/s/ Dennis J. Lacey Senior Vice President and Director of CAI
- ------------------------------- Equipment Leasing VI Corp., the General
Dennis J. Lacey Partner of the Registrant
/s/ Anthony M. DiPaolo Senior Vice President, Chief Administrative
- ------------------------------- Officer (Principal Financial Officer) and
Anthony M. DiPaolo Director of CAI Equipment Leasing VI Corp.,
the General Partner of the Registrant
/s/ Daniel J. Waller Director of CAI Equipment Leasing VI Corp.,
- ------------------------------- the General Partner of the Registrant
Daniel J. Waller
/s/ Richard H. Abernethy Director of CAI Equipment Leasing VI Corp.,
- ------------------------------- the General Partner of the Registrant
Richard H. Abernethy
/s/ John A. Reed Director of CAI Equipment Leasing VI Corp.,
- ------------------------------- the General Partner of the Registrant
John A. Reed
/s/ David J. Anderson Chief Accounting Officer (Principal
- ------------------------------- Accounting Officer) and Secretary of CAI
David J. Anderson Equipment Leasing VI Corp., the General
Partner of the Registrant
II-4
<PAGE>
EXHIBIT INDEX
Exhibits Exhibit Description Page
- -------- ------------------- ----
1(a) -Form of Dealer-Manager Agreement
1(b) -Form of Selling Dealer Agreement
3(a) -Articles of Incorporation of CAI Equipment
Leasing VI Corp.
3(b) -Bylaws of CAI Equipment Leasing VI Corp.
4(a) -Organizational Partnership Agreement of
Capital Preferred Yield Fund - V, L.P.
4(b) -Form of Amended and Restated Agreement of
Limited Partnership (included in the
Prospectus as Exhibit A)
5 -Opinion of Lyle B. Stewart, P.C., as to
the legality of the securities being
registered
8 -Opinion of Ballard Spahr Andrews &
Ingersoll as to tax matters*
10(a) -Form of Escrow Agreement
10(b) -Form of Subscription Agreement (included
in the Prospectus as Exhibit C)
23(a) -Consent of Lyle B. Stewart, P.C. is
contained in its opinion (filed as
Exhibit 5)
23(b) -Consent of Ballard Spahr Andrews &
Ingersoll is contained in its opinion
(filed as Exhibit 8)
23(c) -Consent of KPMG Peat Marwick LLP relating
to its audit of the balance sheet of CAI
Equipment Leasing VI Corp.
23(d) -Consent of KPMG Peat Marwick LLP relating
to its audit of the balance sheet of
Capital Preferred Yield Fund - V, L.P.
23(e) -Consent of KPMG Peat Marwick LLP relating
TO its audit of the balance sheet of
Capital Associates, Inc.
24 -Power of Attorney (included on Signature
Page of the Registration Statement)
* To be filed by amendment.
DEALER-MANAGER AGREEMENT
This Dealer-Manager Agreement (the "Agreement") is entered
into this ____ day of October, 1997, by and among CAI SECURITIES CORPORATION, a
California corporation (the "Dealer-Manager"), CAPITAL PREFERRED YIELD FUND - V,
L.P., a Delaware limited partnership (the "Partnership"), and its general
partner, CAI EQUIPMENT LEASING VI CORP., a Colorado corporation (the "General
Partner") with respect to the following:
RECITALS
a. The Partnership proposes to offer Partnership units
("Units") for sale on the basis hereinafter set forth (the "Offering").
b. The Dealer-Manager desires to sell Units on a best efforts
basis as set forth herein.
NOW THEREFORE, in consideration of the foregoing recitals, the
parties hereto agree as follows:
1. Definitions. All terms not otherwise defined herein shall have the
meaning set forth in Article One of the Partnership's Amended and Restated
Agreement of Limited Partnership, as set forth in Exhibit A to the Prospectus
(as defined in Section 4 below) (the "Partnership Agreement").
2. Dealer-Manager. The Partnership hereby appoints the Dealer-Manager
to select and coordinate the activities of the Selling Dealers (as defined in
Section 4) to be its exclusive agents to sell for the Partnership's account up
to 500,000 Units at the offering price of $100 per Unit ("Purchase Price") and
the Dealer-Manager agrees to use its best efforts to encourage the Selling
Dealers to sell such Units to prospective investors as contemplated by this
Agreement and the Selling Dealer Agreement (as defined in Section 4).
3. Sale of Units. Sales of the Units may commence at any time on or
after the effective date of the Registration Statement, as defined in Section 4,
and shall terminate on the date twenty-four (24) months from the date of the
Prospectus, as defined in Section 4, unless the Offering is terminated earlier
by the General Partner. If subscriptions for at least 12,000 Units (the "Minimum
Offering") have not been received as of the date twelve (12) months from the
date of the Prospectus, the General Partner will terminate the Offering, no
Units will be sold, and all subscription payments, plus accrued interest
thereon, will be refunded. The General Partner and its Affiliates may purchase
up to five percent (5%) of the total Units purchased in the Offering; however,
none of such purchases may be included in determining whether the Minimum
Offering has been achieved. The proceeds from the sale of the Units prior to the
Closing Date will be paid to the Partnership's escrow account, and on the
Closing Date the Partnership will pay the commissions and the reimbursements set
<PAGE>
forth in Section 5 with respect to the Units sold at or prior to the Closing
Date. Thereafter, commissions will be paid upon admission of subscribers to the
Partnership.
4. Prospectus. The Partnership intends to offer its Units for sale in
an offering which is intended to be registered under the Securities Act of 1933
(the "Securities Act") with the Securities and Exchange Commission (the
"Commission"), in compliance with the rules and regulations of the Commission
(the "Rules and Regulations") pursuant to a Registration Statement on Form S-1
(File No. -----------) and amendments thereto. Such Registration Statement, as
amended, at the time it becomes effective, and the final Prospectus in
connection therewith filed pursuant to Rule 424(b), are herein respectively
called the "Registration Statement" and the "Prospectus". The terms and
conditions of the Offering are set forth in the Prospectus. The Units offered
and sold under this Agreement shall be offered and sold only by broker-dealers
selected by the Dealer-Manager ("Selling Dealers"), all of which shall enter
into a Selling Dealer Agreement in the form annexed hereto as Exhibit A (the
"Selling Dealer Agreement").
5. Sales Commission and Dealer-Manager Fee. In consideration for the
execution of this Agreement, and for the performance of Dealer-Manager's
obligations hereunder, the Partnership agrees to pay to the Dealer-Manager a
commission of ten percent (10%) of the offering price of each Unit sold in the
Offering, from which the Dealer-Manager shall reallow a Sales Commission to the
Selling Dealers of eight percent (8%) of the offering price of Units sold
thereby (or more if the Dealer-Manager so desires and if approved by the General
Partner). Two percent (2%) of the commission paid to the Dealer-Manager as
aforesaid shall represent a fee to the Dealer-Manager for managing the offering
of the Units. In addition, the Partnership may (directly or indirectly through
the General Partner or the Dealer-Manager) reimburse the Selling Dealers for
bona fide due diligence expenses of the lesser of up to one-half of one percent
(.50%) of the price of Units sold or the maximum amount payable under the Rules
of Conduct of the National Association of Securities Dealers (the "NASD"). To
the extent that the General Partner or the Dealer-Manager has, on the
Partnership's behalf, reimbursed one or more Selling Dealer for such bona fide
due diligence expenses, the Partnership shall reimburse the General Partner or
Dealer-Manager for such amounts paid.
The Unit price shall be $100.00, except that the
Dealer-Manager shall provide a discount to the applicable purchaser of the Units
equal to one percent (1.0%) of the aggregate purchase price of Units as a
reduction in Sales Commission for all purchases of $500,000 or more (a "Volume
Discount"). The Volume Discount applies to an investor's entire purchase of
Units if the aggregate purchase price exceeds $500,000, and the discount will be
used to purchase additional Units. For purposes of computing the Volume
Discounts, subscriptions for Units may be aggregated if: (i) the legal and
beneficial ownership of Units to be purchased is identical to the legal and
beneficial ownership of all other Units to be aggregated; (ii) all such Units
are purchased through the same Selling Dealer; and (iii) the request to combine
more than one subscription for Units is made at the time of the subsequent
2
<PAGE>
subscription. Any request for aggregating subscriptions will be subject to
verification by the Dealer-Manager, whose determination will be final.
Notwithstanding the foregoing, however, the obligation of the
Partnership to pay commissions to the Dealer-Manager and to reimburse due
diligence expenses as aforesaid shall be subject to the following conditions and
limitations:
(a) The General Partner has reserved the right to
accept or reject any subscriptions for Units as set forth in
the Prospectus and no commission will be payable to the
Dealer-Manager with respect to the tender of any Subscription
Agreement which is rejected by the General Partner.
(b) None of such commissions or due diligence
reimbursements as set forth above will be payable or paid
until release on the Closing Date to the Partnership, from the
escrow account in which they are to be deposited, of the
initial $1,200,000 of subscription proceeds, representing
subscriptions for the Minimum Offering amount of 12,000 Units.
After the Closing Date, commissions will become payable on the
date the investor becomes a Class A Limited Partner of the
Partnership.
6. Agreements of the Partnership and the General Partner. The
Partnership and General Partner, jointly and severally, agree as follows:
6.1 The Partnership will furnish to the Dealer-Manager for the
Dealer-Manager's use and for transmittal to the Selling Dealers,
without charge, as many copies of the Prospectus as the Dealer-Manager
may reasonably request.
6.2 Neither the Partnership nor the General Partner will make
amendments to the Prospectus of which the Dealer-Manager shall not
previously have been advised.
6.3 The Partnership will not sell or dispose of any Units
otherwise than pursuant to the Agreement.
6.4 The Partnership will take any and all action which will be
necessary to comply with the requirements of every jurisdiction in
which it proposes to own property or conduct its business.
7. Representations and Warranties of the Partnership and the General
Partner. The Partnership and the General Partner, jointly and severally,
represent and warrant to the Dealer-Manager that:
3
<PAGE>
7.1 The Partnership has been duly formed as a limited
partnership and is validly existing as such in good standing under the
laws of Delaware with full power and authority to conduct its business
as described in the Prospectus.
7.2 The capitalization of the Partnership and the Units
conform, or will conform when the Units are issued, in all material
respects to the description thereof and to all statements made in
relation thereto in the Prospectus.
7.3 The General Partner has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the State of Colorado with full corporate and other power and authority
to conduct its business as described in the Prospectus and is duly
qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required.
7.4 The Registration Statement and Prospectus will contain all
statements which are required to be stated therein in accordance with
the Securities Act and the Rules and Regulations thereunder and will
conform in all material respects with the requirements of the
Securities Act and the Rules and Regulations; and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein and necessary to make the statements
therein not misleading.
7.5 Except as set forth in the Prospectus, there is not now
pending, or, to the knowledge of the Partnership and the General
Partner, threatened, any action, suit or proceeding to which the
Partnership or the General Partner is a party before or by any court or
governmental agency or body, which might result in any material adverse
change in the condition, business or prospects of the Partnership or
might have a materially adverse effect on the ability of the General
Partner to carry out its obligations as General Partner.
7.6 The performance of this Agreement, and the consummation of
the transactions herein contemplated by the Partnership will not result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any purchase agreement, lease, mortgage
note agreement or other agreement or instrument to which the
Partnership is a party or by which it is bound or to which any of its
property is subject, or any regulation or order of any court or
governmental agency or body having jurisdiction over the Partnership or
any of its activities or properties; and no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation by the Partnership of the transactions
herein contemplated; and the Partnership has full power and lawful
authority to issue and sell the Units to be sold by it hereunder by the
terms and conditions herein set forth.
4
<PAGE>
8. Representations and Warranties of the Dealer-Manager. The
Dealer-Manager represents and warrants to the Partnership and the General
Partner that:
8.1 The Dealer-Manager has been duly formed as a corporation
and is validly existing as such in good standing under the laws of
California with full power and authority to conduct its business as
required by this Agreement.
8.2 The Dealer-Manager is registered as a broker-dealer with
the Commission and is a member in good standing of the NASD and will
maintain such registration and qualification throughout the term of
this Agreement.
8.3 There is not now pending, or, to the knowledge of the
Dealer-Manager, threatened, any action, suit or proceeding to which the
Dealer-Manager is a party, before or by any court or governmental
agency or body, which might result in any material adverse change in
the condition, business or prospects of the Dealer-Manager or might
have a materially adverse effect on the ability of the Dealer-Manager
to carry out its obligations under this Agreement.
8.4 The performance of this Agreement, and the consummation of
the acts required to be performed by the Dealer-Manager hereunder will
not result in a breach or violation of any of the terms and provisions
of, or constitute a default under any statute, regulation or agreement
to which the Dealer-Manager is a party; and no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation by the Dealer-Manager of the transactions
herein contemplated.
8.5 With respect to the Dealer-Manager's performance
hereunder, the Dealer-Manager will comply with all provisions of the
Securities Act, the Rules and Regulations and other federal laws and
regulations pertaining to the sales of securities pursuant to the
Offering, the securities or "blue sky" laws and regulations and other
applicable laws of the states or other jurisdictions in which Units are
offered and sold, and the Bylaws and the Rules of Conduct of the NASD,
and all NASD interpretations thereof, whether issued by the Board of
Governors of the NASD, contained in any NASD Notice to Members or
otherwise (the "NASD Rules of Conduct").
8.6 The Dealer-Manager shall not solicit any Persons as
prospective investors in the Offering, but shall coordinate the
activities of the Selling Dealers in connection with such solicitations
made by them.
8.7 The Selling Dealers to be selected by the Dealer-Manager
to sell the Units shall each be registered as a broker-dealer with the
Commission and a member in good standing of the NASD and duly licensed
5
<PAGE>
and authorized to act as a broker-dealer for the sale of securities in
those jurisdictions in which such Selling Dealer intends to make
offers and sales of Units.
8.8 The Dealer-Manager shall require that each Selling Dealer
make every reasonable effort to determine whether a purchase of the
Units is suitable for the prospective investor.
8.9 The Dealer-Manager shall require that each Selling Dealer
keep such records as are necessary to comply with the requirements of
Rule 2810 of the NASD Rules of Conduct, with respect to all Persons
whom such Selling Dealer solicits as prospective investors in the
Offering.
8.10 The Dealer-Manager shall require that each Selling Dealer
transmit any check received from any prospective investor in the Units,
together with a copy of the executed Subscription Agreement for such
investor, to the Dealer-Manager no later than noon of the next business
day following the Selling Dealer's receipt of such check. Following
receipt of any such check and executed Subscription Agreement from any
Selling Dealer, the Dealer-Manager shall review the Subscription
Agreement to verify the suitability of the investor as a purchaser of
Units. With respect to investors for whom the Dealer-Manager verifies
such suitability, based on the information provided in the Subscription
Agreement, the Dealer-Manager shall, no later than noon of the second
business day after receipt from the Selling Dealer, forward such
accepted investors' checks as follows: (i) on or prior to the Closing
Date, to the Escrow Agent or (ii) after the Closing Date, directly to
the General Partner, on behalf of the Partnership. With respect to
investors for whom the Dealer-Manager is unable, based on the
information contained in the Subscription Agreement, to verify their
suitability to purchase Units, the Dealer-Manager shall promptly return
such investors' checks to the applicable Selling Dealer, who shall
return such check to the prospective investor.
8.11 During the term of this Agreement, the Dealer-Manager
will promptly supply the Partnership with all information required from
the Dealer-Manager for the completion of all Form SRs or other
information required to be filed with the Commission and all other
information as the Partnership may request to be supplied to the
securities authorities of any state or jurisdiction in connection with
the Offering.
9. Indemnification.
9.1 The General Partner agrees to indemnify and hold harmless
the Dealer-Manager against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation
and legal fees) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or Prospectus, or any amendment or supplement
6
<PAGE>
thereto, any application or other document filed in any state or
jurisdiction in connection with the Offering or any sales literature,
arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein as necessary to
make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are
based upon any untrue statement or omission or allegation thereof that
is based upon information furnished in writing to the Partnership by
the Dealer-Manager or any of the Selling Dealers.
9.2 The Dealer-Manager agrees to indemnify and hold harmless
the Partnership and General Partner to the same extent as the foregoing
indemnity from the General Partner to the Dealer-Manager, but only with
respect to (i) any statement in or omission from the Registration
Statement or Prospectus, or any amendment or supplement thereto, any
application or other document filed in any state or jurisdiction in
connection with the Offering or any sales literature, if such statement
or omission was made in reliance on information furnished in writing by
the Dealer-Manager to the Partnership for use in the Registration
Statement or Prospectus, or any amendment or supplement thereto, any
such application or other document filed in any state or jurisdiction
in connection with the Offering or any sales literature, (ii) any act,
statement or representation by the Dealer-Manager which shall be in any
manner inconsistent with information set forth in the Prospectus
concerning the Dealer-Manager or (iii) any breach of the
representations and warranties of the Dealer-Manager set forth herein.
10. Termination. This Agreement shall terminate (i) on the Termination
Date of the Offering, (ii) at any time prior thereto at the will of the
Dealer-Manager or the Partnership upon ten (10) days' prior written notice,
(iii) immediately upon written notice from the Partnership to the Dealer-Manager
if the Dealer-Manager has breached any provision hereof or immediately upon any
assignment or attempted assignment of this Agreement by the Dealer-Manager
without the prior written consent of the Partnership; provided, however, that
the indemnification obligations set forth in Section 9 shall survive termination
of this Agreement.
11. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be given (a) to the Partnership and the General Partner at
7175 W. Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235, or (b) to the
Dealer-Manager at 7175 W. Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235
and if given by telephone or telegraph shall subsequently be confirmed in
writing. The agreements set forth herein have been and are made solely for the
benefit of and are intended to bind the Dealer-Manager, the Partnership and the
General Partner and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The terms
"successors and assigns" as used in this Agreement shall not include a purchaser
of any of the Units.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date set forth above.
PARTNERSHIP:
Capital Preferred Yield Fund - V, L.P.
By: CAI Equipment Leasing VI Corp., as General
Partner of Capital Preferred Yield Fund - V, L.P.,
and on its own behalf
By:
---------------------------------------------
Title:
---------------------------------------
DEALER-MANAGER:
CAI Securities Corporation
By:
------------------------------------------------------
Title:
------------------------------------------------
8
SELLING DEALER AGREEMENT
To Whom It May Concern:
Capital Preferred Yield Fund - V, L.P., a limited partnership
organized under the laws of Delaware (the "Partnership"), CAI Equipment Leasing
VI Corp., a Colorado corporation and the General Partner of the Partnership (the
"General Partner") and CAI Securities Corporation, a California corporation (the
"Dealer-Manager"), hereby enter into this Selling Dealer Agreement (the
"Agreement") with you. All defined terms not otherwise defined herein shall have
the meaning set forth in Article One of the Partnership's Amended and Restated
Agreement of Limited Partnership, as set forth in Exhibit A to the Prospectus
(as defined below). You, together with all other broker-dealers executing this
Agreement, shall be referred to as the "Selling Dealers."
I. Description of the Offering. The Partnership proposes to offer to
investors meeting specified criteria an aggregate of $50,000,000 of its limited
partnership interests ("Units"), consisting of 500,000 Units at a price of $100
per Unit, with a minimum purchase of twenty-five (25) Units per subscriber (ten
(10) Units for IRAs and Qualified Plans). If the Minimum Offering is not
subscribed for on the date 12 months from the date of the Prospectus, the
Offering will terminate and all funds received from subscribers for the Units
will be promptly returned with interest earned thereon. The Offering shall
terminate no later than the date 24 months from the date of the Prospectus. The
Partnership reserves the right to refuse to sell a Unit to any Person at any
time. Persons accepting the offer to subscribe and thereafter purchasing Units
and becoming limited partners of the Partnership are herein referred to as
"Participants." The Partnership and the Offering are more fully described in the
Prospectus (as defined in Section II.A. below).
II. Representations and Warranties of the General Partner, the
Partnership and the Dealer-Manager. The General Partner, the Partnership and the
Dealer-Manager jointly and severally represent, covenant, warrant and agree with
you for your benefit that:
A. The Partnership has prepared and filed with the Securities
and Exchange Commission (the "Commission") a Registration Statement and
amendments thereto, on Form S-1 (File No. ________) covering the registration of
Securities under the Securities Act of 1933 (the "Securities Act") and the Rules
and Regulations of the Commission under the Securities Act (the "Rules and
Regulations"). Such Registration Statement, as amended, at the time it becomes
effective, and the final prospectus included therein, are herein respectively
called the "Registration Statement" and the "Prospectus."
B. The Registration Statement and Prospectus, and all
amendments or supplements thereto, will contain all statements which are
required to be stated therein in accordance with the Securities Act and the
Rules and Regulations and will conform in all material respects with the
requirements of the Securities Act and the Rules and Regulations, and neither
<PAGE>
the Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
C. The Accountants who have certified or shall certify the
audited financial statements of the Partnership and the General Partner filed
and to be filed with the Commission as part of the Registration Statement and
the Prospectus are independent accountants as required by the Securities Act and
the Rules and Regulations.
D. The financial statements of the Partnership and the General
Partner filed with and as part of the Registration Statement present fairly the
financial position of the Partnership and the General Partner, respectively, as
of the dates of such financial statements, in conformity with generally accepted
accounting principles.
E. Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as set
forth therein or contemplated thereby: (i) there has not been any material
adverse change in the condition, financial or otherwise, of the Partnership; and
(ii) the Partnership has not incurred any liability or obligation or entered
into any transaction otherwise than in the ordinary course of business, which
change or liability, obligation or transaction is material to the financial
condition of the Partnership.
F. The Units conform to the description thereof contained in
the Prospectus in all material respects.
G. Neither the issuance nor the sale of the Units, nor the
consummation of any other of the transactions herein contemplated, nor the
fulfillment of the terms hereof, will conflict with, result in a breach of or
constitute a default under the terms of any indenture, or other material
agreement or instrument to which the Partnership, the General Partner or the
Dealer-Manager are, or will be, subject, or to the best of their respective
knowledge, any order or regulation applicable to any or all of them of any
court, regulatory or governmental body having jurisdiction over them or any of
their respective properties or operations.
H. The Units, when issued, will be duly authorized, validly
issued, fully paid and nonassessable.
I. The Partnership has been duly formed pursuant to the
Delaware Revised Uniform Limited Partnership Act and is validly existing as a
limited partnership in good standing under the laws of the State of Delaware
with full power and authority to own properties (or interest therein) and
conduct its business as described in the Prospectus. The Partnership is
qualified to do business as a limited partnership or similar entity offering
limited liability in those jurisdictions where such qualification is necessary
to assure limited liability for the limited partners.
2
<PAGE>
J. The persons who have signed this Agreement on behalf of the
Partnership, the General Partner and the Dealer-Manager, respectively, are duly
authorized to so sign, and this Agreement has been duly executed and delivered
by, and is the valid, legal and binding agreement of, the Partnership, the
General Partner and the Dealer-Manager, enforceable in accordance with its
terms.
III. Representations, Warranties and Agreements of the Selected
Dealer. You represent and warrant to and agree with the General Partner, the
Partnership and the Dealer- Manager as follows:
A. You are registered as a broker-dealer with the Commission,
are a member in good standing of the National Association of Securities Dealers,
Inc. ("NASD") and are duly licensed and authorized to act as a broker-dealer for
the sale of securities in all jurisdictions in which you intend to or will make
offers and/or sales of Units pursuant to this Agreement.
B. In connection with the offer and sale of Units pursuant to
this Agreement, you will comply with all provisions of the Securities Act, the
Rules and Regulations and other federal laws and regulations pertaining to the
sales of securities pursuant to the Offering, the securities or "blue sky" laws
and regulations and other applicable laws and regulations of the states or other
jurisdiction in which you will sell the Units and the Bylaws and the Rules of
Conduct of the NASD, including all published NASD interpretations thereof,
whether issued by the Board of Governors of the NASD, contained in any NASD
Notice to Members or otherwise (the "NASD Rules of Conduct").
C. You will make no sales of the Units unless such sale is
preceded or accompanied by the Prospectus.
D. You will assist the Partnership in qualifying the Units for
sale under the laws of such states or jurisdiction as you and the General
Partner shall mutually agree and shall make no sale of Units in any state or
jurisdiction until you have been advised by the General Partner that the Units
have been duly qualified for sale therein.
E. You will, in accordance with the NASD Rules of Conduct,
including Rule 2810, (i) diligently make inquiries as required by law of all
prospective Participants in order to ascertain whether a purchase of the Units
is suitable for such Person, (ii) promptly transmit to the Dealer-Manager all
fully completed and duly executed Subscription Agreements, (iii) retain in your
records and make available to the Partnership, for a period consistent with the
NASD Rules of Conduct, information establishing that each purchaser of the Units
is within the permitted class of investors under the requirements, if any, of
the jurisdiction in which such purchaser is resident and under the suitability
standards set forth in the Prospectus and the Subscription Agreement, and (iv)
not purchase any Units on behalf of a discretionary account without the prior
approval of the beneficial owner(s) of such account in connection therewith.
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<PAGE>
In connection with the foregoing, you will pay particular attention to the
requirements of Rule 2810 of the NASD Rules of Conduct.
F. You have, in accordance with the NASD Rules of Conduct,
including Rule 2810 thereof, conducted an inquiry, or reasonably relied upon the
results of an inquiry conducted with due care by another NASD member (with the
consent of that member) which is not a Sponsor or an Affiliate of a Sponsor,
into the adequacy and accuracy of disclosure of material facts relating to the
Offering. In determining the adequacy of facts, you have obtained (or the NASD
member on whom you have relied has obtained) information relating at a minimum
to the following, if relevant in view of the nature of the Partnership: items of
compensation, physical properties, tax aspects, financial stability and
experience of the Sponsor, the conflicts and risk factors inherent in the
Partnership, and appraisals and other pertinent reports. Prior to the sale of
any Units, you will inform the prospective Participant of all pertinent facts
relating to the liquidity and marketability of the Units during the term of the
investment.
G. Pursuant to your appointment as agent for the Partnership
as set forth in Section IV below, insofar as it is within your control, you will
in good faith use your best efforts to conduct the Offering in compliance with
the Securities Act and the Rules and Regulations, the NASD Rules of Conduct and
the permit(s) or authorizations issued with respect to the Offering by any state
or other securities regulatory authority and in this regard:
1. You will, during the course of the Offering, and
to the extent you or any person associated with you makes any
representations other than those set forth in the Prospectus,
not make any untrue statement of a material fact or omit to
state a material fact required to be stated or necessary to
make any statement made not misleading concerning the Offering
or any matters set forth in or contemplated by the Prospectus.
2. You will, prior to the sale of any of the Units, make
every reasonable effort to determine that an investment in the
Units is a suitable and appropriate investment for each
prospective Participant and you will prepare and maintain for
your benefit and for the benefit of the Partnership and the
General Partner file memoranda and other appropriate records
substantiating the foregoing, which records shall include but
not be limited to the prospective Participant's age,
investment objectives, investment experience, income, net
worth, financial situation and other investments.
3. You will, in the event you use any sales materials
(which, other than any such materials furnished to you by the
Partnership or the Dealer-Manager, shall be prepared and
provided solely at your own expense) other than the
Prospectus, refrain from providing any such materials to any
prospective Participant unless such materials have been
approved by the Commission and the securities regulatory
4
<PAGE>
authority of the state or other jurisdiction in which the
materials are to be used, and are accompanied or preceded by
the Prospectus.
4. You will provide each prospective Participant with
a copy of the Prospectus and the exhibits thereto during the
course of the Offering and prior to sale obtain a written
acknowledgement from each such Person which, among other
things, contains a representation that such Person understands
that during the course of the Offering and prior to any sale,
he has the opportunity to review all pertinent facts
concerning the Partnership and the General Partner and obtain
other information such Person might request, to the extent
such information is possessed by the Partnership or the
General Partner or obtainable by either of them without
unreasonable effort or expense, in order to verify the
accuracy of the information contained in the Prospectus.
5. Until the Termination Date (as defined in the
Prospectus), if any event affecting the Partnership, the
General Partner, the Dealer-Manager or you should occur which
the General Partner, the Partnership, the Dealer-Manager or
their counsel believe should be set forth in a supplement or
amendment to the Prospectus, you agree to distribute such
supplement or amendment to persons who have previously
received a copy of the Prospectus from you and continue to be
interested in the Partnership and further agree to include
such supplement or amendment in all further deliveries of the
Prospectus. The General Partner shall at its own expense
prepare and furnish to you a reasonable number of copies of
that supplement or amendment for such distribution.
6. You will implement appropriate procedures designed
to assure that each solicitation and sale made by you and the
persons associated with you, and your and their efforts
hereunder, will be in accordance with the terms of this
Agreement and the NASD Rules of Conduct and, particularly with
the terms of Rule 2810 of the NASD Rules of Conduct.
7. In connection with receipt of any sales incentive
amounts, you will at all times comply with the requirements of
the NASD Rules of Conduct, including Rule 2810, thereof.
8. You will at all times comply with the requirements
of Rule 15c2-4 of the Commission, and all interpretations
thereof issued by the NASD. In this regard, upon receipt of
any checks from prospective Participants for Units, you shall
promptly transmit the same, together with a copy of such
Person's Subscription Agreement, to the Dealer-Manager by noon
of the next business day following your receipt thereof.
5
<PAGE>
9. In recommending to a Participant the purchase,
sale or exchange of a Unit, you will:
(a) have reasonable grounds to believe, on
the basis of information obtained from the
Participant concerning his investment objectives,
other investments, financial situation and needs, and
any other information known by you, that:
(i) the Participant is or will be in
a financial position appropriate to enable
him to realize to a significant extent the
benefits described in the Prospectus,
including the tax benefits where they are a
significant aspect of the Partnership;
(ii) the Participant has a fair
market net worth sufficient to sustain the
risks inherent in the Partnership, including
loss of investment and lack of liquidity;
and
(iii) the Partnership is otherwise
suitable for the Participant; and
(b) maintain in your files documents
disclosing the basis upon which the determination of
suitability was reached as to each Participant.
10. Prior to executing a purchase transaction in
Units of the Partnership, you will inform the prospective
Participant of all pertinent facts relating to the liquidity
and marketability of the Partnership Units during the term of
the investment; provided, however, that this subsection shall
not apply to an initial or secondary public offering of or a
secondary market transaction in a unit, depositary receipt or
other interest in a direct participation program which
complies with Paragraph (b)(2)(D) of Rule 2810 of the NASD
Rules of Conduct.
11. You will provide each Participant with a copy of
the final Prospectus at least five (5) business days prior to
completion of a sale of the Units.
12. You will send each Participant a confirmation of
his or her purchase.
13. You will maintain records of the information used
to determine that an investment in Units is suitable and
appropriate for each investor and you will maintain these
records for at least six years.
6
<PAGE>
14. In making this determination, you will ascertain
that the prospective investor:
a. meets the minimum income and net worth standards
established for the Partnership;
b. can reasonably benefit from the Partnership based on
the prospective investor's overall investment
objectives and portfolio structure;
c. is able to bear the economic risk of the investment
based on the prospective investor's overall financial
situation; and
d. has apparent understanding of:
(1) the fundamental risks of the investment;
(2) the risk that the investor may lose the entire
investment;
(3) the lack of liquidity of the Units;
(4) the restrictions on transferability of the Units;
(5) the background and qualifications of the Sponsor
or the Persons responsible for directing and
managing the Partnership; and
(6) the tax consequences of the investment.
IV. Sale of Units. On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set forth, you
agree to sell the Units on a "best efforts" basis, as agent for the Partnership.
As compensation for these services, the Partnership agrees that the
Dealer-Manager will pay you a sales commission on each Unit sold by you pursuant
to the terms of this Agreement of eight percent (8%) of the offering price of
each such Unit (the "Sales Commission"). In addition, the Partnership (directly
or indirectly through the General Partner or the Dealer-Manager) may reimburse
you for bona fide due diligence expenses of the lesser amount of up to one-half
of one percent (.50%) of the price of Units sold by you or the maximum amount
payable under the NASD Rules of Conduct. The Unit price shall be $100.00, except
that you shall provide a discount to the applicable purchaser of the Units an
amount equal to one percent (1.0%) of the aggregate purchase price of Units as a
reduction in Sales Commission for all purchases of $500,000 or more (a "Volume
Discount"). The Volume Discount applies to an investor's entire purchase of
Units if the aggregate purchase price exceeds $500,000, and the discount will be
7
<PAGE>
used to purchase additional Units. For purposes of computing the Volume
Discounts, subscriptions for Units may be aggregated if: (i) the legal and
beneficial ownership of Units to be purchased is identical to the legal and
beneficial ownership of all other Units to be aggregated; (ii) all such Units
are purchased through the same Selling Dealer; and (iii) the request to combine
more than one subscription for Units is made at the time of the subsequent
subscription. Any request for aggregating subscriptions will be subject to
verification by the Dealer-Manager, whose determination will be final.
Notwithstanding the foregoing, however, the obligation of the
Partnership to pay the Sales Commission and reimburse you for your bona fide due
diligence expenses as aforesaid shall be subject to the following conditions and
limitations:
A. The General Partner has reserved the right to accept or
reject any subscriptions for Units as set forth in the Prospectus and no Sales
Commission will be payable to you with respect to the tender of any Subscription
Agreement which is rejected by you or the General Partner as aforesaid.
B. None of such Sales Commissions will be payable or paid
until released to the Partnership on the Closing Date, from the escrow account
in which they are to be deposited, of the initial $1,200,000 subscription
proceeds, representing subscriptions for the Minimum Offering amount of 12,000
Units.
V. Certain Covenants of the Partnership and the General Partner. The
Partnership and the General Partner covenant and agree with you as follows:
A. The Partnership will not at any time file or make any
amendment or supplement to the Registration Statement or Prospectus of which you
shall have not previously been advised and furnished a copy.
B. The Partnership will advise you immediately, and confirm
the advice in writing (i) when the Registration Statement shall have become
effective with the Commission; (ii) when any post-effective amendment to the
Registration Statement shall have become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed; (iii) of any request
of the Commission for amendment or supplementation of the Registration Statement
or Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of the qualification of the Units for offering or
sale in any jurisdiction, or of the institution of any proceedings for any such
purposes. The Partnership will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use and to
obtain as soon as possible the lifting thereof, if issued.
C. The Partnership will deliver to you without charge, and
when requested, such number of copies of the Prospectus (as supplemented or
amended, if the Partnership shall have made any supplements or amendments
thereto) as you may reasonably request.
8
<PAGE>
D. The Partnership will comply to the best of its ability with
the Securities Act and the Rules and Regulations so as to permit the continuance
of sales of and dealings in the Units under the Securities Act. If at any time
when a prospectus is required to be delivered under the Securities Act, an event
shall have occurred as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein not false or misleading
or to make the Prospectus comply with the Securities Act, the Partnership will
notify you promptly thereof and will furnish to you an amendment or supplement
which will correct such statement in accordance with the requirements of the
Securities Act and the Rules and Regulations.
E. The Partnership will use its best efforts to qualify the
Units for sale under the laws of such states or jurisdictions as the General
Partner shall determine and will comply to the best of its ability with such
laws so as to permit the continuance of sales of and dealings in the Units
thereunder.
F. The Partnership will furnish to you copies of all such
documents, reports and information as shall be of general interest and are
furnished by the Partnership to Participants generally.
G. The Partnership and the General Partner will pay and bear
all costs and expenses in connection with the preparation, printing and filing
of the Registration Statement, the Prospectus and amendments or supplements
thereto, including fees of legal counsel for the Partnership, the qualifying of
Units under the laws of certain jurisdictions as aforesaid, including filing
fees and fees and disbursements of counsel in connection therewith, and the cost
of furnishing to you and other Selling Dealers copies of the Registration
Statement and the Prospectus and amendments or supplements thereto as herein
provided.
VI. Conditions to Your Obligations. Your obligations hereunder shall be
subject to the accuracy of and compliance with, as of the date hereof and
through the Termination Date, the representations, warranties and covenants of
the Partnership, the General Partner and the Dealer-Manager, as appropriate,
contained in Sections II and V above, to the performance by the General Partner
and the Partnership of their obligations to be performed hereunder, and to the
receipt by you of the following:
A. The favorable opinion of Ballard Spahr Andrews & Ingersoll,
counsel for the Partnership and the General Partner, in form and substance
satisfactory to you, to the effect that:
1. The Registration Statement has become effective
under the Securities Act and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated under the Securities Act.
9
<PAGE>
2. The Registration Statement, the Prospectus, and
each amendment or supplement thereto (except for the financial
statements, as to which counsel need express no opinion) comply as to
form in all material respects with the requirements of the Securities
Act and the Rules and Regulations.
3. Such counsel has participated in the preparation
of the Registration Statement and Prospectus and no facts have come to
the attention of such counsel to lead it to believe that either the
Registration Statement or the Prospectus or any such amendment or
supplement (except for the financial statements, financial and
statistical data, prior performance tables and information concerning
the Selling Dealers, as to which counsel need express no opinion)
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
4. The descriptions in the Registration Statement and
Prospectus of the Partnership Agreement and other documents described
therein are accurate and fairly represent the information required to
be shown.
5. Such counsel does not know of any statutes or
regulations or legal or governmental proceedings required to be
described in the Prospectus which are not described as required, nor of
any agreements or documents of a character required to be described in
the Registration Statement or Prospectus or to be filed as exhibits to
the Registration Statement which are not described and filed as
required.
6. This Agreement has been duly executed and
delivered by the Partnership, the General Partner and the
Dealer-Manager; and (upon the assumption that the Registration
Statement complies with the Securities Act) this Agreement is a valid
and binding agreement of the Partnership, the General Partner and the
Dealer-Manager in accordance with its terms.
B. A certificate dated as of the effective date of the
Registration Statement, signed by the General Partner, on behalf of itself and
the Partnership, to the effect that, as of such date (i) the representations and
warranties of the Partnership and General Partner contained in the Agreement are
correct; and (ii) it has carefully examined the Registration Statement and the
Prospectus, and in its opinion (a) neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (b)
there are no material legal or governmental proceedings to which the Partnership
or the General Partner is party or of which the business or the property of the
Partnership or the General Partner is the subject which are not disclosed in the
Registration Statement and Prospectus.
10
<PAGE>
VII. Conditions to Partnership's, General Partner's and
Dealer-Manager's Obligations. The obligations of the General Partner, the
Partnership and the Dealer-Manager shall be subject to the accuracy as of the
date hereof, through the Termination Date, of the representations and warranties
contained in Section III hereof, to the performance by you of your obligations
hereunder required to be performed on or before the Termination Date, and to the
following further conditions, namely, that it is understood and agreed that
neither you nor any of your representatives is authorized to make any
representations on behalf of the Partnership, the General Partner or the
Dealer-Manager other than those contained in the Prospectus, or to act as the
agent of the Partnership or for the Partnership in any other capacity except as
expressly set forth herein, and each time you submit a subscription of a
potential Participant, you shall be deemed to have represented to the
Partnership, the General Partner and the Dealer-Manager that you have complied
with the foregoing conditions.
VIII. Indemnification.
A. The General Partner will indemnify and hold you harmless
against any losses, claims, damages, or liabilities, joint or several:
1. to which you may become subject under the
Securities Act, any state securities laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement,
the Prospectus or any amendment or supplement thereto, any other
document filed by the Partnership or the General Partner with any state
securities regulatory authority in connection with the Offering or any
sales literature prepared by the Partnership, the General Partner or
the Dealer-Manager, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
unless the statement or omission was the direct result of information
provided to the Partnership or the General Partner or their agents by
you; or
2. to which you may become subject due to any
misrepresentation by the Partnership or the General Partner or their
agents (other than you or any other Selling Dealer) of a material fact
in connection with the sale of the Units, unless the misrepresentation
of such material facts was the direct result of information provided to
the Partnership or the General Partner or their agents by you; or
3. to which you may become subject as a result of any
breach by the Partnership or the General Partner of the representations
and warranties contained herein.
The General Partner will reimburse you for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such loss, claim, damage or liability (or actions in respect thereof); provided,
however, that the General Partner shall not be required to so reimburse you in
any such case to the extent that such loss, claim, damage or liability arises
11
<PAGE>
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement or Prospectus,
or any amendment or supplement thereto, any other document filed by the
Partnership or the General Partner with any state securities regulatory
authority in connection with the Offering or in any sales literature prepared by
the Partnership, the General Partner or the Dealer-Manager, in reliance upon and
in conformity with written information furnished to the Partnership, the General
Partner or the Dealer-Manager by you specifically for use therein. This
indemnity agreement shall be in addition to any liabilities which the
Partnership, the General Partner or the Dealer-Manager may otherwise have in
connection with the Offering.
The foregoing indemnity agreement shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each Person, if any,
who controls you within the meaning of the Securities Act.
B. You agree to indemnify and hold harmless the Partnership,
the General Partner and the Dealer-Manager against any losses, claims, damages
or liabilities, joint or several, to which any or all of them may become
subject, under the Securities Act, any state securities laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statements or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, any other document filed by
the Partnership or the General Partner with any state securities regulatory
authority in connection with the Offering or in any sales literature, or upon
the omission or the alleged omission to state in the Registration Statement or
Prospectus or any amendment or supplement thereto, any other document filed by
the Partnership or the General Partner with any state securities regulatory
authority in connection with the Offering or in any sales literature a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in the Registration Statement or Prospectus, or amendment or supplement
thereto, any other document filed by the Partnership or the General Partner with
any state securities regulatory authority in connection with the Offering or in
any sales literature, in reliance upon and in conformity with written
information furnished to the Partnership, the General Partner or the
Dealer-Manager by you specifically for use therein (or with respect to sales
literature, to the extent that such sales literature either was prepared by you
or contained information furnished by you); and you will reimburse the
Partnership, the General Partner or the Dealer-Manager for any legal or other
expenses reasonably incurred in connection with investigating or defending any
such loss, claim, damage or liability (or action in respect thereof). This
indemnity agreement shall be in addition to any liabilities to the Partnership,
the General Partner or any other Person which you may otherwise have in
connection with this Offering.
12
<PAGE>
The foregoing indemnity agreement shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each Person, if any,
who controls the Partnership or the General Partner within the meaning of the
Securities Act.
C. Promptly after receipt by a party hereto of notice of the
commencement of any action for which such party is eligible to be indemnified
hereunder (the "Indemnified Party"), such Indemnified Party shall, if a claim in
respect thereof is to be made against the party required under this Agreement to
indemnify the Indemnified Party (the "Indemnifying Party") notify the
Indemnifying Party in writing of the commencement thereof, within 15 days of
receipt of any complaint, claim or other notice of commencement of an action;
but the omission so to notify the Indemnifying Party shall not relieve it from
any liability which it may have to any Indemnified Party otherwise than under
this Section VIII. In case any such action shall be brought against an
Indemnified Party, such party shall notify the Indemnifying Party of the
commencement thereof, and the Indemnifying Party shall be entitled to
participate in, and, to the extent it shall wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense thereof, with
counsel satisfactory to such Indemnifying and Indemnified Parties. After the
Indemnified Party shall have received notice from the agreed-upon counsel that
the defense has been so assumed, in the event that the Indemnified Party
nonetheless elects to participate in the defense of any such action for any
reason other than the presence of a conflict of interest, the Indemnifying Party
shall not be responsible for any legal or other expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof.
IX. Termination. This Agreement shall automatically be terminated, and
the Partnership shall have no liability for the payment of any commissions or
fees hereunder, in the event of the failure of you and the other Selling Dealers
to sell at least 12,000 Units as of the date 12 months from the date of the
Prospectus or the earlier termination of the offering by the General Partner.
X. Applicable Law. This Agreement shall be construed in accordance
with the laws of the State of Colorado.
XI. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered or telegraphed and confirmed to you at your address set forth
above. You, the Partnership, the General Partner or the Dealer-Manager may
change your or their address for receiving notices by written notice to the
other parties hereto.
XII. Parties. This Agreement shall inure to the benefit of and be
binding upon you, the Partnership, the General Partner and the Dealer-Manager,
and each of your and their respective successors and assigns.
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XIII. Severability. If any term or provision hereof is illegal or invalid
for any reason whatsoever, such provision shall be deemed stricken from this
Agreement and such illegality or invalidity shall not affect the validity of the
remainder hereof.
XIV. Headings. The headings in this Agreement are provided for
convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provisions thereof.
If the foregoing correctly sets forth our understanding,
please so indicate in the space provided below for that purpose whereupon this
letter shall constitute a binding agreement among us.
Very truly yours,
THE PARTNERSHIP
CAPITAL PREFERRED YIELD FUND - V, L.P.
CAI Equipment Leasing VI Corp.,
as General Partner of
Capital Preferred Yield Fund - V, L.P.,
and on its own behalf
Dated: By:
---------------- -------------------------------------
Title:
----------------------------------
THE DEALER-MANAGER
CAI Securities Corporation
Dated: By:
---------------- -------------------------------------
Title:
----------------------------------
14
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ACCEPTED:
- ----------------------------------
Broker/Dealer Firm Name
- ----------------------------------
Main Office Address
- ----------------------------------
City, State, Zip
- ----------------------------------
Telephone Number
By:
-------------------------------
Authorized Signature
- ----------------------------------
Print or Type Name and Title
- ----------------------------------
Tax I.D. Number
Date:
-----------------------------
CAI Securities Corporation
7175 West Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
(800) 821-2456
15
ARTICLES OF INCORPORATION
OF
CAI EQUIPMENT LEASING VI CORP.
The undersigned, a natural person eighteen (18) years or older, hereby
forms a corporation, under and pursuant to the statutes of the State of
Colorado, and adopts the following Articles of Incorporation:
ARTICLE I
The name of the Corporation is CAI Equipment Leasing VI Corp.
ARTICLE II
A. The Corporation shall have and may exercise all of the rights, powers
and privileges now or hereafter conferred upon corporations organized under the
laws of the State of Colorado. In addition, the Corporation may do everything
necessary, suitable or proper for the accomplishment of any of its corporate
purposes. The Corporation may conduct part or all of its business in any part of
Colorado, the United States or the world and may hold, purchase, mortgage, lease
and convey real and personal property in any of such places.
ARTICLE III
This Corporation shall have perpetual existence, which existence shall
commence upon the filing of these Articles of Incorporation with the Secretary
of State of Colorado.
ARTICLE IV
A. The aggregate number of shares which the Corporation shall have
authority to issue is One Thousand (1,000) shares of common stock of one-tenth
of One Cent ($0.01) par value. The shares of this class of common stock shall
have unlimited voting rights and shall constitute the sole voting group of the
Corporation, except to the extent any additional voting group or groups may
hereafter be established. B. Each shareholder of record shall have one vote for
each share of stock standing in his name on the books of the Corporation and
entitled to vote, except that in the election of directors each shareholder
shall have as many votes for each share held by him as there are directors to be
elected and for whose election the shareholder has a right to vote. In the
election of directors, cumulative voting shall not be allowed. C. Shareholders
shall not have the preemptive right to acquire unissued shares. Such provision
shall apply to both shares outstanding and to newly issued shares. D. At all
meetings of the shareholders a majority of the votes entitled to be cast on a
matter by a voting group, represented in person or by proxy, shall constitute a
quorum of that voting group.
<PAGE>
ARTICLE V
A. The address of the initial registered office of the Corporation is 7175
West Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235.
B. The name of the initial registered agent for the Corporation at such
address is John F. Olmstead.
C. The address of the initial principal office of the Corporation is 7175
West Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235.
ARTICLE VI
A. The personal liability of a director to the Corporation or its
shareholders is limited to the fullest extent permitted by the laws of the State
of Colorado. Any repeal or modification of this Article VI shall not adversely
affect any right or protection of a director hereunder existing at the time of
such repeal or modification.
B. The Corporation shall indemnify all persons to the extent and in the
manner permitted by the provisions of the Colorado Business Corporation Act, as
amended from time to time, subject to any expansion or limitation of such
indemnification as may be set forth in the bylaws of the Corporation or any
shareholders' or directors' resolution or by contract.
ARTICLE VII
The number of persons constituting the board of directors of the
Corporation shall be fixed by the Bylaws of the Corporation. The initial board
of directors shall consist of six (6) members, and the names and addresses of
those persons who are to serve as directors until the first annual meeting of
shareholders, or until their successors shall have been elected and qualified,
are as follows:
Name Address
---- -------
John F. Olmstead 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
Dennis J. Lacey 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
Anthony M. DiPaolo 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
Daniel J. Waller 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
Richard H. Abernethy 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
John A. Reed 7175 West Jefferson Avenue, #4000
Lakewood, Colorado 80235
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ARTICLE VIII
The right is expressly reserved to amend, alter, change or repeal any
provision or provisions contained in these Articles of Incorporation or any
Article herein in any manner or respect now or hereafter permitted or provided
by the Colorado Business Corporation Act, and the rights of all officers,
directors and shareholders are expressly made subject to such reservation.
ARTICLE IX
The name and address of the incorporator of this Corporation is John F.
Olmstead, 7175 West Jefferson Avenue, #4000, Lakewood, Colorado 80235.
Executed this 29th day of September, 1997.
/s/ John F. Olmstead
-----------------------------
John F. Olmstead
The undersigned hereby consents to the appointment as the initial
registered agent for CAI Equipment Leasing VI Corp.
/s/ John F. Olmstead
-----------------------------
John F. Olmstead
Initial Registered Agent
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BYLAWS
OF
CAI EQUIPMENT LEASING VI CORP.
ADOPTED SEPTEMBER 30, 1997
ARTICLE I
Offices and Agents
1. Principal Office. The principal office of the Corporation may be
located within or without the State of Colorado, as designated by the most
recent filing with the Secretary of State of Colorado. The Corporation may have
other offices and places of business at such places within or without the State
of Colorado as shall be determined by the directors.
2. Registered Office. The registered office of the Corporation required
by the Colorado Business Corporation Act must be continually maintained in the
State of Colorado, and it may be, but need not be, identical with the principal
office, if located in the State of Colorado. The address of the registered
office of the Corporation may be changed from time to time as provided by the
Colorado Business Corporation Act.
3. Registered Agent. The Corporation shall maintain a registered agent
in the State of Colorado as required by the Colorado Business Corporation Act.
Such registered agent may be changed from time to time as provided by the
Colorado Business Corporation Act.
ARTICLE II
Shareholders Meetings
1. Annual Meetings. The annual meeting of the shareholders of the
Corporation shall be held at a date and time fixed by resolution of the board of
directors or by the president in the absence of action by the board of
directors. The annual meeting of the shareholders shall be held for the purpose
of electing directors and transacting such other corporate business as may come
before the meeting. If the election of directors is not held as provided herein
at any annual meeting of the shareholders, or at any adjournment thereof, the
board of directors shall cause the election to be held at a special meeting of
the shareholders as soon thereafter as it may conveniently be held.
Notice of an annual meeting need not include a description of the
purpose or purposes of the meeting except when the purpose of the meeting is to
consider (i) an amendment to the Articles of Incorporation of the Corporation,
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(ii) a merger or share exchange in which the Corporation is a party and, with
respect to a share exchange, in which the Corporation's shares will be acquired,
(iii) the sale, lease, exchange or other disposition, other than in the usual
and regular course of business, of all or substantially all of the property of
the Corporation or of another entity which the Corporation controls, in each
case with or without goodwill, (iv) the dissolution of the Corporation or (v)
any other purpose for which a statement of purpose is required by the Colorado
Business Corporation Act.
2. Special Meetings. Unless otherwise prescribed by the Colorado
Business Corporation Act, special meetings of the shareholders of the
Corporation may be called at any time by the chairman of the board of directors,
if any, by the president, by resolution of the board of directors or upon
receipt of one or more written demands for a meeting, stating the purpose or
purposes for which it is to be held, signed and dated by the holders of at least
ten percent (10%) of all votes entitled to be cast on any issue proposed to be
considered at the meeting. Notice of a special meeting shall include a
description of the purpose or purposes for which the meeting is called.
3. Place of Meeting. The annual meeting of the shareholders of the
Corporation may be held at any place, either within or without the State of
Colorado, as may be designated by the board of directors. Except as limited by
the following sentence, the person or persons calling any special meeting of the
shareholders may designate any place, within or without the State of Colorado,
as the place for the meeting. If no designation is made or if a special meeting
shall be called other than by the board of directors, the chairman of the board
of directors or the president, the place of meeting shall be the principal
office of the Corporation. A waiver of notice signed by all shareholders
entitled to vote at a meeting may designate any place as the place for holding
such meeting.
4. Notice of Meeting. Written notice stating the date, time and place
of the meeting shall be given no fewer than ten (10) and no more than sixty (60)
days before the date of the meeting, except that if the number of authorized
shares is to be increased, at least thirty (30) days' notice shall be given.
Notice shall be given personally or by mail, private carrier, telegraph,
teletype, electronically transmitted facsimile or other form of wire or wireless
communication by or at the direction of the president, the secretary, or the
officer or other person calling the meeting to each shareholder of record
entitled to vote at such meeting. If mailed and if in a comprehensible form,
such notice shall be deemed to be given and effective when deposited in the
United States mail, addressed to the shareholder at his or her address as it
appears in the Corporation's current record of shareholders, with postage
prepaid. If notice is given other than by mail, and provided that the notice is
in comprehensible form, the notice is given and effective on the date received
by the shareholder. No notice need be sent to any shareholder if three
successive notices mailed to the last known address of such shareholder have
been returned as undeliverable until such time as another address for such
shareholder is made known to the Corporation by such shareholder.
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When a meeting is adjourned to a different date, time or place, notice
need not be given of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than 120 days, or if a new
record date is fixed for the adjourned meeting, a new notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting as of the new record date.
5. Waiver of Notice. A shareholder may waive any notice of a meeting
either before or after the time and date of the meeting. The waiver shall be in
writing, be signed by the shareholder entitled to the notice and be delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records, but such delivery and filing shall not be conditions for effectiveness.
A shareholder's attendance at a meeting waives objection to (i) lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting because of lack of
notice or defective notice, and (ii) consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
6. Fixing of Record Date. In order to determine shareholders entitled
(i) to be given notice of a shareholders meeting (ii) to demand a special
meeting, (iii) to vote, or (iv) to take any other action, the board of directors
may fix a future date as the record date, such date, in any case, shall not be
more than seventy (70) days and in case of a meeting of shareholders not less
than ten (10) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no record date is fixed,
the record date shall be the date on which notice of the meeting is mailed or
the date on which a resolution of the board of directors providing for a
distribution is adopted, as the case may be. When a determination of
shareholders entitled to vote at any meeting of shareholders is made as provided
in this Section 6, such determination shall apply to any adjournment thereof.
Notwithstanding the foregoing, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date a writing upon which the action is
taken is first received by the Corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of the demands pursuant to which the meeting is called.
7. Voting List. After fixing a record date for a shareholder's meeting,
the Corporation shall prepare a list of names of all its shareholders who are
entitled to be given notice of the meeting. The list shall be arranged by voting
groups and within each voting group by class or series, and shall show the
address of, and the number of shares of each class or series that are held by
each shareholder.
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The shareholders' list shall be available for inspection by any
shareholder, beginning the earlier of ten (10) days before the meeting for which
the list was prepared or two (2) business days after notice of the meeting is
given and continuing through the meeting, and any adjournment thereof, at the
Corporation's principal office or at a place identified in the notice of the
meeting in the city where the meeting will be held.
A shareholder, his agent or attorney may, upon written demand, inspect
and copy the list during regular business hours and during the period it is
available for inspection, provided, (i) the shareholder has been a shareholder
for at least three (3) months immediately preceding the demand or holds at least
five percent (5%) of all outstanding shares of any class of shares as the date
of the demand, (ii) the demand is made in good faith and for a purpose
reasonably related to the demanding shareholder's interest as a shareholder,
(iii) the shareholder describes with reasonable particularity the purpose and
records the shareholder desires to inspect, (iv) the records are directly
connected with the described purpose and (v) the shareholder pays a reasonable
charge covering the costs of labor and material for such copies, not to exceed
the cost of production and reproduction.
8. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy by signing an appointment form either personally or by his or her duly
authorized attorney-in-fact. A shareholder may also appoint a proxy by
transmitting or authorizing the transmission of a telegram, teletype, or other
electronic transmission providing a written statement of the appointment to the
proxy, to a proxy solicitor, proxy support service organization or other person
duly authorized by the proxy to receive appointments as agent for the proxy, or
to the Corporation. The transmitted appointment shall set forth or be
transmitted with written evidence from which it can be determined that the
shareholder transmitted or authorized the transmission of the appointment. The
proxy appointment form shall be filed with the Secretary of the Corporation by
or at the time of the meeting. The appointment of a proxy is effective when
received by the Corporation and is valid for eleven (11) months unless a
different period is expressly provided in the appointment form.
Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment could be
used.
Revocation of a proxy does not affect the right of the Corporation to
accept the proxy's appointment unless (i) the Corporation had notice that the
appointment was coupled with an interest and notice that the interest is
extinguished is received by the Secretary or other officer or agent authorized
to tabulate votes before the proxy exercises his authority under the appointment
or (ii) other notice of the revocation of the appointment is received by the
Secretary or other officer or agent authorized to tabulate votes before the
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<PAGE>
proxy exercises his authority under the appointment. Other notice of revocation
may, in the discretion of the Corporation, be deemed to include the appearance
at a shareholders meeting of the shareholder who granted the proxy appointment
and his voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercised his authority
under the appointment.
The Corporation shall not be required to recognize an appointment made
irrevocable if it has received a writing revoking the appointment signed by the
shareholder either personally or by the shareholder's attorney-in-fact,
notwithstanding that the revocation may be a breach of an obligation of the
shareholder to another person not to revoke the appointment.
A transferee for value of shares subject to an irrevocable appointment
may revoke the appointment if the transferee did not know of its existence when
he acquired the shares and the irrevocable appointment was not noted on the
certificate representing the shares.
Subject to the provisions of Article II, Section 10 below or any
express limitation on the proxy's authority appearing on the appointment form, a
corporation is entitled to accept the proxy's vote or other action as that of
the shareholder making the appointment.
9. Voting Rights. Each outstanding share, regardless of class, is
entitled to one vote and each fractional share is entitled to a corresponding
fractional vote, on each matter voted on at a shareholder's meeting except to
the extent that the voting rights of the shares of any class or classes are
limited or denied by the Articles of Incorporation. Only shares are entitled to
vote. Voting on any question or in any election may be by voice vote unless the
presiding officer shall order, or any shareholder shall demand, that voting be
by ballot.
Cumulative voting in the election of directors shall not be permitted.
Except as otherwise ordered by a court of competent jurisdiction upon a
finding that the purpose of this Section 9 would not be violated in the
circumstances presented to the court, the shares of the Corporation are not
entitled to be voted if they are owned, directly or indirectly, by another
corporation, domestic or foreign, and the Corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors of the other
corporation, except to the extent the other corporation holds the shares in a
fiduciary capacity.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to holders and a sum sufficient to redeem the shares has
been deposited with a bank, trust company, or other financial institution under
an irrevocable obligation to pay the holders the redemption price on surrender
of the shares.
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10. Corporation's Acceptance of Votes. If the name signed on a vote,
consent, waiver, proxy appointment, or proxy appointment revocation corresponds
to the name of a shareholder, the Corporation, if acting in good faith, is
entitled to accept the vote, consent, waiver, proxy appointment, or proxy
appointment revocation and to give it effect as the act of the shareholder. If
the name signed on a vote, consent, waiver, proxy appointment, or proxy
appointment revocation does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, is nevertheless entitled to accept the
vote, consent, waiver, proxy appointment, or proxy appointment revocation and to
give it effect as the act of the shareholder if:
(a) The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(b) The name signed purports to be that of an administrator, executor,
guardian, or conservator representing the shareholder and, if the Corporation
requests, evidence of fiduciary status acceptable to the Corporation has been
presented with respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(c) The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the Corporation requests, evidence of this
status acceptable to the Corporation has been presented with respect to the
vote, consent, waiver, proxy appointment or proxy appointment revocation;
(d) The name signed purports to be that of a pledgee, beneficial owner,
or attorney-in-fact of the shareholder and, if the Corporation requests,
evidence acceptable to the Corporation of the signatory's authority to sign for
the shareholder has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(e) Two or more persons are the shareholder as cotenants or fiduciaries
and the name signed purports to be the name of at least one of the cotenants or
fiduciaries and the person signing appears to be acting on behalf of all the
cotenants or fiduciaries; or
(f) The acceptance of the vote, consent, waiver, proxy appointment, or
proxy appointment revocation is otherwise proper under rules established by the
Corporation that are not inconsistent with the provisions of this Section 10.
The Corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the Secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the signatory's
authority to sign for the shareholder.
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The Corporation and its officer or agent who accepts or rejects a vote,
consent, waiver, proxy appointment or proxy appointment revocation in good faith
and in accordance with the standards of this Section 10 are not liable in
damages for the consequences of the acceptance or rejection.
11. Quorum and Voting Requirements. A majority of the votes entitled to
be cast on a matter by a voting group shall constitute a quorum of that voting
group for action on the matter unless a lesser number is authorized by the
Articles of Incorporation. Once a share is represented for any purpose at a
meeting, including the purpose of determining that a quorum exists, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless otherwise provided in the Articles of
Incorporation or unless a new record date is or shall be set for that adjourned
meeting.
If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the vote of a greater number or voting by classes is required
by law or the Articles of Incorporation.
12. Adjournments. If less than a quorum of shares entitled to vote is
represented at any meeting of the shareholders, a majority of the shares so
represented may adjourn the meeting from time to time without further notice,
for a period not to exceed 120 days at any one adjournment. If a quorum is
present at such adjourned meeting, any business may be transacted which might
have been transacted at the meeting as originally noticed. Any meeting of the
shareholders may adjourn from time to time until its business is completed.
13. Action by Shareholders Without Meeting. Any action required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
if all of the shareholders entitled to vote thereon consent to such action in
writing. Action taken under this Section 13 shall be effective as of the date
the last writing necessary to effect the action is received by the Corporation,
unless all of the writings necessary to effect the action specify a later date
as the effective date of the action, in which case such later date shall be the
effective date of the action. If the Corporation receives writings describing
and consenting to the action signed by all of the shareholders entitled to vote
with respect to the action, the effective date of the action may be any date
that is specified in all of the writings as the effective date of the action.
Any such writings may be received by the Corporation by electronically
transmitted facsimile or other form of wire or wireless communication providing
the Corporation with a complete copy thereof, including a copy of the signature
thereto. Action taken under this Section 13 has the same effect as action taken
at a meeting of shareholders and may be described as such in any document.
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Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 13 may revoke such consent by a writing
signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the Corporation before the effectiveness of the action.
14. Meetings by Telecommunication. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
Board of Directors
1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the Articles of
Incorporation.
2. Number, Qualifications and Term of Office. The number of directors
of the Corporation shall be fixed from time to time by resolution of the board
of directors, within a range of no less than two (2) or more than nine (9). A
director shall be a natural person who is eighteen years or older. A director
need not be a resident of the State of Colorado or a shareholder of the
Corporation.
Directors shall be elected at each annual meeting of shareholders and
shall hold such office until the next annual meeting of shareholders and until
his successor is elected and qualifies. A decrease in the number of directors
does not shorten an incumbent director's term.
3. Resignation, Vacancies. Any director may resign at any time by
giving written notice to the Corporation. A resignation of a director is
effective when the notice is received by the Corporation unless the notice
specifies a later effective date. Unless otherwise specified in the notice, the
acceptance of such resignation by the Corporation shall not be necessary to make
it effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or by the affirmative vote of
the board of directors even if less than a quorum is remaining in office. If
elected by the directors, the director shall hold office until the next annual
shareholders' meeting at which directors are elected. If elected by the
shareholders, the director shall hold office for the unexpired term of his or
her predecessor in office, except that, if the director's predecessor was
elected by the directors to fill a vacancy, the director elected by the
shareholders shall hold office for the unexpired term of the last predecessor
elected by the shareholders.
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4. Removal of Directors by Shareholders. Unless otherwise provided in
the Articles of Incorporation, the shareholders may remove one or more directors
with or without cause. A director may be removed by the shareholders only at a
meeting called for the purpose of removing the director and the meeting notice
states that the purpose, or one of the purposes, of the meeting is removal of
the director.
5. Removal of Directors by Judicial Proceeding. A director may be
removed by the District Court of the Colorado county where the principal office
is located or if the Corporation has no principal office in the State of
Colorado, by the District Court of the Colorado county in which its registered
office is located, upon a finding by the District Court that the director
engaged in fraudulent or dishonest conduct or gross abuse of authority or
discretion with respect to the Corporation and that removal is in the best
interests of the Corporation. The judicial proceeding may be commenced either by
the Corporation or by shareholders holding at least ten percent (10%) of the
outstanding shares of any class.
6. Compensation. By resolution of the board of directors, any director
may be paid any one or more of the following: his expenses, if any, of
attendance at meetings; a fixed sum for attendance at each meeting; a stated
salary as director; or such other compensation as the Corporation and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
Meetings of the Board
1. Place of Meetings. The regular or special meetings of the board of
directors shall be held at the principal office of the Corporation unless
otherwise designated.
2. Regular Meetings. The board of directors shall meet each year after
the annual meeting of the shareholders for the purpose of appointing officers
and transacting such other business as may come before the meeting. The board of
directors may provide, by resolution, for the holding of additional regular
meetings without other notice than such resolution.
3. Special Meetings. Special meetings of the board of directors may be
called at any time by the chairman of the board, if any, by the president or by
a majority of the members of the board of directors.
4. Notice of Meetings. Notice of the regular meetings of the board of
directors need not be given. Except as otherwise provided by these Bylaws or the
laws of the State of Colorado, written notice of each special meeting of the
board of directors setting forth the time and the place of the meeting shall be
given to each director not less than two (2) days prior to the date and time
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fixed for the meeting. Notice of any special meeting may be either personally
delivered or mailed to each director at his business address, or by notice
transmitted by telegraph, telex, electronically transmitted facsimile or other
form of wire or wireless communication. If mailed, such notice shall be deemed
to be given and to be effective on the earlier of (i) three (3) days after such
notice is deposited in the United States mail properly addressed, with postage
prepaid, or (ii) the date shown on the return receipt if mailed by registered or
certified mail return receipt requested. If notice be given by telex,
electronically transmitted facsimile or other similar form of wire or wireless
communication, such notice shall be deemed to be given and to be effective when
sent, and with respect to a telegram, such notice shall be deemed to be given
and to be effective when the telegram is delivered to the telegraph company. If
a director has designated in writing one or more reasonable addresses or
facsimile numbers for delivery of notice to him, notice sent by mail, telegraph,
telex, electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.
5. Waiver of Notice. A director may, in writing, waive notice of any
special meeting of the board of directors either before, at, or after the
meeting. Such waiver shall be delivered to the Corporation for filing with the
corporate records. Attendance or participation of a director at a meeting waives
any required notice of that meeting unless at the beginning of the meeting or
promptly upon the director's arrival, the director objects to holding the
meeting or transacting business at the meeting because of lack of notice or
defective notice and does not thereafter vote for or assent to action taken at
the meeting.
6. Quorum, Manner of Acting. At meetings of the board of directors a
majority of the number of directors fixed by resolution of the board shall
constitute a quorum for the transaction of business. If the number of directors
is not fixed, then a majority of the number in office immediately before the
meeting begins, shall constitute a quorum. If a quorum is present when a vote is
taken, the affirmative vote of a majority of directors present is the act of the
board of directors unless the vote of a greater number is required by these
Bylaws, the Articles of Incorporation or the Colorado Business Corporation Act.
7. Presumption of Assent. A director who is present at a meeting of the
board of directors when corporate action is taken is deemed to have assented to
the action taken unless:
(a) the director objects at the beginning of such meeting or promptly
upon his or her arrival, to the holding of the meeting or the transacting of
business at the meeting and does not thereafter vote for or assent to any action
taken at the meeting;
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(b) the director contemporaneously requests that his or her dissent or
abstention as to any specific action taken be entered in the minutes of such
meeting; or
(c) the director causes written notice of his or her dissent or
abstention as to any specific action to be received by the presiding officer of
such meeting before its adjournment or by the Corporation promptly after
adjournment of such meeting.
The right of dissent or abstention as to a specific action taken in a
meeting of a board is not available to a director who votes in favor of the
action taken.
8. Committees. The board of directors may, by a resolution adopted by a
majority of all of the directors in office when the action is taken, designate
one of more of its members to constitute an executive committee, and one or more
other committees. To the extent provided in the resolution, each committee shall
have and may exercise all of the authority of the board of directors, except
that no such committee shall have the authority to: (i) authorize distributions;
(ii) approve or propose to shareholders action required by the Colorado Business
Corporation Act to be approved by shareholders; (iii) fill vacancies on the
board of directors or any committee thereof; (iv) amend the Articles of
Incorporation; (v) adopt, amend or repeal these Bylaws; (vi) approve a plan of
merger not requiring shareholder approval; (vii) authorize or approve the
reacquisition of shares except in accordance with a formula or method prescribed
by the board of directors; or (viii) authorize or approve the issuance or sale
of shares, or a contract for the sale of shares, or determine the designation,
relative rights, preferences and limitations of a class or series of shares;
except that the board of directors, may authorize a committee or an officer to
do so within limits specifically prescribed by the board of directors.
The creation of, delegation of authority to, or action by a committee
does not alone constitute compliance by a director with the standards of conduct
set forth in Article V.
9. Informal Action by Directors. Any action required or permitted be
taken at a board of directors' meeting may be taken without a meeting if all
members of the board consent to such action in writing. Action taken under this
Section 9 is effective at the time the last director signs a writing describing
the action taken unless the directors establish a different effective date, and
unless, before such time, a director has revoked his or her consent by a writing
signed by the director and received by the president or secretary. Action taken
pursuant to this Section 9 has the same effect as action taken at a meeting of
the directors and may be described as such in any document.
10. Telephonic Meetings. Members of the board of directors may
participate in a regular or special meeting by or conduct the meeting through
the use of any means of communication by which all directors participating may
hear each other during the meeting. A director participating in a meeting by
this means is deemed to be present in person at the meeting.
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ARTICLE V
Standards of Conduct
Each director shall perform his or her duties as a director, including
his or her duties as a member of any committee, and each officer with
discretionary authority shall discharge his or her duties under that authority,
(i) in good faith, (ii) with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a manner he or she
reasonably believes to be in the best interest of the Corporation.
In discharging his or her duties, a director or officer is entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by (i) one or more
officers or employees of the Corporation whom the director or officer reasonably
believes to be reliable and competent in the matters presented, (ii) legal
counsel, a public accountant, or other person as to matters which the director
or officer reasonably believes to be within such persons' professional or expert
competence or (iii) in the case of a director, a committee of the board of
directors of which the director is not a member if the director reasonably
believes the committee merits confidence.
A director or officer is not acting in good faith if he or she has
knowledge concerning the matter in question that makes reliance otherwise
permitted under this Article V unwarranted.
A director or officer is not liable as such to the Corporation or its
shareholders for any action he or she takes or omits to take as a director or
officer, as the case may be, if, in connection with such action or omission, he
or she performed the duties of the position in compliance with this Article V.
ARTICLE VI
Officers and Agents
1. General. The officers of the Corporation shall consist of a
president and a secretary. Each officer shall be a natural person eighteen years
of age or older. The board of directors or an officer or officers authorized by
the board may appoint such other officers, assistant officers, committees and
agents, including a chairman of the board, one or more vice presidents, a
treasurer, assistant secretaries and assistant treasurers, as they may consider
necessary. The board of directors or the officer or officers authorized by the
board shall from time to time determine the procedure for the appointment of
officers, their term of office, their authority and duties and their
compensation. One person may hold more than one office. In all cases where the
duties of any officer, agent, or employee are not prescribed by these Bylaws or
by the board of directors, such officer, agent or employee shall follow the
orders and instructions of the president of the Corporation.
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Any officer shall have the power to execute and deliver on behalf of
and in the name of the Corporation any instrument requiring the signature of an
officer of the Corporation, except as otherwise provided in these Bylaws or
where the execution and delivery thereof shall be expressly delegated by the
board of directors to some other officer or agent of the Corporation. Unless
authorized to do so by these Bylaws or by the board of directors, no officer,
agent or employee shall have any power or authority to bind the Corporation in
any way, to pledge its credit or to render it liable pecuniarily for any purpose
or in any amount.
2. Appointment and Term of Office. The officers of the Corporation
shall be appointed by the board of directors at each annual meeting of the board
held after each annual meeting of the shareholders. If the appointment of
officers is not made at such meeting or if an officer or officers are to be
appointed by another officer or officers of the Corporation, such appointments
shall be made as soon thereafter as practicable.
3. Vacancies. A vacancy in any office, however occurring, may be filled
by the board of directors, or by the officer or officers authorized by the
board, for the unexpired portion of the officer's term.
4. Resignation. An officer may resign at any time by giving written
notice of resignation to the Corporation. A resignation of an officer is
effective when the notice is received by the Corporation unless the notice
specifies a later effective date. If a resignation is made effective at a later
date, the board of directors may permit the officer to remain in office until
the effective date and may fill the pending vacancy before the effective date if
the board of directors provides that the successor does not take office until
the effective date, or the board of directors may remove the officer at any time
before the effective date and may fill the resulting vacancy.
5. Removal. Any officer or agent of this Corporation may be removed
with or without cause by the board of directors or an officer or officers
authorized by the board.
6. Contract Rights. Appointment of an officer does not itself create
contract rights. An officer's removal does not affect the officer's contract
rights, if any, with the Corporation. An officer's resignation does not affect
the Corporation's contract rights, if any, with the officer.
7. Chairman of the Board. The chairman of the board, if any, shall
preside as chairman at meetings of the shareholders and the board of directors.
He or she shall, in addition, have such other duties as the board may prescribe
that he or she perform. At the request of the president, the chairman of the
board may, in the case of the president's absence or inability to act,
temporarily act in his or her place. In the case of death of the president or in
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the case of his or her absence or inability to act without having designated the
chairman of the board to act temporarily in his place, the chairman of the board
shall perform the duties of the president, unless the board of directors, by
resolution, provides otherwise. If the chairman of the board shall be unable to
act in place of the president, the vice presidents may exercise such powers and
perform such duties as provided in Section 9 below.
8. Vice Chairman of the Board. The vice chairman of the board, if any,
in the absence of the Chairman of the Board, shall preside at all meetings of
the shareholders and of the Board of Directors. He shall have such other powers
and duties as may from time to time be prescribed by the Board of Directors.
9. President. Subject to the direction and supervision of the board of
directors, the president shall be the chief executive officer of the Corporation
and shall have general and active control of its affairs and business and
general supervision of its officer, agents and employees. In the event the
position of chairman or vice-chairman of the board shall not be occupied or the
chairman or vice-chairman shall be absent or otherwise unable to act, the
president shall preside at meetings of the shareholders and directors and shall
discharge the duties of the presiding officer. The president may sign, with the
secretary or any other proper officer of the Corporation thereunto authorized by
the board of directors, certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts, or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed. Unless otherwise directed by the
board of directors, the president shall attend in person or by substitute
appointed by him, or shall execute on behalf of the Corporation written
instruments appointing a proxy or proxies to represent the Corporation at, all
meetings of the shareholders of any other corporation in which the Corporation
holds any stock. On behalf of the Corporation, the president may in person or by
substitute or by proxy execute written waivers of notice and consents with
respect to any such meetings. At all such meetings and otherwise, the president,
in person or by substitute or proxy, may vote the stock held by the Corporation,
execute written consents and other instruments with respect to such stock and
exercise any and all rights and powers incident to the ownership of said stock.
10. Vice Presidents. Each vice president shall have such powers and
perform such duties as the board of directors may from time to time prescribe or
as the president may from time to time delegate to him. At the request of the
president, in the case of the president's absence or inability to act, any vice
president may temporarily act in his place. In the case of the death of the
president, or in the case of his absence or inability to act without having
designated a vice president or vice presidents to act temporarily in his place,
the board of directors, by resolution, may designate a vice president or vice
presidents, to perform the duties of the president. If no such designation shall
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be made, the chairman of the board of directors, if any, shall exercise such
powers and perform such duties, as provided in Section 8 of this Article V, but
if the Corporation has no chairman of the board of directors, or if the chairman
is unable to act in place of the president, any of the vice presidents may
exercise such powers and perform such duties.
11. Secretary. The secretary shall (i) prepare, or cause to be
prepared, and maintain as permanent records the minutes of the proceedings of
the shareholders and the board of directors or any committee thereof, a record
of all actions taken by the shareholders or board of directors or any committee
thereof without a meeting and a record of all waivers of notice of meetings of
shareholders and of the board of directors or any committee thereof, (ii) see
that all notices are duly given in accordance with the provisions of these
Bylaws and as required by law, (iii) serve as custodian of the records and of
the seal of the Corporation and affix the seal to all documents, (iv) keep at
the registered office or principal place of business, a record containing the
names and addresses of all shareholders in a form that permits preparation of a
list of shareholders arranged by voting group and by class or series of shares
within each voting group, that is alphabetical within each class or series and
that shows the address of, and the number of shares of each class or series held
by, each shareholder, unless such a record shall be kept at the office of the
Corporation's transfer agent or registrar, (v) maintain at the Corporation's
principal office the originals or copies of the Corporation's Articles of
Incorporation, Bylaws, minutes of all shareholders' meeting and records of all
action taken by shareholders without meeting for the past three years, all
written communications within the past three years to shareholders as a group or
to the holders of any class or series of shares as a group, a list of the names
and business addresses of the current directors and officers, a copy of the
Corporation's most recent corporate report filed with the Secretary of State,
and financial statements showing in reasonable detail the Corporation's assets
and liabilities and results of operations for the last three years, (vi) have
general charge of the stock transfer books of the Corporation, unless the
Corporation has a transfer agent, (vii) authenticate records of the Corporation
and (viii) in general, perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the board of directors. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a person other
than the secretary or assistant secretary to keep the minutes of their
respective meetings.
12. Treasurer. The treasurer shall be the chief financial officer of
the Corporation, shall have care and custody of all corporate funds, securities,
evidences of indebtedness and other personal property of the Corporation and
shall deposit the same in accordance with the instructions of the board of
directors. The treasurer shall receive and give receipts and acquittances for
money paid in on account of the Corporation, and shall pay out of the
Corporation's funds on hand all bills, payrolls and other just debts of the
Corporation of whatever nature upon maturity. Such power given to the treasurer
to deposit and disburse funds shall not, however, preclude any other officer or
employee of the Corporation from also depositing and disbursing funds when
authorized to do so by the board of directors. The treasurer shall, if required
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by the board of directors, give the Corporation a bond in such amount and with
such surety or sureties as may be ordered by the board of directors for the
faithful performance of duties of his office. The treasurer shall have such
other powers and perform such other duties as may be from time to time
prescribed by the board of directors or the president. The assistant treasurers,
if any, shall have the same powers and duties, subject to the supervision of the
treasurer.
The treasurer shall also be the principal accounting officer of the
Corporation and shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all local,
state and federal tax returns, prescribe and maintain an adequate system of
internal audit and prepare and furnish the president and the board of directors
statements of account showing the financial position of the Corporation and the
results of its operations.
13. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and the Assistant Treasurers respectively (in the order designated
by the Board of Directors or, lacking such designation, by the President), in
the absence of the Secretary or Treasurer, as the case may be, shall perform the
duties and exercise the powers of such Secretary or Treasurer and shall perform
such other duties as the Board of Directors shall prescribe.
14. Delegation of Duties. Whenever an officer is absent, or whenever,
for any reason, the board of directors may deem it desirable, the board may
delegate the powers and duties of an officer to any other officer or officers or
to any director or directors.
15. Bond of Officers. The board of directors may require any officer to
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the board of directors for such terms and conditions as
the board of directors may specify, including, without limitation, for the
faithful performance of his duties and for the restoration to the Corporation of
all property in his or her possession or under his or her control belonging to
the Corporation.
ARTICLE VII
Share Certificates and the Transfer of Shares
1. Share Certificates. Each share certificate shall state on its face
(i) the name of the Corporation and that it is incorporated under the laws of
the State of Colorado, (ii) the name of the person to whom the certificate is
issued, and (iii) the number and class of shares and the designation of the
series, if any, the certificate represents. Each share certificate shall be
signed, either manually or in facsimile, by the chairman or vice-chairman of the
board of directors or by the president or the vice-president and by the
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treasurer or an assistant treasurer or by the secretary or an assistant
secretary, or such other officers as the board of directors may designate, by
resolution, and may bear the corporate seal or its facsimile, and such other
information as may be deemed necessary or appropriate. If the person who signed
a share certificate either manually or in facsimile, no longer holds office when
the certificate is issued, the certificate is nevertheless valid. If the
Corporation is authorized to issue different classes of shares or different
series within a class, the certificate shall state conspicuously on its front or
back that the Corporation will furnish the shareholder information regarding the
designations, preferences, limitations and relative rights of each class and for
each series, upon written request and without charge.
2. Shares Without Certificates. The board of directors may authorize
the issuance by the Corporation of some or all of the shares of any or all of
its classes or series without certificates. Said authorization shall not affect
shares already represented by certificates until they are surrendered to the
Corporation. Within a reasonable time after the issuance or transfer of shares
without certificates, the Corporation shall send to the shareholder a written
statement of the information required by Section 1 of this Article VII.
3. Issuance of Shares. Except as provided in the Articles of
Incorporation, the board of directors may authorize the issuance of shares for
consideration consisting of any tangible, intangible property or benefit to the
Corporation, including cash, promissory notes, services performed and other
securities of the Corporation. The board of directors shall determine that the
consideration received or to be received for the shares to be issued is
adequate. Such determination, in the absence of fraud, is conclusive insofar as
the adequacy of such consideration relates to whether the shares are validly
issued, fully paid and nonassessable. The promissory note of a subscriber or an
affiliate of a subscriber for shares shall not constitute consideration for the
shares unless the note is negotiable and is secured by collateral other than the
shares, having a fair market value at least equal to the principal amount of the
note. For the purposes of this Section 3, "promissory note" means a negotiable
instrument on which there is an obligation to pay independent of collateral and
does not include a nonrecourse not. Unless otherwise expressly provided in the
Articles of Incorporation, shares having a par value may be issued for less than
the par value.
4. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of a certificate alleged to have been
destroyed or lost if the owner makes an affidavit or affirmation of that fact
and produces such evidence of loss or destruction as the board may require. The
board, in its discretion, may as a condition precedent to the issuance of a new
certificate require the owner to give the Corporation a bond as indemnity
against any claim that may be made against the Corporation relating to the
certificate allegedly destroyed or lost.
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5. Transfer of Shares.
(a) Shares of the Corporation shall only be transferred on the stock
transfer books of the Corporation by the holder of record thereof upon the
surrender to the Corporation of the share certificates duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer and such documentary stamps as may be required by law. In that event,
the surrendered certificates shall be cancelled, new certificates issued to the
persons entitled to them, and the transaction recorded on the books of the
Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes.
(b) The Articles of Incorporation, by these Bylaws, by an agreement
among shareholders, or among shareholders and the Corporation, may impose
restriction on the transfer or registration or transfer of shares of the
Corporation. A restriction does not affect shares issued before the restriction
became effective unless the holder of such shares acquired such shares with
knowledge of the restriction, is a party to the agreement containing the
restriction, or voted in favor of the restriction or otherwise consented to the
restriction.
(c) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by the Colorado Business Corporation Act and its
existence is noted conspicuously on the front or back of the certificate or is
contained in the information statement required by Section 2 of this Article VII
above. Unless so noted, a restriction is not enforceable against a person
without knowledge of the restriction.
6. Registered Shareholders. The Corporation shall be entitled to treat
the registered holder of any shares of the Corporation as the owner thereof for
all purposes, and the Corporation shall not be bound to recognize any equitable
or other claim to, or interest in, such shares or rights deriving from such
shares on the part of any person other than the registered holder, including
without limitation any purchaser, assignee or transferee of such shares or
rights deriving from such shares, unless and until such other person becomes the
registered holder of such shares, whether or not the Corporation shall have
either actual or constructive notice of the claimed interest of such other
person.
7. Transfer Agent, Registrars and Paying Agents. The board may at its
discretion appoint one or more transfer agents, registrars and agents for making
payment upon any class of stock, bond, debenture or other security of the
Corporation. Such agents and registrars may be located either within or outside
Colorado. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
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ARTICLE VIII
Insurance
By action of the board of directors, notwithstanding any interest of
the directors in the action, the Corporation may purchase and maintain
insurance, in such scope and amounts as the board of directors deems
appropriate, on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the Corporation, or who, while a director,
officer, employee, fiduciary or agent of the Corporation, is or was serving at
the request of the Corporation as a director, officer, partner, trustee,
employee, fiduciary or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company or other enterprise or employee benefit
plan, against any liability asserted against, or incurred by, him or her in that
capacity or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of the Colorado Business Corporation Act. Any such
insurance may be procured from any insurance company designated by the board of
directors of the Corporation, whether such insurance company is formed under the
laws of Colorado or is a company in which the Corporation has an equity interest
or any other interest, through stock ownership or otherwise.
ARTICLE IX
Miscellaneous
1. Seal. The Corporation's seal, if any, shall be circular in form and
shall contain the name of the Corporation and the words, "Seal, Colorado."
2. Fiscal Year. The fiscal year of the Corporation shall be December 31
of each year. Said fiscal year may be changed from time to time by the board of
directors in its discretion.
3. Amendments. The board of directors shall have power to make, amend
and repeal these bylaws at any regular or special meeting of the board unless
the shareholders expressly provide that the directors may not amend or repeal
such bylaw. The shareholders also shall have the power to make, amend or repeal
these bylaws at any annual meeting or at any special meeting called for that
purpose.
4. Gender. Whenever required by the context, the singular shall include
the plural, the plural the singular, and one gender shall include all genders.
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5. Invalid Provision. The invalidity or unenforceability of any
particular provision of these bylaws shall not affect the other provisions
herein, and these Bylaws shall be construed in all respects as if such invalid
or unenforceable provision was omitted.
6. Governing Law. These Bylaws shall be governed by and construed in
accordance with the laws of the State of Colorado.
7. Definitions. Except as otherwise specifically provided in these
Bylaws, all terms used in these Bylaws shall have the same definition as in the
Colorado Business Corporation Act.
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CAPITAL PREFERRED YIELD FUND - V, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership of Capital Preferred Yield Fund -
V, L.P. (the "Partnership") is made as of September 30, 1997, by and between CAI
Equipment Leasing VI Corp., a Colorado corporation, as the general partner (the
"General Partner"), and John F. Olmstead, as the original limited partner (the
"Original Limited Partner").
Capitalized terms used in this Agreement have the meanings set forth in
Article II.
Witnesseth:
WHEREAS, the General Partner has executed a Certificate of Limited
Partnership establishing the Partnership under and pursuant to the Delaware
Revised Uniform Limited Partnership Act, as amended (the "Delaware Act"); and
WHEREAS, the parties hereto desire to enter into this Agreement of
Limited Partnership for the purpose of forming the Partnership,
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows.
ARTICLE I
THE PARTNERSHIP
Section 1.1 Formation. The parties hereto hereby form a limited
partnership pursuant to the Delaware Act.
Section 1.2 General Partner. The name and mailing address of the
General Partner is as follows:
CAI Equipment Leasing VI Corp.
7175 West Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
<PAGE>
Section 1.3 Original Limited Partner. The name and address of the
Original Limited Partner is John F. Olmstead, 7175 West Jefferson Avenue, Suite
4000, Lakewood, Colorado 80235.
Section 1.4 Name. The name of the Partnership is Capital Preferred
Yield Fund - V, L.P. The Partnership may conduct business under this name and
such variations of this name as the General Partner deems appropriate to comply
with the laws of the other jurisdictions in which the Partnership does business.
Section 1.5 Place of Business. The location of the principal place of
business of the Partnership shall be 7175 West Jefferson Avenue, Suite 4000,
Lakewood, Colorado 80235, or such other place as may be selected from time to
time by the General Partner. The registered agent of the Partnership is The
Corporation Trust Company, and the Partnership's registered office in Delaware
is located at 1209 Orange Street, Corporation Trust Center, Wilmington, Delaware
19801, in the County of New Castle, Delaware.
Section 1.6 Business Purposes. The principal purpose and character of
the Partnership is to engage in the business of acquiring and leasing equipment
as a lessor and reinvesting certain of the proceeds thereof. The Partnership is
authorized to engage in any and all acts necessary, advisable or incidental to
the carrying out of the obligations attendant to the conduct of its business,
and may engage in any business or activity that may lawfully be conducted by
limited partnerships organized under the Delaware Act.
Section 1.7 Additional General Partners; Additional Limited Partners.
Additional General Partners and/or Additional Limited Partners may be admitted
to the Partnership with the written consent of the General Partner and the
Original Limited Partner.
Section 1.8 Power-of-Attorney. Each Partner, by his execution hereof,
irrevocably constitutes and appoints the General Partner as his true and lawful
attorney and agent, with full power of substitution, to act in his name, place
and stead in connection with, and to execute, sign, acknowledge, swear to,
deliver, file and record in the appropriate public offices, as necessary, (i)
all certificates or other instruments, including a certificate of limited
partnership to be filed with the Secretary of State of the State of Delaware,
and amendments thereto that the General Partner deems appropriate to qualify or
cause the Partnership to exist in the jurisdictions in which the Partnership
conducts business; (ii) all instruments and amendments thereto that the General
Partner deems appropriate to reflect any change or modification of this
Agreement or the admission or addition of Partners in accordance with the terms
of this Agreement; (iii) all conveyances and other instruments that the General
Partner deems appropriate to evidence and reflect any sales or transfers by, or
the dissolution and termination of, the Partnership in accordance with this
Agreement; (iv) all consents to transfers of Partnership interests, to the
admission or addition of Partners or to the withdrawal or reduction of any
Partner's invested capital in accordance with this Agreement; and (v) all other
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filings with agencies of the federal government, or any state or local
government, that the General Partner considers necessary or desirable to carry
out the purposes of this Agreement and the business of the Partnership.
ARTICLE II
DEFINITIONS
As used in this Agreement, the capitalized terms set forth below have
the following meanings:
"Bankruptcy" or "Bankrupt" means, as to any person (i) the filing of a
petition for relief as to any such person as debtor or bankrupt under the
Bankruptcy Code of 1978 or like provision of law (except if such petition is
contested by such person and has been dismissed within 120 days); (ii)
insolvency of such person as finally determined by a court proceeding; (iii)
filing by such person of a petition or application to accomplish the same or for
the appointment of a receiver or a trustee for such person or a substantial part
of his assets; or (iv) commencement of any proceedings relating to such person
under any other reorganization, arrangement, insolvency, adjustment of debt or
liquidation law of any jurisdiction, whether now in existence or hereafter in
effect, either by such person or by another, provided that if such proceeding is
commenced by another, such person indicates his approval of such proceeding,
consents thereto or acquiesces therein, or such proceeding is contested by such
person and has not been finally dismissed within 120 days.
"Capital Account" means an account established for each Partner that
shall be generally increased by the amount of such Partner's Capital
Contribution to the Partnership, increased by the share of income, profit and
gain allocated to such Partner, and generally decreased by (a) all distributions
of cash and the fair market value of property distributed to such Partner, and
(b) the amount of all expenses, losses and deductions charged to such Partner.
Notwithstanding any provision herein, each Partner's Capital Account shall be
created and maintained in accordance with the accounting principles as set forth
in the Code and the Treasury Regulations thereunder.
"Capital Contribution" means the sum of any Partner's contribution to
the capital of the Partnership paid in accordance with Article III of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of prior or succeeding law.
"General Partner" means CAI Equipment Leasing VI Corp. and any Person
who, at the time of reference thereto, has been admitted as a successor or
additional general partner of the Partnership pursuant to this Agreement.
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"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the rights and obligations of such
Partner under this Agreement. Whenever a reference is made in this Agreement to
a particular percentage of the Interest of the Partners, it refers to the
Partners' interest in the profits, losses and distributions of the Partnership
as reflected in their individual Sharing Ratios.
"Limited Partner" means any Person who may be admitted into the
Partnership as a limited partner from time to time, including the Original
Limited Partner, in such Person's capacity as a limited partner of the
Partnership.
"Partners" means the General Partner and the Limited Partners.
"Partnership" means the limited partnership formed in accordance with
this Agreement, as such limited partnership may from time to time be
constituted.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Sharing Ratio" means, with respect to the General Partner, 83.3% and,
with respect to the Original Limited Partner, 16.7%, or such different Sharing
Ratios as may be determined by the consent of all Partners from time to time.
"Treasury Regulations" means final or temporary regulations issued by
the U. S. Treasury Department pursuant to the Code.
ARTICLE III
CAPITAL CONTRIBUTIONS
Section 3.1 Capital Contributions. The Partners hereby agree to make
the following cash contributions to the Partnership's capital:
General Partner: Amount
--------------- ------
CAI Equipment Leasing VI Corp. 100.00
Original Limited Partner:
John F. Olmstead $ 20.00
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ARTICLE IV
ALLOCATIONS OF PROFITS AND LOSSES;
LASH DISTRIBUTIONS
Section 4.1 Allocations of Partnership Profits and Losses. All profits
and losses of the Partnership shall be allocated to the Partners in accordance
with their Sharing Ratios.
Section 4.2 Cash Distribution. All cash receipts, less such amounts
that the General Partner may determine are necessary to retain to pay
Partnership expenses, shall be distributed by the General Partners to the
Partners in accordance with their Sharing Ratios. Such distributions shall be
made at such times, and to such extent, as the General Partner shall in its sole
discretion determine.
Section 4.3 Reimbursement of Costs. The Partnership shall reimburse the
General Partner for all costs incurred by the General Partner on behalf of the
Partnership or that are properly allocable by the General Partner to the
Partnership's operations.
Section 4.4 Adjustment to Capital Accounts. All allocations of
Partnership profit and loss (as provided in Section 4.1 hereof), all cash
distributions (as provided in Section 4.2 hereof) and all other allocations of
tax items shall be reflected by an appropriate adjustment to the Partners'
Capital Accounts in accordance with tax accounting principles.
ARTICLE V
RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTNERS
Section 5.1 Power of General Partner. Subject to the limitations of
this Agreement, the General Partner shall have full, exclusive and complete
discretion to manage and control the business of the Partnership to the best of
its ability and to use its best efforts to carry out the purposes of the
Partnership. The General Partner shall, except as otherwise provided in this
Agreement, have all the rights and powers and shall be subject to all the
restrictions and liabilities of a partner in a partnership without limited
partners. The General Partner shall have full power and authority to execute and
deliver in the name of and on behalf of the Partnership such documents or
instruments as the General Partner deems appropriate for the conduct of
Partnership business. No person, firm or corporation dealing with the
Partnership shall be required to inquire into the authority of the General
Partner to take any action or make any decision.
Section 5.2 Records. In order to conduct properly the business of the
Partnership, and in order to keep the Partners properly informed, the General
Partner shall maintain in good order such records and files as are required by
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the Delaware Act, including appropriate books and records reflecting the
Partnership's income and expenses and each Partner's participation therein. The
books, accounts, files and other records of the Partnership shall be available
for inspection and audit by any Partner or his duly authorized representative
(at the expense of such Partner) during regular business hours at the principal
office of the Partnership.
Section 5.3 No Withdrawal of the General Partner. The General Partner
may not withdraw from the Partnership.
ARTICLE VI
ACCOUNTING, BOOKS AND TAX MATTERS
Section 6.1 Fiscal Year. The General Partner shall select the fiscal
year of the Partnership as it determines is in the Partnership's best interest.
The books of the Partnership shall be kept in accordance with customary
accounting practices on the cash receipts and disbursements method or the
accrual method as determined by the General Partner.
Section 6.2 Tax Reporting. The General Partner shall cause the
Partnership to elect such taxable year as it determines to be in the
Partnership's best interest and shall timely file all Partnership income tax
returns required to be filed by the jurisdictions in which the Partnership
conducts business or derives income.
ARTICLE VII
TRANSFERABILITY OF PARTNERS' INTERESTS
Section 7.1 Transfers. Except as otherwise provided in this Section
7.1, a Limited Partner may transfer a part or all of his Interest hereunder only
with the written consent of the General Partner, which consent may be freely
withheld. This provision does not apply to, and no conditions are placed upon,
any assignment of an Interest of a Limited Partner to an assignee who is already
a Limited Partner. In addition, nothing in this Section 7.1 is intended in any
way to restrict any transfer by operation of law.
Section 1.2 Substituted Partners. To become a substituted Partner, a
purchaser, assignee, heir or transferee of an interest in the Partnership must
(i) obtain the written consent of the General Partner, which consent may be
freely withheld, and (ii) satisfy all requirements of the Delaware Act. Upon
becoming a substituted Partner, each transferee shall assume all the obligations
of, and shall attain the status of, his transferor and shall in all respects be
a Partner under and pursuant to this Agreement.
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ARTICLE VIII
DISSOLUTION OF PARTNERSHIP
Section 8.1 Events of Dissolution. The Partnership shall be dissolved
and its affairs wound up upon the happening of the first to occur of the
following:
(a) December 31, 2009;
(b) At a time specified in the written consents
of all the Partners;
(c) The dissolution, Bankruptcy or insolvency of a
General Partner, or upon the occurrence of such other event that causes
a General Partner to cease to be a General Partner as provided in the
Delaware Act, unless the remaining General Partners (or in the case of
a General Partner who is at that time the sole General Partner, all of
the remaining Partners) agree in writing to continue the business of
the Partnership within 90 days of the occurrence of such event; or
(d) Any event causing the dissolution of the
Partnership under the Delaware Act.
Section 8.2 Successor General Partner. If, in the event of the
dissolution, Bankruptcy or insolvency of a General Partner who is at that time
the sole General Partner, all of the remaining Partners agree in writing to
continue the business of the Partnership in accordance with Section 8.1(c)
hereof, they shall appoint a successor General Partner. The successor General
Partner shall acquire the interest of the former General Partner at a price
equal to the fair market value of such General Partner's Interest in the
Partnership (less any damage resulting to the Partnership) as determined by an
independent appraiser, as of the date of such event specified in Section 8.1(c)
hereof. All amounts to be paid to the former General Partner shall be in full
satisfaction of the former General Partner's Interest in the Partnership.
Section 8.3 Liquidating Trustee. Upon dissolution of the Partnership,
unless as a result of the dissolution, Bankruptcy or insolvency of a General
Partner who is at that time the sole General Partner, the General Partner shall
appoint a Liquidating Trustee. Upon dissolution of the Partnership as a result
of the dissolution, Bankruptcy or insolvency of a General Partner who is at the
time the sole General Partner, a majority in Interest of the Limited Partners
shall appoint the Liquidating Trustee.
Section 8.4 Liquidation. As soon as possible after dissolution of the
Partnership, the Liquidating Trustee shall wind up the Partnership's business
and affairs as follows:
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(a) The Liquidating Trustee shall furnish or obtain
an accounting with respect to all Partnership accounts and the Capital
Account of each Partner and with respect to the Partnership's assets
and liabilities and its operations from the date of the last previous
audit of the Partnership to the date of dissolution.
(b) The Liquidating Trustee shall:
(i) liquidate all Partnership assets that, in
its sole discretion, it determines may be sold for such
assets' fair market value or where it determines such
liquidation is otherwise in the best interests of the
Partners;
(ii) pay all of the Partnership's debts,
liabilities and obligations to its creditors, including
Partners who are creditors, that are not dischargeable
from property distributed pursuant to subsection (d)
below; and
(iii) pay all expenses incurred in
connection with the termination, liquidation and
dissolution of the Partnership and distribution of its
assets as herein provided.
(c) After payment of the foregoing, all remaining
assets of the partnership shall be distributed to the Partners, first,
in proportion to and to the extent of any positive balances in the
Partners' Capital Accounts until such accounts are reduced to zero, and
then assets shall be distributed in accordance with the Partners'
respective Sharing Ratios.
(d) If the Liquidating Trustee determines that it is
in the best interest of the Partners to distribute certain Partnership
assets in kind, such assets shall be distributed subject to such liens,
encumbrances, restrictions, contracts, obligations, commitments or
undertakings as existed with respect to such asset prior to the
dissolution of the Partnership, including all revenue interests set
forth herein.
(e) Upon dissolution and termination of the
Partnership, the General Partner shall contribute to the Partnership an
amount equal to the lesser of (i) the deficit balances in its capital
accounts; or (ii) the excess of 1.01% of the total Capital
Contributions of the Limited Partners over the Capital Contributions
previously made by the General Partner.
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ARTICLE IX
NOTICES
All notices hereunder shall be sent by certified or registered mail
addressed, if to the Partnership, to the principal place of business as set
forth in Section 1.5 hereof, if to the General Partner, to the addresses set
forth in Section 1.2 hereof and if to the Limited Partners, to the addresses set
forth for each of them in Section 1.3 hereof. Such addresses may be changed by
the parties to be notified by giving notice to the General Partner as provided
in this Article IX. All notices hereunder shall be effective and deemed received
on the earlier of (a) the date set forth on the receipt of registered or
certified mail, or (b) seven days after the notice is placed in the United
States mail, properly addressed, with postage prepaid.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Embodiment of Understanding. This Agreement supersedes any
and all prior negotiations and oral understandings or agreements as to the
affairs of the Partnership and the conduct of its business and constitutes the
entire agreement of the Partners with respect to the subject matter of this
Agreement. The captions appearing at the beginning of the various Articles and
Sections of this Agreement are for the convenience of the parties only, are not
to be deemed a complete description of the contents of such Articles or Sections
and are not a part of this Agreement or the understandings among the parties.
Section 10.2 Amendment. No amendment, change or alteration of this
Agreement shall be binding upon any Partner, unless it is in writing and signed
by all the Partners at that time.
Section 10.3 Multiple Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be considered an original and all of
which shall constitute one and the same instrument. The General Partner is not
required to deliver a copy of the Certificate of Limited Partnership, or any
Certificate of Amendment thereto, to the Partners.
Section 10.4 Applicable Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
Section 10.5 Successors and Assigns. This Agreement and all of the
terms, provisions and economic benefits hereof shall be binding upon and shall
inure to the benefit of the Partners and their respective heirs, executors,
administrators, trustees, successors and permitted assigns.
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Section 10.6 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not of itself invalidate or render
unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL PARTNER:
CAI EQUIPMENT LEASING VI CORP.
By: /s/ John F. Olmstead
----------------------------
John F. Olmstead, President
ORIGINAL LIMITED PARTNER:
/s/ John F. Olmstead
------------------------------
John F. Olmstead
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Lyle B. Stewart
Attorney at Law
(303) 267-0920
Fax (303) 267-0922
[email protected]
October 17, 1997
CAI Equipment Leasing VI Corp.
General Partner Capital Preferred Yield Fund-V, L.P.
7175 West Jefferson Avenue
Lakewood, Colorado 80235
Re: Capital Preferred Yield Fund-V, L.P.
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel to Capital Preferred Yield Fund - V,
L.P., a Delaware limited partnership (the "Partnership"). The Certificate of
Limited Partnership of the Partnership was filed with the Delaware Secretary of
State's office on September 30, 1997. The Partnership has been formed for the
purpose of engaging in the business of owning and leasing equipment. In
connection with a proposed public offering of up to 500,000 units of Class A
limited partner interests in the Partnership (the "Units"), the Partnership has
filed a Registration Statement (including a prospectus (the "Prospectus")) of
Form S-1 under the Securities Act of 1933, as amended, with the U.S. Securities
and Exchange Commission.
Based upon our review of the relevant Partnership documents
and the Delaware Revised Uniform Limited Partnership Act, we are of the opinion
that the Units, when issued in compliance with the provisions of the Prospectus
and the Amended and Restated Agreement of Limited Partnership, attached as
Exhibit A to the Prospectus, will be legally issued, fully paid and
non-assessable under Delaware law.
We hereby consent to the filing of a copy of this opinion as
Exhibit 5 to the above-referenced Registration Statement and to the reference to
the name of this firm under the caption "Legal Matters" in the Prospectus.
Very truly yours,
/s/ Lyle B. Stewart, P.C.
- ------------------------------------------------------------------------------
Lyle B. Stewart, P.C. o 3751 South Quebec St. o Denver, CO 80237
ESCROW AGREEMENT
THIS AGREEMENT, dated as of October __, 1997, is made by and among
CAPITAL PREFERRED YIELD FUND - V, L.P., a Delaware limited partnership (the
"Partnership"), CAI EQUIPMENT LEASING VI CORP., a Colorado corporation, the
general partner of the Partnership (the "General Partner"), CAI SECURITIES
CORPORATION, a California corporation (the "Selling Agent") and Bank One,
Colorado, N.A., a national banking association (the "Agent"). All terms not
otherwise defined herein shall have the meaning set forth in Article One of the
Partnership's Amended and Restated Agreement of Limited Partnership, as set
forth in Exhibit A to the Prospectus (as defined below).
Recitals
A. The Partnership proposes to offer for sale a maximum of 500,000
units of Class A Limited Partnership Interest (the "Units") at a price of $100
per Unit, with a minimum subscription of ten Units for Individual Retirement
Accounts, Keogh Plans and Employee Benefit Plans, and twenty-five Units for all
other investors, with additional purchases in multiples of one Unit, pursuant to
a registration statement on Form S-1 (Registration No. __________) filed with
the Securities and Exchange Commission (the "Registration Statement").
B. Each subscriber (a "Subscriber") will be required either to (i)
execute and deliver a Subscription Agreement (the "Subscription Agreement"), in
the form set forth as Exhibit C to the Prospectus contained in the Registration
Statement (the "Prospectus") (a copy of which Prospectus will be delivered to
the Agent upon effectiveness of the Registration Statement with the Securities
and Exchange Commission), or (ii) otherwise agree to the terms of such
Subscription Agreement in accordance with the terms thereof, and in either case
to make a contribution of $100 for each Unit subscribed for (a "Contribution").
C. All Contributions received from Subscribers prior to the Closing
will be placed immediately into a segregated interest-bearing account (the
"Escrow Account") with the Agent until such time as the release or return of the
Contributions is required pursuant to Section 4.
D. The Partnership desires the Agent to hold all Contributions in the
Escrow Account.
E. The Partnership and Agent agree and intend that the duties and
obligations of the Agent are only those specifically set forth in this
Agreement.
<PAGE>
Agreement
In consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby expressly
acknowledged, the Partnership, the General Partner, the Selling Agent and the
Agent hereby agree, for the benefit of the Partnership and the Subscribers, as
follows:
1. Appointment of Agent. The parties hereby appoint the Agent as escrow
agent in accordance with the terms and conditions set forth herein and the Agent
hereby accepts such appointment.
2. Escrow. Prior to the Closing, Contributions will be made by
Subscribers in the form of checks payable to "Capital Preferred Yield Fund - V,
L.P., Escrow Account." Contributions shall be promptly transmitted by the
broker-dealers who have executed the Selling Dealer Agreement (the "Selling
Dealers") to the Agent for deposit into the Escrow Account. All Contributions
deposited into the Escrow Account and not yet released to the Partnership in
accordance with this Agreement are hereinafter referred to as "Escrowed
Contributions." Each transmittal for deposit into the Escrow Account shall be
accompanied by: (i) a "batch sheet" showing the total Contributions contained in
such transmittal and the total Contributions deposited into escrow to date; and
(ii) a Subscription Agreement executed by the Subscriber or the Selling Dealer
(including a Form W-9 for the Subscriber).
3. Investment of Escrowed Contributions. The Agent shall invest the
Escrowed Contributions for the benefit of the Subscribers in bank accounts,
including savings accounts and bank money market accounts, short-term
certificates of deposit issued by a bank having a net worth of at least
$10,000,000 or short-term securities issued or guaranteed by the United States
government. The following securities shall not be permissible investments: (a)
money market funds; (b) corporate equity or debt securities; (c) repurchase
agreements; (d) banker's acceptances; (e) commercial paper; and (f) municipal
securities. Investments shall begin earning interest on the first business day
following the date upon which Escrowed Contributions are deposited by the Agent.
All interest earned on Escrowed Contributions ("Escrowed Interest") shall be
reinvested in the same manner as the Escrowed Contributions.
4. Conditions to Release of Escrowed Contributions. The obligation of
the Agent to make disposition of, and the right of the Partnership to receive
Escrowed Contributions and Escrowed Interest, shall be subject to the following
conditions:
(a) A minimum of 12,000 Units shall have been
subscribed for (the "Minimum Offering") and the Agent shall be holding
(or shall have previously held) Escrowed Contributions representing the
Minimum Offering as of a date 10 business days prior to the Closing
Date (the "Minimum Offering Date").
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(b) On the Closing Date there shall have been
furnished to the Agent a certificate dated as of such date (the
"Certificate"), executed by the President or a Vice President of the
General Partner, and by the General Partner on behalf of the
Partnership, stating:
(i) that the Escrowed Contributions held (or
previously held) by the Agent represent the sale of not less
than the Minimum Offering; and
(ii) that the General Partner has complied with
all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date.
(c) In addition to the Certificate, two days prior to
the Closing Date there shall have been furnished to the Agent
instructions (the "Instructions"), executed by the President or a Vice
President of the Selling Agent, and by the General Partner on behalf of
the Partnership, stating:
(i) the date and time of the Closing Date
and the place and designated accounts to which the Escrowed
Contributions shall be transmitted in accordance with Section
5;
(ii) the amount of the Sales Commissions to be
paid to the Selling Dealers on the Closing Date and the
designated accounts to which such amount shall be transmitted;
(iii) the amount of the Dealer-Manager Fee to be
paid to the Selling Agent on the Closing Date and the
designated account to which such amount shall be transmitted;
and
(iv) the amount of Escrowed Interest and the
designated account to which such amount shall be transmitted.
(d) In no event shall Escrowed Contributions be
released until such funds have cleared the banking system.
5. Disposition of Escrowed Contributions and Escrowed Interest. The
Agent shall make disposition of the Escrowed Contributions and any Escrowed
Interest as follows:
(a) If, prior to the Termination Date, the Agent has
been provided with the Certificate, on such dates and at such times and
places as shall be stated in the Instructions, the Agent shall deliver
to the Partnership, by wire transfer in immediately available funds to
an account designated in the Instructions, an amount equal to the
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aggregate amount of the Escrowed Contributions held in the Escrow
Account as of the Minimum Offering Date, less the amounts to be
transferred by the Agent pursuant to Sections 5(b), (c) and (d) below.
(b) On the Closing Date, the Agent shall deliver to
the Selling Dealers, by wire transfer in immediately available funds,
to accounts designated in the Instructions, an amount equal to the
Sales Commissions payable to the Selling Dealers with respect to the
aggregate amount of Escrowed Contributions to be delivered to the
Partnership on such Closing Date.
(c) On the Closing Date, the Agent shall deliver to
the Partnership, by wire transfer in immediately available funds, to
the account specified in the Instructions, an amount equal to the
Escrowed Interest with such amount to be remitted by the Partnership to
Subscribers on a pro rata basis based upon the time such Subscriber's
Contributions have been held in the Escrow Account.
(d) On the Closing Date, the Agent shall deliver to
the Selling Agent, by wire transfer in immediately available funds, to
an account designated in the Instructions, an amount equal to the
Dealer-Manager Fee payable to the Selling Agent with respect to the
aggregate amount of Escrowed Contributions to be delivered to the
Partnership on such Closing Date.
(e) The Offering will commence on the date of the
Prospectus and is expected to terminate 24 months after that date
subject to re-registration with applicable state securities
administrators, if required, after the initial 12 months. If, by the
Termination Date, the Agent has not been provided with the Certificate
or has received a notice from such parties that the Offering has
otherwise been terminated prior to such time, then any Escrowed
Contributions will be released from escrow and returned to the
Subscribers, together with any interest earned thereon. In this event,
the amount of interest distributable to each Subscriber shall be
determined by the Selling Agent by applying the weighted average per
diem rate of interest to each Subscriber's Contribution for the period
of time beginning on the day such Subscriber's Contribution was
invested by the Agent and ending on the date escrow is terminated. This
information shall be provided to the Agent in writing in order to
facilitate the Agent's issuance of Forms 1099 in accordance with
Section 5(h).
(f) Contributions deposited in the Escrow Account may
not be withdrawn by Subscribers. If a Subscriber's Subscription
Agreement is rejected by the General Partner for any reason, such
Subscriber's Contribution will be promptly returned, together with any
interest earned thereon computed by the Selling Agent as provided in
Section 5(e).
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(g) On or before the Closing Date, the Selling Agent
shall deliver to the Agent a certificate of its authorized officer
stating that the Selling Agent or the Selling Dealers have received
confirmation of the tax identification number or social security
number, in accordance with the then applicable requirements of the
Internal Revenue Service, from each of the Persons to be admitted as
holders of Units on such Closing Date.
(h) If the Minimum Offering is achieved, the Selling
Agent shall include the distribution of Escrowed Interest to the
Subscribers as a distribution to be reported to each Subscriber on a
Form K-1. If the Minimum Offering is not achieved, the Agent shall
provide to each Subscriber a Form 1099 setting forth the amount of
Escrowed Interest paid to that Subscriber.
6. Maintenance of Records. The Agent shall maintain accurate
records of all transactions hereunder. Promptly after the termination of the
Escrow Account, or as may reasonably be requested by the General Partner at any
time or from time to time before such termination, the Agent shall provide the
Partnership with a complete copy of such records, certified by the Agent to be a
complete and accurate account of all such transactions as of the date thereof.
The authorized representatives of the General Partner shall also have access to
such books and records at all reasonable times during normal business hours upon
reasonable notice to the Agent.
7. Exculpation and Indemnification of Agent.
(a) The Agent shall have no duties or
responsibilities other than those expressly set forth herein. The Agent
shall have no duty to enforce any obligation of any person to make any
payment or delivery, or to direct or cause any payment or delivery to
be made, or to enforce any obligation of any person to perform any
other act. The Agent shall be under no liability to any party hereto or
to anyone else by reason of any failure on the part of any party hereto
or any maker, guarantor, endorser or other signatory of any document or
any other person to perform such person's obligations under any such
document. Except for amendments to this Agreement referred to in
Section 12(b) and except for instructions given to the Agent by another
party hereto relating to the Escrow Account, the Agent shall not be
obligated to recognize any agreement between any or all of the persons
referred to herein, notwithstanding that references thereto may be made
herein and whether or not it has knowledge thereof.
(b) The Agent shall not be liable to any other party
hereto or to anyone else for any action taken or omitted by it, or any
action suffered by it to be taken or omitted, in good faith and in the
exercise of its own best judgment, except for fraud, negligence or
willful misconduct. The Agent may rely conclusively and shall be
protected in acting upon any order, notice, demand, certificate,
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opinion or advice of counsel (including counsel chosen by the Agent),
statement, instrument, report or other paper or document (not only as
to its due execution and the validity and effectiveness of its
provisions, but also as to the truth and acceptability of any
information therein contained) that is believed by the Agent to be
genuine and to be signed or presented by the proper person or persons.
The Agent shall not be bound by any notice or demand, or any waiver,
modification, termination or rescission of this Agreement or any of
the terms hereof, unless evidenced by a writing delivered to the Agent
signed by the proper party or parties and, if the duties or rights of
the Agent are affected, unless it shall give its prior written consent
thereto.
(c) The Agent shall not be responsible for the
sufficiency or accuracy of the form of, or the execution, validity,
value or genuineness of, any document or property received or held by
it hereunder, or of any signature or endorsement thereon, or for any
lack of endorsement thereon, or for any description therein, nor shall
the Agent be responsible or liable to the other parties hereto or to
anyone else in any respect on account of the identity, authority or
rights of the persons executing or delivering or purporting to execute
or deliver any document or property or this Agreement, other than on
behalf of or in the name of the Agent. The Agent shall have no
responsibility with respect to the use or application of any funds or
other property paid or delivered by the Agent pursuant to the
provisions hereof. The Agent shall not be liable to any other party
hereto or to anyone else for any loss that may be incurred by reason of
any investment of any monies that it holds hereunder.
(d) The Agent shall have the right to assume, in the
absence of written notice to the contrary from the proper person or
persons, that a fact or an event by reason of which an action would or
might be taken by the Agent does not exist or has not occurred, without
incurring liability to the other parties hereto or to anyone else for
any action taken or omitted, or any action suffered by it to be taken
or omitted, in good faith and in the exercise of its own best judgment,
in reliance upon such assumption; provided, however, that the Agent
shall be liable for any such liability resulting from its own fraud,
negligence or willful misconduct.
(e) To the extent that the Agent becomes liable for
the payment of taxes, including withholding taxes, in respect of income
derived from the investment of funds held hereunder or any payment made
hereunder, the Agent may pay such taxes. The Agent shall be indemnified
and held harmless against any liability for taxes and for any penalties
or interest in respect of taxes, on such investment income or payments
in the manner provided in Section 7(f).
(f) The Agent shall be indemnified and held harmless
by the Partnership and the General Partner from and against any and all
expenses, including counsel fees and disbursements, or loss suffered by
the Agent in connection with any action, suit or other proceeding
involving any claim, or in connection with any claim or demand, that
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in any way, directly or indirectly, arises out of or relates to this
Agreement, the services of the Agent hereunder, the monies or other
property held by it hereunder or any income earned from investment of
such monies; provided, however, that if the Agent has been determined
to be guilty of fraud, negligence or willful misconduct, the Agent
shall not be entitled to indemnification hereunder. Promptly after the
receipt by the Agent of notice of any demand or claim or the
commencement of any action, suit or proceeding, the Agent shall, if a
claim in respect thereof is to be made against any of the other
parties hereto, notify such other parties thereof in writing; the
failure by the Agent to give such notices shall relieve such other
parties from any liability that such parties may have to the Agent
under this Section 7(f) as to the particular item for which
indemnification is being sought, but not from any other liability that
any of them may have to the Agent. Each of the other parties hereto
will be entitled to participate in the defense of any action, suit or
proceeding for which indemnification is sought hereunder and, to the
extent any of them so desires, jointly with any of the other parties
hereto, to assume such defense, with counsel who shall be reasonably
satisfactory to the Agent, and after notice from any of the other
parties hereto to the Agent of such party's election so to assume such
defense, none of the other parties hereto will be liable to the Agent
under this Section 7(f) for any legal or other expenses subsequently
incurred by the Agent in connection with such defense other than
reasonable costs of investigation.
8. Compensation of Agent. The Agent shall be entitled to
reasonable compensation for the services rendered by it hereunder, as set forth
on Exhibit A. The Agent shall also be entitled to reimbursement by the
Partnership for all expenses paid or incurred by it in the administration of its
duties hereunder, including, but not limited to, all counsel, advisors' and
agents' fees and disbursements and all taxes or other governmental charges.
9. Further Assurances. From time to time on and after the date
hereof, the other parties hereto shall deliver or cause to be delivered to the
Agent such further documents and instruments and shall do and cause to be done
such further acts as the Agent shall reasonably request (it being understood
that the Agent shall have no obligation to make any such request) to carry out
more effectively the provisions and purposes of this Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.
10. Termination of Agreement and Resignation of Agent.
(a) This Agreement shall terminate on the final
disposition of the monies and property held in escrow hereunder,
provided that the rights of the Agent and the obligations of the other
parties hereto under Sections 7 and 8 shall survive the termination
hereof.
(b) The Agent may resign at any time and be
discharged from its duties as escrow agent hereunder by giving the
other parties hereto at least 60 days' notice thereof. The General
Partner or the Selling Agent may remove the Agent at any time by
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giving to the other parties hereto at least 30 days' notice thereof.
As soon as practicable after its resignation or removal, the Agent
shall turn over to a successor escrow agent appointed by the other
parties hereto all monies and property held hereunder upon
presentation of the document appointing the successor escrow agent and
its acceptance thereof. If no successor escrow agent is so appointed
within the 60-day period following such notice of resignation or the
30-day period following such notice of removal, the Agent may deposit
the aforesaid monies and property with any court in the City of
Denver, State of Colorado, it deems appropriate. If the Agent is
removed, it shall be entitled to (i) the full payment of its flat fee,
(ii) compensation for services rendered prior to such removal and
(iii) out-of-pocket expenses incurred prior to such removal, all as
set forth on Exhibit A.
11. Notices. All notices, requests, demands and other
communications provided for herein shall be in writing, shall be delivered by
hand, first-class mail or overnight express, shall be deemed given when received
and shall be addressed to the parties hereto at their respective addresses
listed below or to such other persons or addresses as the relevant party shall
designate as to itself from time to time in writing delivered in like manner:
To the Agent:
Bank One, Colorado, N.A.
Attention: Debra Rayman
1125 17th Street, Fourth Floor
Denver, Colorado 80202
To the Partnership:
Capital Preferred Yield Fund - V, L.P.
Attention: Mr. John F. Olmstead
7175 W. Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
To the General Partner:
CAI Equipment Leasing VI Corp.
Attention: Mr. John F. Olmstead
7175 W. Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
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To the Selling Agent:
CAI Securities Corporation
Attention: Mr. John F. Olmstead
7175 W. Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
12. Miscellaneous.
(a) All amounts referred to herein are expressed in
United States dollars and all payments by the Agent shall be made in
such dollars.
(b) This Agreement shall be binding upon and inure to
the benefit of each party's respective successors, heirs and permitted
assigns. No other person shall acquire or have any rights under or by
virtue of this Agreement. This Agreement may not be changed orally or
modified, amended or supplemented without an express written agreement
executed by the Agent and the other parties hereto.
(c) This Agreement shall be governed by and construed
in accordance with the laws of the State of Colorado. The
representations and warranties contained in this Agreement shall
survive the execution and delivery hereof and any investigation made by
any party. The headings in this Agreement are for purposes of reference
only and shall not limit or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, the Partnership, the General Partner, the
Selling Agent and the Agent have executed this Escrow Agreement as of the date
set forth above.
CAPITAL PREFERRED YIELD FUND - V, L.P.,
a Delaware limited partnership
By: CAI EQUIPMENT LEASING VI CORP.,
a Colorado corporation and
Its General Partner
By:
---------------------------------------------
John F. Olmstead, President
9
<PAGE>
CAI EQUIPMENT LEASING VI CORP.
By:
---------------------------------------------
John F. Olmstead, President
CAI SECURITIES CORPORATION
By:
--------------------------------------------
John F. Olmstead, Senior Vice
President
BANK ONE, COLORADO, N.A.
By:
---------------------------------------------
Title:
-------------------------------------
10
<PAGE>
CAPITAL PREFERRED YIELD FUND-V, L.P.
ESCROW FEE SCHEDULE
Escrow fee (payable in advance;
assumes escrow period of
90 days or less) $2,000.00
Additional escrow fee if escrow extends
beyond initial 90-day period (payable
annually or any portion thereof) $3,000.00
Each disbursement event $ 100.00
Issuance of 1099's - per tax form $ 15.00
Return of funds to subscribers, each check $ 10.00
Out-of-pocket expenses (including legal, taxes,
extraordinary administration) At cost
Date: , 1997
--------------- --
11
Consent of Independent Auditors
Board of Directors
CAI Equipment Leasing VI Corp.:
We consent to the use of our report included herein relating to the balance
sheet of CAI Equipment Leasing VI Corp. (a wholly owned subsidiary of Capital
Associates, Inc.) as of October 15, 1997, and to the reference to our firm under
the heading "Experts" in the prospectus.
/s/KPMG Peat Marwick LLP
----------------------------
KPMG Peat Marwick LLP
Denver, Colorado
October 15, 1997
Consent of Independent Auditors
Board of Directors
Capital Preferred Yield Fund-V, L.P.:
We consent to the use of our report included herein relating to the balance
sheet of Capital Preferred Yield Fund-v, L.P. as of October 15, 1997, and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
October 15, 1997
Consent of Independent Auditors
Board of Directors
Capital Associates, Inc.:
We consent to the use of our report included herein relating to the balance
sheet of Capital Associates, Inc. and subsidiaries as of May 31, 1997, and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Denver, Colorado
October 15, 1997
