ATEL
CAPITAL EQUIPMENT FUND IX, LLC
Limited Liability Company Units
ATEL Capital Equipment Fund IX, LLC will buy a diversified portfolio of
primarily low-technology equipment and lease the equipment to corporations. ATEL
Financial Corporation is its Manager. The Fund will collect lease payments and
eventually sell the equipment. Its objective will be to distribute to investors
the lease payments and sales proceeds remaining after it pays its expenses and
fees. The Fund intends to use approximately 86.5% of the capital it raises from
the sale of Units to purchase its investments in equipment. At least an
additional one-half of one percent of its initial capital will be held as
reserves. Of the remaining capital, 9.5% will be used to pay selling commissions
and up to 3.5% will be used to pay other offering expenses.
A purchase of Units involves risks. See "Risk Factors" on page 9. Risks include:
o Investors must rely on ATEL to manage the Fund;
o The Fund will pay ATEL substantial fees;
o The Fund has not specified all its equipment investments;
o The Fund's performance is subject to the risk of lessee defaults;
o The Fund will borrow to buy equipment;
o An investor's ability to sell his Units is limited; and
o The Fund does not guarantee its distributions or the return of investors'
captial.
The Fund is offering a total of 15,000,000 of its Units of limited liability
company interest for a price of $10 per Unit. An investor must purchase a
minimum of 250 Units, except that an Individual Retirement Account or other
retirement plan can purchase a minimum of 200 Units. No Units will be sold
unless a minimum of $1,200,000 in cash is received within one year from the
start of the offering. The Fund will deposit its subscriptions in a bank escrow
account until that amount is received. The brokers selling the Units are not
required to sell any specific number of Units, but will use their best efforts
to sell Units.
Price to Selling Proceeds
Public Commissions to Fund
Per Unit $ 10 $ 0.95 $ 9.05
Total Minimum $ 1,200,000 $ 114,000 $ 1,086,000
Total Maximum $150,000,000 $14,250,000 $135,750,000
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities nor has any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS JANUARY 16, 2001
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TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING........................................................6
The Fund....................................................................6
Management..................................................................6
Risk Factors................................................................6
Who Should Invest...........................................................6
Use of Capital..............................................................6
ATEL's Fees.................................................................7
Income, Losses and Distributions............................................7
Income Tax Consequences.....................................................7
Summary of the Operating Agreement..........................................7
Plan of Distribution........................................................8
RISK FACTORS...................................................................9
Equipment Leasing Risks.....................................................9
Risks Inherent in the Structure of the Fund................................11
Risks Relating to Tax Matters..............................................13
Risks Relating to ERISA Matters............................................14
WHO SHOULD INVEST.............................................................14
ESTIMATED USE OF PROCEEDS.....................................................17
MANAGEMENT COMPENSATION.......................................................18
Summary Table..............................................................18
Narrative Description of Compensation......................................18
Limitations on Fees........................................................20
Defined Terms Used in Description of Compensation..........................22
INVESTMENT OBJECTIVES AND POLICIES............................................24
Principal Investment Objectives............................................24
General Policies...........................................................24
Types of Equipment.........................................................26
Prior Program Diversification..............................................30
Borrowing Policies.........................................................33
Description of Lessees.....................................................34
Foreign Leases.............................................................35
Description of Leases......................................................35
Growth Capital Equipment Financing.........................................37
Competition................................................................38
Joint Venture Investments..................................................39
General Restrictions.......................................................40
Changes in Investment Objectives and Policies..............................40
CONFLICTS OF INTEREST.........................................................41
ORGANIZATIONAL DIAGRAM........................................................43
FIDUCIARY DUTY OF THE MANAGER.................................................43
MANAGEMENT....................................................................45
The Manager................................................................45
Selection and Management of Investments....................................46
Management Compensation....................................................47
Changes in Management......................................................47
The Dealer Manager.........................................................47
PRIOR PERFORMANCE SUMMARY.....................................................47
3
Page
INCOME, LOSSES AND DISTRIBUTIONS..............................................50
Allocations of Net Income and Net Loss.....................................50
Timing of Distributions....................................................50
Allocations of Distributions...............................................51
Reinvestment...............................................................51
Return of Unused Capital...................................................52
Cash from Reserve Account..................................................52
Sources of Distributions-- Accounting Matters..............................52
CAPITALIZATION................................................................52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION...................53
Year 2000 Compliance.......................................................54
FEDERAL INCOME TAX CONSEQUENCES...............................................54
Opinion of Derenthal & Dannhauser..........................................55
Classification as a Partnership............................................55
Allocations of Profits and Losses..........................................56
Income Recognition.........................................................57
Taxation of Investors......................................................58
Limitation on Deduction of Losses..........................................58
Tax Basis................................................................58
At Risk Rules............................................................58
Passive Loss Limitation..................................................59
Hobby Losses.............................................................59
Tax Status of Leases.......................................................59
Cost Recovery..............................................................60
Tax Consequences Respecting Equity Interests...............................60
Deductibility of Management Fees...........................................61
Tax Liability in Later Years...............................................61
Sales or Exchanges of Fund Equipment.......................................61
Disposition of Units.......................................................62
Liquidation of the Fund....................................................62
Fund Elections.............................................................62
Treatment of Gifts of Units................................................63
Investment by Qualified Retirement Plans and IRAs..........................63
Individual Tax Rates.......................................................63
Alternative Minimum Tax....................................................64
Fund Tax Returns and Tax Information.......................................66
Interest and Penalties.....................................................66
Audit of Tax Returns.......................................................67
Registration Provisions....................................................67
Miscellaneous Fund Tax Aspects.............................................68
Foreign Tax Considerations of U.S. Investors...............................68
U.S. Taxation of Foreign Persons...........................................68
Future Federal Income Tax Changes..........................................68
State and Local Taxes......................................................69
Need for Independent Advice................................................69
ERISA CONSIDERATIONS..........................................................69
Prohibited Transactions Under ERISA and the Code...........................69
Plan Assets................................................................70
Other ERISA Considerations.................................................70
4
Page
SUMMARY OF THE OPERATING AGREEMENT............................................71
The Duties of the Manager..................................................71
Liability of Holders.......................................................71
Term and Dissolution.......................................................72
Voting Rights of Members...................................................72
Dissenters' Rights and Limitations on Mergers and Roll-ups.................73
Meetings...................................................................73
Books of Account and Records...............................................73
Status of Units............................................................73
Transferability of Units...................................................74
Repurchase of Units........................................................76
Indemnification of the Manager.............................................76
PLAN OF DISTRIBUTION..........................................................77
Distribution...............................................................77
Selling Compensation and Certain Expenses..................................77
Escrow Arrangements........................................................78
Investments by Certain Persons.............................................79
State Requirements.........................................................79
REPORTS TO HOLDERS............................................................80
SUPPLEMENTAL SALES MATERIAL...................................................81
LEGAL OPINIONS................................................................82
EXPERTS.......................................................................82
ADDITIONAL INFORMATION........................................................82
GLOSSARY......................................................................83
FINANCIAL STATEMENTS.........................................................F-1
Exhibit A-- Prior Performance Information....................................A-1
Exhibit B-- Operating Agreement..............................................B-1
Exhibit C-- Subscription Instructions and Documents..........................C-1
5
SUMMARY OF THE OFFERING
This summary outlines the main points of the offering. The summary does not
replace the more detailed information found in the remainder of this Prospectus.
All prospective investors are urged to read this Prospectus in its entirety.
The Fund: The Fund is a California limited liability company which intends
to invest in a variety of types of equipment and to lease the equipment to
corporations. The Fund expects to acquire mostly low-technology equipment such
as the basic equipment used by companies in the manufacturing, mining and
transportation industries. The portfolio will also include some more
high-technology equipment, such as communications equipment, medical equipment
and office equipment. The Fund will seek to buy equipment and leases that will
produce lease payments and eventual sales prices which will provide a favorable
return on its investments and cash distributions to its investors. The Fund's
equipment will primarily be leased to major publicly owned corporations. Some of
its equipment investments will finance capital equipment for other public and
private companies. In some of these investments, the Fund may acquire equity
interests and warrants and rights to purchase equity interests in these
companies.
Management: The Manager of the Fund is ATEL Financial Corporation. ATEL and
its family of related ATEL companies will provide various services to the Fund,
including asset management and company administration. ATEL will be responsible
for supervising all of the Fund's business and affairs. ATEL will act as a
fiduciary to the Fund, and, consequently, is required to exercise good faith and
integrity in all dealings with respect to Fund affairs. The offices of the Fund
and ATEL are located at 235 Pine Street, 6th Floor, San Francisco, California
94104, and its telephone numbers are (415) 989-8800 and (800) 543-ATEL (2835).
Risk Factors: An investment in Units involves risks, including the
following:
-- Investors must rely on ATEL to manage the Fund's business;
-- The Fund will pay ATEL substantial fees;
-- The Fund has not specified all its equipment investments;
-- The Fund's performance is subject to the risk of lessee defaults;
-- The Fund will borrow to buy equipment investments;
-- An investor's ability to sell his Units is limited; and
-- The Fund does not guarantee its distributions or the return of
investors' capital.
Who Should Invest: The Units are a long-term investment, with a primary
objective of regular cash distributions. Investors must satisfy minimum net
worth and income requirements which require, generally, that investors have
either:
-- an annual gross income of at least $45,000 and a net worth (exclusive
of home, home furnishings and automobiles) of at least $45,000; or
-- a net worth (determined with the same exclusions) of at least $150,000.
Use of Capital: The Fund expects to invest approximately 86.5% of its
capital in the cash portion of the purchase price of equipment. It intends to
retain an additional 0.5% as reserves for general working capital purposes, and
to use the balance to pay selling commissions equal to 9.5%, and other offering
and organization expenses in the estimated amount of from 2.5% to 3.5%.
6
ATEL's Fees: The Fund will pay ATEL and its family of related companies
substantial fees and compensation in connection with this offering and the
operation of the Fund's business, including the following:
-- ATEL Securities Corporation will organize and manage the group of
broker-dealers selling the Units. It will receive selling commissions
most of which will pay to the participating broker dealers. ATEL
Securities Corporation may retain up to 1.5% of the sale price of
Units.
-- The Fund will pay ATEL an annual asset management fee equal to 4%
of the revenues from leases and sales of the Fund's equipment, subject
to fee limits.
-- ATEL will have an interest equal to 7.5% of all of the Fund's income,
loss and cash distributions.
The Fund will also reimburse ATEL for offering expenses and administrative
expenses ATEL incurs on behalf of the Fund, subject to some limitations.
Income, Losses and Distributions: Fund income and loss for tax purposes and
cash distributions will be allocated 92.5% to investors and 7.5% to ATEL. The
Fund intends to distribute all cash revenues remaining after the Fund
-- pays its expenses, including fees paid to ATEL,
-- establishes or restores its capital reserves, and
-- to the extent permitted, sets aside amounts for reinvestment in
additional equipment.
Until the end of a six-year period following the end of the offering of
Units, the Fund may invest its revenues in additional equipment. Before it can
reinvest its revenues, though, it must first satisfy conditions which include
distributions to each investor for the year equal to at least 9% of the purchase
price of the Units.
Income Tax Consequences: This Prospectus has a discussion of federal income
tax consequences relating to an investment in Units under the caption "Federal
Income Tax Consequences." Investors should consult with their tax and financial
advisors to determine whether an investment in Units is suitable for their
portfolio.
Summary of the Operating Agreement: The Operating Agreement that will
govern the relationship between the investors and ATEL is a complex legal
document. The following is a brief summary of certain provisions of the
Operating Agreement discussed in greater detail under "Summary of the Operating
Agreement."
-- Voting Rights of Members. Each investor will become a member of the
Fund, and will be entitled to cast one vote for each Unit owned as of
the record date for any vote of all the members. The members are
entitled to vote on only certain fundamental organizational matters
affecting the Fund, and have no voice in Fund operations or policies.
-- Meetings. ATEL or Members holding 10% or more of the total outstanding
Units may call a meeting of the Members or a vote of the Members
without a meeting, on matters on which they are entitled to vote.
-- Dissenters' Rights and Limitations on Mergers and Roll-ups. The
Operating Agreement provides Members with protection in a proposed
reorganization in which the investors would be issued new securities in
the resulting entity.
-- Transferability of Units. ATEL may condition any proposed transfer of
Units on, among other things, legal opinions confirming that the
proposed transfer does not violate securities laws and will not result
in adverse tax consequences to the Fund. The Fund will not permit any
transfer which does not follow the rules in the Operating Agreement.
7
-- Liability of Investors. Under the Operating Agreement and California
law, an investor complying with the Operating Agreement will not
personally be liable for any debt of the Fund.
-- Status of Units. Under the Operating Agreement, each Unit will be fully
paid and nonassessable and all Units have equal voting and other
rights, except there are limitations on the voting of Units held by
ATEL.
-- Term and Dissolution. The Fund intends to begin selling its assets and
distributing all available cash to its Members beginning after the end
of the sixth full year following the end of the offering, with the
final distribution expected approximately ten to eleven years after the
termination of the offering. In any event, the Fund must end no later
than December 31, 2020.
-- Books of Account and Records. ATEL is responsible under the Operating
Agreement for keeping books of account and records of the Fund showing
all of the contributions to the capital of the Fund and all of the
expenses and transactions of the Fund. These books of account and
records will be kept at the principal place of business of the Fund in
the State of California, and each Member and his authorized
representatives shall have, at all times during reasonable business
hours, free access to and the right to inspect and copy at their
expense the books of the Fund, and each Member shall have the right to
compel the Fund to deliver copies of certain of these records on
demand.
-- Indemnification of ATEL. The Operating Agreement provides that ATEL and
its related companies who perform services for the Fund will be
indemnified against certain liabilities.
Plan of Distribution: The Units will be offered through ATEL Securities
Corporation, the dealer manager, who will organize a group of other
broker-dealers who are members of the National Association of Securities
Dealers, Inc. ("NASD").
Until subscriptions for a total of 120,000 Units are received and accepted,
all offering proceeds will be deposited in an escrow account. Upon receipt and
acceptance of subscriptions to a minimum of 120,000 Units, the subscription
proceeds will be released to the Fund. The offering will terminate not later
than two years from the date of this Prospectus.
8
RISK FACTORS
The purchase of Units involves various risks. Therefore, investors should
consider the following factors, among others discussed in this Prospectus,
before making a decision to purchase Units.
Equipment Leasing Risks
The success of the Fund will be subject to risks inherent in the equipment
leasing business. A number of factors may threaten the Fund's ability to operate
profitably. These include:
-- the quality of the equipment the Fund buys and leases,
-- the continuing strength of the equipment manufacturers,
-- the timing of purchases and the ability to forecast technological
advances for equipment,
-- technological and economic obsolescence,
-- changes in economic conditions, including fluctuations in demand for
equipment, interest rates and inflation rates,
-- defaults by lessees, and
-- increases in Fund expenses (including energy, labor, taxes and insurance
expenses).
The Fund may be harmed if a lessee defaults on its lease. If a lessee does
not make lease payments to the Fund when they are due under its lease or
violates the terms of its lease contract in another important way, the Fund may
be forced to cancel the lease and recover the equipment. The Fund may do this at
a time when the Manager may be unable to arrange for a new lease or the sale of
such equipment right away. The Fund would then lose the expected lease revenues
and might not be able to recover the entire amount of the its original
investment. If a lessee files for protection under the bankruptcy laws, the Fund
may experience difficulties and delays in recovering the equipment from the
defaulting lessee. The equipment may be returned in poor condition and the Fund
may be unable to enforce important lease provisions against an insolvent lessee,
including the contract provisions that require the lessee to return the
equipment in good condition. In some cases, a lessee's deteriorating financial
condition may make trying to recover what the lessee owes the Fund impractical.
The costs of recovering equipment upon a lessee's default, enforcing the
lessee's obligations under the lease, and transporting, storing, repairing and
finding a new lessee or purchaser for the equipment may be high and may affect
the Fund's profits.
The amount of the Fund's profit will depend in part on the value of its
equipment when the leases end. In general, leased equipment loses value over a
lease term. In negotiating leases, the Manager will assume a value for the
equipment at the end of the lease. The Manager will seek lease payments plus
equipment value at the end of the lease which is enough to return the Fund's
investment in the equipment and provide a profit. The value of the equipment at
the end of a lease will depend on a number of factors, including:
-- the condition of the equipment;
-- the cost of similar new equipment; and
-- whether the equipment has become obsolete.
The Fund cannot assure that its value assumptions will be accurate or that the
equipment will not lose value more rapidly than anticipated.
9
The Fund may lease equipment outside of the United States. The Fund may
lease equipment to foreign subsidiaries of United States corporations and to
foreign lessees. The Fund may also lease equipment to U.S. lessees which is to
be used outside the United States. The Manager will seek to limit the Fund's
total cash investment in equipment under foreign leases or used primarily
outside the United States to not more than 20% of its capital. The laws, courts
and tax authorities of a foreign country may govern the Fund's equipment leased
or used in that country. The Fund will attempt to require foreign lessees to
consent to the jurisdiction of U.S. courts if disputes should arise under the
lease. Even if the Fund is successful in this effort, if a foreign lessee
defaults the Fund may find it difficult or impossible to enforce judgments
against foreign lessees, recover leased equipment or enforce the Fund's rights
under the lease. Also, the use and operation of equipment in foreign countries
may result in unanticipated taxes or confiscation without fair compensation. The
Fund will attempt to negotiate lease provisions which require:
-- payment in U.S. currency;
-- reimbursement for any foreign taxes billed to the Fund; and
-- insurance covering the risk of confiscation.
If lease payments or other lease terms involve payments in foreign currency, the
Fund will be subject to the risk of currency exchange rate fluctuations, which
could reduce the Fund's overall profit on an investment. Many countries also
have laws regulating the transfer and exchange of currencies, and these laws may
affect a foreign lessee's ability to comply with lease terms. Finally, certain
depreciation or cost recovery methods used in calculating taxable income may not
be available for equipment leased by a foreign lessee or "used predominantly
outside the United States."
Demand for equipment fluctuates. The Fund's ability to keep the equipment
leased and the terms of its purchase, lease and sale of equipment depend on
various factors, many of which neither the Manager nor the Fund can control.
Factors which have an effect on the demand for equipment include the effects of
inflation or recession, and fluctuations in supply and demand resulting from,
among other things, technological and economic obsolescence.
The equipment leasing industry is highly competitive. Equipment
manufacturers, corporations, partnerships and others offer users an alternative
to the purchase of most types of equipment with payment terms which vary widely
depending on the lease term and type of equipment. In seeking leases, the Fund
will compete with financial institutions, manufacturers and public and private
leasing companies, many of which may have greater financial resources than the
Fund.
Risks of leases that depend for profit on equipment value at the end of the
lease. Most of the Fund's leases will provide for total lease payments which are
less than the original price of the equipment. At the end of these leases, the
Fund must either renew the lease, find a new lessee or sell the equipment to
cover its investment and make a profit.
Equipment may be damaged or lost. Fire, weather, accident, theft or other
events can cause the damage or loss of equipment. Not all potential casualties
can be insured, and, if insured, the insurance proceeds may not be sufficient to
cover a loss.
Some types of equipment are under special government regulation. The use,
maintenance and ownership of certain types of equipment are regulated by
federal, state and/or local authorities. Regulations may impose restrictions and
financial burdens on the Fund's ownership and operation of equipment. Changes in
government regulations, industry standards or deregulation may also affect the
ownership, operation and resale value of equipment.
In addition, certain types of equipment, such as railcars, marine vessels
and aircraft, are subject to extensive safety and operating regulations imposed
by government and/or industry organizations. These agencies or organizations may
require changes or improvements to equipment and the Fund may have to spend its
10
own capital to comply. These changes may also require the equipment to be
removed from service for a period of time. The terms of leases may provide for
rent reductions if the equipment must remain out of service for an extended
period or is removed from service. The Fund may then have reduced operating
revenues from the leases for these items of equipment. If the Fund did not have
the capital to make a required change, it might be required to sell the affected
equipment or to sell other items of its equipment in order to obtain the
necessary cash; in either event, the Fund could suffer a loss on its investment
and might lose future revenues, and the Fund might also have adverse tax
consequences.
A portion of the Fund's equipment portfolio will consist of financing
provided to entities without substantial operating histories or records of
profitability. The Fund will primarily lease equipment to large and established
corporations. However, the Fund may invest up to 20% of its capital in providing
financing to companies which do not have substantial operating histories or
records of profitability, and which are developing products or services prior to
bringing them to market, including development of some new and untested
technologies. Because of their stage of development and the types of products
and technologies they are seeking to develop, these companies will be more
subject to changes and fluctuations in financial, technology and product
markets. These lessees and borrowers therefore will involve greater risks of
default than financing, and investment in, more established, profitable or
investment grade entities.
Risks Relating to Lending Activities. In addition to credit risks, the Fund
may be subject to other risks in equipment financing transactions in which it is
deemed to be a lender. Some courts have held that certain loan features such as
equity interests constitute additional interest. State laws determine what rates
of interest are deemed usurious, when the applicable rate of interest is
determined and how it is calculated. Although the Fund will generally seek
assurances and or opinions to the effect that its transactions do not violate
applicable usury laws, a finding that an equity interest is additional interest
could result in a court determining that the rate of interest charged by the
Fund is usurious, the "interest" obligation under the Fund's loan could be
declared void, and the Fund could be deemed liable for damages or penalties
under the applicable state law.
The Fund will be subject to the risk of claims asserting theories of
"lender liability." Various common law and statutory theories have been advanced
to hold lenders liable to their borrowers. The general principle underlying this
theory of liability is that lenders have a form of duty to their borrowers,
regardless of the terms of the loan agreements and other financing documents.
Breach of that duty by the lender can lead to liability for damages to the
borrower. The Fund and its Manager intend to act in good faith in all dealings
with the Fund's borrowers and in a manner designed to mitigate any potential for
such liability. Nevertheless, this area of law is rapidly changing and there can
be no assurance that actions the Fund believes are appropriate to take in
protecting the Fund's interests as lender might not cause it to be liable for a
deemed breach of a duty to a borrower.
The Fund may not be able to register aircraft or marine vessels. The Fund
may invest in aircraft or marine vessels. Aircraft or marine vessels operated in
the United States must be registered with the Federal Aviation Administration
("FAA") or the U.S. Coast Guard ("USCG"), which limit registration to aircraft
or marine vessels owned by U.S. Citizens and Resident Aliens. The FAA's and
USCG's Rules are not clear on the status of certain forms of entity which own
aircraft or marine vessels. The Fund will acquire aircraft or marine vessels
only if they are appropriately registered. If registration were later revoked
for any reason, the aircraft or marine vessel could not be operated in the
United States airspace or territorial waters, and the Fund would be subject to
resulting risks, including a possible forced sale of the aircraft or marine
vessel, possible uninsured casualties, the loss of benefits of the central
recording system under federal law and a breach by the Fund of leases or
financing agreements.
Risks Inherent in the Structure of the Fund
Investors will have limited voting rights and must rely on management for
the success of the Fund. ATEL, as the Manager, will make all decisions in the
management of the Fund. The success of the Fund will, to a large extent, depend
on the quality of its management, particularly decisions on the purchase,
leasing and sale of its equipment. Investors are not permitted to take part in
the management of the Fund and have only limited voting rights. An affirmative
vote by holders of a majority of the Units is required to remove the Manager. No
person should purchase Units unless he is willing to entrust all aspects of
management of the Fund to the Manager and has evaluated the Manager's
capabilities to perform such functions.
The Manager will receive substantial compensation. The Fund will pay
substantial fees to the Manager and its related companies before distributions
are paid to investors even if the Fund does not produce profits. The Manager
11
will also be subject to conflicts of interest in its management of the Fund. In
particular, the Fund expects to borrow up to 50% of the aggregate cost of
equipment, and this will result in higher Asset Management Fees than if less
debt were incurred.
The Fund has not identified all of its equipment and lessees. An investor
cannot assess all of the potential risks of an investment in Units because all
of the equipment to be purchased and the lessees to whom the equipment will be
leased have not been identified. A prospective investor will not have complete
information as to the manufacturers of the Fund's equipment, the number of
leases to be entered into, the specific types and models of equipment to be
acquired, or the identity, financial condition and creditworthiness of the
companies who will lease its equipment. Investors must rely upon the judgment
and ability of the Manager in its selection of equipment to purchase, the
evaluation of equipment manufacturers, the selection of lessees and the
negotiation of leases.
The Fund will borrow to buy equipment and will bear the risks of borrowing.
The Fund will borrow a portion of the purchase price of its equipment. The Fund
expects to borrow a total amount equal to 50% of the aggregate cost of its
equipment, the maximum permitted under the Operating Agreement. The Fund can
expect to make a profit on equipment purchased with debt only if the equipment
produces more than enough cash from lease payments and sales price to pay the
principal and interest on the debt, recover the purchase price and cover fees
and other operating expenses.
The Fund intends to use both:
-- debt in which only the asset financed by the lender is collateral
securing the obligation, and
-- debt in which all of the Fund's assets or a selected pool of the assets
are collateral securing the obligation.
When a borrower defaults on a secured loan, the lender usually has the
right to immediate payment of the entire debt and to sell the collateral to pay
the debt. In this way, the Fund's borrowing may involve a greater risk of loss
than if no debt were used, because the Fund must meet its fixed payment
obligations regardless of the amount of revenue it receives from the equipment.
At the same time, the use of debt increases the potential size of the Fund's
equipment portfolio, the amount of lease revenues and potential sale proceeds.
Greater amounts of debt would also increase the total fees payable to the
Manager, because its asset management fees are determined as a percentage of the
Fund's total revenues.
The amount and terms of debt available to the Fund for the purchase of
equipment may also determine the amount of cash distributed to investors and the
amount of tax benefits they receive. The Fund has not entered into any loan
agreements, and it cannot guarantee the availability or terms of any possible
debt financing.
The Fund may borrow on terms which provide for a lump sum payment on the
due date. The Fund may have debt which is not repaid in regular installments
over the term of the loan, but requires a large payment of principal and
interest on the final due date. This "balloon payment" debt is riskier than debt
which is repaid in regular installments over the term of the loan, because the
Fund's ability to repay the loan when it becomes due may depend on its ability
to find a new loan or a buyer when the lump sum payment is due. If the economy
is not favorable at that time or the value of the equipment has fallen, the Fund
might default on its loan and lose the equipment.
There are significant limitations on the transferability of Units. The
Manager will take steps to assure that no public trading market develops for the
Units. If a public trading market were to develop, the Fund could suffer a very
unfavorable change in the way it is taxed under the federal tax laws. Investors
will probably not be able to sell their Units for full value if they need to in
an emergency. Units may also not be accepted as collateral for a loan.
Consequently, investors should consider the purchase of Units only as a
long-term investment.
The amount of capital actually raised by the Fund may determine its
diversification and profitability. The Fund's offering will be not less than
$1,200,000 nor more than $150,000,000. If the Fund receives only the minimum
capital, it will be harder to diversify its equipment and lessees, and any
12
single lease transaction will have a greater impact on its potential profits.
The Fund has no minimum number of lease transactions nor is there any
restriction on the percentage of the minimum capital which it may use to buy
equipment of a single type or equipment leased to a single lessee.
A substantial portion of Fund distributions from lease revenues is expected
to be a return of capital. The amount of cash the Fund will distribute to
investors each year is not the same as the amount of taxable income that is
passed through to the investor. For example, the Fund may have tax deductions
which do not represent direct cash expenses, so the Fund may have more cash
available to distribute than it has taxable income. When an investor receives a
distribution of more cash in a year than his share of income, he will be deemed
to be receiving a return of his invested capital rather than investment income.
Distributions by the Fund may be characterized differently for tax, accounting
and economic purposes as a return of capital, investment income or a portion of
each. The portion of total distributions which will be a return of capital and
the portion which will be investment income at the end of the Fund will depend
on a number of factors in the Fund's operations, and cannot be determined until
all of its equipment is sold and an investor can compare the total amount of all
cash distributions to the total capital invested.
The Fund is a newly-formed entity. The Fund was formed in September 2000,
and has no operating history.
A delay in the investment could affect the Fund's ability to meet its
investment objectives. Any overall decline in corporate expansion or demand for
capital goods could delay investment of the Fund's capital, and its production
of lease revenues.
Investment by the Fund in joint ownership of equipment may involve risks.
Some of the Fund's investments may be owned by joint ventures between the Fund
and unaffiliated third parties or, under certain circumstances, programs related
to the Fund or the Manager, or as co-owners with such parties. The investment by
the Fund in joint ownership of equipment, instead of investing in the equipment
directly or as the sole owner, may involve risks such as:
-- the Fund's co-venturer might become bankrupt,
-- the co-venturer may have interests or goals which are inconsistent with
those of the Fund,
-- the parties may reach an impasse on joint venture decisions,
-- the co-venturer may be in a position to take action contrary to the
instructions or the requests of the Fund or contrary to the Fund's
policies or objectives, or
-- actions by a co-venturer might have the result of subjecting equipment
owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement or might have
other adverse consequences for the Fund.
Risks Relating to Tax Matters
In determining whether to invest in the Units, a prospective investor
should consider possible tax consequences, which may include:
-- the Fund could be taxed as a corporation. If so, the yield to an
investor would be substantially reduced.
-- the IRS could disallow or reduce the Fund's deductions. If so, Fund
income would increase or Fund losses would decrease.
-- the IRS could reallocate Fund income, gain, deduction and loss in a
manner that is different from the provisions of the operating
agreement. If so, an investor's share of such items would be different
from that described in this prospectus.
-- a tax-exempt organization will have unrelated business taxable income
from an investment in the Fund. IRAs and other retirement plans are
tax-exempt entities.
-- changes in the tax law or regulations may adversely affect the Fund, the
investors and the value of the Fund's equipment.
13
-- the opinion of tax counsel is limited in scope and qualified by certain
assumptions. There can be no assurance that the IRS will not challenge
the Fund's tax positions. An IRS challenge, if successful, could have a
detrimental effect on the Fund's ability to realize its investment
objectives.
-- investors may have tax liability greater than their distributions.
-- an investor's share of losses incurred by the Fund will be subject to
the passive loss limitation on deductibility. An investor may be unable
to deduct Fund losses until termination of the Fund.
-- investors may have tax liability from Fund portfolio income. Portfolio
income may not be offset by passive activity losses.
-- an audit of an investor's tax return could result from the audit of the
Fund's return.
-- investors may be required to file tax returns and pay state, local
and/or foreign taxes as a result of an investment in the Fund.
-- investors may be subject to withholding.
Each investor is urged to consult his tax advisor regarding his own tax
situation and potential changes in the tax law.
Risks Relating to ERISA Matters
In considering an investment of the assets of an IRA, Keogh Plan, corporate
retirement plan or other qualified retirement plan in the Fund, the plan
fiduciary should assess:
-- whether the investment is prudent. In this regard it is unlikely that
there will be a secondary market for the sale of the Units; and
-- whether the investment is made solely in the interest of the
participants in the IRA or qualified retirement plan.
For retirement plans which are subject to ERISA, the fiduciary should
assess whether the investment satisfies the diversification requirements of
Section 404(a)(1)(C) of ERISA.
ERISA may apply a look-through rule when a retirement plan makes an equity
investment in another entity. If the rule does not apply, the retirement plan's
assets would include only the security, such as the Units, representing the
equity investment. If the rule does apply, the retirement plan's assets would be
deemed to include all of the assets held by the entity in which it has invested.
For this reason, the Fund is limiting sales to retirement plans to less than 25%
of the Units.
ERISA requires that plan assets be valued at their fair market value as of
the close of the plan year. It may not be possible to value the Units accurately
from year to year. There will not be a secondary market for Units. Any change in
the value of the equipment may not be reflected in the value of the Units.
WHO SHOULD INVEST
The Units represent a long-term investment, the primary benefit of which is
expected to be cash distributions. A purchase of Units is suitable only for
persons who meet the financial suitability standards described below and who
have no need for liquidity from this investment. In order to subscribe for
Units, each investor must execute a Subscription Agreement, a specimen of which
is attached as Exhibit C. The Subscription Agreement provided to the investor
for execution must be accompanied by a copy of this Prospectus, and each
subscriber has the right to cancel his subscription during a period of five
business days after the subscriber has submitted the executed Subscription
Agreement to the broker-dealer through which the Units are sold. The Fund and/or
the selling broker-dealer will send each investor a written confirmation of the
acceptance of the investor's subscription for Units upon admission to the Fund.
14
The Fund has established suitability standards which require that an
investor:
-- have an annual gross income of at least $45,000 and a net worth
(exclusive of home, home furnishings and automobiles) of at
least $45,000; or
-- have a net worth (determined with the same exclusions) of at least
$150,000.
Certain state securities commissioners may establish suitability standards
different from the above for their states, and these different standards are
described under "Plan of Distribution -- State Requirements" or will be included
in a supplement. By executing the Subscription Agreement, an investor represents
that he meets the suitability standards applicable to him, and agrees that such
standards may be applied to any proposed transferee of his Units. Each
participating broker-dealer who sells Units has the affirmative duty, confirmed
in the Selected Dealer Agreement entered into with the Dealer Manager, to
determine prior to the sale of Units that an investment in Units is a suitable
investment for its subscribing customer, must execute a representation in the
Subscription Agreement regarding such suitability, and must maintain information
concerning suitability for at least six years following the date of investment.
The selling broker and the sponsor must make every reasonable effort to
determine that the purchase of Units is a suitable and appropriate investment
for each purchaser, based on relevant information concerning the investor,
including the investor's age, investment objectives, investment experience,
income, net worth, financial situation, and other investments, as well as any
other pertinent factors.
The minimum number of Units which an investor may purchase is 250,
representing a total minimum investment of $2,500, except that an Individual
Retirement Account or a qualified pension plan, profit-sharing plan, stock bonus
plan or Keogh Plan may purchase a minimum of 200 Units ($2,000). Additional
investments may be made in a minimum amount of 50 Units ($500) per subscription,
and minimum additional increments of one Unit ($10). Investors seeking to
acquire additional Units after their initial subscription need not complete a
second subscription agreement. In addition to restrictions on transfer imposed
by the Fund, an investor seeking to transfer his Units after his initial
investment may be subject to the securities or "Blue Sky" laws of the state in
which the transfer is to take place.
Fund income realized by an IRA or a qualified pension plan, profit-sharing
plan, stock bonus plan or Keogh Plan will be taxable to the plan as "unrelated
business taxable income" under the Internal Revenue Code. In considering an
investment in the Fund, plan fiduciaries should consider, among other things,
the diversification requirements of Section 401(a)(1)(C) of the Internal Revenue
Code, additional legal requirements under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the prudent investment standards
generally imposed on plan fiduciaries. Also, in certain circumstances the assets
of an entity in which a Qualified Plan or IRA has made an equity investment may
constitute "plan assets." To the extent necessary to avoid this result, the Fund
will limit the sale and transfer of Units to any IRA or a qualified pension
plan, profit-sharing plan, stock bonus plan or Keogh Plan so that less than 25%
of the total outstanding Units are held by these investors at all times. Each
investor must make a representation at the time of his subscription as to the
record and beneficial ownership of the Units subscribed.
Investors should also note that the Fund is required by the Operating
Agreement to distribute its available cash to the extent necessary to allow a
Holder in a 31% federal income tax bracket to pay the federal income taxes due
on his income from the Fund for the year. So it is possible that a Holder in a
higher tax bracket might not receive enough cash from the Fund to pay his tax
liabilities. However, the Manager is also required to make cash distributions in
certain minimum amounts prior to any reinvestment in equipment and must
distribute all available revenues after the sixth year following the year the
offering closes. The Manager expects distributions will be in amounts which will
exceed the expected tax liabilities resulting from allocations income regardless
of the investors' tax brackets. Distributions to nonresident or foreign
investors may be subject to withholding taxes which would reduce the amount of
cash actually received by such investors.
Under federal law, certain types of equipment, including aircraft and
marine vessels, may not be operated unless they are owned by United States
Citizens or Resident Aliens. To assure that the Fund will not exceed relevant
15
federal limits on foreign ownership, the Manager will not permit more than 20%
of the outstanding Units to be held by persons other than U.S. Citizens and
Resident Aliens, and may deny or condition any proposed subscription or transfer
in order to comply with such limitation. Furthermore, any Holder who ceases to
be a United States Citizen or Resident Alien may be required to tender his Units
to the Fund for repurchase at a price determined pursuant to the formula
described under "Summary of Operating Agreement -- Repurchase of Units." A UNIT
HOLDER WHO FAILS TO CONFORM TO HIS REPRESENTATIONS ABOUT CITIZENSHIP OR
MISREPRESENTS HIS CITIZENSHIP MAY FORFEIT AND NO LONGER BE ENTITLED TO CASH
DISTRIBUTIONS, TAX ALLOCATIONS, RECEIPT OF REPORTS AND VOTING PRIVILEGES,
ALTHOUGH HE MAY REALIZE PROCEEDS UPON THE TRANSFER OF HIS UNITS TO AN ELIGIBLE
INVESTOR, WHO WOULD BE ENTITLED TO THE FULL ECONOMIC BENEFITS AND OTHER
PRIVILEGES ATTRIBUTABLE TO SUCH UNITS.
16
ESTIMATED USE OF PROCEEDS
Many of the figures set forth below are estimates, and should not be relied
upon as a prediction of the actual use of the proceeds of this offering. The
Fund expects to commit approximately 86.5% of the Gross Proceeds of this
offering to the cash portion of the purchase price of Equipment. At least an
additional one-half of one percent of its initial capital will be held as
reserves.
Minimum Offering Maximum Offering
Amount Percent Amount Percent
Gross Offering
Proceeds............ $1,200,000 100.00% $150,000,000 100.00%
Less Offering
and Organization
Expenses:
Selling
Commissions......... 114,000 9.50% 14,250,000 9.50%
Other Offering
and Organization
Expenses............ 30,000 2.50% 5,250,000 3.50%
---------- -------- ------------- --------
Net Offering
Proceeds............... 1,056,000 88.00% 130,500,000 87.00%
Capital
Reserves............... 6,000 0.50% 750,000 0.50%
---------- -------- ------------- --------
Amount Available
for Cash Payments
for Equipment.......... $1,050,000 87.50% $129,750,000 86.50%
========== ======== ============= ========
The Fund will pay selling commissions equal to 9.5% of the selling price of
Units to ATEL Securities Corporation, a subsidiary of the Manager acting as the
dealer manager for the group of selling broker-dealers. ATEL Securities
Corporation will in turn pay to participating broker-dealers selling commissions
equal to 8% of the price of Units sold by them, retaining the balance of 1.5%.
Out of the amounts retained by ATEL Securities Corporation, it may pay one or
more broker-dealers for "wholesaling" services in connection with the offering.
Wholesaling services include coordinating the sales effort of participating
broker-dealers and training their personnel with respect to the offering. Total
selling commissions, disbursements and reimbursements to participating
broker-dealers may not exceed an amount equal to 10% of the Gross Proceeds,
except that an additional 1/2% of the Gross Proceeds may be paid for
accountable, bona fide due diligence expenses. If the Manager, the Dealer
Manager or the broker-dealers engaged by the Dealer Manager to sell the Units,
or any of their Affiliates or employees, purchase any Units in this offering,
the Dealer Manager, in its discretion, may reimburse to any such purchasers
selling commissions paid with respect to such Units. Sales to any such
purchasers on such terms would be for investment purposes only, and the Fund and
the Manager would not recognize any attempted transfer of such Units unless
certain conditions are satisfied.
Other offering and organization expenses are expenses incurred in the
organization of the Fund, legal, accounting and escrow fees, printing costs,
filing and qualification fees and disbursements and reimbursements to
broker-dealers participating in the sale of Units; but total selling commissions
and payments to participating broker-dealers may not exceed the limitations
described above. The Manager has agreed to pay all Organization and Offering
Expenses which exceed an amount equal to:
-- 15% of the offering proceeds up to $25,000,000, and
-- 14% of the offering proceeds in excess of $25,000,000.
If the Fund's final offering proceeds are less than $2,000,000, the Manager has
agreed to pay all Offering and Organization Expenses which exceed an amount
equal to 12% of the total. Payment of these expenses by the Manager will be
without reimbursement by the Fund.
The Fund will initially establish capital reserves in an amount equal to
1/2% of offering proceeds for general working capital purposes. This amount may
fluctuate from time to time as the Manager determines the level of reserves
necessary for the proper operation of the Fund.
The line item for cash payments for equipment is the amount available to
pay the cash portion of the purchase price of equipment plus related acquisition
expenses. The Fund expects to pay acquisition expenses equal to approximately
0.25% of the offering proceeds.
17
MANAGEMENT COMPENSATION
Summary Table
The following table includes estimates of the maximum amounts of all
compensation and other payments that the Manager and its Affiliates will
receive, directly or indirectly, in connection with the operations of the Fund,
all of which are described more completely below under "Narrative Description of
Compensation." The terms of the Manager's compensation were not determined by
arm's-length negotiation. The Operating Agreement does not permit the Manager or
its related entities to receive more than the maximum fees or expenses stated
for each type of compensation by reclassifying such items under a different
category.
Estimated Amount
Entity Receiving Assuming Maximum
Compensation Type of Compensation Units Sold
------------ -------------------- ----------------
The Dealer Manager Selling Commissions (Up to 1.5% Total selling
of offering proceeds to be commissions to
retained by the Dealer Manager) be retained by
the Dealer
Manager are not
expected to
exceed $2,250,000.
Manager and Affiliates Reimbursement of Organization $5,250,000
and Offering Expenses (when
added to selling commissions,
not to exceed a total equal
to 15% of all offering proceeds
up to $25 million and 14% of any
additional offering proceeds)
OPERATIONAL STAGE
Manager and Affiliates Asset Management Fee (a fee Not determinable at
equal to 4% of Operating this time
Revenues, subject to
limitations based on Fund
operations)
Manager and Affiliates Reimbursement of Operating Not determinable at
Expenses, subject to certain this time
limitations
CARRIED INTEREST IN FUND
Manager and Affiliates Interest equal to 7.5% of all Not determinable at
Fund taxable income, tax losses this time
and cash distributions
Narrative Description of Compensation
Selling Commissions. The Dealer Manager will receive selling commissions on
all sales of Units equal to 9.5% of Gross Proceeds. The Dealer Manager will
reallow to participating broker-dealers 8% of the Gross Proceeds from Units sold
by them, and may use a portion of the retained selling commissions to compensate
certain participating broker-dealers for wholesaling services or reimburse
certain selling expenses. It is not anticipated that the Dealer Manager or other
Affiliates of the Manager will directly effect any sales of the Units, although
the Dealer Manager will provide certain wholesaling services.
Reimbursement of Organization and Offering Expenses. The Manager and its
Affiliates will be reimbursed for certain expenses in connection with the
organization of the Fund and the offering of Units. Total Organization and
Offering Expenses payable or reimbursable by the Fund, including selling
commissions payable directly by the Fund, may not exceed:
-- 15% of all offering proceeds up to $25,000,000 plus
-- 14% of all offering proceeds in excess of $25,000,000.
18
Asset Management Fee. The Fund will pay the Manager an Asset Management Fee
in an amount equal to 4% of all:
-- revenues from the Equipment, other than security deposits paid by
lessees, and
-- cash remaining from the sale or refinancing of any equipment after
payment of all expenses related to the transaction.
The Asset Management Fee will be paid on a monthly basis. The amount of the
Asset Management Fee payable in any year will be reduced for that year to the
extent it would otherwise exceed the Asset Management Fee Limit, as described
below. The Asset Management Fee will be paid for services rendered by the
Manager and its Affiliates in determining portfolio and investment strategies
(i.e., establishing and maintaining the composition of the equipment portfolio
as a whole and the Fund's overall debt structure) and generally managing or
supervising the management of the equipment. The Manager will supervise
performance of all management activities, including, among other activities: the
collection of lease revenues; monitoring compliance by lessees with the lease
terms; assuring that equipment is being used in accordance with all operative
contractual arrangements; paying operating expenses and arranging for necessary
maintenance and repair of equipment in the event a lessee fails to do so;
monitoring property, sales and use tax compliance; and preparation of operating
financial data. The Manager intends to delegate all or a portion of its duties
and the Asset Management Fee to one or more of its Affiliates who are in the
business of providing such services.
Reimbursement of Operating Expenses. The Fund will reimburse the Manager
and its Affiliates for expenses it pays on the Fund's behalf. These
reimbursements will include:
-- the actual cost to the Manager or its Affiliates of services, goods and
materials used for and by the Fund and obtained from unaffiliated
parties;
-- the cost of administrative services necessary to the prudent operation
of the Fund, provided that reimbursement for administrative services
will be at the lower of
-- the actual cost of such services, or
-- the amount which the Fund would be required to pay to independent
parties for comparable services.
Beginning with the first full year after the termination of this offering,
the total and annual amount of Reimbursable Administrative Expenses payable by
the Fund for the remainder of its term will be limited as follows:
-- The cumulative total of Reimbursable Administrative Expenses will in no
event exceed, as of any date, the sum of 1% per annum of the total
capital raised up to 75% of the maximum offering, and 0.5% per annum of
any capital raised in excess of 75% of the maximum offering; and
-- The maximum amount of Reimbursable Administrative Expenses payable by
the Fund for any single year will not exceed an amount equal to 1% of
the total capital raised.
The Manager estimates that the total amount of Reimbursable Administrative
Expenses during the Fund's first full year of operations after completion of the
offering, assuming receipt of the maximum Gross Proceeds, may be approximately
$650,000 to $750,000.
Carried Interest in Fund Net Income, Net Loss and Distributions. The Fund
Manager will have a Carried Interest in the Fund as a Member equal to 7.5% of
all allocations of Net Income, Net Loss and Distributions. The Carried Interest
in the Fund will compensate the Manager for organizing the Fund and arranging
for supervision of Fund administration (i.e., investor communications and
services, regulatory reporting, accounting and transfers of Units).
19
Limitations on Fees
The Asset Management Fee will be subject to the Asset Management Fee Limit,
which is an alternative fee schedule. The alternative fee schedule consists of a
group of fees which were designed to comply with state guidelines limiting
compensation to equipment program sponsors. The Fund will use a simplified fee
structure, substituting its one Asset Management Fee for a number of other fees
used in the state guidelines. However, to assure state administrators that its
Asset Management Fee will not result in greater fees than would the fee schedule
used in the guidelines, the Fund will calculate the hypothetical fees that would
have been paid under the state guidelines fee schedule and guarantee that the
fees it will pay the Manager and its Affiliates will never exceed those under
the state guideline fee schedule. The Asset Management Fee may also be adjusted
based on the Front End Fee limitations imposed by these state securities
administrators.
Asset Management Fee Limit. The Asset Management Fee Limit will be
calculated each year during the Fund's term by calculating the total fees that
would be paid to the Manager if the Manager were to be compensated on the basis
of an alternative fee schedule, to include an Equipment Management Fee,
Incentive Management Fee and Equipment Resale/Re-Leasing Fee, plus the Manager's
Carried Interest, as described below. To the extent that the amount paid to the
Manager as the Asset Management Fee plus its Carried Interest for any year would
exceed the aggregate amount of fees calculated under this alternative fee
schedule for the year, the Asset Management Fee and/or Carried Interest for that
year will be reduced to equal the maximum aggregate fees under the alternative
fee schedule. To the extent any such fees are reduced, the amount of such
reduction will be accrued and deferred, and such accrued and deferred
compensation would be paid to the Manager in a subsequent period, but only to
the extent that the deferred compensation would be within the Asset Management
Fee Limit for that later period. Any deferred fees which cannot be paid under
the applicable limitations through the date of liquidation would be forfeited by
the Manager at liquidation.
Alternative Fee Schedule. For purposes of the Asset Management Fee Limit,
the Fund will calculate an alternative schedule of fees, including a
hypothetical Equipment Management Fee, Incentive Management Fee, Equipment
Resale/Re-Leasing Fee and Carried Interest as follows:
-- An Equipment Management Fee will be calculated to equal the lesser of
(i) 3.5% of annual Gross Revenues from Operating Leases and 2% of
annual Gross Revenues from Full Payout Leases which contain Net Lease
Provisions), or (ii) the fees customarily charged by others rendering
similar services as an ongoing public activity in the same geographic
location and for similar types of equipment. If services with respect
to certain Operating Leases are performed by nonaffiliated persons
under the active supervision of the Manager or its Affiliate, then the
amount will be 1% of Gross Revenues from these Operating Leases.
-- An Incentive Management Fee will be calculated to equal (i) 4% of
Distributions of Cash from Operations until Holders have received a
return of their Original Invested Capital plus a Priority Distribution,
and (ii) thereafter, to equal a total of 7.5% of Distributions from all
sources, including Sale or Refinancing Proceeds. In subordinating the
increase in the Incentive Management Fee to a cumulative return of a
Holder's Original Invested Capital plus a Priority Distribution, a
Holder would be deemed to have received Distributions of Original
Invested Capital only to the extent that Distributions to the Holder
exceed the amount of the Priority Distribution.
-- An Equipment Resale/Re-Leasing Fee will be calculated in an amount
equal to the lesser of (i) 3% of the sale price of the equipment, or
(ii) one-half the normal competitive equipment sale commission charged
by unaffiliated parties for resale services. Such fee would apply only
after the Holders have received a return of their Original Invested
Capital plus a Priority Distribution. In connection with the re-leasing
of equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i)
the competitive rate for comparable services for similar equipment, or
(ii) 2% of the gross rental payments derived from the re-lease of such
equipment, payable out of each rental payment received by the Fund from
such re-lease.
20
-- A Carried Interest equal to 7.5% of all Distributions of Cash from
Operations and Cash from Sales or Refinancing.
Front End Fee Limitations. The compensation payable as described above will
be subject to further adjustment based on the limitations on Front End Fees
imposed under the North American Securities Administrators Association, Inc.
("NASAA") Statement of Policy concerning Equipment Programs, as amended through
October 24, 1991 (referred to herein as the "NASAA Guidelines"). The Manager
will first determine the effect, if any, of the Front End Fee limitations
described below and make any required adjustments to the Asset Management Fee
Limit. Then the Manager will apply the adjusted Asset Management Fee Limit to
the Asset Management Fee and the Manager's Carried Interest.
Under the NASAA Guidelines, the Fund is required to commit a minimum
percentage of the Gross Proceeds to Investment in Equipment, calculated as the
greater of: (i) 80% of the Gross Proceeds reduced by 0.0625% for each 1% of
indebtedness encumbering the Fund's equipment; or (ii) 75% of such Gross
Proceeds. The Fund intends to incur total indebtedness equal to 50% of the
aggregate cost of its equipment. The Operating Agreement requires the Fund to
commit at least 85.875% of the Gross Proceeds to Investment in Equipment. Based
on the formula in the NASAA Guidelines, the Fund's minimum Investment in
Equipment would equal 76.875% of Gross Proceeds (80% - [50% x .0625%] =
76.875%), and the Fund's minimum Investment in Equipment would therefore exceed
the NASAA Guideline minimum by 9%.
The NASAA Guidelines permit the Manager and its Affiliates to receive
compensation in the form of a carried interest in Fund Net Income, Net Loss and
Distributions equal to 1% for the first 2.5% of excess Investment in Equipment
over the NASAA Guidelines minimum, 1% for the next 2% of such excess, and 1% for
each additional 1% of excess Investment in Equipment. With a minimum Investment
in Equipment of 85.875%, the Manager and its Affiliates may receive an
additional carried interest equal to 6.5% of Net Profit, Net Loss and
Distributions under the foregoing formula (2.5% + 2% + 4.5% = 9%; 1% + 1% + 4.5%
= 6.5%). At the lowest permitted level of Investment in Equipment, the NASAA
Guidelines would permit the Manager and its Affiliates to receive a promotional
interest equal to 5% of Distributions of Cash from Operations and 1% of
Distributions of Sale or Refinancing Proceeds until Members have received total
Distributions equal to their Original Invested Capital plus an 8% per annum
cumulative return on their Adjusted Invested Capital, and, thereafter, the
promotional interest may increase to 15% of all Distributions.
With the additional carried interest calculated as described above, the
maximum aggregate fees payable to the Manager and Affiliates under the NASAA
Guidelines as carried interest and promotional interest would equal 11.5% of
Distributions of Cash from Operations (6.5% + 5% = 11.5%), and 7.5% of
Distributions of Sale or Refinancing Proceeds (6.5% + 1% = 7.5%), before the
subordination level was reached, and 21.5% of all Distributions thereafter. The
maximum amounts to be paid under the terms of the Operating Agreement are
subject to the application of the Asset Fee Limit provided in Section 8.3 of the
Agreement, which limits the annual amount payable to the Manager and its
Affiliates as the Asset Management Fee and the Carried Interest to an aggregate
not to exceed the total amount of fees that would be payable to the Manager and
its Affiliates under the alternative fee schedule set forth in Section 8.3. This
overall limitation on annual fees will include, in addition to an Equipment
Management Fee and Equipment Resale/Releasing Fee, amounts equal to 11.5% of
Distributions of Cash from Operations (4% as an Incentive Management Fee plus
7.5% as the Carried Interest in Fund Distributions) and 7.5% of Distributions of
Sale or Refinancing Proceeds (as the Fund Manager's 7.5% Carried Interest)
before the Priority Return, and 15% of all Distributions thereafter (7.5% as an
Incentive Management Fee plus 7.5% as the Carried Interest).
Upon completion of the offering of Units, final commitment of offering
proceeds to acquisition of equipment and establishment of final levels of
permanent portfolio debt, the Manager shall calculate the maximum carried
interest and promotional interest payable to the Manager and its Affiliates
under the NASAA Guidelines and compare such total permitted fees to the total of
the Incentive Management Fees and Manager's Carried Interest. If and to the
21
extent that the fees calculated under the alternative fee schedule provided in
Section 8.3 of the Operating Agreement as the Incentive Management Fee and the
Manager's Carried Interest should exceed the maximum promotional interest plus
carried interest permitted under the NASAA Guidelines, as described above, the
fees payable to the Manager and its Affiliates shall be reduced. In such event,
the Manager will reduce the amounts calculated for purposes of the Asset
Management Fee Limit as the Incentive Management Fee and/or the Carried Interest
by an amount sufficient to cause the total of such compensation to comply with
the limitations in the NASAA Guidelines on the aggregate of promotional
interests and carried interests. The adjusted Asset Management Fee Limit will
then be applied to the Asset Management Fee and Carried Interest as described
above. A comparison of the Front End Fees actually paid by the Fund and the
NASAA Guideline maximums shall be repeated, and any required adjustments shall
be made, at least annually thereafter.
Defined Terms Used in Description of Compensation
Definitions of certain capitalized terms used in the foregoing narrative
description of compensation payable to the Manager, and used in the alternative
fee schedule for purpose of calculating the Asset Management Fee Limitation, are
as follows:
"Adjusted Invested Capital" means, as of any date, the Original
Invested Capital attributable to the Units held by any Person on or before
such date, as decreased (but not below zero) by the amount by which (i) all
Distributions with respect to such Units on or before the date of
determination pursuant to any provision of the Operating Agreement exceed
(ii) the Priority Distribution attributable to such Units for such period.
"Asset Management Fee Limit" means the total fees calculated pursuant
to the alternative fee schedule as set forth under "Limitations on Fees"
above, equal to the aggregate of a hypothetical Equipment Management Fee,
Incentive Management Fee, and Equipment Resale/Re-Leasing Fee, plus the
Carried Interest, determined in the manner described therein.
"Carried Interest" or "Interest in Distributions" shall mean the
allocable share of Fund Distributions of Cash from Operations and Cash from
Sales or Refinancing payable to the Manager, as a Member, pursuant to
Sections 10.4 and 10.5 of the Agreement.
"Cash from Operations" means the excess of Gross Lease Revenues (which
excludes revenues from Equipment sales or refinancing) over cash
disbursements (including an Equipment Management Fee and amounts reinvested
by the Fund in equipment) without reduction for depreciation and
amortization of intangibles such as organization and underwriting costs but
after a reasonable allowance for cash for repairs, replacements,
contingencies and anticipated obligations, as determined by the Manager.
"Cash from Sales or Refinancing" means the net cash realized by the
Fund from the sale, refinancing or other disposition of any equipment after
payment of all expenses related to the transaction (including an Equipment
Resale Fee).
"Distributions" means any cash distributed to Holders and the Manager
arising from their respective interests in the Fund.
"Full Payout Lease" means a lease under which the non-cancellable
rental payments due during the initial term of the lease are at least
sufficient to cover the purchase price of the equipment leased.
"Gross Lease Revenues" means all revenues attributable to the
equipment other than from security deposits paid by lessees, but excluding
revenues from the sale, refinancing or other disposition of equipment.
"Net Income" or "Net Loss" means the taxable income or taxable loss of
the Fund as determined for federal income tax purposes, computed by taking
into account each item of Fund income, gain, loss, deduction or credit not
already included in the computation of taxable income and taxable loss, but
does not mean Distributions.
22
"Operating Lease" means a lease under which the aggregate rental
payments due during the initial term of the lease are less than the
purchase price of the equipment leased.
"Operating Revenues" means the total for any period of all Gross Lease
Revenues plus all Cash from Sales or Refinancing.
"Original Invested Capital" means the original gross purchase price of
the Units contributed by each Member to the capital of the Fund for his
interest in the Fund, which amount shall be attributed to Units in the
hands of a subsequent Holder.
"Priority Distribution" for any calendar year or other period means,
with respect to the Units held by any Person, the average Adjusted Invested
Capital with respect to such Units during each calendar year multiplied by
10% per annum (calculated on a cumulative basis, compounded daily, from the
last day of the calendar quarter in which the initial purchaser of such
Units was admitted as a Holder pursuant to the Operating Agreement and pro
rated for any fraction of a calendar year for which such calculation is
made).
"Reimbursable Administrative Expenses" shall mean the ordinary
recurring administration expenses incurred by the Manager and reimbursed by
the Fund. Such expenses shall not include interest, depreciation, equipment
maintenance or repair, third party services or other non-administrative
expenses.
23
INVESTMENT OBJECTIVES AND POLICIES
Principal Investment Objectives
The Fund's principal objectives are to invest in a diversified portfolio of
primarily low-technology, low-obsolescence equipment which will:
(i) preserve, protect and return the Fund's invested capital;
(ii) generate regular cash distributions to Unit holders, any balance
remaining after required minimum distributions to be used to purchase
additional equipment during the first six years after the year the offering
terminates; and
(iii) provide additional cash distributions after the end of the
reinvestment period and until all equipment has been sold.
Distributions will be made only if cash is available after payment of Fund
obligations (including payment of administrative expenses, debt service and the
Asset Management Fee) and allowance for necessary reserves. Distributions are
expected to begin as of the quarter in which the minimum offering amount is
achieved. However, there can be no assurance as to the timing of distributions,
or that any specific level of distributions or any other objectives will be
attained.
General Policies
The Fund intends to acquire various types of equipment for lease.
Generally, the Fund expects to acquire newly-manufactured equipment. However,
the Fund may also invest in desirable used equipment and equipment subject to
pre-existing leases under appropriate circumstances and where consistent with
the Fund's overall investment objectives.
The Fund's investment objective is to acquire primarily low-technology,
low-obsolescence equipment such as materials handling equipment, manufacturing
equipment, mining equipment, and transportation equipment. A portion of the
portfolio will include some more technology-dependent equipment such as certain
types of communications equipment, medical equipment, manufacturing equipment
and office equipment. The Operating Agreement does not limit the Fund's ability
to invest in high-technology equipment.
Like most goods, new equipment generally has a higher market value than
comparable used equipment, and capital equipment tends to lose value as it is
used over a period of time. An equipment lessor such as the Fund tries to
negotiate lease terms based in part on its estimate of the value the leased
equipment will have when the lease ends. The lessor will negotiate a lease rate
designed to generate enough rental revenues over the term of the lease so that,
when the total lease payments are added to the estimated value of the equipment
upon lease termination, the lessor will receive both a return of the capital
used to purchase the equipment plus an overall profit on the investment. There
can be no assurance, however, that the Fund's assumptions regarding the residual
value of the equipment will be accurate or that its objective will be achieved.
The Manager will seek to maintain an appropriate balance and diversity in
the types of equipment acquired and the types of leases entered into by the
Fund. Its guidelines will include the following policies:
-- When all the offering proceeds are committed to equipment and all
permanent debt has been put in place, at least a majority of the
equipment, based on the aggregate purchase price, will be subject to
leases with scheduled lease payments returning at least 90% of the
purchase price of the equipment.
-- The Manager will seek to invest not more than 20% of the aggregate
purchase price of equipment in equipment acquired from a single
manufacturer. However, this limitation is a general guideline only, and
the Fund may acquire equipment from a single manufacturer in excess of
the stated percentage if the Manager deems such a course of action to
be in the Fund's best interest.
24
A number of factors will determine the actual composition of the Fund's
equipment portfolio; for example, the amount of offering proceeds actually
received will be a significant factor in determining the Fund's ability to
diversify its portfolio. Furthermore, the Manager cannot anticipate what types
of equipment will be available and at what prices at the time the Fund is ready
to invest its capital.
In structuring leases, the Fund's lease rate and return on investment
objectives will vary based on:
-- the type of equipment,
-- the terms of the lease,
-- the credit quality of the lessee and
-- prevailing lease and financial market conditions.
The Manager will commit to a particular lease transaction only if it
believes that, in the context of the Fund's overall equipment portfolio, the
transaction will contribute to the satisfaction of the Fund's investment
objectives. The Fund does not have any specific "minimum rate of return." As
noted above, the Fund's objectives are to acquire a diversified portfolio of
equipment that will generate sufficient net cash flow to permit regular
distributions to investors and additional funds to reinvest in equipment.
Reinvestment of revenues is permitted only after certain minimum rates of
distributions are made.
The Manager will seek to structure a portfolio that is:
-- diversified as to equipment type, industry, lessee and geographic
location;
-- capable of generating sufficient net cash flow to meet the minimum
distribution requirements to permit reinvestment; and
-- capable of generating sufficient cash flow to provide funds for
additional investment in equipment.
The rates of return necessary to meet these objectives through the end of the
reinvestment period will depend on a number of variables which cannot be
predicted this far in advance.
As set forth above under "Principal Investment Objectives," it will be the
Fund's objective to reinvest in additional equipment any revenues remaining
after payment of certain minimum distributions during the reinvestment period.
The Fund will not acquire equipment after the reinvestment period, ending six
years after the end of the year the offering is completed, except if necessary
to satisfy obligations entered into prior to the end of the reinvestment period
or to maintain or improve equipment already owned at that time.
Other than as set forth in any supplement to this Prospectus, the Fund has
not invested in or committed to purchase any equipment, and, as a result, there
can be no assurance as to when the proceeds from the offering will be fully
invested. Furthermore, prospective investors may not have an opportunity prior
to investing to evaluate all of the equipment to be acquired.
Before completing any acquisition of a single item of equipment which has a
contract purchase price more than $1,000,000, the Fund will obtain a future
value appraisal for the equipment from a qualified independent third party
appraiser. The Manager may also, in its discretion, obtain appraisals for
certain smaller acquisitions if it deems an appraisal to be appropriate because
of the type of equipment, the size of a transaction or otherwise. It should be
noted, however, that appraisals represent only the appraiser's opinion of the
value of the equipment, and do not necessarily represent the actual amount the
Fund might receive on sale of the equipment.
The Manager may purchase equipment in its own name, the name of a related
entity or the name of a nominee, a trust or otherwise and hold title to the
equipment temporarily (generally not more than six months) for any purpose
related to the business of the Fund, provided, however that:
-- the transaction is in the best interest of the Fund;
25
-- the equipment is purchased by the Fund for a purchase price no greater
than the cost to the Manager or Affiliate (including any out-of-pocket
carrying costs), except for compensation permitted by the Operating
Agreement;
-- there is no difference in interest terms of the loans secured by the
equipment at the time acquired by the Manager or Affiliate and the time
acquired by the Fund;
-- there is no benefit arising out of such transaction to the Manager or
its Affiliate apart from the compensation otherwise permitted by the
Operating Agreement; and
-- all income generated by, and all expenses associated with, equipment so
acquired shall be treated as belonging to the Fund.
Any offering proceeds received by the Fund during the first twelve months
of the offering which have not been committed to investment in equipment by a
date eighteen months after the beginning of the offering, and any offering
proceeds received during a second year of the offering which have not been
committed to investment by a date six months after the end of the offering
(except for amounts used to pay operating expenses or required as capital
reserves) will be returned pro rata by the Fund to investors. In addition, in
order to refund to investors the amount of Front End Fees attributable to any
returned capital, the Manager has agreed to contribute to the Fund, and the Fund
shall distribute to investors pro rata, the amount by which (x) the amount of
unused capital so distributed, divided by (y) the percentage of Gross Proceeds
remaining after payment of all Front End Fees, exceeds the unused capital so
distributed. The Fund's capital will be available for general use during the
offering period and may be expended in operating equipment which has been
acquired. Offering proceeds will not be segregated or held separate from other
capital of the Fund pending investment, and no interest will be payable to
investors if uninvested offering proceeds are returned to them. Offering
proceeds will be deemed to have been committed to investment and will not be
returned to the Holders to the extent written agreements in principle or letters
of understanding were executed at any time prior to the end of these periods,
regardless of whether the investment is eventually consummated, and also to the
extent any funds have been reserved to make contingent payments in connection
with any equipment, regardless of whether any such payments are ever made.
Types of Equipment
The Fund intends to acquire and lease a diversified portfolio of equipment.
The Fund intends to invest primarily in what it deems to be relatively
low-technology, low-obsolescence types of equipment. These types of equipment
would include a variety of items which are not dependent on high-technology
design or applications for their usefulness to lessees, and are expected to be
less subject to rapid obsolescence than types which are so dependent.
Equipment acquisition will be subject to the Manager or its agents
obtaining information and reports, and undertaking inspections and surveys the
Manager deems appropriate to determine the probable economic life, reliability
and productivity of the equipment, its competitive position with respect to
other equipment and its suitability and desirability as compared with other
equipment. Purchases of new equipment for lease will typically be made directly
from a manufacturer or its authorized dealers, either under a purchase agreement
for large quantities of such equipment, through lease brokers, or on an ad hoc
basis to meet the needs of a particular lessee. There can be no assurance that
favorable purchase agreements can be negotiated with equipment manufacturers or
their authorized dealers or lease brokers. In addition, the Fund may enter into
sale/leaseback transactions in which the Fund will purchase equipment from
companies which will then simultaneously lease the equipment from the Fund.
The following is a more detailed description of the various types of
equipment which the Fund may purchase and lease. The types of equipment are
listed in alphabetical order, and the discussion is not intended to imply any
order of emphasis in the Fund's acquisition policies. The final mix of equipment
types in the Fund's portfolio will depend on the factors discussed above under
"General Policies."
26
Aircraft. The Fund may invest in cargo and freight aircraft, corporate
aircraft and aircraft used for medical evacuation and rescue purposes. The
Manager anticipates that the Fund's cash investments in all types of aircraft
will not exceed an amount equal to 20% of the maximum offering amount (or
$30,000,000). Cargo and freight aircraft are used by commercial freight carriers
and national and international mail and package delivery services exclusively
for the hauling of cargo. Corporate aircraft, including both helicopters and
fixed-wing aircraft, are used by many businesses to move employees from city to
city or to locations without scheduled air service and for the express delivery
of personnel, components and products at various manufacturing and service
facilities. The Fund may invest in commercial passenger aircraft, but not more
than 10% of its maximum offering amount (or $15,000,000) will be committed to
the purchase of commercial passenger aircraft and any debt used to acquire or
maintain commercial passenger aircraft will either be secured by the obligations
of an "investment grade" lessee, or will not involve the other assets of the
Fund as collateral. Commercial passenger aircraft consist of aircraft used in
the day to day operation of scheduled passenger air carriers.
All domestic corporate and commercial aircraft are registered with the
Federal Aviation Administration ("FAA"). Under the Federal Aviation Act of 1958,
as amended (the "Act"), it is unlawful to operate an unregistered aircraft in
the United States. In order to be eligible for registration, the rules and
regulations of the FAA provide, in effect, that aircraft is eligible for
registration only if it is owned by a United States Citizen or a Resident Alien.
A literal reading of the Act could lead to the conclusion that aircraft in which
the Fund has an interest are not eligible for registration because the term
United States Citizen is defined in the Act to include a partnership in which
each member is an "individual" who is a citizen of the United States or one of
its possessions, and the Fund has a corporate Manager. The FAA has indicated
informally that it will permit registration of an aircraft under the Federal
Aviation Act of 1958 and the regulations thereunder in the name of a trustee of
a trust in which a partnership is the sole beneficiary if the partnership's
partners are United States Citizens (whether or not they are all individuals) or
Resident Aliens. However, such representations are not binding on the FAA;
therefore, the possibility exists that the FAA would challenge such a
registration. In addition, a registration may be challenged and rendered invalid
if a Member is not, contrary to his representation to the Fund, a United States
Citizen or a Resident Alien or if a Member ceases to be a United States Citizen
or a Resident Alien. Any challenge, if successful, could result in an inability
to operate the aircraft, substantial penalties, the premature sale of the
aircraft, the loss of the benefits of the central recording system under federal
law thereby leaving the aircraft exposed to liens or other interests not of
record with the FAA, and a breach by the Fund of lease agreements entered into
in connection with the aircraft. Accordingly, the Manager will limit the
ownership of Units or interests therein by any persons who are not United States
Citizens or Resident Aliens to not more than 20% of the outstanding Units.
It is anticipated that any aircraft lease will provide, as a condition
precedent to the transaction, that application for registration shall have been
duly made and that the prospective lessee shall have temporary or permanent
authority to operate the aircraft. If such authority were not obtainable because
of failure of registration, the lessee might be entitled to void the transaction
and the lease would not take effect.
Computer and Computer-related High Technology Equipment. This type of
equipment includes a variety of items including:
Small Computer Systems, Personal Computers and Workstations. Small
computer systems and personal computers are used alone or in networks by a
variety of businesses for various functions, including accounting, sales
management, administration and inventory control. Workstations are
generally high performance engineering and design systems that are more
complex than small computer systems and personal computers.
Computer Peripheral Equipment. Devices used with a computer system's
mainframe or central processing unit.
Mainframe Computers. Large central processing units, typically
manufactured by IBM and compatible with software designed by IBM.
27
CAE/CAD/CAM Equipment. Computer aided engineering, design and
manufacturing systems housing advanced computer and communications
technologies and sophisticated product data management software.
Construction Equipment. Construction equipment includes bulldozers,
haulers, cranes, graders, backhoes, front-end loaders, scrapers and asphalt and
cement spreaders used in a wide variety of applications including building
construction and road, bridge and other civil engineering construction projects.
Energy Equipment. Energy equipment includes cogeneration facilities,
transmission lines, generation facilities, compression and pumping equipment and
other processing and treatment equipment, as well as energy management systems.
General Purpose Plant/Office Equipment. Plant/office equipment includes
racking, shelving, storage bins, portable steel storage sheds, furniture,
fixtures, tables, counters, desks, chairs, cabinets and numerous other items
generally used in manufacturing plants, storage and distribution facilities and
offices.
Graphic Processing Equipment. Graphic processing equipment includes print
setters, printing presses, automatic drafting machines and all equipment which
is used for the visual display of designs, drawings and printed matter. Printing
presses come in a variety of sizes depending on the applications for which they
are used. Some printing presses are of a single color, whereas others can apply
up to eight colors. Phototype setters are used for the setting of type for
publications such as newspapers and magazines. Computerized type-setters have
become common in recent years, as they simplify type-setting, correction of
mistakes and lay-out of printed pages. Automatic drafting machines are computer
controlled visual displays of drawings which enable designers to make changes in
engineering drawings without the time required to make a completely new drawing
by hand.
Machine Tools and Manufacturing Equipment. Machine tools and manufacturing
equipment include a wide variety of metalworking machinery, such as lathes,
drilling presses, turning mills, grinders, metal bending equipment, metal
slitting equipment and other metal forming equipment used in the production of a
variety of machinery and equipment. Some form of machine tool is used in
virtually every production process of a metal product or component. While some
machine tools and metalworking equipment are built for a particular end product,
the majority of machine tools can be used in a variety of applications.
Manufacturing equipment can also include some high technology equipment.
Maritime Equipment. Maritime equipment is widely used in shipping industry
as the most cost-effective way of transporting large quantities of commodities.
Such equipment includes dry bulk ships, tankers, supply vessels, tug boats,
hopper barges, tank barges and intermodal containers. Marine vessels include (i)
tankers, which are designed to carry liquid commodities, and (ii) dry bulk
carriers, which are designed to carry homogenous commodities. In addition,
certain vessels have been designed as combination carriers that have the
capacity to carry both liquid and dry cargoes.
Marine vessels may be registered in countries other than the United States
and may operate in international and foreign seas and waterways. Certain types
of marine vessels must be registered prior to operation in the waterways of the
United States. Marine vessel registration can be challenged and rendered invalid
under circumstances similar to those discussed with regard to aircraft above.
Any successful challenge with respect to a marine vessel may result in
substantial penalties, including the forced sale of the vessel, the potential
for uninsured casualties, and a breach by the Partnership of the lease or
financing agreements related to the vessel.
In addition, certain U.S. federal statutes and regulations provide for the
forfeiture to the U.S. Government of transportation equipment, including marine
vessels, found to be used in the transportation of illegal drugs and other
contraband. Upon the acquisition of vessels, the Manager will seek to cause the
vessel owner to enter into the Sea Carrier Initiative Agreement with the U.S.
28
Customs Service whereby the vessel owner shall agree to take affirmative steps
to deter illegal access to and use of such vessels by those engaged in
trafficking of items deemed to be illegal contraband, including illegal drugs.
The law provides for an exception with respect to the owners of vessels where
the illegal activity has occurred without the owner's knowledge, consent or
willful blindness. However, there can be no assurance that if a marine vessel
owned by the Fund and leased to a third party was found to be engaged in such
illegal activities, that it would not be seized or detained by the U.S.
Government. In that event, insurance coverages of the Fund could mitigate its
loss of income or pecuniary damages.
Materials Handling Equipment. Materials handling equipment includes many
varieties of fork lift trucks. They are either battery-powered or gas-powered,
and are used in warehouses and factories for the movement of products and
materials from one work station to another or from a warehouse to a truck for
shipment, or for the storing of products and materials. The equipment comes in a
variety of styles, depending on the design of the items to be moved and the
design of the shipping or warehouse facility. However, this type of equipment is
generally of standard design and can be used by a variety of industries.
Medical Equipment. Medical equipment includes a wide variety of testing and
diagnostic equipment including:
Radiology Equipment. This category includes x-ray equipment, CAT
and MRI scanners (i.e., body and head scanners) and other equipment to
be used in the radiology departments of hospitals and clinics.
Laboratory Equipment. This category includes blood analysis equipment
and other automated medical laboratory equipment.
Other Medical Equipment. This general category includes equipment
using ultrasound technology, patient monitoring systems and a variety of
other equipment used in hospitals, clinics and medical laboratories.
Photocopying Equipment. The Fund may acquire and lease photocopying and
other document duplicating or reproduction equipment.
Railroad Rolling Stock. Railroad rolling stock includes gondolas, tank
cars, boxcars, hopper cars, flatcars, locomotives and various other equipment
used by railroads in the maintenance of their tracks. Flatcars and boxcars have
a variety of designs, some of which are general purpose and some of which are
special purpose. Special purpose flatcars and boxcars are used for the shipment
of specific products whereas a general purpose car can be used for the shipment
of a wide variety of products. Many electric utilities lease hopper cars for the
shipment of coal from the mine to the generating plant. Tank cars are used to
transport liquids. Locomotives are the engines, generally diesel powered, that
drive trains of railcars from one location to another. Locomotives come in a
variety of designs which vary in the amount of horsepower produced.
Research and Experimentation Equipment. Research and experimentation
equipment include various types of analyzers, spectrometers, oscilloscopes,
measuring instruments, gas and liquid chromatographs, physical testing
centrifuges, graphic plotters and printers, laser equipment, digital-aided
design systems, scanning electron microscopes, dissolution sampling systems, and
other general laboratory instruments and equipment used in businesses for the
development of ongoing research programs.
Telephone and Telecommunications Equipment. Communications equipment is
used for voice and data transmission. Its applications include, but are not
limited to, telephone communication, radio and television broadcasting, cable
television and satellite communications. The Fund may acquire and lease
communications equipment including telephone equipment and systems, data
communication terminals, cables, transmission wires, transmitters, control and
amplification equipment, repeaters, monitoring equipment, teleprinters,
connector and switching equipment, satellite and microwave transmission
facilities and support equipment.
Tractors, Trailers and Trucks. Tractors, trailers and trucks are used for
the shipment of various products and goods from one location to another.
Tractor-trailer rigs are often used for longer shipments and delivery of larger
pieces; whereas heavy-duty trucks are generally used for the more local delivery
29
of large products. A "tractor" refers to the power unit of a tractor-trailer
combination. The tractor cab is generally manufactured by one company and the
engine and drive train by another. The engine may use gasoline or diesel fuel.
Trailers are the container portion of a tractor-trailer rig and come in a
variety of sizes and designs depending on the product to be shipped. Trailers
may be designed for intermodal use so they can either be pulled by tractors or
transported on railroad flatcars. Trailers may be up to 45 feet long in most
states and most commonly have a set of twin axles (eight wheels) to carry the
load. A trailer may be enclosed on a flatbed for the shipment of large or
oversized products, and may be refrigerated for the shipment of perishable
products. The Fund intends to invest in trailers that can be used for the
shipment of a wide variety of goods and are not limited to specific
applications. Heavy-duty trucks are large trucks in which the engine and load
carrying components are mounted on a single frame. The trucks can be used for
the local delivery of large products or for the hauling of construction
materials.
Miscellaneous Equipment. The Fund may also acquire various other types of
equipment, including, but not limited to, oil drilling equipment, mining and
ore-processing equipment, electronic test equipment, office automation
equipment, furniture and fixtures, automobiles, dairy production equipment,
video projection and production equipment, store fixtures, display cases,
freezers and equipment used in production facilities.
Incidental Property Acquisitions. Incidental to an acquisition of
equipment, the Fund may acquire certain interests in real property, mineral
rights or other tangible or intangible property or financial instruments. The
Fund may acquire ownership of an item of equipment by acquiring the beneficial
interests of a trust or the equity interest in a special purpose corporation
which holds an asset sought by the Fund. Nothing in the Operating Agreement
prohibits the Fund from acquiring any such incidental property rights or
indirect ownership interest, provided that the primary purpose and objective is
the acquisition and leasing of equipment as described herein, the acquisition of
the incidental rights does not alter the essential character of the transaction
as an acquisition and lease which otherwise satisfies the investment objectives
and policies of the Fund, and the acquisition does not otherwise violate or
circumvent any provision of the Operating Agreement.
Prior Program Diversification
The prior public equipment leasing programs sponsored by the Manager and
its Affiliates have had equipment portfolio objectives substantially identical
to those of the Fund. The first chart set forth below (Figure 1) represents the
actual equipment portfolio diversification by equipment type for all prior ATEL
public programs as of October 23, 2000; the second chart set forth below (Figure
2) represents the actual equipment portfolio diversification by lessee industry
for all prior ATEL public programs as of October 23, 2000; and the third chart
set forth below (Figure 3) represents the actual portfolio diversification by
the lessees' geographic location for all prior ATEL public programs as of
October 23, 2000. Diversification of the Fund's portfolio will depend on a
number of variables, including the amount of capital raised and market
conditions, which cannot be predicted in advance. Although there can be no
assurance that the Fund will achieve diversification similar to that of the
prior programs, achieving such diversification will be one of the primary
investment objectives and policies of the Fund.
30
[FIGURE 1 - GRAPHIC OMITTED]
[FIGURE 2 - GRAPHIC OMITTED]
31
[FIGURE 3 - GRAPHIC OMITTED]
32
Borrowing Policies
The Fund expects to incur debt to finance the purchase of a portion of its
equipment portfolio. The amount of borrowing in connection with any equipment
acquisition transaction will be determined by, among other things, the credit of
the lessee, the terms of the lease, the nature of the equipment and the
condition of the money market. There is no limit on the amount of debt which may
be incurred in connection with any single acquisition of equipment. However, the
Fund may not incur aggregate outstanding indebtedness in excess of 50% of the
total cost of all equipment as of the date of the final commitment of offering
proceeds and, thereafter, as of the date any subsequent indebtedness is
incurred. The Fund intends to borrow amounts equal to such maximum debt level in
order to fund a portion of its equipment acquisitions. While the Manager
maintains short-term lines of credit, there can be no assurance that such
short-term credit or permanent financing will be available to the Fund in the
amounts desired or on terms considered reasonable by the Manager at the time the
Fund seeks to finance a specific acquisition.
Financing for the Fund is expected to be a combination of nonrecourse and
recourse debt. The Manager intends to use nonrecourse debt primarily to finance
assets leased to those lessees which, in the opinion of the Manager, have a
relatively higher potential risk of lease default than other lessees of the
Fund's equipment. This use of nonrecourse debt will mitigate the risk of loss
due to default by such lessees.
Nonrecourse borrowing, in the context of the type of business to be
conducted by the Fund, means that the lender providing the funds would only be
able to look to the equipment purchased with such funds and the proceeds derived
from the leasing or reselling of such equipment as security; neither the Fund
nor any Member (including the Manager) will be liable for repayment of any such
loan, nor will any such loan be secured by other equipment owned by the Fund.
Investors should note, however, that the presence of nonrecourse financing may
limit an investor's ability to claim losses from the Fund. Furthermore, a
creditor may under some circumstances have recourse to the Fund's assets upon
establishing fraud or misrepresentation by the Fund.
The Fund expects to incur recourse debt in connection with short-term
bridge financing and "asset securitization," as described below. Recourse debt,
in the context of the type of business to be conducted by the Fund, means that
the lender can look beyond the specific asset financed by the loan to all of the
assets of the borrower, or a specified pool of assets, as collateral for
repayment of its debt obligation.
The Fund expects to incur recourse debt in short-term bridge financing used
to acquire equipment and which is intended to be repaid through a combination of
permanent financing, offering proceeds and/or operating revenues. In addition,
the Fund may participate with other affiliated programs and the Manager in a
common recourse debt facility to provide temporary or short-term bridge
financing of transactions approved for acquisition by the Fund and such
Affiliates. In such instances, lease transactions may be held in the name of an
Affiliate of ATEL for convenience, notwithstanding that the transaction has been
approved for one or more participants. The ultimate acquisition of the financed
transaction will depend on many factors, including without limitation, the
Fund's available cash, portfolio makeup and investment objectives at the time of
closing.
The Fund may also incur long-term recourse debt in the form of asset
securitization transactions in order to obtain lower interest rates or other
more desirable terms than may be available for individual nonrecourse debt
transactions. In an "asset securitization," the lender would receive a security
interest in a specified pool of "securitized" Fund assets or a general lien
against all of the otherwise unencumbered assets of the Fund. It is the
intention of the Manager to use asset securitization primarily to finance assets
leased to those credits which, in the opinion of the Manager, have a relatively
lower potential risk of lease default than those lessees with equipment financed
with nonrecourse debt. The Manager expects that an asset securitization
financing would involve borrowing at a variable interest rate based on an
established reference rate. The Manager would seek to limit the Fund's exposure
to increases in the interest rate by engaging in hedging transactions that would
effectively fix the interest rate obligation of the Fund.
Other than short-term bridge financing or asset securitization financing,
the Manager will seek to avoid borrowing under terms which provide for a rate of
interest which may vary with the prime or reference rate of interest of a
lender. The Manager will attempt to limit any other variable interest rate
borrowing to those instances in which the lessee agrees to bear the cost of any
increase in the interest rate. If such debt is incurred without a corresponding
33
variable lease payment obligation, the Fund's interest obligations could
increase while lease revenues remain fixed. Accordingly, a rise in the prime or
reference rate may increase borrowing costs and reduce the amount of income and
cash available for distributions. Historically, the prime rates charged by major
banks have fluctuated; as a result, the precise amount of interest which the
Fund may be charged under such circumstances cannot be predicted.
In the case of any recourse bridge financing or asset securitization, the
lender would not be entitled to look to the individual assets of any investor,
or, in many cases, of the Manager, for repayment of such loans. If, under tax
principles, it is determined that the Manager or one of its Affiliates bears the
economic risk of loss for such recourse debt, then the recourse debt will be
allocated to the Manager or its Affiliate for tax basis purposes and all
deductions attributable to the recourse debt will be allocated to the Manager or
its Affiliate.
Fund indebtedness may provide for amortization of the principal balance
over the term of the loan through regular payments of principal and interest or
may provide that all or a substantial portion of the principal due will be
payable in a single "balloon payment" upon maturity. Such balloon payment
indebtedness involves greater risks than fully amortizing debt.
In the event that the Fund does not have sufficient funds to purchase an
item of equipment at the time it is acquired, the Fund may borrow from third
parties on a short-term basis, and repay the loans out of the proceeds from the
subsequent sale of Units. Any short-term loans may be unsecured or secured by
the assets acquired and/or other assets of the Fund.
Although the Operating Agreement does not prohibit the Manager or its
related entities from lending to the Fund, the Fund does not have any intention
or arrangements to borrow from these parties. If the Fund were to borrow from
the Manager or its related companies, the terms may not permit the Manager or
its affiliates to receive a rate of interest or other terms which are more
favorable than those generally available from commercial lenders under the
circumstances. Neither the Manager nor its affiliates may provide financing to
the Fund with a term in excess of twelve months.
Description of Lessees
The Fund will only purchase equipment for which a lease exists or for which
a lease will be entered into at the time of purchase.
The Fund's objective is to lease a minimum of 75% of the equipment (by
cost), as of the date of the final commitment of its proceeds from the sale of
Units, to lessees which
-- have an average credit rating by Moody's Investors Service, Inc. of
"Baa" or better, or the credit equivalent as determined by the Manager,
with the average rating weighted to account for the original equipment
cost for each item leased; or
-- are established hospitals with histories of profitability or
municipalities.
The Manager may determine that the credit equivalent of a Moody's Baa
rating applies to those lessees which are not rated by Moody's, but which
-- have comparable credit ratings as determined by other nationally
recognized credit rating services;
-- although not rated by nationally recognized credit rating services,
are believed by the Manager to have comparable creditworthiness; or
-- in the Manager's opinion, as a result of guarantees provided,
collateral given, deposits made or other security interests granted,
have provided such safeguards of the Fund's interest in the equipment
that the risk is equivalent to that involved in a lease to a company
with a credit rating of Baa.
34
The remaining 25% of the initial equipment portfolio may include equipment
financed for companies which, although deemed creditworthy by the Manager, would
not satisfy the specific credit criteria for the portfolio described above.
Included in this 25% of the portfolio may be one or more growth capital leasing
investments, which are described below under "Growth Capital Equipment
Financing." No more than 20% of the initial portfolio, by cost, will consist of
these growth capital leasing investments.
In arranging lease transactions on behalf of corporate investors and
securing institutional financing for such transactions, the Manager and its
Affiliates have been required to analyze and evaluate the creditworthiness of
potential lessees. However, neither the Manager nor any of its Affiliates is in
the business of regularly providing credit rating analyses as an independent
activity. In order to analyze whether a prospective lessee's credit risk is
comparable or equivalent to a Moody's Baa rating, the Manager will attempt to
apply the standards applicable to securities qualifying for the Baa rating. Such
securities are generally deemed to be of "investment grade," neither highly
protected nor poorly secured, with earnings and asset protection which appear
adequate at present but which may be questionable over any great length of time.
Notwithstanding the Manager's best efforts to assure the lessees'
creditworthiness, there can be no assurance that lease defaults will not occur.
It is not anticipated that the Fund's lessees will be located primarily in
any given geographic area. The Manager will use its best efforts to diversify
lessees by geography and industry, and will apply the following policies:
-- The Manager will seek to limit the amount invested in equipment leased
to any single lessee to not more than 20% of the aggregate purchase
price of equipment owned at any time during the reinvestment period;
and
-- In no event will the Fund's equity investment in equipment leased to
a single lessee exceed an amount equal to 20% of the maximum capital
from the sale of Units (or $30,000,000).
Foreign Leases
There is no limit on the amount of equipment which may be leased to foreign
subsidiaries of United States corporations, to foreign lessees or which may
otherwise be permitted to be used predominantly outside the United States. The
Manager does not have any specific objective with regard to the amount of
equipment to be subject to foreign leases, but intends to pursue desirable
foreign leasing opportunities for the Fund to the extent consistent with the
Fund's overall investment objectives.
Of the total purchase price of equipment leased to foreign lessees, the
Manager will require that a minimum of 75% must represent equipment leased to
lessees which have a credit risk equivalent to a credit rating by Moody's
Investors Service, Inc. of "Baa" (investment grade) or better, as determined by
a credit rating agency which is generally recognized in the financial services
industry or, if no such credit rating is available, as determined by the
Manager. Any leases to foreign lessees which do not meet the foregoing credit
standard will either be guaranteed by a U.S. parent company of the lessee, or
will involve lessees which have assets located in the United States with a value
equal to or greater than the original purchase cost of the equipment subject to
the lease.
The Manager will seek to limit the aggregate amount of the Fund's equity
invested in all equipment leased to foreign lessees or which is otherwise to be
used primarily outside the United States to not more than 20% of the Gross
Proceeds. For this purpose, a lessee under a lease guaranteed by a United States
corporation will not be deemed a foreign lessee.
Description of Leases
Generally, in a lease involving new equipment, the lessee will express an
interest in lease financing for equipment and the Manager will attempt to create
a lease package for the prospective lessee. In formulating the lease package,
the Manager will consider the following factors, among others:
-- the type of equipment;
35
-- the anticipated residual value of the equipment;
-- the business of the lessee;
-- the lessee's credit rating;
-- the cost of alternative financing services, and
-- competitive pricing and other market factors.
The initial lease terms will vary as to the type of equipment, but will
generally be for 36 months to 84 months. The Fund may lease some equipment to
federal, state or local governments, or agencies thereof. Many of such leases
will be subject to renewal each year, because many governmental lessees must
obtain appropriations for funds for their leases on an annual basis. In
addition, the Fund may, under appropriate circumstances, engage in other
short-term or "per diem" leases when the Manager deems it in the best interests
of the Fund and consistent with its overall objectives.
The equipment will be leased to third parties primarily pursuant to leases
with scheduled rents which will return less than the purchase price of the
equipment during the initial term of the lease. These include leases where
rental payments are based upon equipment usage. However, as of the date the
final offering proceeds are committed and all permanent debt is placed, a
majority of the leases, based on equipment purchase price, will provide for
lease payments and other payments by the lessee equal to at least 90% of the
original equipment purchase price. Lease rentals during comparable terms are
ordinarily higher under leases that provide rents that are less than the full
purchase price than those that return the full purchase price to the lessor. As
a result, the Manager believes that well-structured leases of this type may help
the Fund satisfy its investment objectives.
The Fund's will seek initial lease terms during which a lessee may not
cancel the lease or avoid the lease obligation. However, where the Manager deems
it to be in the Fund's best interests, because of favorable lease terms,
anticipated high demand for particular items of equipment or otherwise, it may
permit an appropriate cancellation clause.
The Manager believes that the Fund will be able to lease or sell its
equipment profitably after the initial lease terms although no assurances can be
given that it will. The Fund's ability to renew or extend the terms of its
leases or to re-lease or sell the equipment on expiration of the initial lease
terms is dependent on many factors, including possible economic or technological
obsolescence of the equipment, competitive practices and conditions and
generally prevailing economic conditions.
The Fund's leases will generally be "net leases," which provide that the
lessee must bear the risk of loss of the equipment, provide adequate insurance,
pay taxes on the equipment, maintain the equipment and indemnify the Fund
against any liability which may arise from any act or omission by the lessee or
its agents. In some leases, the Fund may be responsible for certain of these
obligations, such as certain insurance and maintenance expenses, but generally
only during a period when the equipment is not under lease.
Most of the Fund's lease agreements will require the lessees
-- to maintain casualty insurance in an amount equal to the greater of the
full value of the equipment or a specified amount set forth in the
lease, and
-- to maintain liability insurance naming the Fund as an additional
insured with a minimum limit of $1,000,000 in coverage.
The Fund may enter into remarketing agreements with manufacturers of
equipment on terms which are customary in the industry. A remarketing agreement
is an agreement whereby the manufacturer agrees with the lessor to assist the
lessor in finding a new lessee at the termination of the original lease. The
Manager will determine, in its sole discretion, whether to enter into such
36
agreements and with which manufacturers to do so. Most remarketing agreements
call for the manufacturer to find a second user only on a "best efforts" basis.
Thus, a remarketing agreement does not assure the lessor that the equipment can
or will be re-leased at the end of the initial lease term. The monthly rental
payments under a new lease or the sale price of such equipment would be subject
to the final approval of the Manager. Under a remarketing agreement, the
manufacturer would participate with the Fund in revenues on an incentive basis.
The manufacturer would typically receive a percentage of the revenue derived by
the Fund from the equipment under the agreement, which would increase after the
Fund received a specified return on its investment.
Growth Capital Equipment Financing
At least 75% of the Fund's equipment portfolio, by cost, as of the final
commitment of offering proceeds, will consist of transactions financing
equipment for lessees with investment grade or equivalent credit status. In the
rest of its portfolio, the Fund intends to finance some equipment for a variety
of public and non-public companies, and to obtain terms from some non-public
lessees and borrowers that may include, as consideration to the party providing
financing, the granting of warrants, options or other rights to purchase equity
securities of the lessee or borrower, or the opportunity to purchase such equity
securities outright (such rights to purchase equity interests and direct equity
investments are referred to in this Memorandum as the "equity interests").
Growing young companies often have more difficulty obtaining financing for
equipment essential to the development and growth of their business, and, as a
result, must offer lessors and lenders substantial cash deposits, equity
participations or other extraordinary consideration to obtain financing for the
equipment. The Fund intends to focus up to 20% of its initial portfolio in this
market to achieve investment returns from both its direct lease and loan
revenues and gains it may realize from the equity interests.
The Manager will look for those companies which show solid potential for
consistent profitability within a specific time period, and which have obtained
or are expected to attract sufficient equity venture capital to finance their
operations through expected profitability. The Manager will seek to identify
potential lessees which are at an early enough stage in their capitalization to
require these types of financing solutions, but which demonstrate the potential
to both satisfy their lease terms and provide attractive equity participation to
the Fund as lessor. The Manager will also seek to identify more mature,
privately-held companies that seek creative financing solutions involving the
granting of equity interests to the Fund. The Fund would expect these
transactions to involve more high technology, low residual value equipment than
the primary portion of its portfolio. As noted above, the Fund's portfolio will
consist primarily of low obsolescence equipment which will be expected to retain
significant residual value upon expiration of the initial leases. In contrast,
the portion of the Fund's portfolio invested in growth capital financing
transactions is expected to return invested capital and a targeted return on
investment through the regular cash payments due during the initial lease term.
The Fund will only acquire equity interests in conjunction with the
financing of equipment by the Fund, including leases and loans to the issuer of
the equity interests or to a parent, subsidiary or affiliate of the issuer. In
many cases, the Fund expects to acquire equity interests, such as warrants and
options to purchase securities, in consideration of its equipment financing and
without any other cash investment by the Fund at the time it acquires such
rights (such rights granted as part of the financing transaction are referred to
here as "warrant coverage"). In such cases, cash investment by the Fund would be
made upon exercise of the rights, and the Fund expects to use operating cash
flow to fund such exercises. In other cases, the Fund may obtain the right to
make a direct cash investment in the lessee's or borrower's securities at the
time the equipment financing is provided, for which the Fund would use proceeds
from the offering of Shares. In order to assure that the Fund will not be deemed
an "investment company" under the Investment Company Act of 1940, the Manager
will in no event during the life of the Fund permit the aggregate value of the
equity interests and any other investment securities held by the Fund to exceed
40% of the value of the Fund's total assets.
In addition to true lease financing, the Fund's growth capital leasing
investments may be in the form of "leases intended for security" and secured
loan transactions with equipment as the collateral. In a true lease transaction,
the Fund as lessor would be considered the owner of the equipment for tax
purposes, and is therefore entitled to cost recovery deductions allocable to the
equipment. A "lease intended for security" or finance lease may be nominally
37
structured as a lease, but is analogous to an installment sale contract or loan
agreement, and is treated as a loan for tax purposes, with the "lessor" as
lender and the "lessee" as the borrower. In a secured loan agreement, the Fund
would be the lender and the user of the equipment would be the borrower. In each
case, the borrower would be deemed the owner of the equipment for tax purposes
and would retain, as part of the economic structure of the lease, all of the
rights to cost recovery deductions and other tax aspects of ownership. In these
transactions, the borrower will typically have an obligation to make fixed
periodic installments of principal and interest over a specified term. The
Manager will attempt to structure these transactions so that the payments of
principal and interest, together with any equity interests involved, will return
the Fund's investment and provide a desirable rate of return on investment in
view of the associated financing risks.
In finance leases and secured loans, the Fund will have a security interest
in the equipment financed in the transaction, as well as receivables and
proceeds under any lease or rental agreement relating to the equipment or other
assets. The Fund's security interest may be a senior lien on the financed
assets, providing the Fund with the right, on any default under the financing
arrangement, to foreclose on the assets which are collateral, and to take
possession and or sell the assets in order to satisfy the borrower's obligation.
The Fund may also provide financing as a junior or subordinate lender under
appropriate circumstances. In such cases, the Fund's right to enforce its
obligations against the collateral would be subject to the priority of any
senior lender's rights.
In conjunction with its lease of equipment to lessees, the Fund will
negotiate the acquisition from the lessees, or their parents or affiliates,
rights to purchase the equity securities of such entities, or, in some cases,
the securities themselves. The equity interests may be in the form of warrants
or options to purchase equity securities, common shares, preferred shares,
convertible equity, convertible debt, or any other form of interest which is
structured to give the Fund the right to benefit from growth in the market value
of the lessee's equity capital. At some time in the future, typically at the
time of, or soon after, the lessee's equity securities become publicly
registered or tradeable, generally through an initial public offering, merger or
reorganization, the Fund would exercise its rights represented by the equity
interests, acquire the lessee's publicly-traded securities and seek to dispose
of the securities at a profit. The equity interests may also mature upon the
negotiated sale of the lessee through the sale of all of the lessee's equity
securities or a sale of all its assets and liquidation of the proceeds to the
equity holders.
The Fund's management will determine when and whether to exercise rights to
convert or acquire securities subject to the equity interests. To exercise
warrant or option rights the Fund will pay an exercise price, which may be
financed out of the disposition proceeds to be realized upon an immediate resale
of the purchased securities. There can be no assurance that the issuers of the
equity interests will achieve capital growth and that the equity interests will
generate any profit, or that such growth and profits will be achieved during the
Fund's anticipated holding period.
Competition
Leasing has become one of the major methods by which American businesses
finance their capital equipment needs. See Figure 4 below for a
graphic-presentation of the dollar amount of equipment investment and equipment
lease financing in the United States for each year since 1990 (according to the
Equipment Leasing Association, a leasing industry trade association). Please
note that this chart reflects the growth of equipment lease financing from all
sources, including manufacturers, financial institutions and private and public
lease financing companies, and not just public equipment leasing programs such
as the Fund. Public programs like the Fund represent only a relatively small
portion of the total lease financing industry.
38
[FIGURE 4 - GRAPHIC OMITTED]
In obtaining lessees the Fund will compete with manufacturers of equipment
which provide leasing programs and with established leasing companies and
equipment brokers. Manufacturers of equipment may offer certain incentives
including maintenance services and trade-in or replacement privileges which the
Fund cannot offer. The Fund may also be competing with manufacturers and others
who offer leases that provide for longer terms and lower rates than leases which
the Fund will offer. There are numerous other potential entities, including
entities organized and managed similarly to the Fund, seeking to purchase
equipment subject to leases.
Joint Venture Investments
The Fund may purchase certain of its equipment by acquiring a controlling
interest in a partnership, equipment trust or other form of joint venture with a
non-Affiliate which owns the equipment. The controlling interest requirement may
be satisfied by ownership of more than 50% of the venture's capital or profits
or from provisions in the governing agreement giving the Fund certain basic
rights. For example, control may take the form of the right to make or veto
certain management decisions or provide for certain predetermined benefits for
the Fund in the event that any other party to the venture should decide to sell,
refinance or change the assets owned by the venture. The Fund may not acquire
equipment jointly with others unless
(i) the joint venture agreement does not authorize or require the Fund
to do anything with respect to the equipment which the Fund, or the
Manager, could not do directly because of the policies set forth in the
Operating Agreement, and
(ii) the transaction does not result in payment of duplicate fees.
39
The Fund may also acquire equipment by joint venture or as co-owner with an
Affiliate if the following conditions are met:
(i) the Affiliate will be required to have substantially identical
investment objectives to those of the Fund;
(ii) there are no duplicate fees;
(iii) the Affiliate must make its investment on substantially the same
terms and conditions as the Fund;
(iv) the Affiliate must have a compensation structure substantially
identical to that of the Fund;
(v) the venture must be entered into in order to obtain
diversification or to relieve the Manager or Affiliates from commitments
entered into under Section 15.2.15 of the Operating Agreement or similar
provisions governing the Affiliate; and
(vi) the Fund has a right of first refusal should a co-venturer decide
to sell the property owned by the venture.
Because both the Fund and its Affiliate will be required to approve
decisions pertaining to the equipment, a management impasse may develop. If one
party, but not the other, wishes to sell the equipment, the party not desiring
to sell will have a right of first refusal to purchase the other party's
interest in the equipment. The Fund may not, however, be able to exercise its
right of first refusal unless it has the financial resources to do so, and there
can be no assurances that it will.
General Restrictions
The Fund will not: (i) issue any Units after the offering terminates or
issue Units in exchange for property, (ii) make loans to the Manager or its
Affiliates, (iii) invest in or underwrite the securities of other issuers, (iv)
operate in such a manner as to be classified as an "investment company" for
purposes of the Investment Company Act of 1940, (v) except as set forth herein,
purchase or lease any equipment from nor sell or lease property to the Manager
or its Affiliates, or (vi) except as expressly provided herein, grant the
Manager or any of its Affiliates any rebates or give-ups or participate in any
reciprocal business arrangements with such parties which would circumvent the
restrictions in the Operating Agreement, including the restrictions applicable
to transactions with Affiliates.
The Manager and its Affiliates, including their officers and directors, may
engage in other businesses or ventures that own, finance, lease, operate,
manage, broker or develop equipment, as well as businesses unrelated to
equipment leasing.
Changes in Investment Objectives and Policies
Unit holders have no right to vote on the establishment or implementation
of the investment objectives and policies of the Fund, all of which are the
responsibility of the Manager. However, the Manager cannot make any material
changes in the investment objectives and policies described above without first
obtaining the written consent or approval of Members owning more than 50% of the
total outstanding Units entitled to vote.
40
CONFLICTS OF INTEREST
The Fund is subject to various conflicts of interest arising out of its
relationship with the Manager and Affiliates of the Manager. These conflicts
include, but are not limited to, the following:
The Manager engages in other, potentially competing, activities. The
Manager serves in the capacity of manager or general partner in other public
programs engaged in the equipment leasing business, and it and its Affiliates
also engage in the business of purchasing and selling equipment and arranging
leases for their own account and for the accounts of others. The Manager will
have conflicts of interest in allocating management time, services and functions
among the prior programs, the Fund, any future investment programs and
activities for its own account. The Manager believes that it has or can employ
sufficient staff, equipment and other resources to discharge fully their
responsibilities to each such activity.
In addition, as a general partner of prior programs, the Manager will be
contingently liable for obligations of these programs, except nonrecourse
indebtedness relating to the acquisition of equipment. Such obligations are
expected to consist primarily of normal operating and other current expenses,
and the Manager does not believe this responsibility will affect its ability to
satisfy its responsibilities to the Fund.
Competition for Investments. The Manager will have conflicts of interest to
the extent that its prior or future investment programs may compete with the
Fund for opportunities in the acquisition and leasing of equipment. Prior public
programs currently in operation and expected to acquire additional equipment
investments include: ATEL Cash Distribution Fund V, L.P. ("ACDF V"); ATEL Cash
Distribution Fund VI, L.P. ("ACDF VI"); ATEL Capital Equipment Fund VII, L.P.
("ACEF VII"); and ATEL Capital Equipment Fund VIII, LLC ("ACEF VIII") (together
collectively referred to as the "Prior Programs"). The Prior Programs have
investment objectives substantially identical to those of the Fund and may have
funds available for investment in additional equipment at a time when the Fund
is also active in seeking to invest or reinvest in equipment. Certain of the
equipment owned and to be acquired by the Prior Programs and the Fund may be
similar and may be purchased from the same manufacturers. Furthermore, the
Manager and its Affiliates may in the future form additional investment programs
having similar objectives, and accordingly, the Fund may be in competition with
any such future programs formed by the Manager.
Any time two or more investment programs (including the Fund) affiliated
with the Manager have capital available to acquire and lease the same types of
equipment, conflicts of interest may arise as to which of the programs should
proceed to acquire available items of equipment. In such situations, the Manager
will analyze the equipment already purchased by, and investment objectives of,
each program involved, and will determine which program will purchase the
equipment based upon such factors, among others, as:
(i) the amount of cash available in each program for such acquisition
and the length of time such funds have been available,
(ii) the current and long-term liabilities of each program,
(iii) the effect of such acquisition on the diversification of each
program's equipment portfolio,
(iv) the estimated income tax consequences to the investors in each
program from such acquisition, and
(v) the cash distribution objectives of each program.
If after analyzing the foregoing and any other appropriate factors, the Manager
determines that such acquisition would be equally suitable for more than one
program, then the Manager shall purchase such equipment for the programs on the
basis of rotation with the order of priority determined by the length of time
each program has had funds available for investment, with the available
equipment allocated first to the program which has had funds available for
investment the longest.
The Manager and Affiliates will receive substantial fees and other
compensation. Fund operations will result in certain compensation to the Manager
and its Affiliates. The Manager has absolute discretion in all decisions on Fund
operations. Because the amount of such fees may depend, in part, on the debt
41
structure of equipment acquisitions and the timing of these transactions, the
Manager and its Affiliates may have conflicts of interest. For example, the
acquisition, retention, re-lease or sale of equipment and the terms of a
proposed transaction may be less favorable to the Fund and more favorable to the
Manager under certain circumstances. It should be noted that the Manager intends
to cause the Fund to incur aggregate acquisition debt in an amount approximately
equal to 50% of the total cost of equipment.
In all cases where the Manager or its Affiliate may have a conflict of
interest in determining the terms or timing of a transaction by the Fund, it
will exercise its discretion strictly in accordance with its fiduciary duty to
the Fund and the Holders.
Agreements are not Arm's-Length. Agreements between the Fund and the
Manager or any of its Affiliates are not the result of arm's-length negotiations
and performance by the Manager and its Affiliates will not be supervised or
enforced at arm's-length.
No independent managing underwriter has been engaged for the distribution
of the Units. ATEL Securities Corporation is an Affiliate of the Manager and
will perform wholesaling services for the Fund. It may not be expected to have
performed due diligence in the same manner as an independent broker-dealer. The
Dealer Manager has acted in the same capacity in prior offerings sponsored by
the Manager and its Affiliates and is expected to do so in any future offerings
that the Manager and its Affiliates may conduct.
The Fund, the Manager and prospective Holders have not been represented by
separate counsel. In the formation of the Fund, drafting of the Operating
Agreement and the offering of Units, the attorneys, accountants and other
professionals who perform services for the Fund all perform similar services for
the Manager and its Affiliates. The Fund expects that this dual representation
will continue in the future. However, should a dispute arise between the Fund
and the Manager, the Manager will cause the Fund to retain separate counsel.
The Fund may enter into joint ventures with programs managed by the Manager
or its Affiliates. The Manager may face conflicts of interest as it may control
and owe fiduciary duties to both the Fund and the affiliated co-venturer. For
example, because of the differing financial positions of the co-venturers, it
may be in the best interest of one entity to sell the jointly-held equipment at
a time when it is in the best interest of the other to hold the equipment.
Nevertheless, these joint ventures are restricted to circumstances where the
co-venturer's investment objectives are comparable to the Fund's, the Fund's
investment is on substantially the same terms as the co-venturer and the
compensation to be received by the Manager and its Affiliates from each
co-venturer is substantially identical.
42
ORGANIZATIONAL DIAGRAM
The following diagram (Figure 5) shows the relationships among the Fund,
the Manager and certain of Affiliates of the Manager which may perform services
for the Fund (solid lines denote ownership and dotted lines denote other
relationships).
[FIGURE 5 - GRAPHIC OMITTED]
ATEL Capital Group's voting stock is owned 75% by A.J. Batt and 25% by Dean
L. Cash. ATEL Capital Group owns 100% of the outstanding capital stock of each
of the Manager, ALC, AIS and AEC. The Manager owns 100% of the outstanding
capital stock of the Dealer Manager.
FIDUCIARY DUTY OF THE MANAGER
The Manager is accountable to the Fund as a fiduciary and, consequently, is
required to exercise good faith and integrity in all dealings with respect to
Fund affairs.
Under California law and subject to certain conditions, a Member may file a
lawsuit on behalf of the Fund (a derivative action) to recover damages from a
third party or to recover damages resulting from a breach by a Manager of its
fiduciary duty. In addition, a Member may sue on behalf of himself and all other
Members (a class action) to recover damages for a breach by a Manager of its
fiduciary duty, subject to class action procedural rules. This area of the law
is complex and rapidly changing, and investors who have questions regarding the
duties of a Manager and the remedies available to Members should consult with
their counsel.
The Operating Agreement does not excuse the Manager from liability or
provide it with any defenses for breaches of its fiduciary duty. However, the
fiduciary duty owed by a Manager is similar in many respects to the fiduciary
duty owed by directors of a corporation to its shareholders, and is subject to
the same rule, commonly referred to as the "business judgment rule," that
directors are not liable for mistakes in the good faith exercise of honest
business judgment or for losses incurred in the good faith performance of their
duties when performed with such care as an ordinarily prudent person would use.
43
As a result of the business judgement rule, a Manager may not be held liable for
mistakes made or losses incurred in the good faith exercise of reasonable
business judgment. Accordingly, provision has been made in the Operating
Agreement that the Manager shall have no liability to the Fund for losses
arising out of any act or omission by the Manager, provided that the Manager
determined in good faith that its conduct was in the best interest of the Fund
and, provided further, that its conduct did not constitute fraud, negligence or
misconduct. 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 a
provision in the Operating Agreement specifically defining the Manager's
standard of care.
The Operating Agreement also provides that, to the extent permitted by law,
the Fund shall indemnify the Manager and its Affiliates providing services to
the Fund against liability and related expenses (including attorneys' fees)
incurred in dealings with third parties, provided that the conduct of the
Manager is consistent with the standards described in the preceding paragraph. A
successful claim for such indemnification would deplete Fund assets by the
amount paid. The Manager shall not be indemnified against any liabilities
arising under the Securities Act of 1933. The Fund shall not pay for any
insurance covering liability of the Manager or any other persons for actions or
omissions for which indemnification is not permitted by the Operating Agreement.
Subject to the fiduciary relationship, the Manager has broad discretionary
powers to manage the affairs of the Fund under the terms of the Operating
Agreement and under the California Act. Generally, actions taken by the Manager
are not subject to vote or review by the Holders, except to the limited extent
provided in the Operating Agreement and under California law.
44
MANAGEMENT
The Manager
The Manager is ATEL Financial Corporation (the "Manager" or "AFC"), a
California corporation formed in 1977 under the name All Type Equipment Leasing,
Inc. The Manager's offices are located at 235 Pine Street, 6th Floor, San
Francisco, California 94104, and its telephone numbers are 415/989-8800 and
800/543-ATEL. Its officers have extensive experience with transactions involving
the acquisition, leasing, financing and disposition of equipment, as more fully
described below and in Exhibit A hereto. The Manager and its Affiliates are
sometimes collectively referred to below as "ATEL" for convenience.
Since its organization in 1977, ATEL has been active in several areas
within the equipment leasing industry, including: (i) originating and financing
leveraged and single investor lease transactions for corporate investors, (ii)
acting as a broker/packager by arranging equity and debt participants for
equipment lease transactions originated by other leasing companies, and (iii)
consulting on the pricing and structuring of equipment lease transactions for
banks, leasing companies and corporations.
The Manager has organized eight prior public limited partnerships to
acquire and lease equipment. During the past 18 years, ATEL has participated in
structuring and/or arranging lease transactions involving aggregate equipment
costs in excess of $1.8 billion.
All of the outstanding stock of ATEL Financial Corporation is held by ATEL
Capital Group ("ACG"). The outstanding voting stock of ATEL Capital Group is
owned 75% by A.J. Batt and 25% by Dean L. Cash. Each of ATEL Leasing Corporation
("ALC"), ATEL Equipment Corporation ("AEC") and ATEL Investor Services ("AIS")
is a wholly-owned subsidiary of ATEL Capital Group which will perform services
for the Fund under the direction of the Manager. Acquisition services will be
performed for the Fund by ALC, equipment management and asset disposition
services will be performed by AEC, and AIS will perform partnership management,
administration and investor services. Finally, the Dealer Manager, ATEL
Securities Corporation ("ASC"), is a wholly-owned subsidiary of ATEL Financial
Corporation. ACG had a net worth as of July 31, 2000, its most recent fiscal
year end, well in excess of the NASAA Guidelines minimum of $1,000,000. ACG is
responsible for all aspects of the performance by its affiliates of services
necessary to the operation of the Fund and for the facilities, personnel,
equipment, financial and other resources used by its affiliates in the
performance of those services.
The officers and directors of ATEL Capital Group, ATEL Financial
Corporation and their Affiliates are as follows:
Name
Positions
A. J. Batt............... Chairman of the Board of Directors of ACG, AFC, ALC,
AVI, AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFC and AEC
Dean L. Cash............. Director, Executive Vice President and Chief Operating
Officer of ACG, AFC, ALC and AEC; Director, President
and Chief Executive Officer of AVI, ALC, AIS and ASC
Paritosh K. Choksi....... Director, Senior Vice President and Chief Financial
Officer of ACG, AFC, ALC, AVI, AIS and AEC
Donald E. Carpenter...... Controller of ACG, AFC, ALC, AVI, AEC and AIS; Chief
Financial Officer of ASC
Vasco H. Morais.......... Senior Vice President and General Counsel for ACG,
AFC, ALC, AVI, AIS and AEC
A. J. Batt, age 64, founded ATEL in 1977 and has been its president and
chairman of the board of directors since its inception, and a director of the
Dealer Manager since its organization in October, 1985. From 1973 to 1977, he
was employed by GATX Leasing Corporation as manager-data processing and equity
placement for the lease underwriting department, which was involved in equipment
financing for major corporations. From 1967 to 1973, Mr. Batt was a senior
technical representative for General Electric Corporation, involved in sales and
support services for computer time-sharing applications for corporations and
45
financial institutions. Prior to that time, he was employed by North American
Aviation as an engineer involved in the Apollo project. Mr. Batt received a
B.Sc. degree with honors in mathematics and physics from the University of
British Columbia in 1961. Mr. Batt is qualified as a registered principal with
the NASD.
Dean L. Cash, age 50, joined ATEL as director of marketing in 1980 and has
been a vice president since 1981, executive vice president since 1983 and a
director since 1984. He has been a director of the Dealer Manager since its
organization and its president since 1986. Prior to joining ATEL, Mr. Cash was a
senior marketing representative for Martin Marietta Corporation, data systems
division, from 1979 to 1980. From 1977 to 1979, he was employed by General
Electric Corporation, where he was an applications specialist in the medical
systems division and a marketing representative in the information services
division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975
to 1977, and was involved in maintaining and developing software for commercial
applications. Mr. Cash received a B.S. degree in psychology and mathematics in
1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida
State University. Mr. Cash is an arbitrator with the American Arbitration
Association and is qualified as a registered principal with the NASD.
Paritosh K. Choksi, age 47, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. Prior to joining ATEL, Mr. Choksi was
chief financial officer at Wink Communications Inc. from 1997 to 1999. From 1977
to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services
and management company, where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company. Mr. Choksi was involved in all corporate matters at Phoenix and was
responsible for Phoenix's capital market needs. He also served on the credit
committee overseeing all corporate investments, including its growth capital
lease portfolio. Mr. Choksi was part of the executive management team which
caused Phoenix's portfolio to grow from $50 million in assets to over $2
billion. Mr. Choksi received a Bachelor of Technology degree in mechanical
engineering from the Indian Institute of Technology, Bombay in 1975; and an
M.B.A. degree from the University of California, Berkeley in 1977.
Donald E. Carpenter, age 49, joined ATEL in 1986 as controller. Prior to
joining the corporate Manager, Mr. Carpenter was employed as an audit supervisor
with Laventhol & Horwath, certified public accountants in San Francisco,
California, from 1983 to 1986. From 1979 to 1983, Mr. Carpenter was employed by
Deloitte Haskins & Sells, certified public accountants in San Jose, California.
From 1971 to 1975, Mr. Carpenter was a supply officer in the U.S. Navy. Mr.
Carpenter received a B.S. degree in mathematics (magna cum laude) from
California State University, Fresno in 1971 and completed a second major in
accounting in 1978. Mr. Carpenter has been a California certified public
accountant since 1981. He is qualified as a registered principal with the NASD.
Vasco H. Morais, age 40, joined ATEL in 1989 as general counsel. Mr. Morais
manages ATEL's legal department, which provides legal and contractual support in
the negotiating, drafting, documenting, reviewing and funding of lease
transactions. In addition, Mr. Morais advises on general corporate law matters,
and assisting on securities law issues. From 1986 to 1989, Mr. Morais was
employed by the BankAmeriLease Companies, Bank of America's equipment leasing
subsidiaries, providing in-house legal support on the documentation of
tax-oriented and non-tax oriented direct and leveraged lease transactions,
vendor leasing programs and general corporate matters. Prior to the
BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies
in the Corporate and Securities Legal Department involved in drafting and
reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley; a J.D. degree in 1986 from Golden Gate University Law
School; and an M.B.A. (Finance) degree from Golden Gate University in 1997. Mr.
Morais has been an active member of the State Bar of California since 1986.
Selection and Management of Investments
ATEL Leasing Corporation will have primary responsibility for selecting and
negotiating potential acquisitions and leases of equipment, subject to the
Manager's supervision and approval. The Manager's Investment Committee will
46
approve any acquisition before it is consummated. The Investment Committee
currently consists of A.J. Batt, Dean L. Cash, Paritosh K. Choksi and Donald E.
Carpenter.
ATEL Equipment Corporation will manage the Fund's portfolio of equipment,
subject to the Manager's supervision. Management services to be provided by AEC
include collection of lease payments from the lessees of equipment, re-leasing
services upon termination of leases, inspection of equipment, acting as a
liaison between lessees and vendors, general supervision of lessees and vendors
to ensure that the equipment is being properly used and operated by lessees,
arranging for maintenance and related services with respect to the equipment and
the supervision, monitoring and review of others performing services for the
Fund. Third parties may participate in managing or may separately manage
equipment for which they will receive a fee from the Fund.
Management Compensation
The Fund does not pay the officers or directors of the Manager or its
Affiliates any compensation. However, the Fund will pay the Manager and its
Affiliates the Asset Management Fee for their services to the Fund and the
Manager will have a Carried Interest in the Fund as a Member equal to 7.5% of
Fund allocations of Distributions, Net Income and Net Loss. Furthermore, the
Fund will reimburse the Manager and its Affiliates for certain costs incurred on
behalf of the Fund, including the cost of certain personnel (excluding
controlling persons of the Manager) who will be engaged by the Manager to
perform administrative, accounting, secretarial, transfer and other services
required by the Fund. Such individuals may also perform similar services for the
Manager, its Affiliates and other investment programs to be formed in the
future.
Changes in Management
The Operating Agreement provides that the Manager may be removed as Manager
at any time upon the vote of Holders owning more than 50% of the total
outstanding Units entitled to vote, and Holders have the right to elect a
successor Manager in place of the removed Manager by a similar vote. The Manager
may only withdraw voluntarily from the Fund with the approval of Holders owning
in excess of 50% of the Units entitled to vote on Fund matters. The Holders have
no voice in the election of directors or appointment of officers of the Manager
or its parent, ATEL Capital Group, and the capital stock of such entities can be
transferred without the consent of the Fund or the Holders.
The by-laws of the Manager provide for a maximum of three directors. The
by-laws can be amended to increase the number of directors either by a vote of
stockholders or of directors. In the event of a vacancy or increase in the
number of members of the board of directors, the remaining directors may elect
the members to serve until the next annual meeting of directors. Directors are
otherwise elected annually by vote of the stockholders, and the directors
appoint corporate officers to serve at the will of the board.
The Dealer Manager
ATEL Securities Corporation (the "Dealer Manager") was organized in October
1985 principally for the purpose of assisting in the distribution of securities
of programs to be sponsored by the Manager and its Affiliates. The Dealer
Manager became a member of the NASD in February 1986. The Dealer Manager is a
wholly-owned subsidiary of ATEL. The Dealer Manager will provide certain
wholesaling services to the Fund in connection with the distribution of the
Units offered hereby.
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION AND IN THE TABLES INCLUDED AS
EXHIBIT A TO THIS PROSPECTUS REPRESENTS HISTORICAL RESULTS OF PRIOR EQUIPMENT
LEASING PROGRAMS SPONSORED BY THE MANAGER AND ITS AFFILIATES. INVESTORS IN THE
FUND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE INVESTMENT RESULTS COMPARABLE
TO THOSE EXPERIENCED BY INVESTORS IN PRIOR PROGRAMS.
47
Since July 28, 1977, the Manager and its Affiliates have financed,
structured or arranged equity and debt participations for equipment leasing
transactions involving total equipment costs in excess of $1.8 billion. The
Manager has sponsored and syndicated eight prior public equipment leasing
programs (collectively referred to as the "Prior Programs"). In addition,
beginning in August 1999, ATEL sponsored ATEL Venture Fund I, LLC, a private
fund formed to engage exclusively in "venture leasing," a different primary
investment objective than that of the Fund or the Prior Programs.
The first Prior Program, ATEL Cash Distribution Fund ("ACDF"), commenced a
public offering of up to $10,000,000 of its equity interests on March 11, 1986.
ACDF terminated its offering on December 18, 1987 after raising a total of
$10,000,000 in offering proceeds from a total of approximately 1,000 investors,
all of which proceeds were committed to equipment acquisitions, organization and
offering expenses and capital reserves. ACDF public acquired a variety of types
of equipment with a total purchase cost of approximately $11,133,679. All of
such equipment had been sold and the partnership was terminated as of December
31, 1997. Through its liquidation, ACDF made cash distributions to its investors
in the aggregate amount of $1,121.03 per $1,000 invested. Of this amount a total
of $244.89 represents investment income and $876.14 represents return of
capital.
The second Prior Program, ATEL Cash Distribution Fund II ("ACDF II"),
commenced a public offering of up to $25,000,000 (with an option to increase the
offering to $35,000,000) of its equity interests on January 4, 1988. ACDF II
terminated its offering on January 3, 1990 after raising a total of $35,000,000
in offering proceeds from a total of approximately 3,100 investors, all of which
proceeds have been committed to equipment acquisitions, organization and
offering expenses and capital reserves. ACDF II acquired a variety of types of
equipment with a total purchase cost of approximately $52,270,536. All of such
equipment had been sold and the partnership was terminated as of December 31,
1998. ACDF II made total cash distributions to its investors in the aggregate
amount of $1,222.63 per $1,000 invested. Of this amount a total of $335.43
represents investment income and $887.20 represents return of capital.
The third Prior Program, ATEL Cash Distribution Fund III ("ACDF III"),
commenced a public offering of up to $50,000,000 (with an option to increase the
offering to $75,000,000) of its equity interests on January 4, 1990. ACDF III
terminated its offering on January 3, 1992 after raising a total of $73,855,840
in offering proceeds from a total of approximately 4,822 investors, all of which
proceeds have been committed to equipment acquisitions, estimated organization
and offering expenses and capital reserves. ACDF III had acquired a variety of
types of equipment with a total purchase cost of approximately $99,629,942 as of
June 30, 2000. Of such equipment, items representing an original purchase cost
of approximately $99,617,789 had been sold as of June 30, 2000. Through June 30,
2000, ACDF III had made cash distributions to its investors in the aggregate
amount of $1,282.31 per $1,000 invested. Of this amount a total of $351.28
represents investment income and $931.03 represents return of capital.
The fourth Prior Program, ATEL Cash Distribution Fund IV ("ACDF IV"),
commenced a public offering of up to $75,000,000 of its equity interests on
February 4, 1992. ACDF IV terminated its offering on February 3, 1993 after
raising a total of $75,000,000 in offering proceeds from a total of
approximately 4,873 investors, all of which proceeds have been committed to
equipment acquisitions, estimated organization and offering expenses and capital
reserves. ACDF IV had acquired a variety of types of equipment with a total
purchase cost of approximately $108,734,880 as of June 30, 2000. Of such
equipment, items representing an original purchase cost of approximately
$84,464,176 had been sold as of June 30, 2000. Through June 30, 2000, ACDF IV
had made cash distributions to its investors in the aggregate amount of
$1,077.88 per $1,000 invested. Of this amount a total of $285.52 represents
investment income and $792.36 represents return of capital.
The fifth Prior Program, ATEL Cash Distribution Fund V ("ACDF V"),
commenced a public offering of up to $125,000,000 of its equity interests in
February 1993. ACDF V terminated its offering in November 1994, after raising a
total of $125,000,000 in offering proceeds from a total of approximately 7,217
48
investors, all of which proceeds have been committed to equipment acquisitions,
estimated organization and offering expenses and capital reserves. ACDF V had
acquired a variety of types of equipment with a total purchase cost of
approximately $186,995,157 as of June 30, 2000. Of such equipment, items
representing an original purchase cost of approximately $67,403,080 had been
sold as of June 30, 2000. Through June 30, 2000, ACDF V had made cash
distributions to its investors in the aggregate amount of $760.99 per $1,000
invested. Of this amount a total of $153.67 represents investment income and
$607.32 represents return of capital.
The sixth Prior Program, ATEL Cash Distribution Fund VI ("ACDF VI"),
commenced a public offering of up to $125,000,000 of its equity interests in
November 1994. ACDF VI terminated its offering in November 1996, after raising a
total of $125,000,000 in offering proceeds from a total of approximately 6,401
investors, all of which proceeds have been committed to equipment acquisitions,
estimated organization and offering expenses and capital reserves. ACDF VI had
acquired a variety of types of equipment with a total purchase cost of
$208,277,121 as of June 30, 2000. Of such equipment, items representing an
original purchase cost of approximately $50,712,500 had been sold as of June 30,
2000. Through June 30, 2000, ACDF VI had made cash distributions to its
investors in the aggregate amount of $528.08 per $1,000 invested. Of this amount
a total of $29.49 represents investment income and $498.59 represents return of
capital.
The seventh Prior Program, ATEL Capital Equipment Fund VII ("ACEF VII"),
commenced a public offering of up to $150,000,000 of its equity interests in
November 1996. ACEF VII terminated its offering as of November 29, 1998, after
raising a total of $150,000,000 in offering proceeds, all of which proceeds have
been committed to equipment acquisitions, estimated organization and offering
expenses and capital reserves. ACEF VII had acquired a variety of types of
equipment with a total purchase cost of $287,743,685 as of June 30, 2000. Of
such equipment, items representing an original purchase cost of approximately
$16,945,323 had been sold as of June 30, 2000 Through June 30, 2000, ACEF VII
had made cash distributions to its investors in the aggregate amount of $324.64
per $1,000 invested. Of this amount a total of $57.68 represents investment
income and $266.96 represents return of capital.
The eighth Prior Program, ATEL Capital Equipment Fund VIII ("ACEF VIII"),
commenced a public offering of up to $150,000,000 of its equity interests in
December 1998. ACEF VIII terminated its offering on November 30, 2000, having
raised a total of $135,562,350 in offering proceeds, all of which proceeds have
been committed to equipment acquisitions, estimated organization and offering
expenses and capital reserves. ACEF VIII had acquired a variety of types of
equipment with a total purchase cost of $221,141,935 as of December 31, 2000. Of
such equipment, items representing an original purchase cost of approximately
$46,537 had been sold as of June 30, 2000. Through June 30, 2000, ACEF VIII had
made cash distributions to its investors in the aggregate amount of $10.60 per
$1,000 invested. All of this amount represents return of capital.
Although certain of the Prior Programs have experienced lessee defaults in
the ordinary course of business, none of the Prior Programs has experienced an
unanticipated rate of default or other major adverse business developments which
the Manager believes will impair its ability to meet its investment objectives.
As of December 31, 2000, the Prior Programs have acquired equipment with a total
purchase cost of approximately $1.173 billion during a period of over 14 years
since the date the first Prior Program commenced operations. Aggregate losses
from material lessee defaults on these transactions have been approximately $7
million, or approximately 0.6% of the assets acquired, substantially less than
the amount assumed by the Manager and its Affiliates in structuring these
portfolios as the losses to be anticipated in the ordinary course of leasing
business.
The Prior Programs have investment objectives which are similar to those of
the Fund. The factors considered by the Manager in determining that the
investment objectives of the prior programs were similar to those of the Fund
include the types of equipment to be acquired, the structure of the leases to
such equipment, the credit criteria for lessees, the intended investment cycles,
the reinvestment policies and the investment goals of each program. Therefore
all of the information set forth in the tables included in Exhibit A -- "Prior
Performance Information" may be deemed to relate to programs with investment
objectives similar to those of the Fund.
49
In Tables I through III information is presented with respect to all Prior
Programs sponsored by the Manager and its Affiliates which completed their
offerings of interests within the five-year period ending December 31, 2000. It
should be noted that the tabular information concerning ACDF VIII does not
reflect results of an operating period after completion of its funding in
December 2000. Table V includes information regarding all acquisitions of
equipment by Prior Programs. Table VI includes information regarding all
dispositions of equipment by Prior Programs during the five year period ending
June 30, 2000. Table IV includes information concerning the two Prior Programs
that had completed their respective operations as of June 30, 2000.
The following is a list of the tables set forth in Exhibit A:
Table I -- Experience in Raising and Investing Funds
Table II -- Compensation to the Manager and Affiliates
Table III -- Operating Results of Prior Programs
Table IV -- Results of Completed Programs
Table V -- Acquisition of Equipment by Prior Programs
Table VI -- Sales or Disposals of Equipment
The Manager will provide to any investor, upon written request and without
charge, copies of the most recent Annual Reports on Form 10-K filed with the
Securities and Exchange Commission by each of the Prior Programs, and will
provide to any investor, for a reasonable fee, copies of the exhibits to such
reports. Investors may request such information by writing to ATEL Investor
Services, Inc. at 235 Pine Street, 6th Floor, San Francisco, CA 94104 or by
calling the Manager at (415) 989-8800.
INCOME, LOSSES AND DISTRIBUTIONS
The taxable income and taxable loss of the Fund (the "Net Income and Net
Loss") and all Fund cash distributions shall be allocated 92.5% to investors and
7.5% to the Manager as the Carried Interest.
Allocations of Net Income and Net Loss
The Fund will close its books as of the end of each quarter and allocate
Net Income, Net Loss and cash distributions on a daily basis, i.e., Fund items
will be allocated to the investors in the ratio in which the number of Units
held by each of them bears to the total number of Units held by all as of the
last day of the fiscal quarter with respect to which such Net Income, Net Loss
and cash distributions are attributable; provided, however, that, with respect
to Net Income, Net Loss and cash distributions attributable to the offering
period of the Units (including the full quarter in which the offering
terminates), such Net Income, Net Loss and cash distributions shall be
apportioned in the ratio in which (i) the number of Units held by each investor
multiplied by the number of days during the period the investor owned the Units
bears to (ii) the amount obtained by totaling the number of Units outstanding on
each day during such period. No Net Income, Net Loss and cash distributions with
respect to any quarter shall be allocated to Units repurchased by the Fund
during such quarter, and such Units shall not be deemed to have been outstanding
during such quarter for purposes of the foregoing allocations. Transfers of
Member interests will not be effective for any purpose until the first day of
the following quarter.
Timing of Distributions
Fund cash distributions are generally made and allocated to Holders on a
quarterly basis. However, the Manager will determine amounts available for
distributions on a monthly rather than quarterly basis. All investors will be
entitled to elect to receive distributions monthly rather than quarterly by
designating such election in a written request delivered to the Manager. An
initial election to receive monthly rather than quarterly distributions may be
made at the time of subscription by designating such election on the
50
Subscription Agreement. Thereafter, each investor may during each fiscal quarter
designate an election to change the timing of distributions payable to the
investor for the ensuing fiscal quarter by delivering to the Manager a written
request. Investors who have previously elected monthly distributions may at such
time elect to return to quarterly distributions and those receiving quarterly
distributions may elect monthly distributions for the following quarter.
Allocations of Distributions
Distributions will be allocated among investors on the same basis as Net
Income and Net Loss. Amounts to be distributed will be determined after payment
of Fund operating expenses, establishment or restoration of capital reserves
deemed appropriate by the Manager, and, to the extent permitted, reinvestment in
additional equipment.
The Fund anticipates that income taxes on a portion of its distributions
will be deferred by depreciation available from its equipment. To the extent Net
Income is reduced by depreciation deductions, distributions will be considered
return of capital for tax purposes and income tax will be deferred until
subsequent years. Until investors receive total distributions equal to their
original investment, a portion of each distribution will be deemed a return of
capital rather than a return on capital. Notwithstanding the foregoing, however,
the Manager intends to make distributions only out of cash from operations and
cash from sales or refinancing and not out of capital reserves or offering
proceeds held pending investment.
The Fund is intended to be self-liquidating. After the sixth year following
the year the offering ends, the Fund will distribute all available cash, other
than reserves deemed required for the proper operation of its business,
including reserves for the upgrading of equipment to preserve its value or to
purchase equipment the Fund has committed to buy prior to the end of the
reinvestment period.
When the Fund liquidates, and after the Fund pays its creditors (including
investors who may be creditors), the Fund will distribute any remaining proceeds
of liquidation in accordance with each Member's positive Capital Account
balance. As a result, if cash distributions are made during the period between
the date investors are first admitted to the Fund and the end of the offering of
Units, it is likely that different amounts would be distributable upon
liquidation to the different investors, depending on their then Capital Account
balances. This difference will be substantially reduced or eliminated by the
special allocation to investors of gain from the sale of equipment which could
equalize their Capital Account balances. In particular, if distributions made
during the offering period to investors who were admitted at the initial
admission date reflect a return of capital (or to the extent that such investors
receive allocations of net losses relating to the offering period), such
investors will receive less on liquidation of the Fund than those who were
admitted at the final admission date. Furthermore, to the extent that those
investors who were admitted at the first admission date receive allocations of
net profits relating to the offering period in excess of the distributions of
cash for that same period, such investors will receive more distributions on
liquidation than those investors who are admitted at end of the offering. As
noted above, any differences would be substantially reduced or eliminated to the
extent the Manager equalizes Capital Accounts through special allocations of
gain from the sale of equipment.
Reinvestment
The Fund has the right to reinvest revenues during the period ending six
years after the year in the offering ends. Before the Fund can reinvest in
equipment, however, the Fund must, at a minimum, distribute
(i) enough cash to allow an investor in a 31% federal income tax
bracket to meet the federal and state income taxes due on income from the
operations of the Fund;
(ii) through the first full fiscal quarter ending at least six months
after termination of the offering of Units, an amount equal to the lesser
of
(a) a rate of return on their original capital contribution equal
to 3.5% over the average yield on five-year United States Treasury
Bonds for the fiscal quarter immediately preceding the date of
distribution, as published in a national financial newspaper from time
to time (with a minimum of 9% per annum and a maximum of 11% per
annum), or
51
(b) 90% of the total amount of cash available for distributions;
and
(iii) for each quarter during the rest of the reinvestment period, an
amount equal to a rate of return on their original capital contribution
equal to 3.5% over the average yield on five-year United States Treasury
Bonds for the period from the commencement of the offering of Units through
a date six months following the termination date of the offering (with a
minimum of 9% per annum and a maximum of 11% per annum) as published in a
national financial newspaper.
Return of Unused Capital
Any net offering proceeds received by the Fund during the first twelve
months of the offering not committed to investment in equipment by eighteen
months after the beginning of the offering, and any offering proceeds received
in a second year of the offering not committed to investment by a date six
months after the end of the offering (except amounts used to pay operating
expenses or required as reserves) will be distributed to investors pro rata as a
return of capital. In addition, in order to refund to the investors the amount
of Front End Fees attributable to such returned capital, the Manager has agreed
to contribute to the Fund, and the Fund will distribute to investors pro rata,
the amount by which (x) the unused capital so distributed, divided by (y) the
percentage of offering proceeds remaining after payment of all Front End Fees,
exceeds the amount of unused capital distributed.
Cash from Reserve Account
The Operating Agreement requires that the Fund initially establish a cash
reserve for general working capital purposes in an amount equal to not less than
1/2 of 1% of the offering proceeds (equal to $6,000 if the minimum Units are
sold and $750,000 if the maximum Units are sold). Any cash reserves used need
not be restored, and, if restored, may be restored from the operating revenues
of the Fund. Distributions of cash reserves will be allocated and distributed in
the same manner as cash proceeds from sales of equipment. Cash reserves which
the Manager deems no longer required as reserves may be distributed or invested
by the Fund.
Sources of Distributions -- Accounting Matters
During the initial years, the Fund may experience loss in accordance with
generally accepted accounting principles. A substantial portion of any loss
would likely be caused by depreciation which is a non-cash expense. As a result,
distributions made in the initial years of the Fund may be considered to be a
return of capital and not investment income.
Without regard to the accounting method adopted, to the extent equipment is
not producing revenues in excess of operating expenses, debt service and other
contractual obligations, distributions may be considered a return of capital.
CAPITALIZATION
The capitalization of the Fund, as of the date of this Prospectus and as
adjusted to reflect the issuance and sale of the Units offered hereby assuming
the minimum 120,000 Units and the maximum 15,000,000 Units are sold, is as
follows:
As of Minimum Maximum
the Date 120,000 15,000,000
hereof Units Units
Units of Member
Interest ($10 per Unit)... 500 1,200,500 150,000,500
====== ============ =============
Total Capitalization.........$ 500 $1,200,500 $150,000,500
Less Estimated
Organization and
Offering Expenses............ -- 144,000 20,250,000
------ ------------ -------------
Net Capitalization...........$ 500 $1,056,500 $129,750,500
====== ============ =============
52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Until receipt and acceptance of subscriptions for 120,000 Units, the Fund
will not commence active operations.
After the minimum capital is received, subscription proceeds will be
released to the Fund from escrow and applied to the payment or reimbursement of
Organization and Offering Expenses, leaving estimated net proceeds available for
investment and operations of $1,056,000. As additional subscriptions for Units
are received, the Fund will experience a relative increase in liquidity and a
relative decrease in liquidity as capital is expended in the purchase and lease
of equipment.
The Fund will acquire equipment with cash and debt. The Fund may borrow on
a secured or unsecured basis amounts up to 50% of the aggregate purchase price
of equipment, and intends to borrow the maximum amount permitted. The Fund
currently has no arrangements with, or commitments from, any lender with respect
to debt financing. The Manager anticipates that any acquisition financing or
other borrowing will be obtained from institutional lenders. Except as discussed
below in connection with asset securitization financing, the Fund does not
currently anticipate that it will engage in any material hedging transactions.
Until required for the acquisition or operation of equipment, the offering
proceeds will be held in short-term, liquid investments. The Fund is required by
the Operating Agreement to establish an initial working capital reserve in the
amount of 1/2 of 1% of the Gross Proceeds.
For financial reporting purposes, equipment on operating leases will
generally be depreciated using the straight-line method, over periods equal to
the terms of the related leases to the equipment, down to an amount equal to the
estimated residual value of the equipment at the end of the related leases. The
treatment for financial reporting purposes differs from cost recovery for tax
purposes in which the IRS prescribes certain useful lives for each type of
equipment and the Code provides specific accelerated rates of depreciation over
those useful lives.
The potential effects of inflation on the Fund are difficult to predict. If
the general economy experiences significant rates of inflation, however, it
could affect the Fund in a number of ways. The cost of equipment acquisitions
could increase with inflation, but cost increases could be offset by the Fund's
ability to increase lease rates in an inflationary market. Revenues from
existing leases would not generally increase with inflation, as the Fund does
not expect to provide for rent escalation clauses tied to inflation in its
leases. Nevertheless, the anticipated residual values to be realized upon the
sale or re-lease of equipment upon lease terminations (and thus the overall cash
flow from the Fund's leases) may be expected to increase with inflation as the
cost of similar new and used equipment increases.
Fluctuations in prevailing interest rates could also affect the Fund. The
cost of capital reflected in interest rates is a significant factor in
determining market lease rates and the pricing of lease financing generally.
Higher interest rates could affect the cost of Fund borrowing, reducing its
yield on leveraged investments or reducing the desirability of leverage. The
Fund would also expect that increases or decreases in prevailing interest rates
would generally result in corresponding increases or decreases in available
lease rates on new leases. Except as discussed below, interest rate fluctuations
would generally have little or no effect on existing leases, as rates on such
leases would generally be fixed without any adjustment related to interest
rates.
The Fund may incur short-term bridge financing bearing a variable interest
rate, but this borrowing would involve little exposure to increased interest
rates because of its limited term. However, the Manager expects that any asset
securitization financing by the Fund will involve borrowing at a variable
interest rate based on an established reference rate. The Manager would seek to
mitigate the Fund's exposure to increases in the interest rate by engaging in
hedging transactions that would effectively fix the interest rate obligation of
the Fund. The Manager's policy will be to incur variable rate financing only
53
under conditions and terms which limit the potential adverse effect on the
Fund's anticipated return on the related lease transactions. Other than in
short-term bridge financing or asset securitization financing, the Manager will
seek to avoid borrowing under terms which provide for a rate of interest which
may vary. The Manager will attempt to limit any other variable interest rate
borrowing to those instances in which the lessee agrees to bear the cost of any
increase in the interest rate. If such debt is incurred without a corresponding
variable lease payment obligation, the Fund's interest obligations could
increase while lease revenues remain fixed. Accordingly, a rise in interest
rates may increase borrowing costs and reduce the amount of income and cash
available for Distributions. Historically, the interest rates charged by major
banks have fluctuated; as a result, the precise amount of interest which the
Fund may be charged under such circumstances cannot be predicted.
Year 2000 Compliance
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, the
programs are not designed to make the transition to the year 2000. This computer
software problem is commonly referred to as the "year 2000" (or "Y2K") issue.
Computer programs with date-sensitive applications may, if not modified, fail or
miscalculate dates, causing system failures, the inability to process
transactions or other disruptions of operations.
The Manager uses, and expects on behalf of the Fund to use, primarily third
party software and has communicated with key software vendors to ensure that the
systems used by the Manager and the Fund are not impaired by the year 2000
issue. Currently, all of ATEL's critical software systems are believed by the
Manager to be Y2K compliant.
The ultimate impact of the year 2000 issue on the Fund will depend to a
great extent on the manner in which the issue is addressed by those businesses
whose operational capability is important to the Fund. Failure of these
businesses to be Y2K compliant may impact credit quality or cause a delay in
payments made to the Fund. The Manager has contacted those businesses with which
it currently has material relationships in order to request verification of Y2K
compliance. The Manager believes that each of those entities will have a
material self interest in resolving any year 2000 issue affecting its own
operations.
Equipment to be purchased by the Fund may include technology subject to the
year 2000 issue. Potential year 2000 issues will be among the many factors
considered by the Manager and its affiliates in analyzing and pricing lease
transactions for acquisition by the Fund. The lessees of the equipment will
select such equipment and may be expected to consider year 2000 issues
themselves in determining the suitability of the equipment for the lessee's use.
Most equipment is expected to be subject to fixed term, non-cancellable, triple
net leases. In addition, new equipment may be covered by manufacturers'
warranties. As a result of such triple net provisions and warranties, repairs or
modifications necessary to correct year 2000 issues will most likely be the
responsibility of the manufacturers or the lessees, and the Fund's rights to
lease payments as a triple net lessor will not be affected by any functional
issues affecting the equipment. It is expected that the lease terms for such
equipment will extend well beyond the year 2000.
As a result of the year 2000 issue, the Fund may experience increased costs
resulting from delayed payments from lessees, the costs associated with the
collection of those payments, or costs associated with manual processing efforts
in the event of a Y2K related system failure. In any event, the Manager does not
expect these increased costs to be significant or that such costs will have any
material adverse effect on the operations of the Fund. Nevertheless, the impact
of year 2000 issues cannot be predicted with certainty and the Fund may be
affected both by the impact these issues have on parties with which it has
direct contractual and other relationships as well as by their impact on
financial institutions and the national and international economy as a whole.
Accordingly, there can be no assurance that year 2000 issues might not have some
adverse impact on the operating results experienced by the Fund.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material federal income tax
considerations which may be relevant to a prospective investor. However, it is
impractical to set forth in this prospectus all aspects of federal, state, local
and foreign tax law which may affect an investment in the Fund. Furthermore, the
54
discussion of various aspects of federal, state, local and foreign taxation
contained herein is based on the Internal Revenue Code, existing laws, judicial
decisions and administrative regulations, rulings and practice, all of which are
subject to change. Each prospective investor should consult his own tax counsel
to satisfy himself as to the tax consequences of his investment.
The Fund's management will prepare its income tax information returns. The
Fund will make a number of decisions on such tax matters as the expensing or
capitalizing of particular items, the proper period over which capital costs may
be depreciated or amortized, the allocation of acquisition costs between
equipment and management fees, and other similar items. Such matters will be
handled by the Fund. Tax counsel to the Fund will not prepare or review the
Fund's income tax information returns.
Opinion of Derenthal & Dannhauser
Derenthal & Dannhauser has reviewed this section of the prospectus.
Derenthal & Dannhauser has rendered its opinion that, to the extent the
summaries of federal income tax consequences to the investors set forth in this
section involve matters of law, such statements are accurate in all material
respects under the Internal Revenue Code, the Treasury Regulations and existing
interpretations thereof, and such statements address fairly the principal
aspects of each material federal income tax issue relating to an investment in
Units.
The opinion of Derenthal & Dannhauser is based upon the facts described in
this prospectus, ATEL's representation of facts to Derenthal & Dannhauser, and
the assumption that the Fund will operate its business as described in this
prospectus. Any alteration of the facts may adversely affect the opinion
rendered.
Each prospective investor should note that the opinion described herein
represents only Derenthal & Dannhauser's best legal judgment. It has no binding
effect or official status of any kind. The Fund has not requested an IRS ruling
on any matter. There can be no assurance that the IRS will not challenge any of
Derenthal & Dannhauser's opinions.
Treasury Regulations impose standards regarding tax shelter opinions. For
this purpose, a tax shelter is an investment that has, as a significant or
intended feature, the generation of tax losses or tax credits to shelter taxable
income or tax liability from other sources. The Fund is not a tax shelter within
that meaning. Derenthal & Dannhauser's opinion does not follow the standards
applicable to tax shelters opinions.
There are certain issues upon which Derenthal & Dannhauser cannot express
an opinion because:
-- the issue is subject to facts that are not presently known and cannot
readily be determined,
-- the issue is subject to future events, or
-- there is insufficient judicial or other authority upon which a
conclusive opinion can be based.
Classification as a Partnership
ATEL has represented that the Fund will not elect to be treated as a
corporation for federal income tax purposes. If not, under the check-the-box
rules the Fund will be classified as a partnership and not an association
taxable as a corporation for federal income tax purposes. The check-the-box
rules are Treasury Regulations issued under Internal Revenue Code Section 7701.
Accordingly, the treatment of the Fund as a partnership for federal income tax
purposes is based upon the present provisions of the Internal Revenue Code and
the Treasury Regulations, which are subject to change. If those provisions were
to be amended, it is possible that the Fund would not qualify as a partnership.
Notwithstanding the preceding, if Units are considered publicly traded the
Fund will be treated as a corporation under the publicly traded partnership
provisions of Internal Revenue Code Section 7704. The Fund will be treated as
publicly traded if Units are traded on an established securities market, or
readily tradable on a secondary market or the substantial equivalent thereof. An
55
established securities market includes a securities exchange as well as a
regular over-the-counter market. Treasury Regulations under Internal Revenue
Code Section 7704 state that a secondary market for an entity's interests
generally is indicated by the existence of a person standing ready to make a
market in the interests, or where the holder of an interest has a readily
available, regular and ongoing opportunity to sell or exchange his interest
through a public means of obtaining or providing information on offers to buy,
sell or exchange interests. Complicity or participation of the entity is
relevant in determining whether there is public trading of its interests. A
partnership will be considered as participating in public trading where trading
in its interests is in fact taking place and the partnership's governing
documents impose no meaningful limitation on the holders' ability to readily
transfer their interests. A partnership's right to refuse to recognize transfers
is not a meaningful limitation unless such right actually is exercised.
Whether the Units will become readily tradable on a secondary market or the
substantial equivalent thereof cannot be predicted with certainty. The Units
will not be deemed readily tradable on a secondary market or the substantial
equivalent thereof if any of the safe harbors included in the Treasury
Regulations is satisfied. One of these is the 2% safe harbor. If the sum of the
interests in Fund capital or profits that are sold or otherwise transferred
during a tax year does not exceed 2% of the total interests in capital or
profits, then a secondary market or its equivalent in Units will not exist.
Neither the Fund nor ATEL will have any control over an independent third
person establishing a secondary market in Units. However, the Fund's operating
agreement requires that an investor obtain the consent of ATEL prior to any
transfers of Units. ATEL intends to exercise its discretion in granting and
withholding its consent to transfers so as to fall within the parameters of the
2% safe harbor. If the Fund complies with the 2% safe-harbor provision of the
Treasury Regulations, Derenthal & Dannhauser is of the opinion that the Fund
will not be considered a publicly traded partnership.
If the Fund were treated for federal income tax purposes as a corporation
in any year, (i) instead of there being no tax at the Fund level, the Fund would
be required to pay federal income taxes upon its taxable income; (ii) state and
local income taxes could be imposed on the Fund; (iii) losses of the Fund would
not be reportable by the investors on their personal income tax returns; (iv)
any distributions would be taxable to an investor as (a) ordinary income to the
extent of current or accumulated earnings and profits, and (b) gain from the
sale of the investor's Units to the extent any distribution exceeded such
earnings and profits and the tax basis of such Units; (v) distributions would be
classified as portfolio income which would not be available to offset passive
activity losses. See "Limitation on Deduction of Losses -- Passive Loss
Limitation" below. Also, a change in status from a partnership to a corporation
could result in taxable income to an investor. The amount of taxable income
would equal his share of the liabilities of the Fund over the adjusted basis of
his Units.
Any of the foregoing would substantially reduce the effective yield on an
investment in Units.
The following discussion is based upon the assumption that the Fund will be
classified as a partnership for federal income tax purposes.
Allocations of Profits and Losses
In general, a partner's distributive share of partnership income, gain,
deduction or loss will be determined in accordance with the operating or
partnership agreement. However, if such allocations do not have substantial
economic effect, distributive shares will be determined in accordance with the
partners' interests in the partnership.
An allocation has economic effect under the Treasury Regulations if: (i)
each partner's share of partnership items is reflected by an increase or
decrease in the partner's capital account; (ii) liquidation proceeds are
distributed in accordance with capital account balances; and (iii) any partner
with a capital account deficit following the distribution of liquidation
proceeds is required to restore such deficit.
An allocation can have economic effect even if a partner is not required to
restore a deficit balance in his capital account, but only (i) to the extent the
allocation does not reduce his capital account balance below zero; and (ii) if
the operating or partnership agreement contains a qualified income offset. An
56
agreement contains a qualified income offset if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution that reduces his
capital account below zero will be allocated income or gain in an amount and
manner sufficient to eliminate his deficit capital account balance as quickly as
possible.
Special rules apply to the allocation of deductions attributable to
nonrecourse debt. Such allocations will be respected under the Treasury
Regulations if the partners who are allocated the deductions bear the burden of
the future income related to the previous deductions. In particular, the
following additional elements must be satisfied: (i) the operating or
partnership agreement must provide for allocations of nonrecourse deductions in
a manner consistent with allocations of some other significant partnership item
related to the property securing the nonrecourse debt, provided such other
allocations have substantial economic effect; (ii) all other material
allocations and capital account adjustments under the operating or partnership
agreement are recognized under the Treasury Regulations, and (iii) the operating
or partnership agreement contains a minimum gain chargeback.
A minimum gain chargeback provides that, if there is a net decrease in
partnership minimum gain during a tax year, all partners will be allocated items
of partnership income and gain in proportion to, and to the extent of, an amount
equal to the portion of such partner's share of the net decrease in partnership
minimum gain. The amount of partnership minimum gain is determined by computing
the amount of gain, if any, that would be realized by the partnership if it
disposed of the property subject to the nonrecourse liability in full
satisfaction thereof.
The Fund's operating agreement prohibits losses from being allocated to an
investor that would cause a deficit capital account in excess of the investor's
share of Fund minimum gain. Nonrecourse deductions will be allocated in the same
manner as operating profits and losses. The operating agreement contains a
minimum gain chargeback provision and a qualified income offset provision that
are intended to comply with the provisions of the Treasury Regulations. The
operating agreement provides that capital accounts will be maintained in
accordance with the provisions of the Treasury Regulations. The operating
agreement also provides that proceeds on liquidation will be distributed in
accordance with positive capital account balances. Therefore, Derenthal &
Dannhauser is of the opinion that it is more likely than not that the
allocations included in the operating agreement would not be significantly
modified if challenged by the IRS.
The economic effect of the Fund allocations also must be "substantial." The
meaning and scope of the substantiality requirements under the Treasury
Regulations are unclear at this time. Based on current Treasury Regulations,
Derenthal & Dannhauser does not believe the Fund allocations present any
material substantiality issues. Consequently, as stated above, Derenthal &
Dannhauser is of the opinion that it is more likely than not that the Fund's
allocations would not be significantly modified by the IRS. However, no
assurance can be given that the IRS will not disagree. If the IRS were
successful in challenging the Fund's allocations, the investors' shares of tax
loss could decrease or their shares of taxable income could increase.
Income Recognition
The Fund will prepare its tax returns using the accrual method of
accounting. Under the accrual method, the Fund will include in income items such
as interest and rentals as and when earned by the Fund, whether or not received.
Thus, the Fund may be required to recognize income sooner than would be the case
under the cash receipts and disbursements method of accounting.
Some leases provide for varying rental payments over the years. Section 467
of the Internal Revenue Code can require a lessor to take such rental payments
into income as if the rent accrued at a constant level rate. This provision
applies to certain sale-leaseback transactions and certain long-term leases.
Certain of the Fund's leases may provide for varying rental payments. If so,
Section 467 requires the Fund to accrue the rental payments on such leases at a
constant level rate. This could result in investors receiving increased
allocations of taxable income or reduced allocations of loss in earlier years,
without any increase in distributions until subsequent years. An additional
consequence could be a conversion of a portion of the Fund's rental income from
any such lease to interest income. Rental income generally constitutes passive
income. Interest income generally constitutes portfolio income. See "Limitation
on Deduction of Losses -- Passive Loss Limitation."
57
Taxation of Investors
As long as the Fund is treated as a partnership for federal income tax
purposes, it will not be subject to any federal income taxes. Nonetheless, the
Fund will file federal partnership information tax returns for each calendar
year.
Each investor will be required to report on his own federal income tax
return his share of Fund items of income, gain, loss, deduction or credit. An
investor will be subject to tax on his distributive share of Fund income whether
or not any distribution is made to him.
If the amount of a distribution to an investor for any year exceeds the
investor's share of the Fund's taxable income for the year, the excess will
constitute a return of capital. A return of capital is applied first to reduce
the tax basis of the investor's Units. Any amounts in excess of such tax basis
generally will be taxable as a gain from the sale of a capital asset. However,
all or a portion of a distribution to an investor in exchange for:
(i) an interest in inventory items which have substantially appreciated in
value, or
(ii) unrealized receivables
will generally result in the receipt of ordinary income. The terms inventory
items and unrealized receivables are specially defined for this purpose. The
term unrealized receivables includes depreciation recapture.
Limitation on Deduction of Losses
There are limitations on an investor's ability to deduct his distributive
share of Fund losses. Among them are: (i) losses will be limited to the extent
of the investor's tax basis in his Units; (ii) losses will be limited to the
amounts for which the investor is deemed at risk; and (iii) losses will be
limited to the investor's income from passive activities. Deduction of losses
attributable to activities not engaged in for profit also are limited.
Tax Basis. Initially, an investor's tax basis for his Units will be equal
to the price paid for the Units. Each investor will increase the tax basis for
his Units by (i) his allocable share of the Fund's taxable income, and (ii) any
increase in his share of the Fund's nonrecourse liabilities, and will decrease
the tax basis for his Units by
-- his allocable share of the Fund's tax loss,
-- the amount of any distributions, and
-- any reduction in his share of Fund nonrecourse liabilities.
If the tax basis of an investor should be reduced to zero, the amount of any
distributions and any reduction in Fund nonrecourse liabilities will be treated
as gain from the sale or exchange of the investor's Units.
Subject to the other limitations discussed below, on his own federal income
tax return an investor may deduct his share of the Fund's tax loss to the extent
of the tax basis for his Units. Fund losses which exceed his tax basis may be
carried over indefinitely and, subject to the limitations discussed below,
deducted in any year to the extent his tax basis is increased above zero.
At Risk Rules. Under Internal Revenue Code Section 465, the amount of
losses which may be claimed by an individual or a closely-held corporation from
equipment leasing activities cannot exceed the amount which the investor has at
risk with respect to such activities. A closely-held corporation is a
corporation more than 50% of which is owned directly or indirectly by not more
than five individuals.
The amount at risk is generally equal to the sum of money invested in the
activity. In addition, an investor will be at risk with respect to any qualified
nonrecourse financing used in the investment. An investor's at risk amount will
be decreased by his share of Fund losses and distributions. An investor's at
risk amount will be increased by his share of Fund income.
The total amount of money paid by each investor for his Units will be
considered at risk. Fund indebtedness is not expected to be considered at risk.
Accordingly, an investor will only be able to deduct his share of Fund losses
under the at risk rules in an amount equal to the purchase price of his Units,
58
as adjusted for Fund income, losses and distributions. Any losses in excess of
an investor's at risk amount will be treated as a deduction in succeeding
taxable years, again subject to the at risk limitations. An investor must
recapture previously allowed losses if the investor's amount at risk at the end
of the year is reduced below zero.
Even if an investor can claim Fund losses under the at risk rules, the
investor is still subject to the other limits on deduction discussed herein.
Under the Internal Revenue Code, the Fund will be permitted to aggregate
its equipment leasing activities only with respect to equipment placed in
service during the same taxable year. This could limit an investor's deduction
for losses with respect to certain equipment, even though the investor must
recognize income with respect to other equipment.
Passive Loss Limitation. Internal Revenue Code Section 469 limits the
amount of losses that individuals and certain other taxpayers may claim from an
activity in which the taxpayer does not materially participate. Under this
limitation, net losses from a passive activity may only be deducted against net
income from passive activities. Passive activity losses may not be used to
offset compensation income or other forms of active income. Also, passive
activity losses may not be used to offset interest, dividends and other forms of
portfolio income.
To the extent the Fund enters into true leases for Federal income tax
purposes, the equipment leasing activities of the Fund will be passive
activities. See "Tax Status of Leases" below in this section. Fund losses from
passive activities are considered to be passive activity losses. Most investors
will only be able to deduct their share of Fund passive activity losses to the
extent they have passive income from other sources. Any excess Fund passive
activity losses will be suspended and carried forward indefinitely. Suspended
passive activity losses may be used to offset passive activity income in future
years. Suspended passive activity losses also may be claimed in full against all
types of income if an investor disposes of all of his Units in a fully taxable
transaction to an unrelated person.
The Fund will have portfolio income:
-- to the extent its investments constitute financing leases or secured
loans, rather than true leases, and
-- to the extent of any dividends it receives from equity interests in
growth capital lease investments.
The Fund's receipt of the equity interests themselves may constitute a taxable
event. The income therefrom could be passive or portfolio, depending upon the
circumstances. Therefore, investors may be required to recognize taxable
portfolio income and pay tax thereon in years in which they also are allocated
passive losses which cannot be used by them. Counsel has rendered no opinion
regarding the classification of financing leases, secured loans or equity
interests.
The passive loss limitation is applied after the at risk limitation. Thus,
if a loss is disallowed under the at risk rules for a particular year, it will
not again be disallowed by the passive loss limitation for such year. Rather,
for the year in which the investor becomes at risk in the activity, the
suspended at risk loss will become subject to the passive loss limitation.
Hobby Losses. Section 183 of the Internal Revenue Code limits deduction of
losses from activities not engaged in for profit. Whether an activity is engaged
in for profit is based on the facts and circumstances from time to time.
Although one of the objectives of the Fund is to provide investors with
distributions, there can be no assurance that the Fund will be deemed to be
engaged in an activity for profit. It is conceivable that the IRS may assert
that the Fund is not engaged in an activity for profit. Prospective investors
should consult their own tax advisers regarding the impact of Internal Revenue
Code Section 183 on their particular situations.
Tax Status of Leases
Whether a specific lease is categorized as a lease rather than as a sale or
a financing for federal income tax purposes involves a factual determination.
Accordingly, no assurance can be given that the Fund's leases of equipment will
59
be treated as leases by the IRS. If they are treated as sales or financings
rather than leases, the Fund and the investors would not be entitled to cost
recovery deductions with respect to such leases. On the other hand, a portion of
the lease rental payments would be deemed to constitute amortization of such
financing or sales proceeds which would not be taxable to the Fund.
The Fund does not intend to apply to the IRS for a ruling that any leases
of equipment will be treated as leases for federal income tax purposes. No
opinion of counsel has been rendered in this regard.
Cost Recovery
MACRS. Under the Modified Accelerated Cost Recovery System, the cost of
depreciable personal property placed in service after 1986 may be recovered
using specified recovery methods over specified recovery periods.
Under MACRS the cost of most recovery property is recovered using the 200%
declining balance method. For some recovery property, the 150% declining balance
method is utilized. The recovery periods generally range from three to 20 years.
The Internal Revenue Code contains provisions to prevent taxpayers from
utilizing MACRS on property placed in service prior to January 1, 1987. The cost
of such property is recovered under the Accelerated Cost Recovery System in
effect prior to 1987. In such cases, cost recovery deductions could be less in
the early years and greater in later years than the cost recovery deductions
allowable under MACRS.
The amount by which cost recovery deductions using the 200% declining
balance method exceeds the amount that would have been allowed using the 150%
declining balance method will be an item of tax preference. See "Alternative
Minimum Tax."
Recapture. All cost recovery deductions claimed by Fund investors will be
subject to recapture at ordinary income rates upon the disposition of the
equipment or the investor's Units.
Limitations on the Use of MACRS. Under certain circumstances, in addition
to those set forth above, a taxpayer is required to recover the cost of property
over a period longer than its MACRS recovery period. These circumstances
include:
-- property used predominantly outside the United States,
-- property used by a foreign or tax-exempt entity, and
-- property owned by a partnership which has both a tax-exempt entity and
a person who is not a tax-exempt entity as holders, unless certain
exceptions apply.
Tax Consequences Respecting Equity Interests
The Internal Revenue Code includes a myriad of rules respecting the tax
treatment of stock, stock options, stock warrants and similar items. A
discussion of those provisions is beyond the scope of this prospectus. Investors
should consult with their own tax advisors if they desire more information in
that regard.
The Fund will have taxable income on the receipt of cash lease payments.
Similarly, the Fund could have taxable income on the receipt of equity
interests. However, the Fund's receipt of equity interests will not provide cash
for distribution to the investors. Any tax liability would be paid from an
investor's own funds.
Whether the Fund's receipt of equity interests will result in income
recognition will depend upon various factors, including
-- whether or not the transfer of the equity interests by the Fund is
subject to restriction, and
-- the nature of the equity interests. For example, the receipt of
marketable stock for no payment would almost always result in the
recognition of income.
60
These factors will also determine the amount of income, if any, and its
character for purposes of the passive activity rules. See "Limitation on
Deduction of Losses -- Passive Loss Limitation" above.
The Fund's exercise of stock options, warrants and similar securities could
result in the recognition of income.
No opinion of counsel has been rendered with regard to the tax treatment of
equity interests.
Deductibility of Management Fees
The Fund will pay asset management fees for services to be rendered by
ATEL. The Fund intends to deduct the asset management fees. It is possible that
the IRS may challenge the deductibility of all or a portion of the asset
management fees on the basis that
-- the amount thereof is excessive,
-- all or a portion thereof is payment for other services performed by, or
other value provided by, the recipient thereof, or
-- payments for such services is not deductible.
If such a challenge by the IRS were successful, the asserted deductions would be
reduced or eliminated.
Tax Liabilities in Later Years
It is possible that after some years of Fund operations an investor's tax
liabilities may exceed cash distributions to him in corresponding years. Such a
situation would typically arise if the Fund's nondeductible loan amortization
payments on its equipment exceeded its depreciation deductions. It is possible
in such a situation that an investor's tax liabilities could exceed cash
distributions. If so, such excess would be a nondeductible out-of-pocket expense
to an investor. Based on historical experience with similar programs, ATEL does
not believe these events are likely to occur.
Sales or Exchanges of Fund Equipment
On the disposition of equipment, the Fund will realize gain in an amount
equal to the proceeds received minus the basis in the equipment. As a result of
cost recovery deductions, most equipment is expected to have a zero basis.
Proceeds received includes any debt assumed by the transferee.
Gain realized by the Fund on a disposition of equipment will be taxed as
ordinary income to the extent of prior cost recovery deductions taken by the
Fund on the equipment. Unless the Fund is a dealer in the property sold, any
other gain generally will be treated as capital gain.
A dealer is one who holds property primarily for sale to customers in the
ordinary course of business. Whether property is so held as dealer property
depends upon all of the facts and circumstances of the particular transactions.
The Fund intends:
-- to purchase equipment for investment only,
-- to engage in the business of owning and operating such equipment, and
-- to make occasional sales thereof.
Accordingly, the Fund does not anticipate that it will be treated as a dealer
with respect to any of its equipment. However, there is no assurance that the
IRS will not take the contrary position.
As stated above, the Fund's gain on a disposition of equipment will be
measured by the difference between the disposition proceeds, and the Fund's
basis in the equipment. Disposition proceeds include the amount of any debt
encumbering the property. Consequently, the amount of tax payable by an investor
61
as a result of the disposition may exceed his share of the cash proceeds
therefrom. In the event of a foreclosure of a debt on equipment owned by the
Fund, the Fund would realize gain equal to the excess of such indebtedness over
its adjusted tax basis of the equipment. In such event the investors would
realize taxable income although they may not receive any cash distributions as a
result of the foreclosure.
Disposition of Units
The amount of gain which an investor will realize upon the disposition of
his Units will equal the excess of
-- the amount realized by the investor, over
-- the investor's tax basis in the Units.
Conversely, the amount of loss which an investor will realize upon the
disposition of his Units will equal the excess of
-- the investor's tax basis, over
-- the amount realized for the Units.
The amount realized on the sale of the Units will include the investor's share
of any Fund liabilities. As a result, a disposition of Units may result in a tax
liability in excess of the cash proceeds.
Such gain or loss generally will be capital gain or loss. In the case of an
individual, any such gain will be subject to tax at a maximum rate of 20%, if
the Units have been held for more than 12 months. However, any gain realized on
the disposition of a Unit by an investor which is attributable to unrealized
receivables or inventory items will be taxed at ordinary income rates.
Unrealized receivables would include the investor's share of previous Fund cost
recovery deductions. An investor must recognize such cost recovery recapture in
the year of disposition, regardless of the amount of proceeds received in the
year of disposition.
Liquidation of the Fund
The operating agreement provides that on liquidation of the Fund its assets
will be sold. The sale proceeds will be distributed pursuant to the terms of the
operating agreement. Each investor will realize his share of the gain or loss on
the sale of Fund assets. In addition, each investor will recognize gain or loss
measured by the difference between the cash he receives in liquidation and the
adjusted tax basis of his Units. The cash an investor receives will include the
cash constructively received as a result of relief of liabilities. Gain or loss
recognized generally will constitute capital gain or loss. However, gain
attributable to the recapture of cost recovery deductions will be taxable as
ordinary income. See "Sales or Exchanges of Fund Equipment." It is anticipated
that all or substantially all of any gains will be attributable to such
deductions and taxed as ordinary income.
Fund Elections
Section 754 of the Internal Revenue Code permits an entity such as the Fund
to elect to adjust the tax basis of its property
-- upon the transfer of units by sale or exchange or on the death of a
holder, and
-- upon the distribution of property by the fund to a holder.
This is known as a Section 754 election. If the Fund were to make such an
election, then transferees of Units would be treated, for the purpose of
depreciation and gain, as though they had acquired a direct interest in Fund
assets.
A Section 754 election is complex. A Section 754 election increases the
expense of tax accounting. As a result, ATEL does not intend to cause the Fund
to make a Section 754 election. If not, then an investor may have greater
difficulty in selling his Units.
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The Internal Revenue Code includes other elections. The Fund may make
various elections for federal tax reporting purposes which could result in
various items of income, gain, loss, deduction and credit being treated
differently for tax purposes than for accounting purposes.
Treatment of Gifts of Units
Generally, no gain or loss is recognized for federal income tax purposes as
a result of a gift of property. There are exceptions to the general rule. If a
gift of a Unit were made at a time when the investor's allocable share of the
Fund's nonrecourse indebtedness exceeded the adjusted tax basis of his Unit,
such investor would realize gain for federal income tax purposes upon the
transfer of such Unit to the extent of such excess. A charitable contribution of
Units also would result in income or gain to the extent that the transferor's
share of nonrecourse liabilities exceeded the adjusted tax basis in his Units.
Gifts of Units may also result in gift tax liability pursuant to the rules
applicable to all gifts of property.
Investment by Qualified Retirement Plans and IRAs
Qualified pension, profit-sharing, stock bonus plans, Keogh Plans and IRAs
are generally exempt from taxation. A qualified retirement plan or an IRA will
have tax liability to the extent that its unrelated business taxable income
exceeds $1,000 during any fiscal year. Unrelated business taxable income is
determined in accordance with Sections 511-514 of the Internal Revenue Code. The
Fund will be engaged in the business of equipment leasing. The share of a
qualified retirement plan or an IRA of the Fund's business income will
constitute unrelated business taxable income. A qualified retirement plan or IRA
will be required to report its pro rata share of the Fund's business income as
unrelated business taxable income if and to the extent that the investor's
unrelated business taxable income from all sources exceeds $1,000 in any taxable
year.
A portion of the gain from the sale of equipment subject to acquisition
indebtedness also will be included in the unrelated business income of a
tax-exempt entity. Indebtedness is acquisition indebtedness if it was incurred
directly or indirectly in connection with the acquisition or improvement of the
equipment. In addition,
-- gain which is characterized as ordinary income due to the recapture of
cost recovery, or
-- gain from equipment which is inventory or property held primarily for
sale to customers in the ordinary course of a trade or business
will be unrelated business taxable income.
If a qualified retirement plan or IRA has unrelated business taxable income
in excess of $1,000 for any year,
-- it is subject to income tax on the excess, and
-- it is obligated to file a tax return for such year.
Any tax due should be paid directly from the tax-exempt entity. Payment of the
tax by the beneficiary could have other adverse tax consequences.
All tax-exempt entities are urged to obtain the advice of a qualified tax
advisor on the effect of an investment in Units.
Individual Tax Rates
General. The highest individual tax rate currently is 39.6%. The benefits
of personal exemptions are phased out for taxpayers with an adjusted gross
income over certain thresholds. Further, otherwise allowable itemized deductions
are reduced by an amount equal to 3% of a taxpayer's adjusted gross income over
certain thresholds. Such deductions may not be reduced by more than 80%.
63
Capital Gains and Losses. The excess of net long-term capital gains over
short-term capital losses is referred to in the Internal Revenue Code as net
capital gain. Net capital gain of individuals is taxed at a 28% maximum rate.
Capital losses of individuals may offset capital gains plus only $3,000 of
ordinary income in a year. Capital losses of corporations may offset capital
gains only. Any remaining capital loss may be carried forward indefinitely.
Two Percent Floor on Miscellaneous Itemized Deductions. Noncorporate
investors may deduct itemized expenses only to the extent they exceed 2% of
adjusted gross income. Itemized deductions include expenses paid or incurred
-- for the production or collection of income,
-- for the management, conservation, or maintenance of property held for
the production of income, or
-- in connection with the determination, collection or refund of a tax.
Alternative Minimum Tax
In addition to the regular income tax, the Internal Revenue Code includes
an alternative minimum tax for noncorporate and corporate taxpayers. The base
upon which the alternative minimum tax is imposed is equal to
-- the taxpayer's taxable income,
-- subject to alternative minimum tax adjustments,
-- increased by items of tax preference, and
-- reduced by an exemption,
all as described below.
Under the alternative minimum tax, depreciation deductions on personal
property are computed using the 150% declining balance method rather than the
200% declining balance method. A less favorable net operating loss deduction is
used in lieu of the regular tax net operating loss deduction.
The itemized deductions allowable in computing alternative minimum taxable
income include the following:
-- charitable contributions,
-- medical deductions in excess of 10% of adjusted gross income,
-- casualty losses,
-- interest on personal housing, and
-- other interest to the extent of net investment income.
No standard deduction is allowed, but an exemption amount is available as
discussed below.
The Internal Revenue Code eliminates an incentive for married taxpayers to
file separate returns by increasing the amount of alternative minimum taxable
income by the lesser of:
-- 25% of the excess of alternative minimum taxable income over $165,000,
or
-- $22,500.
For corporations, the Internal Revenue Code requires an addition to taxable
income of 75% of the amount by which adjusted current earnings exceeds
alternative minimum taxable income.
In addition to the adjustments described above, alternative minimum taxable
income is increased by the amount of items of tax preference. Tax preferences
include excess depletion deductions, excess intangible drilling costs,
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tax-exempt interest, and the difference between the fair market value and the
exercise price of stock acquired by exercise of an incentive stock option. No
deduction is allowed for losses from a tax shelter farm activity.
Tax credits cannot be used to offset alternative minimum tax. Any excess
tax credits are first carried back one year and then forward 20 years.
The alternative minimum tax for individuals is equal to:
-- 26% of so much of the taxable excess as does not exceed $175,000, plus
-- 28% of so much of the taxable excess as exceeds $175,000.
For this purpose, taxable excess means the amount by which alternative minimum
taxable income exceeds the exemption amount. The exemption amount is:
-- $45,000 for a married couple filing a joint return or a surviving
spouse,
-- $33,750 for a single individual, and
-- $22,500 for a married individual filing a separate return or for an
estate or trust.
However, the exemption is reduced by 25% of the amount by which the
alternative minimum taxable income exceeds:
-- $150,000 in the case of a married couple filing a joint return,
-- $112,500 in the case of a single individual, and
-- $75,000 in the case of a married individual filing a separate return
or for an estate or trust.
The corporate alternative minimum tax is the amount, if any, by which:
-- 20% of the excess of
-- the corporation's alternative minimum taxable income, over
-- the exemption amount, exceeds
-- the corporation's regular tax for the year.
The corporate exemption amount is $40,000. However, this exemption is reduced by
25% of the amount by which alternative minimum taxable income exceeds $150,000.
The corporate alternative minimum tax does not apply to corporations which have
elected to be subject to Subchapter S of the Internal Revenue Code. Rather, the
alternative minimum tax applies to the shareholders of an S corporation.
The corporate alternative minimum tax has been repealed for small business
corporations. A corporation that had average annual gross receipts of less than
$5,000,000 for the three-year period beginning after December 31, 1993 is a
small business corporation for its first taxable year beginning after December
31, 1997. A corporation that meets the $5,000,000 gross receipts test will
continue to be treated as a small business corporation so long as its average
gross receipts do not exceed $7,500,000.
Because the impact of the alternative minimum tax is dependent upon each
investor's particular tax situation, each prospective investor is urged to
consult his own tax adviser as to the effect an investment in the Fund will have
on the calculation of his alternative minimum tax liability.
Fund Tax Returns and Tax Information
The Fund will use the accrual method of accounting. The Fund will adopt the
calendar year as its tax year. The Fund's operating agreement requires the Fund
to provide tax information to the investors within 75 days after the close of
each Fund tax year. Some investors may be required to file their tax returns on
or before March 15. If so, they may have to obtain an extension to file.
65
Each investor must file his tax return either
-- consistently with the information provided on the Fund's informational
return or
-- in a manner which notifies the IRS of any inconsistency.
Otherwise, the IRS could automatically assess and collect the tax, if any,
attributable to the inconsistent treatment.
An investor will be required to inform the Fund of the sale or exchange of
his Units within the earlier of
-- 30 days of the transaction, or
-- January 15 of the calendar year following the calendar year in which the
transaction occurs.
The Fund will be required to inform the IRS of each such transfer. The failure
of an investor or of the Fund to file these notices may result in substantial
penalties. The Fund also must inform both the seller and the buyer of Units of
the proportionate interest of the transferred Units in the unrealized
receivables and inventory items of the Fund. This notification must be made
prior to February 1 of the calendar year following the calendar year in which
the transaction occurs.
Interest and Penalties
Document and Information Return Penalties. Three separate and distinct
categories of penalties apply to information returns and payee statements, as
follows:
-- a penalty for failing to file an information return or to include
correct information therein. An example is Form 8308, which a
partnership must file upon a transfer of its partnership interests;
-- a penalty for failing to file a payee statement or to include correct
information on a payee statement. An example is Schedule K-1, which a
partnership must provide annually to each partner; and
-- a penalty for failure to comply with other information reporting
requirements. An example is the requirement that a transferor must give
notice to a partnership concerning the exchange of an interest in the
partnership.
The penalties in this category differ in amount. It is possible that a
filer might reduce or avoid some of the penalties by filing corrected returns
within specific time limits, or if the omissions and inaccuracies are
inconsequential. On the other hand, the penalties may be increased if the
failure to comply is due to intentional disregard.
Accuracy-Related and Fraud Penalties. The penalty for an inaccurate tax
return is equal to 20% of the portion of an underpayment resulting from one or
more of the following:
-- negligence or disregard of the rules and regulations,
-- any substantial understatement of income tax,
-- any substantial valuation overstatement,
-- any substantial overstatement of pension liabilities, and
-- any substantial estate or gift tax valuation understatement.
A substantial understatement of income tax exists if the amount of the
understatement exceeds the greater of 10% of the tax required to be shown, or
$5,000. The $5,000 is increased to $10,000 for most corporations.
A substantial valuation overstatement exists if:
-- the value or adjusted basis of any property is 200% or more of the
amount determined to be the correct value or adjusted basis, or
66
-- the price for services or property in transactions between affiliated
entities is 200% or more of the current price.
In the case of a gross overstatement, the penalty is increased to 40%. In no
event will a penalty be imposed unless the underpayment exceeds $5,000. The
$5,000 figure is increased to $10,000 for most corporations. A gross
overstatement occurs when the value or adjusted basis or price is 400% or more
of the correct amount.
Any portion of an understatement which is attributable to fraud is subject
to a penalty at the rate of 75% of the understatement. The 20% accuracy-related
penalty will not apply to any portion of an understatement subject to the fraud
penalty.
Audit of Tax Returns
The IRS could audit the Fund's tax information returns. Any such audit
could result in the audit of an investor's tax return. An audit of an investor's
return could result in adjustments to items related to the Fund as well as items
not related to the Fund.
The Internal Revenue Code treats a partnership as a separate entity for
purposes of audit, settlement and judicial review. Thus, the IRS may audit and
make a single determination of the propriety of a partnership's treatment of
partnership tax items at the partnership level. In general, a partnership's tax
matters partner represents the partnership and its partners in the event of an
audit of the partnership's tax returns. ATEL is the Fund's tax matters partner.
All partners are nevertheless entitled to participate in an audit and each
partner may enter into a settlement agreement on his own behalf with the IRS.
If the IRS proposes any adjustments to the tax returns filed by the Fund or
an investor, substantial legal and accounting expenses and deficiency interest
and penalties may be incurred. The Fund will not bear any expense that may be
incurred by an investor in connection with:
-- the investor's participation in an audit of the Fund,
-- the audit of his tax returns, or
-- the determination or redetermination of his tax liability even though
resulting solely from adjustments to the Fund's tax returns.
Registration Provisions
Sections 6111 and 6112 of the Internal Revenue Code require
-- registration of tax shelters and
-- the maintenance of lists of investors participating in tax shelter
investments.
Under Section 6111, anyone who organizes a tax shelter must register such
shelter with the IRS. To determine if an entity is a tax shelter as to any
investor, the following ratio is computed:
-- the sum of the aggregate gross deductions and 350% of the credits
potentially allowable, to
-- the aggregate of the cash invested and the adjusted basis of other
property contributed by the investor, reduced by any liability to which
the property is subject.
A tax shelter is any investment as to which a person could reasonably infer that
the foregoing ratio is greater than two to one as of the close of any of the
first five years.
ATEL has determined that the Fund is not expected to generate a tax shelter
ratio of greater than two to one. Based on this determination, ATEL will not
register the Fund as a tax shelter.
67
Miscellaneous Fund Tax Aspects
-- Fees for the syndication of the Fund must be permanently capitalized.
-- Fund organization fees must be capitalized and may be amortized over a
five-year period.
-- Fund start-up expenditures must be capitalized and may be amortized
over a period of 60 months, beginning with the date on which the
business begins.
Foreign Tax Considerations for U.S. Investors
As noted above, the Fund may acquire equipment which is operated outside
the United States. If so, investors may be required to file returns and pay
taxes in foreign jurisdictions with respect to the income from such equipment.
The income taxed by the foreign jurisdiction would be calculated according to
the tax laws of the foreign jurisdiction. These tax laws may or may not
correspond with applicable United States standards.
Investors who have foreign tax liabilities as a result of the purchase of
Units may be entitled to a credit or a deduction for foreign taxes on their U.S.
tax returns. The calculation of the foreign tax credit is quite complex. No
assurance can be given that a credit or a deduction will be available. For
example, a taxpayer generally cannot claim a credit for taxes on foreign source
income in an amount greater than the taxes which would have been due had the
taxes been computed under U.S. law. This could result in higher taxes for income
from equipment located in a foreign jurisdiction than income from equipment
located in the U.S. Each investor should consult his own tax advisor regarding
the applicability of foreign taxes to his own situation.
U.S. Taxation of Foreign Persons
Special rules govern the U.S. federal income taxation of
-- nonresident alien individuals,
-- foreign corporations,
-- foreign partnerships, and
-- other foreign investors.
The rules are complex. No attempt is made herein to discuss the relevant rules.
Foreign investors persons should consult their own tax advisors to fully
determine the impact to them of United States federal, state and local income
tax laws.
Future Federal Income Tax Changes
No one can predict what additional legislation, if any, may be proposed by
-- members of Congress
-- the current administration, or
-- any subsequent administration,
No one can predict which proposals, if any, might ultimately be enacted.
Moreover, no one can predict what changes may be made to existing Treasury
Regulations, or what revisions may occur in IRS ruling policies. Any such
changes may have a retroactive effect. Consequently, no assurance can be given
that the federal income tax consequences of an investment in Units will continue
to be as described in this prospectus.
State and Local Taxes
In addition to the federal income tax considerations described above,
prospective investors should consider applicable state and local taxes which may
be imposed by various jurisdictions. An investor's distributive share of the
68
income, gain or loss of the Fund will be required to be included in determining
his reportable income for state or local tax purposes in the jurisdiction in
which he is a resident. Moreover, California and a number of other states in
which the Fund may do business impose taxes on nonresident investors. The tax on
nonresident investors generally is determined with reference to the pro rata
share of Fund income derived from such states. Any tax losses associated with an
investment in the Fund from operations in one state may not be available to
offset income from other sources taxable in a different state.
California and a number of other states have adopted a withholding tax
procedure in order to facilitate the collection of taxes from nonresident and
foreign investors. Any amounts withheld would be deemed to be a distribution to
the investor. The deemed distribution would decrease the amount of any actual
subsequent distribution. Investors may be allowed a credit for the amount
withheld against any income tax imposed by their state of residency. The Fund
cannot estimate the percentage of its income that will be from states which have
adopted such withholding tax procedures. Therefore, the Fund cannot estimate the
required withholding tax, if any.
Estate or inheritance taxes might be payable in any of the jurisdictions
outlined above upon the death of an investor.
Investors may be subject to state tax rules which are less favorable than
federal tax rules.
Need for Independent Advice
The foregoing summary is not intended as a substitute for careful tax
planning. The income tax consequences associated with an investment in the Fund
are complex and certain of them will not be the same for all taxpayers.
Accordingly, each prospective purchaser of Units is strongly urged to consult
his own tax advisors with specific reference to his own tax situation.
ERISA CONSIDERATIONS
Prohibited Transactions Under ERISA and the Code
Section 4975 of the Code (which applies to all Qualified Plans and IRAs)
and Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (which does not apply to IRAs or to certain Qualified Plans
that are not subject to ERISA's fiduciary rules) prohibit Qualified Plans and
IRAs from engaging in certain transactions involving "plan assets" with parties
that are "disqualified persons" under the Code. "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 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, 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 any receipt by a fiduciary of consideration for his or her own
personal account from any party dealing with a Qualified Plan or 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. Section
4975 of the Code imposes excise taxes on a disqualified person that engages in a
prohibited transaction with a Qualified Plan or IRA. Section 408(e)(2) of the
Code provides that an IRA will cease to be an IRA and will be treated as having
immediately distributed all of its assets, if it engages in a prohibited
transaction.
Plan Assets
If the Fund's assets were determined under ERISA or the Code to be "plan
assets" of Qualified Plans and/or IRAs holding Units, fiduciaries of such
Qualified Plans and IRAs might under certain circumstances be subject to
69
liability for actions taken by the Manager or its Affiliates, and certain of the
transactions described in this Prospectus in which the Fund might engage,
including certain transactions with Affiliates of the Fund, might 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, Qualified Plans (other than IRAs) might be
deemed to have delegated their fiduciary responsibility to the Manager 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 from the application of the
"look-through" principle investments in entities in which equity participation
in the entity by benefit plan investors is not significant.
In order to qualify for the exception described above, "benefit plan
investors" must at all times hold less than 25% of the value of any class of
equity interest in the entity. For this purpose, the value of any equity
interests held by a person (other than a "benefit plan investor") who has
discretionary authority or control with respect to the assets of an entity or
any person who provides investment advice for a fee (direct or indirect) with
respect to such assets, or any affiliate of such a person, is disregarded. A
"benefit plan investor" is any of the following:
-- any employee benefit plan (as defined in Section 3(3) of ERISA, which
definition includes Qualified Plans), whether or not it is subject to
the provisions of Title I of ERISA,
-- any plan described in Section 4975(e)(1) of the Code (which description
includes Qualified Plans and IRAs), and
-- any entity (such as a common or collective trust fund of a bank) whose
underlying assets include plan assets by reason of a plan's investment
in the entity.
The sale of Units during this offering and the subsequent transfer of Units will
be limited to the extent that the Manager deems it necessary to qualify for this
exception. Therefore, the Fund's assets should not be "plan assets" of any
Qualified Plan or IRA investor; and no prohibited transaction should occur based
on treatment of the Fund's underlying assets as "plan assets" of Qualified Plan
or IRA investors.
Other ERISA Considerations
In addition to the above considerations in connection with the "plan asset"
question, a fiduciary's decision to cause a Qualified Plan or IRA to acquire
Units should involve, among other factors, considerations that include whether
-- the investment is in accordance with the documents and instruments
governing the Qualified Plan or IRA,
-- the purchase is prudent in light of the potential difficulties that
may exist in liquidating Units,
-- the investment will provide sufficient cash distributions in light of
the Qualified Plan's likely required benefit payments,
-- after an acquisition of Units, the Qualified Plan's investments taken
as a whole are sufficiently diversified so as to minimize the risk of
large losses,
-- the investment is made solely in the interests of plan participants,
and
-- 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.
Prospective Qualified Plan investors should note that, with respect to the
diversification of assets requirement, the legislative history of ERISA and a
Department of Labor advisory opinion indicate that in determining whether the
assets of a Qualified Plan that has invested in an entity such as the Fund are
70
sufficiently diversified, it may be relevant to look through the Qualified
Plan's interest in the entity to the underlying portfolio of assets owned by the
entity, regardless of whether the entity's underlying assets are treated as
"plan assets" for the purpose of ERISA's and the Code's prohibited transaction
and other fiduciary duty rules.
SUMMARY OF THE OPERATING AGREEMENT
The Operating Agreement (attached as Exhibit B) is the governing instrument
establishing the Fund's right under the laws of the State of California to
operate as a limited liability company, and contains the rules under which the
Fund will be operated. The Operating Agreement will be executed on behalf of
each subscriber upon his admission to the Fund by the Manager acting pursuant to
the power of attorney contained in the Subscription Agreement.
The following is a brief summary of certain provisions of the Operating
Agreement. It does not purport to be complete and it is recommended that each
prospective investor review the Operating Agreement carefully in its entirety.
Aspects of the Operating Agreement relating to allocations of Net Income, Net
Loss and Distributions to Holders and reports to the Members are summarized
elsewhere in this Prospectus.
The Duties of the Manager
ATEL Financial Corporation is Manager of the Fund and has the exclusive
management and control of all aspects of the business of the Fund. Affiliates of
the Manager will perform certain equipment acquisition, leasing, management and
disposition services, as well as certain administrative services, for the Fund.
In the course of its management, the Manager may, in its absolute discretion,
acquire, hold title to, sell, re-lease or otherwise dispose of equipment and
interests therein when and upon such terms as it determines to be in the best
interest of the Fund and employ such persons, including Affiliates of the
Manager, as it deems necessary for the efficient operation of the Fund. However,
prior to the sale or other disposition of Substantially All of the Assets of the
Fund in any single 12-month period, except upon liquidation of the Fund, Holders
owning more than 50% of the total outstanding Units must consent to such sale or
other disposition.
Liability of Holders
A Holder's capital is subject to the risks of the Fund's business. He is
not permitted to take any part in the management or control of the business and
he may not be required to contribute additional capital at any time. Under the
California Act, a Holder will not be liable for Fund obligations in excess of
his unreturned capital contribution and share of undistributed profits.
Notwithstanding the foregoing, a Holder will be liable to the Fund in an amount
equal to any Distribution made by the Fund to such Holder to the extent that,
immediately after the Distribution is made, all liabilities of the Fund, other
than liabilities to Members on account of their interest in the Fund and
liabilities as to which recourse of creditors is limited to specified property
of the Fund, exceed the fair value of the Fund assets, provided that the fair
value of any property that is subject to a liability as to which recourse of
creditors is so limited is included in the Fund assets only to the extent that
the fair value of the property exceeds such liability.
Term and Dissolution
The Fund will continue for a maximum period ending December 31, 2020, but
may be dissolved at an earlier date if certain contingencies occur. The Fund
intends to liquidate its assets and distribute the proceeds thereof beginning
after the Reinvestment Period expires (at the end of the sixth full year
following the year during which the Final Closing Date occurs) with final
liquidation expected to occur approximately ten to eleven years after the Final
Closing Date. A Holder may not withdraw from the Fund prior to dissolution, but
may assign his Units to others or may, under certain circumstances, request that
the Fund repurchase his Units. See "Repurchase of Units" below under this
caption. The contingencies whereupon the Fund may be dissolved are as follows:
(a) The Fund becomes insolvent or bankrupt;
71
(b) The removal, adjudication of bankruptcy, insolvency, disability or
incompetence or dissolution or death of a Manager unless (i) there is a
remaining Manager, and the remaining Manager, within 45 days of the date of
such event, elects to continue the business of the Fund or (ii) if, upon
removal of the last remaining Manager, the Members holding in excess of 50%
of the outstanding Units elect a successor Manager prior to the effective
date of removal and such successor Manager elects to continue the business
of the Fund;
(c) An election to dissolve upon the vote of Members owning more than
50% of the total outstanding Units; or
(d) The disposition of all interests in equipment and other assets of
the Fund and the receipt by the Fund of the proceeds of such disposition.
Voting Rights of Members
In any vote of the Members, each Member will be entitled to cast one vote
for each Unit which such Member owns as of the date designated as the record
date for such vote. Notwithstanding the foregoing, Units held by the Manager or
any Affiliate of the Manager will not be entitled to vote, and will not be
deemed to be "outstanding" for purposes of any vote, upon matters which involve
a conflict between the interests of the Manager and the Fund, including, but not
limited to, any vote on the proposed removal or withdrawal of the Manager as
Manager or any proposed amendment to the Operating Agreement which would expand
or extend the rights, authorities or powers of the Manager. The Members have the
right, by vote of Members owning more than 50% of the total outstanding Units,
to vote upon:
(a) Removal or voluntary withdrawal of the Manager;
(b) Election of a successor Manager;
(c) Termination and dissolution of the Fund;
(d) Amendment of the Operating Agreement, provided such amendment is
not for the purpose of reflecting the addition or substitution of Members,
the reduction of Capital Accounts or for any other purposes prohibited
under the Operating Agreement as described below;
(e) The sale or other disposition of Substantially All of the Assets
in a single sale, or in multiple sales in the same twelve-month period,
except in the liquidation and winding up of the business of the Fund upon
its termination and dissolution; and
(f) The extension of the term of the Fund.
Without the consent of the Members to be adversely affected by the
amendment, the Operating Agreement may not be amended so as to
-- convert a Holder into a Manager;
-- modify the limited liability of a Holder;
-- alter the interest of the Members in Net Income, Net Loss and
Distributions; or
-- affect the status of the Fund as a partnership for federal income tax
purposes.
Dissenters' Rights and Limitations on Mergers and Roll-ups
Section 16.7 of the Operating Agreement provides that Members holding not
less than 90% of the outstanding Units must approve any proposal that involves
an acquisition, conversion, merger or consolidation transaction in which the
Holders are issued new securities in the resulting entity. The rights of any
dissenting Holders will be as provided under Section 16.7 and Sections 17600
through 17613 of the California Act. Such provisions generally give a dissenting
Member the right, subject to certain procedural requirements, to require that
the company repurchase the dissenting Member's interest at a price equal to its
fair market value.
72
Meetings
The Manager may at any time call a meeting of the Members or a vote of the
Members without a meeting, on matters on which they are entitled to vote, and
shall call such meeting or for a vote without a meeting following receipt of a
written request therefore of Members holding 10% or more of the total
outstanding Units. Upon such written request of Members holding 10% or more of
the total outstanding Units, such Members may propose a vote by all Members on
any matter on which Members are entitled to vote under the Operating Agreement.
Books of Account and Records
The Manager is responsible for keeping books of account and records of the
Fund reflecting all of the contributions to the capital of the Fund and all of
the expenses and transactions of the Fund. Such books of account and records
will include the following:
(i) A current list of the full name and last known business or
residence address of each Member set forth in alphabetical order together
with the Original Invested Capital, the Units held and the share in Net
Income and Net Loss of each Member;
(ii) A copy of the articles of organization and all amendments;
(iii) Copies of the Fund's federal, state and local income tax or
information returns and reports, if any, for the six most recent taxable
years;
(iv) Copies of the original of the Operating Agreement and all
amendments;
(v) Financial statements of the Fund for the six most recent fiscal
years; and
(vi) The Fund's books and records for at least the current and past
three fiscal years.
Such books of account and records will be kept at the principal place of
business of the Fund in the State of California, and each Member and his
authorized representatives shall have, at all times during reasonable business
hours, free access to and the right to inspect and copy at their expense such
books of account and all records of the Fund. Upon the request of a Member, the
Manager shall promptly deliver to such Member at the expense of the Fund a copy
of the information described in (i), (ii) and (iv) above. In the event a Member
is required to compel the Manager to produce the foregoing records as a result
of the Manager's breach of its obligation to deliver such information, the
Manager shall reimburse the Member for all reasonable costs actually incurred in
compelling production.
Status of Units
Each Unit will be fully paid and nonassessable and all Units have equal
voting and other rights, except as noted above with respect to the voting of
Units held by the Manager or its Affiliates.
Transferability of Units
The Manager may condition the effectiveness of any proposed transfer of
Units or an interest in Units on such representations, warranties, opinions of
counsel, and other assurances as it considers appropriate as to:
(i) such assignment or transfer not resulting, in the opinion of
counsel for the Fund, in the Fund being considered to have terminated
within the meaning of Section 708 of the Code;
(ii) the transferee not being a minor or an incompetent;
(iii) the transfer or assignment not violating federal or state
securities laws;
(iv) the transferor or the transferee not holding Units representing
Original Invested Capital of less than $2,500 ($2,000 in the case of IRAs
and Keogh Plans);
73
(v) such assignee or transferee being a Citizen of the United States;
(vi) such assignment or transfer not constituting a transfer "on a
secondary market (or the substantial equivalent thereof)" within the
meaning of Section 7704 of the Code or otherwise adversely affecting the
tax status of the Fund;
(vii) such assignment or transfer not causing Fund assets to be deemed
Plan Assets under ERISA; and
(viii) the transferor filing with the Fund a duly executed and
acknowledged counterpart of the instrument effecting such assignment or
transfer, which instrument evidences the written acceptance by the assignee
or transferee of all of the terms and provisions of the Operating
Agreement, contains a representation that such assignment or transfer was
made in accordance with all applicable laws and regulations (including any
investor suitability requirements) and in all other respects is
satisfactory in form and substance to the Manager.
In connection with state securities laws restrictions on transfer, Section
260.141.11 of the Rules of the California Commissioner of Corporations states:
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of
the Rules of the California Corporations Commissioner shall cause a copy of
this section to be delivered to each issuee or transferee of such security
at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the
prior written consent of the Commissioner (until this condition is removed
pursuant to Section 260.141.12 of the Rules of the California Corporations
Commissioner), except: (1) to the issuer; (2) pursuant to the order or
process of any court; (3) to any person described in Subdivision (i) of
Section 25102 of the Corporations Code of the State of California or
Section 260.105.14 of the Rules of the California Corporations
Commissioner; (4) to the transferor's ancestors, descendants, or spouse, or
any custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants, or spouse; (5) to holders of securities of the same
class of the same issuer; (6) by way of gift or donation inter vivos or on
death; (7) by or through a broker-dealer licensed under the Corporations
Code of the State of California (either acting as such or as a finder) to a
resident of a foreign state, territory, or country who is neither domiciled
in the State of California to the knowledge of the broker-dealer, nor
actually present in the State of California if the sale of such securities
is not in violation of any securities law of the foreign state, territory,
or country concerned; (8) to a broker-dealer licensed under the
Corporations Code of the State of California in a principal transaction, or
as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
California Corporations Commissioner's written consent is obtained or is
not required under Section 260.141.11 of the Rules of the California
Corporations Commissioner; (10) by way of a sale qualified under Section
25111, 25112, 25113, or 25121 of the Corporations Code of the State of
California, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 of the Corporations
Code of the State of California is in effect with respect to such
qualification; (11) by a corporation to a wholly-owned subsidiary of such
corporation, or by a wholly-owned subsidiary of a corporation to such
corporation; (12) by way of an exchange qualified under Section 25111,
25112, or 25113 of the Corporations Code of the State of California,
provided that no order under Section 25140 or subdivision (a) of Section
25143 of the Corporations Code of the State of California is in effect with
respect to such qualification; (13) between residents of foreign states,
territories, or countries who are neither domiciled nor actually present in
74
the State of California; (14) to the California State Controller pursuant
to the Unclaimed Property Law or to the administrator of the unclaimed
property law of another state; or (15) by the California State Controller
pursuant to the Unclaimed Property Law or by the administrator of the
unclaimed property law of another state if, in either such case, such
person (i) discloses to potential purchasers at the sale that transfer of
the securities is restricted under Section 260.141.11 of the Rules of the
California Corporations Commissioner, (ii) delivers to each purchaser a
copy of Section 260.141.11 of the Rules of the California Corporations
Commissioner, and (iii) advises the California Corporations Commissioner of
the name of each purchaser; (16) by a trustee to a successor trustee when
such transfer does not involve a change in the beneficial ownership of the
securities; provided that any such transfer is on the condition that any
certificate evidencing the security issued to such transferee shall contain
the legend required by Section 260.141.11 of the Rules of the California
Corporations Commissioner; or (17) by way of an offer and sale of
outstanding securities in an issuer transaction that is subject to the
qualification requirement of Section 25110 of the Corporations Code but
exempt from that qualification requirement by subdivision (f) of Section
25102.
(c) The certificates representing such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
Any assignment, sale, exchange or other transfer in contravention of any of
the provisions of the Operating Agreement shall be void and ineffectual, and
shall not bind or be recognized by the Fund.
An Assignee of Record will be entitled to receive allocations and
Distributions from the Fund attributable to the Units acquired by reason of such
assignment from and after the effective date of the assignment of such Units to
him; provided, however, the Fund and the Manager will be entitled to treat the
assignor of such Units as the absolute owner thereof in all respects, and will
incur no liability for allocations of Net Income, Net Loss or Distributions, or
transmittal of reports and notices requested to be given to Holders which are
made in good faith to such assignor until such time as the written instrument of
assignment has been received by the Fund and recorded on its books and the
effective date of an assignment of Units has passed. The effective date of an
assignment of Units and the date on which the Assignee shall be deemed an
Assignee of Record shall be the first day of the first full fiscal quarter
following the later of (i) the date set forth on the written instrument of
assignment, or (ii) the date on which the Fund has actual notice of the
assignment.
All costs and expenses incurred by the Fund in connection with the transfer
of a Unit shall be paid by the transferring Holder.
An Assignee may only be substituted as a Member in the place of the
assignor with the prior consent of the Manager, which consent may be withheld in
the Manager's sole discretion. Any substituted Member must also agree to be
bound by the provisions of the Operating Agreement. The Manager shall cause the
Operating Agreement to be amended to reflect the substitution of Members at
least once in each fiscal quarter.
The Manager will, with respect to any Units owned by it, enjoy all of the
rights, other than the right to request that the Fund repurchase any such Units,
and be subject to all of the obligations and duties of a Member, except as noted
above under "Voting Rights of Members."
Repurchase of Units
In the event a Holder ceases to be a United States Citizen or Resident
Alien for any reason, he must immediately notify the Fund and may be required to
tender his Units to the Fund for repurchase in order to protect the Fund's
interest in certain leases. The Fund will have the absolute right, but no
obligation, to repurchase the Units for a price equal to the Unit Holder's
capital account, computed in accordance with federal tax accounting principles,
allocable to the repurchased Units as of the last day of the quarter during
which the precipitating event occurs.
75
The Manager may, in its discretion and on such terms as it deems
appropriate, repurchase Units in the event that it deems such repurchase in the
best interests of the Fund, but the Fund is in no event required to make any
such repurchase. No such repurchase may be effected if it would impair the
capital of the Fund or cause the Fund or any remaining Unit holder to suffer a
material adverse tax consequence. It is the Fund's intention that any voluntary
redemption would be for a price equal to the original capital invested in the
redeemed Units less the amount of cash distributed on the Units prior to
redemption. The Fund may, however, redeem Units on any other terms it may deem
appropriate and in the best interests of the Fund under the circumstances
surrounding the redemption.
Upon any repurchase of Units by the Fund, the Units will be canceled and
will no longer be deemed to represent an interest in the Fund, and the interests
of all other Unit holders will be adjusted accordingly.
Indemnification of the Manager
The Operating Agreement provides that the Manager and its affiliates who
perform services for the Fund will be indemnified against any liability or loss
arising out of any act or omission by any such Person when acting in connection
with the business of the Fund, provided that such Person determines in good
faith that its conduct was in the best interest of the Fund and, provided
further, that its conduct did not constitute fraud, negligence, breach of
fiduciary duty or misconduct. The Operating Agreement also provides that, to the
extent permitted by law, the Fund will indemnify the Manager against liability
and related expenses (including attorneys' fees) incurred in dealing with third
parties, provided that the conduct of the Manager is consistent with the
standards described in the preceding sentence. A successful claim for such
indemnification would deplete the Fund's capital assets by the amount paid.
The Manager will not be indemnified against liabilities arising under the
Securities Act of 1933. Furthermore, the Manager has agreed to indemnify the
Fund against any loss or liability it may incur as a result of any violation of
state or federal securities laws by the Manager or its Affiliates. The Fund will
not pay for any insurance covering liability of the Manager or any other persons
for actions or omissions for which indemnification is not permitted by the
Operating Agreement, provided, however, that this will not preclude the naming
of the Manager or any Affiliates as additional insured parties on policies
obtained for the benefit of the Fund to the extent that there is no additional
cost to the Fund.
The Manager will have fiduciary responsibility for the safekeeping and use
of all funds and assets of the Fund.
76
PLAN OF DISTRIBUTION
Distribution
The Units will be offered and sold on a "best efforts minimum/maximum"
basis through ATEL Securities Corporation (the "Dealer Manager"), a
broker-dealer which is an Affiliate of the Manager (see "Conflicts of Interest"
and "Management"), and through other participating broker-dealers who are
members of the National Association of Securities Dealers, Inc. ("NASD"). The
Dealer Manager will manage the selling group and provide certain wholesaling
services. Although the Dealer Manager may participate in the offering on the
same basis as other broker-dealers, it has not in the past effected, nor does it
anticipate in this offering directly effecting, any significant sales of the
Units. The Dealer Manager is a wholly-owned subsidiary of ATEL formed solely to
manage offerings sponsored by ATEL and its Affiliates.
The minimum offering amount is $1,200,000 (120,000 Units) and the maximum
is $150,000,000 (15,000,000 Units).
The minimum subscription is 250 Units ($2,500); provided that an IRA or
Keogh Plan may subscribe for a minimum of 200 Units ($2,000). Additional
investments may subsequently be made in a minimum amount of 50 Units ($500), and
additional one-Unit ($10) increments.
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any Units will be sold.
Subscriptions will be effective only on acceptance by the Manager and the
right is reserved to reject any subscription in whole or in part. The
Subscription Agreement provided to the investor for execution must be
accompanied by a copy of this Prospectus, and each subscriber has the right to
cancel his or her subscription during a period of five business days after the
subscriber has submitted the executed Subscription Agreement to the
broker-dealer through which the Units are sold. The Fund and/or the selling
broker-dealer will send each investor a written confirmation of the acceptance
of the investor's subscription for Units upon admission to the Fund.
The offering will terminate on a date not later than two years from the
date of this Prospectus. The offering of Units after the end of one year from
the date hereof will be subject to renewal or requalification in all those
jurisdictions requiring such renewal or requalification. However, the offering
may be terminated at any time by the Manager. If subscriptions for a minimum of
120,000 Units have not been received and accepted prior to a date one year from
the date hereof, all funds received will be promptly returned together with any
interest earned thereon.
Selling Compensation and Certain Expenses
The Dealer Manager will receive selling commissions in an amount equal to
9.5% of the Gross Proceeds, and will reallow to participating broker-dealers
selling commissions equal to 8% of the Gross Proceeds attributable to Units sold
by them. Out of the 1.5% of the selling commissions retained by the Dealer
Manager, it will pay wholesaling compensation in the form of salaries and
commissions to its personnel and certain participating broker-dealers, reimburse
certain wholesaling expenses incurred by participating broker-dealers and
reimburse amounts which may be advanced by ATEL for certain overhead expenses of
the Dealer Manager and its personnel.
The Dealer Manager (out of its compensation equal to 1.5% of the Gross
Proceeds) or the Fund (up to a maximum amount equal to 0.5% of the Gross
Proceeds) may pay or reimburse participating dealers a portion of their actual
expenses in connection with this offering (including expenses incurred in
coordinating their sales efforts, training their personnel and expenses
incurred, by such broker-dealers as the Dealer Manager shall designate, in
performing "wholesaling" functions). The Fund may also pay or reimburse
participating dealers for their due diligence expenses. Subject to NASD approval
and compliance with Rule 2810(b)(4)(E) of the NASD's Conduct Rules, the Fund,
77
the Manager or the Dealer Manager may establish noncash sales incentive programs
for sales representatives of participating dealers, provided that the aggregate
value of any noncash incentive awards to any individual by the Manager or any of
its Affiliates during any year does not exceed the sum of $100. The total of all
selling compensation, including sales commissions, wholesaling salaries and
commissions, retail and wholesaling expense reimbursements, broker dealer and
investment seminar expenses, non-cash incentive payments and any other forms of
compensation paid to the Dealer Manager or other participating broker-dealers
(including any unreimbursed overhead costs of the Dealer Manager advanced by
ATEL), will not exceed 10% of the Gross Proceeds, except that up to an
additional 0.5% of the Gross Proceeds may, in the sole discretion of the
Manager, be paid in connection with accountable, bona fide due diligence
activities.
The Manager has agreed to indemnify the participating broker-dealers,
including the Dealer Manager, against certain liabilities arising under the
Securities Act of 1933, as amended.
At various times during the offering period the Manager may elect to pay a
portion of the set-up fees for IRAs which purchase Units. The Manager will pay a
maximum of $25 toward such fees for each IRA which purchases the minimum number
of Units or more.
The Fund will not pay referral or similar fees to any accountants,
attorneys or other persons in connection with the distribution of Units.
Escrow Arrangements
Until the minimum number of subscriptions are received and the initial
subscribers are admitted to the Fund, subscription checks will be made payable
to, and subscription funds will be held in an escrow account at, U.S. Bank Trust
National Association, San Francisco, California (the "Bank"). Until such time
all participating broker-dealers will forward subscription checks to the Dealer
Manager promptly but in no event later than noon of the next business day
following receipt thereof, and the Dealer Manager will forward such
subscriptions to the bank escrow agent promptly, but in no event later than noon
of the second business day following receipt thereof by the Dealer Manager.
Subscription proceeds held in the escrow account will be invested in United
States government securities, including Treasury bills, securities issued or
guaranteed by United States government agencies, certificates of deposit and
time or demand deposits in banks and savings and loan associations which are
insured by United States government agencies or deposits in members of the
Federal Home Loan Bank System, as directed by the Manager. Subscribers may not
withdraw funds from the escrow account. Upon the earlier of termination of the
offering or satisfaction of the escrow condition, any interest which accrues on
funds held in escrow will be distributed to subscribers and allocated among them
on the basis of the respective amounts of the subscriptions and the number of
days that such amounts were on deposit in the escrow account.
Notwithstanding the foregoing, subscriptions received from Pennsylvania
subscribers will be placed in a separate escrow account and will not be counted
toward satisfaction of the minimum escrow condition. Instead, such Pennsylvania
subscriptions will be released to the Fund only at such time as total
subscription proceeds received by the Fund from all subscribers, including the
escrowed Pennsylvania subscriptions, equal not less than $7.5 million in Gross
Proceeds.
The Original Invested Capital of the initial subscribers will be
transferred from escrow to the Fund at any time after subscriptions for the
minimum of 120,000 Units have been accepted by the Manager and received and
collected by the bank escrow agent, and such subscribers will be admitted to the
Fund within 15 days thereafter. Subsequent subscribers will have their
subscriptions accepted or rejected within 30 days after receipt. Investors whose
subscriptions are accepted will be admitted to the Fund promptly after such
acceptance, but not later than 30 days thereafter. Rejected subscription funds
will be promptly returned.
The Bank's sole role in this offering is that of escrow holder and as such
it has not reviewed any of the offering materials and makes no representations
whatsoever as to the nature of this offering or its compliance or lack thereof
with any applicable state or federal laws, rules or regulations. The Bank
78
neither endorses, recommends nor guarantees the purchase, value or repayment or
any other aspect of an investment in the Units. The Bank does not represent the
interests of the Members or potential investors. Its duties are limited as
expressly set forth in the Escrow Agreement and interested parties may request a
copy of the Escrow Agreement from the Manager. Pursuant to the terms of the
Escrow Agreement, the Fund has directed the Bank to distribute to the
subscribers any interest earned on funds held in escrow as described above under
this caption.
Investments by Certain Persons
The Manager and its Affiliates may, but do not currently intend to, acquire
such number of Units as they determine. Except as noted below, any Units
purchased by the Manager or its Affiliates will be purchased on the same terms
as the other Units offered hereby. Such Units will be acquired solely for
investment and not with a view to or for distribution. Any Units acquired by
such Persons will not be applied to the requirement that a minimum of 120,000
Units be purchased by all subscribers.
The Manager, the Dealer Manager or the broker-dealers engaged by the Dealer
Manager to sell the Units, or any of their Affiliates or employees, may purchase
Units in this offering net of the 8% retail selling commissions at a per Unit
price of $9.20. In addition, clients of an investment advisor which is
registered under the Investment Advisors Act of 1940 and is an Affiliate of a
participating broker-dealer may also purchase Units with reduced selling
commissions, subject to the express approval of such participating broker-dealer
Affiliate, if the client
-- has been advised by such advisor over a continuous course of time on
investments other than the purchase of Units, and
-- is not being charged by the advisor or its Affiliates, through the
payment of commissions or otherwise, for the advice rendered by such
advisor specifically in connection with the purchase of Units.
In no event will the net contribution to the Fund by such persons be less than
$9.20 per Unit. The Dealer Manager may require that any investor claiming the
right to purchase on the foregoing terms demonstrate the basis for such right
through reasonable documentation and certification. Sales to any such purchasers
on such terms would be for investment purposes only, and the Fund and the
Manager would not recognize any attempted transfer of such Units unless the
Manager is satisfied that the original purchase was not made with a view to
distribution of the securities and that any proposed transfer was in compliance
with all applicable laws and regulations, including the NASD's Rules of Fair
Practice.
State Requirements
In addition to the investor suitability and minimum investment standards
established by the Fund and described under "Who Should Invest" above, the
securities administrators of certain states have imposed more restrictive
standards on investments in Units effected within their jurisdictions. Any such
additional requirements imposed after the date of this Prospectus will be
reflected in a supplement hereto, and investors are urged to review any such
supplement to ascertain whether more restrictive standards are applicable to
their investment.
The following states have imposed additional conditions on investments in
such jurisdictions:
Iowa. The minimum investment for all IRAs in Iowa is $2,500 (250 Units).
Maine. The minimum amount which may be invested by a Maine investor on any
subscription, whether an initial investment or any subsequent investment, is
$2,500 (250 Units), or $2,000 (200 Units) for IRAs and Qualified Plans.
Michigan. An investor in Michigan may not invest in Units any amount in
excess of 10% of the investor's net worth (exclusive of home, home furnishings
and automobiles).
79
Missouri. Each Missouri investor must (i) have an annual gross income of at
least $60,000 and a net worth (exclusive of home, home furnishings and
automobiles) of at least $60,000 in excess of his Original Invested Capital; or
(ii) have a net worth (determined with the same exclusions) of at least $225,000
in excess of his Original Invested Capital.
Nebraska. The minimum investment for all investors in Nebraska, except IRAs
and Keogh Plans, is $5,000 (500 Units). Nebraska investors may not invest in
Units an amount in excess of 10% of the investor's net worth, determined
exclusive of the investor's home, home furnishings and automobile.
New Hampshire. Each New Hampshire investor must (i) have an annual gross
income of at least $50,000 and a net worth (exclusive of home, home furnishings
and automobiles) of at least $125,000 in excess of his Original Invested
Capital; or (ii) a net worth (exclusive of home, home furnishings and
automobiles) of at least $250,000 in excess of his Original Invested Capital.
North Carolina. Each North Carolina investor must (i) have an annual gross
income of at least $60,000 and a net worth (exclusive of home, home furnishings
and automobiles) of at least $60,000 in excess of his Original Invested Capital;
or (ii) have a net worth (determined with the same exclusions) of at least
$225,000 in excess of his Original Invested Capital.
Ohio. An Ohio investor may not invest in Units an amount in excess of 10%
of the investor's net worth.
Oregon. Each Oregon investor must (i) have an annual gross income of at
least $60,000 and a net worth (exclusive of home, home furnishings and
automobiles) of at least $60,000 in excess of his Original Invested Capital; or
(ii) have a net worth (determined with the same exclusions) of at least $225,000
in excess of his Original Invested Capital.
Pennsylvania. In addition to the investor suitability standards set forth
under "Who Should Invest," an investor in Pennsylvania may not invest in Units
an amount in excess of 10% of the investor's net worth (with such net worth
calculated exclusive of home, home furnishings and automobiles). Furthermore,
Pennsylvania subscriptions will be subject to a separate escrow and will be
released to the Fund only when the Fund has received aggregate subscriptions
from all investors equal to not less than $7.5 million.
REPORTS TO HOLDERS
The Fund fiscal year will be the calendar year; provided, however, that the
Manager may, subject to the approval of applicable taxing authorities, adopt
another fiscal year if they deem it to be in the Fund's best interest.
The Fund will furnish to each Holder certain reports, statements and tax
information, as set forth in Article 14 of the Operating Agreement. The Manager
shall have prepared and distributed at least annually, at the Fund's expense,
-- a statement of cash flow;
-- Fund information necessary in the preparation of each Holder's federaL
income tax returns;
-- a report of the business of the Fund;
-- a statement as to the compensation received by the Manager and its
Affiliates from the Fund during the year;
-- a report identifying the sources of all Fund Distributions for the
year; and
-- a special report containing an opinion of a certified public accounting
firm and relating to cost reimbursements by the Fund to the Manager or
its Affiliates.
Following the close of each taxable year of the Fund, the Fund will distribute
to the Holders copies of the annual report and annual financial statements
(balance sheet, statement of income or loss, statement of members' equity and
statement of cash flow, accompanied by a report containing an opinion of
80
independent certified public accountants) within 120 days thereafter, and such
statements will be prepared on an accrual basis in accordance with generally
accepted accounting principals; and all Fund information necessary in the
preparation of their federal income tax returns within 75 days after the end of
each fiscal year. The Manager does not intend to cause the Fund to prepare and
distribute any reconciliation between the financial information contained in the
foregoing reports and the information furnished to Holders for income tax
purposes.
During the offering period and until the Fund is fully invested, the Fund
will also furnish to each Holder, at least quarterly, information concerning the
investments of the Fund.
The Fund will also furnish to each Holder a quarterly report covering each
of the first three quarters of Fund operations in each calendar year, including
unaudited financial statements (each of which shall include a balance sheet,
statement of income or loss for said quarterly period and statement of Cash from
Operations and Cash from Sales or Refinancing for said quarterly period) and a
statement of other pertinent information regarding the Fund and its activities
during the quarterly period covered by the report. Copies of such statements and
other pertinent information shall be distributed to each Holder within 60 days
after the close of the quarterly period covered by the report of the Fund.
SUPPLEMENTAL SALES MATERIAL
In addition to and apart from this Prospectus, the Fund may use certain
sales material in connection with the offering of Units. In certain
jurisdictions such sales material may not be available. This material will
include information relating to this offering, the Manager and its Affiliates
and brochures and articles and publications concerning equipment leasing.
The Fund will use only sales material which has been approved by such
appropriate regulatory bodies as may be required. The offering is made only by
means of this Prospectus. Although the information contained in such sales
material does not conflict with any of the information contained in this
Prospectus, such material does not purport to be complete, and should not be
considered as part of this Prospectus or the registration statement of which
this Prospectus is a part, or as incorporated by reference in this Prospectus or
said registration statement or as forming the basis of the offering of Units
which are offered hereby.
81
LEGAL OPINIONS
The legality of the Units has been passed upon and the statements under the
captions "Income Tax Consequences" and "ERISA Considerations" as they relate to
federal income tax and ERISA matters have been reviewed and passed upon by
Derenthal & Dannhauser, San Francisco, California.
EXPERTS
The consolidated balance sheet of ATEL Financial Corporation and subsidiary
as of July 31, 2000, and the balance sheet of ATEL Capital Equipment Fund IX,
LLC (a development stage enterprise) as of October 6, 2000, and the related
statements of changes in members' capital and cash flows for the period from
September 27, 2000 (inception) through October 6, 2000, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Fund has filed with the Securities and Exchange Commission, Washington,
D.C., a registration statement under the Securities Act of 1933, as amended,
with respect to the Units offered pursuant to this Prospectus. For further
information, reference is made to the registration statement and the exhibits
thereto which are available for inspection at no fee in the principal office of
the Commission at 450 Fifth Street, Northwest, Washington, D.C. 20549. The Fund
is subject to the informational requirements of the Securities Exchange Act of
1934 and in accordance therewith files reports and other information with the
Securities and Exchange Commission. Such reports, the registration statement and
other information are available for inspection and copying at the above address,
and are also available to be viewed and retrieved without charge on the
Commission's electronic data gathering and retrieval (EDGAR) system, at its
internet web site at www.sec.gov. In addition, photostatic copies of the
material containing this information may be obtained from the Commission upon
paying of the fees prescribed by the rules and regulations of the Commission.
This Prospectus contains a fair summary of the material provisions of the
exhibits filed with the Commission. This Prospectus does not knowingly contain
any untrue statement of a material fact or omit to state any material fact
required to be stated herein or necessary to make the statements herein not
misleading.
82
GLOSSARY
The following terms used in this Prospectus shall (unless otherwise
expressly provided herein or unless the context otherwise requires) have the
following respective meanings:
"Acquisition Expenses" shall mean expenses including, but not limited to,
legal fees and expenses, travel and communication expenses, costs of appraisals,
accounting fees and expenses, and miscellaneous expenses relating to selection
and acquisition of Equipment, whether or not acquired.
"Acquisition Fees" shall mean the total of all fees and commissions paid by
any party in connection with the initial purchase or manufacture of Equipment.
Included in the computation of such fees or commissions shall be any commission,
selection fee, financing fee, nonrecurring management fee, or any fee of a
similar nature, however designated.
"Adjusted Invested Capital" shall mean, as of any date, the Original
Invested Capital attributable to the Units held by any Person on or before such
date, as decreased (but not below zero) by the amount by which (i) all
Distributions with respect to such Units on or before the date of determination
pursuant to any provision of the Operating Agreement exceed (ii) the Priority
Distribution attributable to such Units for such period.
"Affiliate" of a Person shall mean
-- any Person directly or indirectly controlling, controlled by or under
common control with such Person;
-- any Person owning or controlling 10% or more of the outstanding voting
securities or beneficial interests of such Person;
-- any officer, director, trustee or partner of such Person; and
-- if such Person is an officer, director, trustee, partner or holder of
10% or more of the voting securities or beneficial interests of such
Person, any other company for which such Person acts in such capacity.
However, such term shall not include a Person who is a partner in a
partnership or joint venture with the Fund if such Person is not
otherwise an Affiliate.
"Asset Management Fee" shall mean the fee payable to the Manager and its
Affiliates under the provisions of Section 8.2 of the Operating Agreement.
"Asset Management Fee Limit" means the total fees calculated pursuant to
the alternative fee schedule set forth under Section 8.3 of the Operating
Agreement, equal to the aggregate of an Equipment Management Fee, Incentive
Management Fee, and Equipment Resale/Re-Leasing Fee, plus the Carried Interest,
determined in the manner described therein.
"Assignee" shall mean a Person who has acquired a beneficial interest in
one or more Units from a third party but who is neither a substituted Holder nor
an Assignee of Record.
"Assignee of Record" shall mean an Assignee who has acquired a beneficial
interest in one or more Units whose ownership has been recorded on the books of
the Fund and which ownership is the subject of a written instrument of
assignment, the effective date of which assignment has passed.
"ATEL" shall mean ATEL Financial Corporation, a California corporation.
"California Act" shall mean the Beverly-Killea Limited Liability Company
Act, Title 2.5, Chapters 1-15, of the California Corporations Code, as it may be
amended from time to time.
"Capital Account" shall mean, with respect to any Member, such Member's
Capital Account determined in accordance with Section 6.7 of the Operating
Agreement.
"Carried Interest" shall mean the allocable share of Fund Distributions of
Cash from Operations and Cash from Sales or Refinancing payable to the Manager,
as a Member, pursuant to Sections 10.4 and 10.5 of the Agreement.
83
"Cash from Operations" shall mean the excess of Gross Revenues (which
excludes revenues from equipment sales or refinancing) over cash disbursements
(including the Equipment Management Fee and amounts reinvested by the Fund in
Equipment) without reduction for depreciation and amortization of intangibles
such as organization and underwriting costs but after a reasonable allowance for
cash for repairs, replacements, contingencies and anticipated obligations, as
determined by the Manager.
"Cash from Reserve Account" shall mean that portion of the Net Proceeds not
utilized in the acquisition of equipment, including cash maintained according to
the provisions of Section 9.4 of the Operating Agreement.
"Cash from Sales or Refinancing" shall mean the net cash realized by the
Fund from the sale, refinancing or other disposition of any equipment after
payment of all expenses related to the transaction.
"Closing Date" shall mean such date designated by the Manager for the
termination of the offering of Units, but not later than January 16, 2003.
Extension of the offering beyond one year from the date of the Prospectus shall
be subject to the qualification of the offering for any such extension in those
jurisdictions which may limit the offering period to one year. "Initial Closing
Date" shall mean the date on which subscribers for Units, other than the initial
Holder, are first admitted to the Fund as Holders. "Final Closing Date" shall
mean the last date on which subscribers for Units are admitted to the Fund as
Holders.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent federal revenue laws.
"Distributions" shall mean any cash distributed to Holders and the Manager
arising from their respective interests in the Fund.
"ERISA" shall mean the Employment Retirement Income Security Act of 1974,
as amended.
"Equipment Management Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.
"Equipment Re-leasing Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.
"Equipment Resale Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.
"Front-End Fees" shall mean fees and expenses paid by any party for any
services rendered during the Fund's organization and acquisition phase including
Organization and Offering Expenses, Leasing Fees, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated. Notwithstanding the
foregoing, Front-End Fees shall not include any Acquisition Fees or Acquisition
Expenses paid by a manufacturer of Equipment to any of its employees unless such
Persons are Affiliates of the Manager.
"Full Payout Lease" shall mean a lease under which the non-cancellable
rental payments due during the initial term of the lease are at least sufficient
to cover the purchase price of the Equipment leased.
"Fund" shall mean ATEL CAPITAL EQUIPMENT FUND IX, LLC, the California
limited liability company created under the Operating Agreement.
"Fund Manager" or "Manager" shall mean ATEL Financial Corporation ("ATEL"),
a California corporation, or any other Person or Persons which succeed it in
such capacity. The Manager is referred to throughout the Prospectus as "ATEL" or
the "Manager."
"Fund Minimum Gain" shall have the meaning set forth in Regulations Section
1.704-2(d)(1).
"Gross Proceeds" shall mean the aggregate total of the Original Invested
Capital of the initial and all of the additional Holders.
"Gross Lease Revenues" shall mean all revenues attributable to the
equipment other than from security deposits paid by lessees thereof. The term
"Gross Revenues" shall not include revenues from the sale, refinancing or other
disposition of equipment.
84
"High Payout Lease" shall mean a lease under which the noncancellable
rental payments and other payment obligations of the lessee due through the
initial term of the lease are equal to at least 90% of the original purchase
price paid by the Fund for the equipment.
"Holders" shall mean owners of Units who are either Members or Assignees of
Record, and reference to a "Holder" shall be to any one of them. The Manager
shall not be considered to be a Holder except to the extent it also owns Units.
"Incentive Management Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3.2 of the Operating Agreement.
"IRA" shall mean an individual retirement account qualifying under Section
408 of the Code.
"Investment in Equipment" shall mean the amount of Gross Proceeds actually
paid or allocated to the purchase of Equipment acquired by the Fund, any amount
of Gross Proceeds reserved pursuant to Section 9.4 of the Operating Agreement up
to a maximum of 3% of Gross Proceeds and other cash payments such as interest
and taxes, but excluding Front-End Fees.
"Members" shall mean the initial Members and any other Persons who are
admitted to the Fund as additional or substituted Members. Reference to a
"Member" shall refer to any one of them.
"Net Income" or "Net Loss" shall mean the taxable income or taxable loss of
the Fund as determined for federal income tax purposes, computed by taking into
account each item of Fund income, gain, loss, deduction or credit not already
included in the computation of taxable income and taxable loss, but does not
mean Distributions.
"Net Lease Provisions" shall mean contractual arrangements under which the
lessee assumes responsibility for, and bears the cost of, insurance, taxes,
maintenance, repair and operation of the leased asset and where non-cancellable
rental payments under the lease are absolutely net to the lessor,
notwithstanding that some minor costs or responsibilities remain with the Fund
as lessor or that the Fund retains the option to require and pay for a higher
standard of care or greater level of maintenance or insurance than would be
imposed on the lessee under the terms of the lease.
"Net Proceeds" shall mean the total Gross Proceeds less Organization and
Offering Expenses.
"Operating Lease" shall mean a lease under which the aggregate rental
payments due during the initial term of the lease are less than the purchase
price of the equipment leased.
"Operating Revenues" means the total for any period of all Gross Lease
Revenues plus all Cash from Sales or Refinancing.
"Organization and Offering Expenses" shall mean those expenses incurred in
connection with preparing the Fund for registration and subsequently offering
and distributing Units to the public, including selling commissions and all
advertising expenses except advertising expenses related to the leasing of
equipment.
"Original Invested Capital" shall mean the original gross purchase price of
the Units contributed by each Member to the capital of the Fund for his interest
in the Fund, which amount shall be attributed to Units in the hands of a
subsequent Holder.
"Operating Agreement" or "Agreement" shall mean the Limited Liability
Company Operating Agreement of ATEL CAPITAL EQUIPMENT FUND IX, LLC, as it may be
amended from time to time.
"Person" shall mean any natural person, partnership, corporation,
association or other legal entity.
"Priority Distribution" shall mean a hypothetical amount determined solely
for purposes of the alternative fee schedule calculation to determine the Asset
Management Fee Limit under the provisions of Section 8.3 of the Operating
Agreement. Such amount will equal, for any calendar year or other period with
85
respect to the Units held by any Person, the average Adjusted Invested Capital
with respect to such Units during such period multiplied by 10% per annum
(calculated on a cumulative basis, compounded daily, from the last day of the
calendar quarter in which the capital contribution of the initial purchaser of
such Units was received by the Fund and pro rated for any fraction of a calendar
year for which such calculation is made).
"Prospectus" shall mean the final prospectus filed in connection with the
registration of the Units with the Securities and Exchange Commission on Form
S-1, as amended, together with any supplement thereto which may be subsequently
filed with such Commission.
"Purchase Price of Equipment" shall mean the price paid upon the purchase
or sale of a particular item of equipment including all liens and mortgages on
the equipment, but excluding points and prepaid interest.
"Qualified Plan" shall mean employee trusts (or employer individual
retirement accounts), Keogh Plans and corporate retirement plans qualifying
under Section 401(a) of the Code.
"Regulations" or "Treasury Regulations" shall mean the income tax
regulations promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Reinvestment Period" shall mean the period commencing with the Initial
Closing Date and ending on a date 72 months after the last day of the fiscal
year during which the Final Closing Date occurs.
"Reimbursable Administrative Expenses" shall mean the ordinary recurring
administration expenses incurred by the Manager and reimbursed by the Fund. Such
expenses shall not include interest, depreciation, equipment maintenance or
repair, third party services or other non-administrative expenses.
"Resident Alien" shall mean a resident alien as defined within the Federal
Aviation Act of 1958, as amended from time to time, or any successor statute, or
any regulations adopted pursuant to such Act or any successor statute.
"Roll-Up" shall mean a transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the Fund and the
issuance of securities of a Roll-Up Entity. Such term does not include:
(a) any transaction if the securities of the Fund have been for
at least twelve months traded through the National Association of
Securities Dealers, Inc. Automated Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Fund, if, as a consequence of the transaction,
there will be no significant adverse change in any of the following
(i) the Members' voting rights;
(ii) the term of existence of the Fund;
(iii) the terms of compensation of the Manager and its Affiliates;
or
(iv) the Fund's investment objectives.
"Service" shall mean the United States Internal Revenue Service or its
successor.
"Substantially All of the Assets" shall mean, unless the context otherwise
dictates, equipment representing 662/3% or more of the net book value of all
equipment as of the end of the most recently completed fiscal quarter.
"Unit" shall mean the interest in the Fund representing Original Invested
Capital in the amount of $10 and shall entitle the Holder thereof to the rights
herein provided.
"United States Citizen" shall mean a "citizen of the United States" as
defined within the Federal Aviation Act of 1958, as amended from time to time,
or any successor statute, or any regulations adopted pursuant to such Act or any
successor statute.
86
FINANCIAL STATEMENTS
Set forth below are the following financial statements:
ATEL Capital Equipment Fund IX, LLC
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .F - 2
Balance Sheet, October 6, 2000 . . . . . . . . . . . . . . . . . . . . . .F - 3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . .F - 4
ATEL Financial Corporation and Subsidiary
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . .F - 5
Consolidated Balance Sheet, July 31, 2000 . . . . . . . . . . . . . . . .F - 6
Notes to Consolidated Balance Sheet, July 31, 2000 . . . . . . . . . . . .F - 7
F-1
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Members
ATEL Capital Equipment Fund IX, LLC
We have audited the accompanying balance sheet of ATEL Capital Equipment Fund
IX, LLC (a development stage enterprise) as of October 6, 2000, and the related
statements of changes in members' capital and cash flows for the period from
September 27, 2000 (inception) through October 6, 2000. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund IX,
LLC (a development stage enterprise) at October 6, 2000, and its changes in
members' capital and cash flows for the period from September 27, 2000
(inception) through October 6, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
October 9, 2000
F-2
ATEL CAPITAL EQUIPMENT FUND IX, LLC
(A Development Stage Enterprise)
BALANCE SHEET
October 6, 2000
ASSETS
Cash $600
========
LIABILITIES AND MEMBERS' CAPITAL
Members' capital:
Managing Member $100
Initial Member 500
--------
Total members' capital $600
========
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
THROUGH OCTOBER 6, 2000
Initial Member
-------------- Managing
Units Amount Member Total
----- ------ ------ -----
Capital contributions 50 $500 $100 $600
=========== ============= =========== ============
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
THROUGH OCTOBER 6, 2000
Financing activities:
Capital contributions received $600
-------
Net increase in cash 600
-------
Cash at end of period $600
=======
See accompanying notes.
F-3
ATEL CAPITAL EQUIPMENT FUND IX, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
October 6, 2000
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund IX, LLC (a development stage enterprise)(the Fund),
was formed under the laws of the state of California on September 27, 2000 for
the purpose of acquiring equipment to engage in equipment leasing and sales
activities. The Fund shall continue until December 31, 2019. Contributions in
the amount of $600 were received as of October 6, 2000, $100 of which
represented the Managing Member's (ATEL Financial Corporation's) (ATEL's)
continuing interest, and $500 of which represented the Initial Member's capital
investment.
As of October 6, 2000, the Fund had not commenced operations other than those
relating to organizational matters. The Fund, or the Managing Member on behalf
of the Fund, will incur costs in connection with the organization, registration
and issuance of the Limited Liability Company Units (Units). The amount of such
costs to be born by the Fund is limited by certain provisions of the Operating
Agreement.
2. Income taxes:
The Fund does not provide for income taxes since all income and losses are the
liability of the individual members and are allocated to the members for
inclusion in their individual tax returns.
3. Members' capital:
As of October 6, 2000, 50 Units were issued and outstanding. The Fund is
authorized to issue up to 15,000,000 additional Units.
The Fund Net Income, Net Losses, and Distributions are to be allocated 92.5% to
the Members and 7.5% to the Managing Member.
4. Commitments and management:
The terms of the Operating Agreement provide that the Managing Member and/or
affiliates are entitled to receive certain fees, in addition to the allocations
described above, which are more fully described in Section 8 of the Operating
Agreement. The additional fees to management include fees for equipment
management and resale.
F-4
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors and Shareholder
ATEL Financial Corporation
We have audited the accompanying consolidated balance sheet of ATEL Financial
Corporation and subsidiary as of July 31, 2000. This balance sheet is the
responsibility of ATEL's management. Our responsibility is to express an opinion
on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of ATEL
Financial Corporation at July 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
September 15, 2000
F-5
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JULY 31, 2000
ASSETS
Cash and cash equivalents $ 2,330,964
Amounts due from affiliated programs 6,305,472
Investments in leases 2,239,079
Cash surrender value of life insurance 300,000
Deferred tax asset 3,767,487
Income taxes receivable 404,292
Property and equipment, net of accumulated depreciation of $1,575,989 370,042
Leasehold improvements, net of accumulated amortization of $478,499 272,541
Other assets 163,880
----------------
$ 16,153,757
================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Non-recourse debt $ 1,310,061
Amounts due to affiliated companies 4,549,344
Accounts payable and accrued liabilities 2,928,849
Customer deposits 22,000
Deferred liabilities and credits:
Deferred capital contributions 2,040,899
Deferred tax liability 5,061,513
----------------
Total liabilities 15,912,666
Shareholder's equity:
Common stock, 100,000 shares authorized, 666 1/2shares issued and outstanding 2,000
Additional paid-in capital 93,855
Retained earnings 145,236
----------------
Total shareholder's equity 241,091
----------------
$ 16,153,757
================
See accompanying notes.
F-6
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
1. Organization and summary of significant accounting policies:
Organization and principles of consolidation:
The consolidated balance sheet includes the accounts of ATEL Financial
Corporation (ATEL) and its wholly owned subsidiary, ATEL Securities Corporation
(ASC). ATEL is a wholly owned subsidiary of ATEL Capital Group (ACG).
ATEL is a California corporation formed in July 1977 to engage in the brokering
and leasing of equipment for its own account and the account of affiliates. ASC
was formed in November 1985 and was registered as a securities broker/dealer in
February 1986. All significant intercompany balances have been eliminated in
consolidation.
ATEL organizes and sponsors limited partnerships and limited liability companies
(the "affiliated programs" or the "programs") engaged in equipment leasing and
sales activities. It also acts as the corporate general partner or managing
member in these affiliated programs. Through these programs, ACG derives various
fees and also receives reimbursements for expenses incurred on behalf of these
entities, of which certain fees and expense reimbursements are allocated to
ATEL, with the balance allocated to various other affiliates. The basis for
determination of the types and amounts of these fees and reimbursements are
provided in agreements with the various programs.
In addition, under the terms of the partnership agreements and operating
agreements for certain of the affiliated programs for which ATEL is a general
partner or managing member, ATEL is entitled to participate in net cash from
operations and sales or refinancing of equipment owned by the affiliated
programs. A portion of ATEL's participation is subordinated to the limited
partners' and other members' full recovery of their initial invested capital
contributions plus a specified return on their investments. No earnings or
equity interests from such subordinated interests have been recognized through
July 31, 2000. The shareholders of ACG are also general partners in certain of
these affiliated programs.
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments
with original maturities of ninety days or less.
Operating leases:
Assets on operating leases are stated at cost less accumulated depreciation.
Revenues from operating leases are recognized evenly over the terms of the
related leases. Depreciation is provided by the straight-line method over the
term of the lease to an amount equal to the equipment's estimated residual value
at lease termination.
F-7
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
1. Organization and summary of significant accounting policies (continued):
Residual interests:
Residual interests represent the present value of ATEL's proportionate interest
(calculated at the time of the transaction) in the estimated residual value of
equipment originally owned by ATEL and subsequently sold to a third party where
ATEL retains an unconditional right to participate in such residual value upon
the expiration of the related lease. This retained residual value is presented
as an asset and is included in the consolidated balance sheet under the caption
"Investments in leases" until the ultimate liquidation of the underlying
equipment and realization of the participation.
Property and equipment:
Property and equipment is stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the respective assets,
which range from three to seven years.
Leasehold improvements:
Leasehold improvements are stated at cost. Amortization is calculated using the
straight-line method over the lives of the related leases or estimated lives,
whichever is shorter.
Cash surrender value of life insurance:
ATEL purchased two single premium key-man life insurance policies to cover the
two officer-shareholders of ACG. ATEL is a beneficiary under the contracts for
$300,000 of cash surrender values. The spouses of the two officer-shareholders
of ACG are the beneficiaries for amounts above $300,000.
Income taxes:
For federal and state income tax reporting, ATEL's taxable income is included in
the returns filed by ACG. For financial reporting, ATEL's income tax provision
is calculated on a separate return basis. Deferred taxes are calculated using
the liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The ultimate realization of ATEL's deferred tax asset
is dependent upon the realization of such amount by ACG.
F-8
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
1. Organization and summary of significant accounting policies (continued):
Credit risk:
Financial instruments which potentially subject ATEL to concentrations of credit
risk include cash and cash equivalents. ATEL places its cash deposits and
temporary cash investments with creditworthy, high quality financial
institutions. The concentration of such deposits and temporary cash investments
is not deemed to create a significant risk to ATEL.
Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements. Actual results could differ from those estimates.
Investments in affiliated programs:
ATEL accounts for its interest as a corporate general partner (or as the
managing member) in the affiliated programs at cost, or under the equity method
of accounting, based on the terms of the individual affiliated partnership or
operating agreements.
Affiliated programs accounted for at cost do not provide for provisions in the
partnership agreements (or operating agreements) for general partner (or
managing member) distributions and hence, ATEL does not in effect have any way
to recover the amounts of its capital accounts as recorded by the affiliated
programs. Certain affiliated programs accounted for at cost do not require ATEL
to make capital contributions and, hence, ATEL records all distributions
received from these programs as income based on the cost method of accounting.
Upon the dissolution of these programs, a special allocation of income or loss
is made from the general partner to the limited partners (or between the
managing member and the other members) in an amount sufficient to bring the
capital accounts to zero, based on the terms of the partnership and operating
agreements.
Affiliated programs accounted for under the equity method of accounting, subject
to limitations in the respective partnership agreements (or operating
agreement), provide for general partner (or managing member) distributions. Upon
dissolution of these programs, if the general partner (or managing member) has a
deficiency in its capital account, the general partner (or managing member) is
required to contribute cash to the capital of the affiliated program in an
amount equal to the lesser of the deficiency in the general partner's (or
managing member's) account or 1.01% of the original invested capital of the
affiliated program, based on the provisions of the partnership agreement (or
operating agreement).
F-9
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
1. Organization and summary of significant accounting policies (continued):
Investments in affiliated programs (continued):
If the general partner (or managing member) has a positive capital balance upon
the dissolution of the program, a special allocation of income is made from the
general partner (or managing member) to the limited partners in an amount
sufficient to bring the capital accounts to zero, based on the terms of the
partnership agreements (or operating agreements). Through July 31, 2000, ATEL
has deferred $2,040,899 in distributions received from affiliated programs
accounted for on the equity method of accounting. Such amounts are included in
the consolidated balance sheet under the caption "Deferred capital
contributions."
Amounts due to affiliated companies:
Amounts due to affiliated companies represent net amounts advanced to or
received from affiliated companies for operations or for income taxes to be paid
by ATEL on behalf of ACG and its subsidiaries.
2. Investments in leases:
Investments in leases consist of the following:
Equipment on operating leases, net of accumulated depreciation $ 2,197,544
Residual interests 41,535
----------------
$ 2,239,079
================
Operating leases:
Equipment on operating leases consists of the following:
Electrical cogeneration plant (estimated useful life, 20 years) $ 2,565,815
Concrete hauling trucks (estimated useful life, 7 years) 1,793,410
Kaolin processing equipment (estimated useful life, 20 years) 304,444
Hydraulic excavator (estimated useful life, 10 years) 120,000
----------------
4,783,669
Less accumulated depreciation (2,586,125)
----------------
Equipment on operating leases, net of accumulated depreciation $ 2,197,544
================
F-10
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
2. Investments in leases (continued):
At July 31, 2000, the aggregate amounts of future minimum lease payments
receivable from operating leases are as follows:
Year ending July 31,
--------------------
2001 $512,390
2002 478,999
2003 212,250
2004 188,000
2005 141,000
-----------------
$1,532,639
=================
General lease terms and concentration of credit risk:
Operating leases generally provide that the lessee will be responsible for
maintenance, insurance and similar costs (referred to as net leases).
Leases are subject to ATEL's credit committee review. The leases provide for the
repossession of the equipment in the event of default.
3. Non-recourse debt:
Non-recourse debt consists of the following:
Notes payable to financial institutions, interest at 9.6094% per year, concrete
trucks and related leases pledged as collateral, due in various installments
through 2002 $ 547,444
Note payable to financial institution, interest at 8.332% per year, cogeneration
plant and related lease pledged as collateral, due in quarterly installments of
$47,000 through July 2005 762,617
----------------
$ 1,310,061
================
The net book value of assets financed with non-recourse debt was $1,923,243 at
July 31, 2000.
Future minimum payments on non-recourse debt are as follows:
Principal Interest Total
Year ending July 31, Payments Payments Payments
-------------------- --------- --------- --------
2001 $377,670 $101,329 $478,999
2002 413,726 65,273 478,999
2003 175,551 36,699 212,250
2004 164,497 23,503 188,000
2005 178,617 9,384 188,001
----------------- ----------------- --------------
$1,310,061 $236,188 $1,546,249
================= ================= ==============
F-11
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
4. Income taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At July 31, 2000,
deferred tax assets total $3,767,487 and deferred tax liabilities total
$5,061,513.
Deferred income taxes arise primarily from differences in the reporting of lease
income, depreciation, acquisition fees and valuation accounts for tax purposes
as compared to their treatment for financial reporting purposes.
5. Line of credit:
ATEL participates with ACG, certain other subsidiaries of ACG, and with certain
affiliated programs in a $77,500,000 revolving credit agreement with a group of
financial institutions which expires July 28, 2001. The agreement includes an
acquisition facility, a lease warehouse facility and a small ticket facility
which are used to provide bridge financing for assets on leases. Draws on the
acquisition facility by any individual borrower are secured only by that
borrower's assets, including equipment and related leases. Borrowings on the
warehouse facility are recourse jointly to certain of the affiliated programs
and ATEL. Borrowings on the small ticket facility are recourse to the borrower
and are guaranteed by ACG and certain of its shareholders. Also included in this
line of credit facility is $1,000,000 available for operations and working
capital.
At July 31, 2000, ATEL had no borrowings related to working capital. At July 31,
2000, there were no borrowings under the small ticket lease facility. At July
31, 2000, $52,968,572 was borrowed under the separate lease warehousing facility
by another subsidiary of ACG relating to lease transactions. Interest is at the
bank's prime rate (9.5% at July 31, 2000) or at LIBOR plus 1.25% (6.72% at July
31, 2000).
These facilities, when used, are collateralized by (i) leases and equipment
owned by the specific borrower and financed by the lines and (ii) all other
assets owned by the specific borrower except equipment, lease receipts and
residual values specifically pledged to other equipment funding sources. ATEL's
borrowings under the facility are guaranteed by ACG and/or its shareholders.
Under the line, the affiliated programs have borrowed $13,150,000 as of July 31,
2000. These funds are collateralized by the assets owned by the affiliated
programs, except equipment, lease receipts and residual values specifically
pledged to other equipment funding sources.
The credit agreement includes certain financial covenants applicable to each
borrower. ACG was in compliance with such covenants as of July 31, 2000.
F-12
ATEL FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED BALANCE SHEET
JULY 31, 2000
6. Equity investments in affiliated programs (Unaudited):
Certain affiliated programs are accounted for under the equity method of
accounting. Summarized information about these affiliates as of June 30, 2000
and for the year then ended are included in the following table.
ATEL Cash ATEL Capital ATEL Capital
Distribution Equipment Equipment Fund
Fund VI, L.P. Fund VII, L.P. VIII, LLC
--------------- ----------------- -----------------
Total Assets $ 86,507,975 $ 174,944,419 $ 172,348,563
Total Liabilities $ 36,943,681 $ 77,600,531 $ 88,677,679
Net Income (loss) $ 336,780 $ (702,030) $ (896,462)
7. Commitments and contingencies:
Office lease:
ACG occupies office space under operating leases expiring through December 2002.
Future minimum payments for fiscal year periods under the leases are $550,001 in
2001, $559,886 in 2002 and $233,286 in 2003.
8. Reimbursements of operating costs:
The Limited Partnership Agreements and Operating Agreements of the affiliated
programs allow for the reimbursement of costs incurred by ACG and its
subsidiaries in providing administrative services to the programs, of which a
portion of such amounts is allocated to ATEL. Administrative services provided
include program accounting, investor relations, legal counsel and lease and
equipment documentation. ACG and its subsidiaries are not reimbursed for
services where they are entitled to receive a separate fee as compensation for
such services, such as acquiring and overseeing the management of equipment.
Reimbursable operating costs incurred by ACG and its subsidiaries are allocated
to the programs based upon actual time incurred by employees working on program
business and an allocation of rent and other costs based on utilization studies.
As of July 31, 2000, $6,305,472 remained outstanding from affiliated programs
for reimbursable operating and syndication costs and management fees.
F-13
EXHIBIT A
PRIOR PERFORMANCE INFORMATION
ATEL Financial Corporation ("ATEL"), the Manager of the Fund, and its affiliates
have extensive experience in the equipment leasing industry, including: (i)
originating and financing leveraged and single investor lease transactions for
corporate investors, (ii) acting as a broker/packager by arranging equity and
debt participants for equipment leasing transactions originated by other
companies, (iii) consulting on the pricing and structuring of equipment lease
transactions for banks, leasing companies and corporations, (iv) organizing and
offering individual ownership and limited partnership investment leasing
programs and (v) supervising and arranging for the supervision of equipment
management and marketing on leasing transactions involving total equipment costs
in excess of $1.8 billion.
In addition to the Fund, ATEL has sponsored eight prior public and one private
equipment leasing limited partnerships. See "Prior Performance Summary" for a
summary of information regarding such prior programs.
The first prior partnership, ATEL Lease Income Fund 1985-A ("ALIF"), completed a
private placement of $218,500 of its limited partnership interests in April 1986
from a total of 12 investors. ALIF had acquired a variety of equipment with a
total purchase cost of $296,627 as of December 31, 1987. All such equipment had
been sold as of December 31, 1995 and the partnership has ceased operations.
The second prior partnership, ATEL Cash Distribution Fund ("ACDF"), commenced a
public offering of up to $10,000,000 of its limited partnership interests on
March 1, 1986. ACDF terminated its offering on December 18, 1987 after raising a
total of $10,000,000 in offering proceeds from a total of approximately 1,000
investors, all of which proceeds were committed to equipment acquisitions,
organization and offering expenses and capital reserves. ACDF acquired a variety
of types of equipment with a total purchase cost of $11,133,679. All such
equipment had been sold as of December 31, 1997.
Through December 31, 1997, ACDF had made cash distributions to its investors in
the aggregate amount of $1,121.03 per $1,000 invested. Of this amount a total of
$244.89 represents investment income and $876.14 represents return of capital.
The third prior partnership, ATEL Cash Distribution Fund II ("ACDF II"),
commenced a public offering of up to $25,000,000 (with an option to increase the
offering to $35,000,000) of its limited partnership interests on January 4,
1988. ACDF II terminated its offering on January 3, 1990 after raising a total
of $35,000,000 in offering proceeds from a total of approximately 3,100
investors, all of which proceeds were committed to equipment acquisitions,
organization and offering expenses and capital reserves. ACDF II acquired a
variety of types of equipment with a total purchase cost of $52,270,536. All
such equipment had been sold as of December 31, 1998.
Through December 31, 1998, ACDF II had made cash distributions to its investors
in the aggregate amount of $1,222.63 per $1,000 invested. Of this amount a total
of $335.43 represents investment income and $887.20 represents return of
capital.
The fourth prior partnership, ATEL Cash Distribution Fund III ("ACDF III"),
commenced a public offering of up to $50,000,000 (with an option to increase the
offering to $75,000,000) of its limited partnership interests on January 4,
1990. ACDF III terminated its offering on January 3, 1992 after raising a total
of $73,855,840 in offering proceeds from a total of approximately 4,822
investors, all of which proceeds were committed to equipment acquisitions,
organization and offering expenses and capital reserves. ACDF III acquired a
variety of types of equipment with a total purchase cost of $99,629,942. Of such
equipment, items representing an original purchase cost of $99,617,789 had been
sold as of June 30, 2000.
A-1
Through June 30, 2000, ACDF III had made cash distributions to its investors in
the aggregate amount of $1,282.31 per $1,000 invested. Of this amount a total of
$351.28 represents investment income and $931.03 represents return of capital.
The fifth prior partnership, ATEL Cash Distribution Fund IV ("ACDF IV"),
commenced a public offering of up to $75,000,000 of its limited partnership
interests on February 4, 1992. ACDF IV terminated its offering on February 3,
1993 after raising a total of $75,000,000 in offering proceeds from a total of
approximately 4,873 investors, all of which proceeds were committed to equipment
acquisitions, organization and offering expenses and capital reserves. ACDF IV
acquired a variety of types of equipment with a total purchase cost of
$108,734,880. Of such equipment, items representing an original purchase cost of
$84,464,176 had been sold as of December 31, 1999.
Through June 30, 2000, ACDF IV had made cash distributions to its investors in
the aggregate amount of $1077.88 per $1,000 invested. Of this amount a total of
$285.52 represents investment income and $792.36 represents return of capital.
The sixth prior partnership, ATEL Cash Distribution Fund V ("ACDF V"), commenced
a public offering of up to $125,000,000 of its limited partnership interests on
February 22, 1993. ACDF V terminated its offering on November 15, 1994. As of
that date, $125,000,000 of offering proceeds had been received from
approximately 7,217 investors. All of the proceeds were committed to equipment
acquisitions, organization and offering expenses and capital reserves. ACDF V
acquired a variety of types of equipment with a total purchase cost of
$186,995,157 as of June 30, 2000. Of such equipment, items representing an
original purchase cost of $67,403,080 had been sold as of December 31, 1999.
Through June 30, 2000, ACDF V had made cash distributions to its investors in
the aggregate amount of $760.99 per $1,000 invested. Of this amount a total of
$153.67 represents investment income and $607.32 represents return of capital.
The seventh prior partnership, ATEL Cash Distribution Fund VI ("ACDF VI"),
commenced a public offering of up to $125,000,000 of its limited partnership
interests on November 23, 1994. ACDF VI terminated its offering on November 22,
1996. As of that date, $125,000,000 of offering proceeds had been received from
approximately 6,401 investors. All of the proceeds were committed to equipment
acquisitions, organization and offering expenses and capital reserves. ACDF VI
acquired a variety of types of equipment with a total purchase cost of
$208,277,121 as of June 30, 2000. Of such equipment, items representing an
original purchase cost of $50,712,500 had been sold as of June 30, 2000.
Through June 30, 2000, ACDF VI had made cash distributions to its investors in
the aggregate amount of $528.08 per $1,000 invested. Of this amount a total of
$29.49 represents investment income and $498.59 represents return of capital.
See Table III - "Operating Results of Prior Programs" in this Exhibit A for
further information concerning such distributions. See Table V - "Acquisition of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment acquired by ACDF VI. See Table VI - "Sales or Disposals of
Equipment" in Exhibit A.
The eighth prior partnership, ATEL Capital Equipment Fund VII ("ACEF VII"),
commenced a public offering of up to $150,000,000 of its limited partnership
interests on November 29, 1996. ACEF VII terminated its offering on November 29,
1998. As of that date, $150,000,000 of offering proceeds had been received from
approximately 5,348 investors. All of the proceeds were committed to equipment
acquisitions, organization and offering expenses and capital reserves. ACEF VII
had acquired a variety of types of equipment with a total purchase cost of
$287,743,685 as of June 30, 2000. Of such equipment, items representing an
original purchase cost of $16,945,323 had been sold as of June 30, 2000.
Through June 30, 2000, ACEF VII had made cash distributions to its investors in
the aggregate amount of $324.64 per $1,000 invested. Of this amount a total of
$51.77 represents investment income and $272.87 represents return of capital.
See Table III - "Operating Results of Prior Programs" in this Exhibit A for
further information concerning such distributions. See Table V - "Acquisition of
Equipment by Prior Programs" in Exhibit A for further information concerning the
types of equipment acquired by ACEF VII. See Table VI - "Sales or Disposals of
Equipment" in Exhibit A.
A-2
The ninth prior partnership, ATEL Capital Equipment Fund VIII ("ACEF VIII"),
commenced a public offering of up to $150,000,000 of its limited partnership
interests on December 7, 1998. ACEF VIII had not yet terminated its offering as
of June 30, 2000. As of that date, $107,169,250 of offering proceeds had been
received from approximately 6,000 investors. All of the proceeds were committed
to equipment acquisitions, organization and offering expenses and capital
reserves. ACEF VIII had acquired a variety of types of equipment with a total
purchase cost of $203,263,258 as of August 31, 2000. Of such equipment, items
representing an original purchase cost of approximately $46,537 had been sold as
of August 31, 2000.
Through June 30, 2000, ACEF VIII had made cash distributions to its investors in
the aggregate amount of $10.60 per $1,000 invested. All of this amount
represents return of capital. See Table III - "Operating Results of Prior
Programs" in this Exhibit A for further information concerning such
distributions. See Table V - "Acquisition of Equipment by Prior Programs" in
Exhibit A for further information concerning the types of equipment acquired by
ACEF VII. See Table VI - "Sales or Disposals of Equipment" in Exhibit A.
Although certain of the Prior Programs have experienced lessee defaults in the
ordinary course of business, none of the Prior Programs has experienced an
unanticipated rate of default or major adverse business developments which the
Fund Manager believes will impair its ability to meet its investment objectives.
All of the Prior Programs have investment objectives that are similar to those
of the Fund. It should be noted, however, that the prior privately placed
program, ALIF, invested in equipment without the use of any acquisition debt,
while Prior Programs ("Prior Public Programs") were designed to use moderate
amounts of acquisition debt, as is the Fund. In addition, as in the case of the
Fund's portfolio objectives, the Prior Public Programs' equipment portfolios
placed greater emphasis on relatively low technology equipment than did ALIF.
The factors considered by the Manager in determining that the investment
objectives of the prior programs were similar to those of the Fund include the
types of equipment to be acquired, the structure of the leases to such
equipment, the credit criteria for lessees, the intended investment cycles, the
reinvestment policies and the investment goals of each program. Therefore all of
the information set forth in Tables included in this Exhibit A - "Prior
Performance Information" may be deemed to relate to programs with investment
objectives similar to those of the Fund.
In Tables I through III information is presented with respect to all Prior
Programs sponsored by the Manager and its Affiliates which closed their
offerings within the five year period ending December 1, 2000. Table VI includes
information regarding all dispositions of equipment by prior programs through
June 30, 2000. The following is a list of the tables set forth on this Exhibit
A:
TABLE I Experience in Raising and Investing Funds
TABLE II Compensation to the General Partners
TABLE III Operating Results of Prior Programs
TABLE IV Results of Completed Programs
TABLE V Acquisition of Equipment by Prior Programs
TABLE VI Sales or Disposals of Equipment
ATEL will provide to any investor, upon written request and without charge,
copies of the most recent Annual Reports on Form 10-K filed with the Securities
and Exchange Commission by each Prior Public Program and will provide to any
investor, for a reasonable fee, copies of the exhibits to such reports.
INVESTORS IN THE PARTNERSHIP WILL HAVE NO 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.
In addition to Tables I through VI, two summary charts are set forth
below. Figure 6 is a summary of cash distributions through July 31,2000 by each
Prior Public Program, expressed as a percentage of an initial investor's
original capital contribution and divided into the portions of such
distributions which have been characterized in the Prior Program's financial
statements as a return of capital, on the one hand, and net income, on the
other.
[FIGURE 6 - GRAPHIC OMITTED]
Figure 7 below illustrates the disposition of equipment after
expiration of the initial lease term for equipment coming off lease through
June 15, 2000 for all Prior Public Programs that had completed their public
offerings as of such date. The dispositions are characterized as (i) short term
renewals by the lessees (for terms of less than 12 months), (ii) long term
renewals by the lessees (for terms of at least 12 months), (iii) equipment
purchased by the lessee and (iv) equipment returned by the lessee to the Prior
Public Program for sale or lease to another party.
[FIGURE 7 - GRAPHIC OMITTED]
A-3
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(on a percentage basis)
June 30, 2000
(Unaudited)
The following Table sets forth certain information concerning the experience of
the General Partners in raising and investing funds. A percentage analysis of
the application of the proceeds raised is presented.
ATEL Cash ATEL Capital ATEL Capital
Distribution Equipment Equipment
Fund VI Fund VII Fund VIII
EQUITY PROCEEDS
Dollar amount of equity offered $ 125,000,000 $150,000,000 $150,000,000
Dollar amount of equity raised $ 125,000,000 $150,000,000 $107,169,250
----------------- ----------------- -----------------
Less: Offering expenses:
Selling commissions 9.50% 9.50% 9.50%
Organization and program expenses (1) 4.70% 4.67% 4.73%
Reserves 1.50% 0.50% 0.50%
----------------- ----------------- -----------------
Percent available for investment 84.30% 85.33% 85.27%
Acquisition costs:
Purchase price (2) 79.80% 85.33% 85.27%
Acquisition fees 4.50% - -
----------------- ----------------- -----------------
84.30% 85.33% 85.27%
----------------- ----------------- -----------------
Percent leverage (3) 46.12% 36.60% 39.58%
================= ================= =================
Date offering commenced: Nov. 23, 1994 Nov. 29, 1996 Dec. 7, 1998
Length of offering 24 Months 24 Months N/A (6)
Months to invest 90% of amount available for
investment (measured from beginning of offering) 24 Months (4) 24 Months (5) N/A (6)
FOOTNOTES:
(1) Includes organization, legal, accounting, printing, binding, delivery and
other costs incurred by the General Partner.
(2) Represents amounts paid to unrelated third parties for purchase of equipment
under leases.
(3) The percentage leverage is calculated by dividing the initial principal
amount of debt incurred by the program through the date of this table by the
aggregate original cost of all equipment purchased by the program through such
date. It should be noted, however, that each program has acquired assets, has
made or will make principal amortizing debt service payments and/or has disposed
or will dispose of assets over a period of time extending from its first
investment in equipment. As a result, for each program the total cost of the
assets in its portfolio and the total principal amount of debt outstanding have
fluctuated from time to time. The percentage figure, therefore, does not reflect
the current leverage ratio or the debt ratio at any one point in time, but
constitutes an aggregate ratio for the life of the program through the date of
the table.
(4) As of November 22, 1996, the Partnership's offering of Limited Partnership
Units was completed. As of that date, the proceeds of the offering had been
fully committed.
(5) As of November 29, 1998, the Partnership's offering of Limited Partnership
Units was completed. As of that date, the proceeds of the offering had been
fully committed.
(6) As of June 30, 2000 the Company's offering of Limited Liability Company
Units had not been completed. As of that date, the proceeds of the offering had
been fully committed.
A-4
TABLE II
COMPENSATION TO THE GENERAL PARTNERS
June 30, 2000
(Unaudited)
The following Table sets forth certain information concerning the compensation
derived by the General Partner. Amounts paid are from two sources: proceeds of
the offering and gross revenues.
ATEL Cash ATEL Capital ATEL Capital
Distribution Equipment Equipment
Fund VI Fund VII Fund VIII
Date offering commenced Nov. 23, 1994 Nov. 29, 1996 Dec. 7, 1998
Date offering closed Nov. 22, 1996 Nov. 29, 1998 N/A (2)
Dollar amount raised $ 125,000,000 $150,000,000 $107,169,250
Amounts paid to General Partners from proceeds of offering:
Acquisition fees $ 5,625,000 None None
Selling commissions $ 1,711,446 $ 1,922,703 $ 1,451,341
Organization and program costs $ 5,875,000 $ 7,000,000 $ 5,072,616
Dollar amount of cumulative cash generated from operations
before deducting payments to the General Partner $ 101,894,575 $ 72,516,802 $ 15,165,338
Cumulative amount paid to the General Partner from
operations:
Management fees $ 5,979,924 $ 4,689,030 $ 1,036,920
Other operating expenses $ 2,763,437 $ 2,563,365 $ 1,307,968
Aggregate payments to General Partner: (1)
1995 $ 12,837,117
1996 13,208,900
1997 1,969,649 $ 10,657,867
1998 1,822,010 14,212,252
1999 1,575,230 2,448,883 $ 13,056,922
2000 705,455 1,183,393 5,772,916
----------------- ----------------- -----------------
$ 32,118,361 $ 28,502,395 $ 18,829,838
================= ================= =================
FOOTNOTES:
(1) As of June 30, 2000. Includes payments of management fees, reimbursements of
syndication costs to general partner (and affiliates), acquisition fees and
reimbursements of administrative costs.
(2) As of June 30, 2000 the Company's offering had not been terminated. The
offering will terminate on or before November 30, 2000.
A-5
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
June 30, 2000
(Unaudited)
The following Table summarizes the operating results of Prior Programs (ACDF VI,
ACEF VII and ACEF VIII). The Programs' records are maintained in accordance with
generally accepted accounting principles for financial statement purposes.
ATEL Cash Distribution Fund VI
Period Ended
December 31,
1995 1996 1997
---- ---- ----
Months of operations 12 12 12
Gross revenue - lease and other $ 6,440,218 $ 25,837,343 $ 36,458,734
- gain (loss) on sales of assets 3,819 (107,873) 26,431
---------------- --------------- ---------------
6,444,037 25,729,470 36,485,165
Less Operating Expenses: (1)
Depreciation and amortization expense 4,976,075 19,298,500 27,596,548
Provision for losses 64,892 257,814 364,852
Interest expense 931,651 5,773,463 7,993,746
Administrative costs and reimbursements 539,009 748,745 435,759
Legal/Professional fees 50,962 186,724 91,625
Other 121,541 612,698 807,883
Management fee 362,581 1,061,856 1,492,716
---------------- --------------- ---------------
7,046,711 27,939,800 38,783,129
---------------- --------------- ---------------
Net income (loss) - GAAP basis $ (602,674) $ (2,210,330) $ (2,297,964)
================ =============== ===============
Taxable income (loss) from operations $ (11,625,618) $ (27,319,391) $ (22,433,132)
================ =============== ===============
Cash generated by (used in) operations (2) $ 4,354,020 $ 13,940,220 $ 23,899,770
Cash generated from sales 54,156 636,397 406,362
Cash generated from refinancing - - -
Cash generated from other (2) 195,884 501,623 685,665
---------------- --------------- ---------------
4,604,060 15,078,240 24,991,797
Less cash distributions to investors:
From operating cash flow 2,484,971 8,719,731 12,475,238
From sales - - -
From refinancing - - -
From other - - -
---------------- --------------- ---------------
Total distributions 2,484,971 8,719,731 12,475,238
---------------- --------------- ---------------
Cash generated (deficiency) after cash distributions $ 2,119,089 $ 6,358,509 $ 12,516,559
================ =============== ===============
Tax and distribution data per $1,000 limited partner investment:
Federal Income Tax Results:
Ordinary income (loss):
Operations $ (364.88) $ (346.74) $ (177.67)
Recapture
Capital gain (loss)
Cash distributions to investors on a GAAP basis:
- Investment income
- Return of capital $ 78.78 $ 92.53 $ 99.80
---------------- --------------- ---------------
$ 78.78 $ 92.53 $ 99.80
================ =============== ===============
Sources (on a cash basis)
Sales
Refinancing
Operations $ 78.78 $ 92.53 $ 99.80
Other - - -
---------------- --------------- ---------------
Total $ 78.78 $ 92.53 $ 99.80
================ =============== ===============
Amount invested in program equipment (cost, excluding
acquisition fees) $ 98,036,611 $ 204,553,244 $ 206,090,008
Amount invested in program equipment (book value) $ 92,802,029 $ 185,510,097 $ 158,856,251
Amount remaining invested in program equipment (Cost
of equipment owned at end of period as a percentage of
cost of all equipment purchased by the program) (3) 47.07% 98.21% 98.95%
(Footnotes follow on page A-10)
A-6
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
June 30, 2000
(Unaudited)
ATEL Cash Distribution Fund VI
Period Ended
------------
December 31, June 30,
------------ --------
1998 1999 2000
---- ---- ----
Months of operations 12 12 6
Gross revenue - lease and other $ 35,362,991 $ 34,138,161 $ 11,753,195
- gain (loss) on sales of assets 786,070 262,067 4,103,425
---------------- --------------- ---------------
36,149,061 34,400,228 15,856,620
Less Operating Expenses: (1)
Depreciation and amortization expense 26,193,147 22,710,097 9,070,151
Provision for losses and doubtful accounts 97,528 5,396,281 -
Interest expense 6,557,551 4,783,105 1,730,157
Administrative costs and reimbursements 427,872 397,125 214,927
Legal/Professional fees 74,390 65,918 68,930
Other 693,512 776,273 363,011
Management fee 1,394,138 1,178,105 490,528
---------------- --------------- ---------------
35,438,138 35,306,904 11,937,704
---------------- --------------- ---------------
Net income (loss) - GAAP basis $ 710,923 $ (906,676) $ 3,918,916
================ =============== ===============
Taxable income (loss) from operations $ (3,932,316) $ 3,551,441 $ 4,000,000 (4)
================ =============== ===============
Cash generated by (used in) operations (2) $ 24,079,438 $ 23,773,594 $ 11,847,533
Cash generated from sales 3,357,017 1,802,696 18,853,784
Cash generated from refinancing - - -
Cash generated from other (2) 428,622 255,610 113,574
---------------- --------------- ---------------
27,865,077 25,831,900 30,814,891
Less cash distributions to investors:
From operating cash flow 12,500,645 13,058,314 6,562,374
From sales - - -
From refinancing - - -
From other - - -
---------------- --------------- ---------------
Total distributions 12,500,645 13,058,314 6,562,374
---------------- --------------- ---------------
Cash generated (deficiency) after cash distributions $ 15,364,432 $ 12,773,586 $ 24,252,517
================ =============== ===============
Tax and distribution data per $1,000 limited partner investment:
Federal Income Tax Results:
Ordinary income (loss):
Operations $ (31.14) $ 28.13 $ 31.68
Recapture
Capital gain (loss)
Cash distributions to investors on a GAAP basis:
- Investment income $ 5.63 $ (7.18) $ 31.04
- Return of capital 94.37 111.65 21.46
---------------- --------------- ---------------
$ 100.00 $ 104.47 $ 52.50
================ =============== ===============
Sources (on a cash basis)
Sales
Refinancing
Operations $ 100.00 $ 104.47 $ 52.50
Other - - -
---------------- --------------- ---------------
Total $ 100.00 $ 104.47 $ 52.50
================ =============== ===============
Amount invested in program equipment (cost, excluding
acquisition fees) $ 199,708,088 $ 192,691,365 $ 158,931,933
Amount invested in program equipment (book value) $ 129,566,007 $ 99,946,381 $ 76,012,297
Amount remaining invested in program equipment (Cost
of equipment owned at end of period as a percentage of
cost of all equipment purchased by the program) (3) 95.89% 92.52% 76.31%
(Footnotes follow on page A-10)
A-7
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
June 30, 2000
(Unaudited)
ATEL Capital Equipment Fund VII
Period Ended
December 31, June 30,
------------ --------
1997 1998 1999 2000
---- ---- ---- ----
Months of operations 12 12 12 6
Gross revenue - lease and other $ 7,370,229 $ 35,399,754 $ 38,849,918 $ 21,672,141
- gain (loss) on sales of assets 3,752 1,795,336 784,853 250,312
--------------- ---------------- --------------- ---------------
7,373,981 37,195,090 39,634,771 21,922,453
Less Operating Expenses: (1)
Depreciation and amortization expense 5,847,827 22,861,169 24,868,782 13,252,126
Provision for losses and doubtful accounts 74,277 56,955 6,779,040 -
Interest expense 714,701 5,473,480 6,082,904 2,826,516
Administrative costs and reimbursements 645,437 1,056,746 556,577 304,605
Legal/Professional fees 90,305 151,183 146,794 76,944
Other 380,821 756,971 1,467,738 450,674
Management fee 358,846 1,559,090 1,892,306 878,788
--------------- ---------------- --------------- ---------------
8,112,214 31,915,594 41,794,141 17,789,653
--------------- ---------------- --------------- ---------------
Net income (loss) - GAAP basis $ (738,233) $ 5,279,496 $ (2,159,370) $ 4,132,800
=============== ================ =============== ===============
Taxable income (loss) from operations $ (7,867,498) $ (26,502,705) $ (30,943,906) $ 10,000,000 (4)
=============== ================ =============== ===============
Cash generated by (used in) operations (2) $ 6,061,438 $ 21,650,163 $ 29,817,476 $ 14,987,725
Cash generated from sales 130,413 4,742,122 2,469,199 4,368,359
Cash generated from refinancing - - - -
Cash generated from other (2) 232,472 2,345,113 3,406,564 2,586,114
--------------- ---------------- --------------- ---------------
6,424,323 28,737,398 35,693,239 21,942,198
Less cash distributions to investors:
From operating cash flow 2,684,635 9,798,122 14,977,030 8,102,696
From sales - - - -
From refinancing - - - -
From other - - - -
--------------- ---------------- --------------- ---------------
Total distributions 2,684,635 9,798,122 14,977,030 8,102,696
--------------- ---------------- --------------- ---------------
Cash generated (deficiency) after cash distributions $ 3,739,688 $ 18,939,276 $ 20,716,209 $ 13,839,502
=============== ================ =============== ===============
Tax and distribution data per $1,000 limited partner investment:
Federal Income Tax Results:
Ordinary income (loss):
Operations $ (230.41) $ (228.48) $ (190.87) $ 61.68
Recapture
Capital gain (loss)
Cash distributions to investors on a GAAP basis:
- Investment income $ (5.91) $ 45.51 $ (13.32) $ 25.49
- Return of capital 85.33 45.81 113.19 28.54
--------------- ---------------- --------------- ---------------
$ 79.42 $ 91.32 $ 99.87 $ 54.03
=============== ================ =============== ===============
Sources (on a cash basis)
Sales
Refinancing
Operations $ 79.42 $ 91.32 $ 99.87 $ 54.03
Other - - - -
--------------- ---------------- --------------- ---------------
Total $ 79.42 $ 91.32 $ 99.87 $ 54.03
=============== ================ =============== ===============
Amount invested in program equipment (cost,
excluding acquisition fees) $ 149,409,976 $ 268,896,594 $ 279,610,891 $ 270,798,357
Amount invested in program equipment (book value) $ 101,284,861 $ 204,329,984 $ 183,993,816 $ 164,233,222
Amount remaining invested in program equipment
(Cost of equipment owned at end of period as a
percentage of cost of all equipment purchased
by the program) (3) 51.92% 98.38% 97.17% 94.11%
(Footnotes follow on page A-10)
A-8
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
June 30, 2000
(Unaudited)
ATEL Capital Equipment Fund VIII
Period Ended
December 31, June 30,
1999 2000
---- ----
Months of operations 12 6
Gross revenue - lease and other $ 8,657,636 $ 13,160,539
- gain (loss) on sales of assets 3,017 1,453
---------------- ---------------
8,660,653 13,161,992
Less Operating Expenses: (1)
Depreciation and amortization expense 5,392,504 10,183,852
Provision for losses and doubtful accounts - -
Interest expense 1,340,804 3,310,610
Administrative costs and reimbursements 767,386 540,582
Legal/Professional fees 155,743 40,910
Other 121,438 66,929
Management fee 443,943 592,977
---------------- ---------------
8,221,818 14,735,860
---------------- ---------------
Net income (loss) - GAAP basis $ 438,835 $ (1,573,868)
================ ===============
Taxable income (loss) from operations $ (13,620,427) $ (20,000,000)(4)
================ ===============
Cash generated by (used in) operations (2) $ 5,743,245 $ 9,422,093
Cash generated from sales 38,178 9,520
Cash generated from refinancing -
Cash generated from other (2) 951,549 899,922
---------------- ---------------
6,732,972 10,331,535
Less cash distributions to investors:
From operating cash flow 2,460,684 4,117,831
From sales - -
From refinancing - -
From other - -
---------------- ---------------
Total distributions 2,460,684 4,117,831
---------------- ---------------
Cash generated (deficiency) after cash distributions $ 4,272,288 $ 6,213,704
================ ===============
Tax and distribution data per $1,000 limited partner investment:
Federal Income Tax Results:
Ordinary income (loss):
Operations $ (31.25) $ (20.23)
Recapture
Capital gain (loss)
Cash distributions to investors on a GAAP basis:
- Investment income $ 1.01 $ (1.59)
- Return of capital 5.09 6.09
---------------- ---------------
$ 6.10 $ 4.50
================ ===============
Sources (on a cash basis)
Sales
Refinancing
Operations $ 6.10 $ 4.50
Other - -
---------------- ---------------
Total $ 6.10 $ 4.50
================ ===============
Amount invested in program equipment (cost, excluding
acquisition fees) $ 142,755,301 $ 179,451,848
Amount invested in program equipment (book value) $ 139,420,208 $ 165,514,384
Amount remaining invested in program equipment (Cost
of equipment owned at end of period as a percentage of
cost of all equipment purchased by the program) (3) 70.13% 99.97%
(Footnotes follow on page A-10)
A-9
FOOTNOTES:
(1) Operating expenses include reimbursements to the corporate general partner
as follows:
ATEL Cash ATEL Capital ATEL Capital
Year ended Distribution Equipment Equipment
December 31, Fund VI Fund VII Fund VIII
------------- ------- -------- ---------
1995 $ 539,009
1996 748,745
1997 435,759 $ 645,437
1998 427,872 1,056,746
1999 397,125 556,577 $ 767,386
2000 214,927 304,605 540,582
--------------------- --------------------- ---------------
$ 2,763,437 $ 2,563,365 $ 1,307,968
===================== ===================== ===============
(2) Cash generated by (used in) operations does not include the principal
portion of lease rentals received under direct financing leases. In the
partnerships' statements of cash flows (under generally accepted accounting
principles), these amounts are included in the investing activities section.
(3) The percentage is calculated as a fraction, the numerator of which is the
amount invested in program equipment (at cost) as of the end of the indicated
period and the denominator of which is the cumulative total of the cost of all
equipment acquired by the program through the end of the latest period shown.
(4) Estimated taxable income (loss) as of June 30, 2000.
A-10
TABLE IV
RESULTS OF COMPLETED PROGRAMS
June 30, 2000
(Unaudited)
Program name: ATEL Cash ATEL Cash
Distribution Fund Distribution Fund II
Dollar amount of equity raised $ 10,000,000 $ 35,000,000
Assets purchased $ 11,133,679 $ 52,270,536
Date of Closing of Offering December 18, 1987 January 3, 1990
Date of first sale of property May 1, 1989 July 1, 1994
Date of final sale of property December 31, 1997 December 31, 1998
Taxand distribution data per $1,000 limited partner investment through December
31, 1999:
Federal Income Tax Results:
Ordinary income (loss):
Operations $ 192.40 $ 154.95
Recapture
Capital gain (loss)
Cash distributions to investors on a GAAP basis:
- Investment income $ 244.89 $ 335.43
- Return of capital 876.14 887.20
------------------- --------------------
1,121.03 1,222.63
Cash available for distribution, reinvested for
investors' accounts 89.05 48.75
------------------- --------------------
Total $ 1,210.08 $ 1,271.38
=================== ====================
Sources (on a cash basis):
Sales $ 136.03 $ 159.92
Refinancing
Operations 969.59 987.33
Other 104.46 124.13
------------------- --------------------
Total $ 1,210.08 $ 1,271.38
=================== ====================
A-11
TABLE V
ACQUISITION OF EQUIPMENT
BY PRIOR PROGRAMS
The following is a summary of Equipment acquisitions and Lessees by the three
most recent prior publicly-registered programs sponsored by ATEL Financial
Corporation and its affiliates. Information concerning the prior programs'
Equipment acquisition is current through August 31, 2000.
Lease
Commence Acquisition Acquisition Percent Lease Type
Lessee Notes Equipment Type Date(s) (1) Cost (2) Fees (3) Leverage(4) Term (5) (6)
- ------ ----- -------------- ----------- -------- -------- ----------- -------- ---
ATEL Cash Distribution Fund VI
A T & T Communications, Inc. 7 Printers Aug-95 to Nov-95 $ 1,578,500 $ 46,200 36 OL
A T & T Communications, Inc. 7 Printers Jul-96 to Dec-96 1,171,302 17,192 34 OL
A T & T Communications, Inc. 7 Printers Nov-97 912,252 28 - 32 OL
A T & T Communications, Inc. 7 Printers Jun-96 to Jul-96 540,181 15,752 28 - 34 OL
American President Trucking 8 Tractors and trailers Nov-95 759,092 22,773 30.18% 8 OL
Company, Ltd.
Applied Magnetics Corporation Manufacturing Sep-96 to Oct-96 7,435,380 223,061 71.50% 60 OL/FP
Applied Magnetics Corporation Sputter Jul-96 3,274,642 98,239 78.86% 60 FP
Armco, Inc. Link-Belt Scrapmaster Oct-95 388,993 11,670 36 OL
Armco, Inc. Data processing Nov-95 67,829 2,035 37 FP
Armco, Inc. Office Automation Jul-96 109,416 3,282 30 FP
Armco, Inc. Office Automation Jan-97 60,655 72 FP
AT&L Railroad Company 9 Covered Hopper Rail Cars Apr-96 35,263 1,050 12 FP
Atchison, Topeka & Santa 10 Containers Oct-94 to Jan-95 9,196,811 298,896 60.53% 84 OL
Fe Railroad Company
ATS Automation Tooling 11 Machine Tools Apr-96 to Oct-96 379,551 77,093 60 FP
Systems, Inc.
ATS Automation Tooling 11 Machine Center Oct-96 to Jan-97 330,901 3,513 60 FP
Systems, Inc.
BJ's Wholesale Club 12 Materials Handling Jul-95 931,635 30,278 63 OL
Burlington Northern Railroad 9, 13 Covered Hopper Rail Cars Apr-96 13,223,438 396,703 21 FP
Canadian Pacific Limited 9 Covered Hopper Rail Cars Apr-96 2,433,113 72,450 13 FP
Cargill, Inc. 9 Covered Hopper Rail Cars Apr-96 352,625 10,500 36 FP
Certified Grocers of Materials Handling Oct-96 637,702 19,131 60 OL
California
CF Industries, Inc. 9 Covered Hopper Rail Cars Apr-96 705,250 21,000 12 FP
Chrysler Corporation Materials Handling Feb-96 to Jul-96 1,749,200 52,476 69.99% 53 - 60 OL
Chrysler Corporation Materials Handling Mar-95 to Dec-95 5,925,384 184,233 66.83% 60 OL
Chrysler Corporation Materials Handling May-96 to Oct-96 2,419,598 69,832 69.93% 52 - 60 OL/FP
Consolidated Rail Locomotives Sep-95 22,353,332 668,372 57.02% 60 OL
Corporation
Consolidated Rail Intermodal Container Jan-96 2,502,750 75,083 60 OL
Corporation Chassis
Coors Transportation Company 14 Refrigerated Trailers Nov-95 797,704 23,931 47.35% 21 OL
Fairmont Homes, Inc. Materials Handling Apr-96 644,565 19,337 60 OL
Federal Paper Board Company Materials Handling Apr-96 to Jun-96 1,740,861 52,226 70.43% 36 - 60 OL
Federal Paper Board Company Materials Handling Jul-95 to Jan-96 5,401,765 166,124 57.05% 36 - 84 OL/FP
General Electric Company - Office Filing System Jan-97 101,685 60 FP
Aircraft Engines
General Motors Corporation Manufacturing Equipment Jul-95 652,232 19,567 36 OL
Gerber Products Company Materials Handling Oct-96 197,035 5,911 60 FP
Hastings Leasing Limited 15 Trucks & Miscellaneous Aug-96 20,242,332 607,270 90.58% 80 FP
Illinois Central Railroad 9 Covered Hopper Rail Cars Apr-96 1,692,600 50,400 12 - 40 FP
Company
IMC Fertilizer, Inc. Rail Tank Cars Sep-95 1,266,374 37,991 27 OL
Mobil Oil Corporation Tractor Jul-96 78,327 2,350 36 OL
A-12
Mobil Oil Corporation Materials Handling Oct-96 185,726 5,256 36 OL
Mobil Oil Corporation Hydraulic Crane Oct-96 160,773 4,823 84 OL
Mobil Oil Corporation 16 Liquid Petroleum Jan-96 to Feb-96 16,110,807 483,324 75.44% 240 FP
Tank Cars
Montana Rail Link, Inc. 9 Covered Hopper Rail Cars Apr-96 1,198,925 35,700 12 FP
Nabisco, Inc. Office Automation Apr-95 709,572 23,061 36 OL
National Steel Corporation Hydraulic Shovels Jul-96 6,245,062 187,352 69.96% 60 OL
National Steel Corporation Steel Yard Equipemt Jan-97 948,705 14,543 48 - 60 OL/FP
National Steel Corporation Steel Yard Equipemt Oct-96 338,674 10,160 75.58% 60 FP
National Steel Corporation Wheel Loaders & Jan-96 to Apr-96 4,710,131 141,304 59.68% 36 - 90 OL/FP
Forklifts
National Steel Corporation Materials Handling, Jul-95 to Oct-95 1,525,887 49,517 66.05% 60 - 90 OL/FP
Tractors & Trailers
National Steel Corporation Cranes & Loaders Jul-96 to Oct-96 1,099,210 32,976 72.33% 36 - 84 OL/FP
NEC Electronics, Inc. 17 Manufacturing Jan-96 18,320,603 66.67% 51 OL/FP
NVR, Inc. Roof Truss Assembly Jul-96 78,484 2,355 84 FP
Omnicom Group, Inc. 18 Office Automation Apr-95 to Oct-95 2,232,559 68,290 36 - 60 OL/FP
Omnicom Group, Inc. 18 Television Production Jul-96 to Oct-96 1,080,056 4,819 48 FP
Equipment
Overnite Transportation Tractors Apr-96 2,140,643 62,961 36 OL
Company
Peerless Eagle Coal 19 Haul Trucks & Jul-95 5,184,875 168,508 59.29% 48 OL
Company Construction
Perdue Transportation 20 Freightliner Tractors Nov-95 536,740 16,102 62.74% 24 OL
Incorporated
Quaker Coal Company Wheel Loaders, Drill Jan-96 3,298,935 98,968 48 FP
& Grader
Quantum Restaurant 21 Restaurant Furniture & Oct-96 253,676 7,610 60 FP
Group, Inc. Fixtures
Quantum Restaurant 21 POS System Nov-96 33,815 60 FP
Group, Inc.
Sebastiani Vineyards, Inc. Bottle Labeler Feb-96 317,520 9,526 60 OL
Signature Flight Support Fuel Trucks Jan-97 1,085,000 85.01% 96 - 132 FP
Corporation
Soo Line Railroad Company 9 Covered Hopper Rail Cars Apr-96 2,256,800 67,200 12 FP
Tarmac America, Inc. 22 Dragline Jul-96 1,441,764 43,253 84 FP
Tarmac America, Inc. 22 Concrete Mixer Trucks Jul-96 to Sep-96 4,787,890 143,637 96 FP
Tarmac America, Inc. 22 Construction Equipment Oct-94 to Nov-94 3,114,870 101,233 71.69% 97 FP
TASC, Inc. Office Automation Jan-96 to Jul-96 1,018,030 30,542 36 FP
TASC, Inc. Office Automation May-95 to Oct-95 1,567,339 50,413 18 - 36 OL/FP
TASC, Inc. OfficeAutomation Oct-96 to Jul-97 2,654,244 11,629 36 FP
Trans Ocean Container 23 Intermodal Containers Jan-96 9,995,127 299,854 120 FP
Corporation
Tyson Foods, Inc. Office Automation Jun-95 563,411 18,311 24 OL
Xerox Corporation Binding & Finishing Feb-95 to Jun-95 646,466 19,981 48 OL
Equipment
Xerox Corporation Materials Handling May-95 to Aug-95 144,527 4,456 44 OL
-------------- ------------
ATEL Cash Distribution Fund VI total: $208,277,121 $ 5,623,585
============== ============
ATEL Capital Equipment Fund VII
A.P.Moller (Maersk) 24 Intermodal Containers Jan-98 $ 2,280,100 52 OL
Alliant Techsystems, Inc. Semiconductor Equipment Jan-98 138,505 8 - 16 OL
Anchor Glass Container Office Automation Jan-98 404,995 18 FP
Corporation
Anchor Glass Container Glass Packaging Jan-98 371,282 33.52% 3 - 6 OL
Corporation Equipment
Anna Offshore Inc. 10 Offshore supply vessels Apr-98 15,000,000 36 OL
Applied Magnetics Corporation Manufacturing Equipment Jul-97 4,152,810 85.33% 60 FP
Applied Magnetics Corporation Wafer Fabrication Dec 97 - Jan 98 7,975,841 60 - 63 FP
Equipment
Archer Daniels Midland 25 Rail Tank Cars Jan-98 42,875 6 OP
Company
Arkansas Electric Surface Mining Jan-99 7,933,630 66 OL
Cooperatives
A-13
Atmel Corporation Semiconductor Jan-98 4,114,596 96 FP
Manufacturing
Equipment
Avon Products, Inc. Office Automation Jan-98 29,415 17 FP
Blue Star Line Ltd. 24 Intermodal Containers Jan-98 3,573,462 60 OL
Burlington Northern & Santa Ge B39-8 Diesel Electric Jul-98 16,362,000 36 OL
Fe Railroad Locomotives
Burlington Northern & Santa Containers Oct-98 9,280,000 84 OL
Fe Railroad
Burlington Northern Railroad 26, 27 GE Locomotives Dec-96 5,010,960 13 OL
Company
Cargill, Inc. Covered Hopper Railcar Sep-98 2,708,564 88 FP
Cargill, Inc. Covered Hopper Railcar Sep-98 1,173,946 28 FP
Cargill, Inc. 9 Covered Hopper Railcars Jan-97 6,534,000 72 FP
Certified Grocers of Forklifts Jan-99 41,025 60 OL
California, Ltd.
Certified Grocers of Forklifts Jul-98 810,792 60 OL
California, Ltd.
Chrysler Corporation Material Handling Oct 96 - Dec 96 982,293 60 OL/HP
Equipment
Columbus & Greenville 9 Boxcars Jan-97 667,000 16 FP
Railway Company
Consolidated Diesel Company Copiers Jan-98 15,697 10 - 13 FP
Consolidated Diesel Company Machine Tools Jan-98 15,161 14 OL
Consolidated Rail Corporation Intermodal Containers Sep 97 - Nov 97 3,314,000 84 HP
& Chassis
Costain Coal, Inc. Euclid Hual Trucks Jan-98 805,181 58.22% 12 OL
Crowley Foods, Inc. Bag In Box Filler & Line Sep-98 330,496 60 OL
Crowley Foods, Inc. Materials Handling Sep-98 to Oct-98 82,313 36 OL
Equipment
CVS Pharmacy, Inc. Phone Systems Jan-99 3,281,762 60 FP
CVS Pharmacy, Inc. Materials Handling Jun-99 1,152,971 60 FP
Equipment
CVS Pharmacy, Inc. Tractors and Jan-00 3,235,939 84 FP
Semi-Trailers
Danskin, Inc. Textile Manufacturing Jan-98 255,718 6 - 15 OL
Equipment
Dole Fresh Fruit Company 24 Intermodal Containers Jan-98 3,876,170 44 OL
Empire Blue Cross and Office Furniture and Jan-98 696,766 27 FP
Blue Shield Fixtures
Exel Logistics, Inc. Tractors and Jan-98 133,947 3 OL
Semi-Trailers
Far Eastern Shipping Company 24 Intermodal Containers Jan-98 2,257,299 75 HP
Farmland Hydro, L.P. 25 Rail Tank Cars Jan-98 370,808 16 OL
Federal Paperboard Company 28 Rail Log Cars Oct-97 5,624,724 51 OL
First Union Rail Corporation 25, 29 Rail Tank Cars N/A 478,836 N/A N/A
General American Various Tank / Jan-99 8,368,524 84 OL
Hopper Cars
Transportation Company
General Electric Company / Sun Enterprise SVR Aug-98 308,343 36 OL
General Electric Stations
Aircraft Engines
General Electric Company / Measuring Equipment Jun-98 to Aug-98 437,000 84 FP
General Electric
Aircraft Engines
General Electric Company / Machining Centers Aug-98 to Nov-98 212,660 60 OL
General Electric
Aircraft Engines
General Electric Company / Machining Centers Aug-98 to Sep-99 4,217,521 84 OL /FP
General Electric
Aircraft Engines
General Electric Company / Blow Molding Machine Jan-97 906,370 24 OL
General Electric Plastics
General Electric Company / Spectrometers Mar-97 306,545 60 FP
General Electric Plastics
General Electric Company / Trackmobile Railcar Mar-97 166,602 60 OL
General Electric Plastics Mover
General Motors Corporation - Forklifts Jan-98 352,520 17 OL
GM Powertrain Group
Grand Trunk Western 30 Remanufactured High Jan-98 3,342,139 56.64% 24 OL
Railroad Incorporated Cube Boxcars
A-14
Great Salt Lake Minerals 25 Rail Tank Cars Jan-98 481,261 7 OL
Corporation
Hallsmith-Sysco Food 1999 Volvo WG42T Tractor Aug-98 274,485 84 FP
Services, a division
of Sysco Corporation
Hallsmith-Sysco Food 1999 Trailmobile Nov-98 1,054,033 96 FP
Services, a division Refrigerated Trailers
of Sysco Corporation
Hallsmith-Sysco Food Volvo Tractors Apr-98 823,455 84 FP
Services, a division
of Sysco Corporation
Hallsmith-Sysco Food Trailmobile May-98 1,209,055 96 FP
Services, a division Refrigerated Trailers
of Sysco Corporation
Hambros Vendor Leasing 31 Vehicles & Sanitation Sep-97 5,381,076 78.56% 30 - 66 FP
Limited Trucks
Hartz Foods, Inc. Refrigeration Units Jan-98 18,422 9 FP
Hastings Leasing Limited 32 Trucks & Miscellaneous Oct-97 28,811,289 88.85% 29 - 113 FP
Hastings Leasing Limited 32 Medical Equipment Oct-97 8,014,488 91.66% 25 - 81 FP
Henry General Hospital Hematology Analyzers Jan-98 185,700 41 FP
& Upgrades
Hughes Network Systems, Inc. Remote Communication Jan-98 97,237 54.61% 6 - 9 OL
Device
Hyplains Beef, L.C. Racking and Conveyor Jan-98 1,235,019 10 OL
Equipment
IBM Corporation Stereolithography Jan-98 30,026 7 OL
Apparatus
Illinois Central Railroad 9 Boxcars Jan-97 1,610,000 36 FP
Company
International Paper Company Trackmobile Railcar Jan-97 248,952 60 OL
Mover
International Paper Company Knuckle Boom Loader Feb-97 213,095 72 FP
International Paper Company CAT Wheel Loaders Jan 97 - Feb 97 417,700 48 HP
International Paper Company Hydraulic Excavator, Jun 97 - Jul 97 539,438 60 OL
Lift Trucks, Loader
International Paper Company Knuckle Boom/ Sep 97 - Oct 97 926,964 2.84% 48 - 60 OL/HP
Wheel Loaders
International Rectifier Wafer Fabrication Jan-98 589,829 8.45% 1 - 9 OL
Corporation Equipment
Ispat Inland Inc. Shovel and Coal Carriers Jan-00 3,839,698 60 HP/FP
ITO Corporation Forklifts Jan-98 240,488 15 - 31 FP
Kawasaki Kisen Kaisha, 24 Intermodal Containers Jan-98 2,614,728 52 OL
Ltd.(K-Line)
Koppers Industries, Inc. 25 Rail Tank Car Jan-98 5,400 6 OL
Kraft Foods, Inc. Office Furniture/Fixtures Jul-98 to Dec-98 1,228,432 71 - 84 FP
Kraft Foods, Inc. Phone System Nov-97 to Sep-98 1,128,179 53 - 60 FP
Kraft Foods, Inc. Steelcase Office Nov 97 - Dec 98 1,176,869 71 - 84 FP
Furniture & Fixtures
Louisiana Workers' Office Automation Jan-98 2,199 1 OL
Compensation Corporation
Maxtor Corporation 33 Electronic Test Equipment Sep-97 533,698 36 HP
Maxtor Corporation 33 Computer Equipment Jan-98 241,310 6 OL
McDonnell Douglas Helicopter Lift Trucks Apr-98 96,510 60 OL
Company
Midland Enterprises, Inc. 11 Jumbo Hopper Barges Dec-98 4,941,229 25 - 49 OL
Minteq International, Inc. Geotronics Laser Jan 97 - Mar 97 689,350 36 HP
Measuring Machine
Minteq International, Inc. Geotronics Laser Sep 97 - Jan 98 1,019,585 36 HP
Measuring Machines
Mobil Business Resources 34 Helicopters Nov-96 1,650,000 36 OL
Corporation
Mobil Business Resources 34 Helicopter Oct-97 1,160,000 36 OL
Corporation
Mobil Oil Corporation Wheel Loader Jan-98 92,773 36 OL
National Steel Corporation Haul Trucks/Loader/Dozer Oct-98 to Jan-99 7,735,693 60 OL
National Steel Corporation CAT Dozer Tractors Apr-97 734,730 75.36% 60 HP
National Steel Corporation CAT Dozer, Loaders Jul-97 3,666,101 60 OL
National Steel Corporation Motor Grader & Front Oct-97 1,747,828 60 HP
End Loader
National Steel Corporation Crane & Wheel Loader Jan-98 861,344 48 OL
National Steel Corporation Omega Forklift & Loaders Apr-98 1,286,210 60 HP
A-15
Nippon Yusen Kaisha Ltd. 24 Intermodal Containers Jan-98 8,715,760 96 FP
(N.Y.K.Line)
North American Chemical Mini Mag - Flow Meters Jan-98 18,809 5 FP
Company
NVR, Inc. Home Manufacturing Nov-97 137,921 84 FP
Equipment
NVR, Inc. Home Manufacturing Oct-98 370,348 84 FP
Equipment
NVR, Inc. Tee-Lok Roller Aug 97 - Oct 97 591,046 84 FP
Gantry Systems
Omnicom Group, Inc. 18 Office Furniture Jul-97 20,292 60 FP
Omnicom Group, Inc. 18 Office Furniture Jan-98 1,007,401 60 FP
Omnicom Group, Inc. 18 Office Furniture Jul-98 123,277 60 FP
PCS Phosphate Company, Inc. 25 Rail Tank Cars Jan-98 175,000 25 OL
Pentagon Systems, Inc. SMT-1200C Surface Mount Jan-98 106,842 35 FP
Placement System
Pioneer Chlor Alkali Company 25 Rail Tank Cars Jan-98 1,614,144 15 - 60 OL/HP
PlasmaQuest , Inc. Office Automation Jan-98 6,406 8 FP
PVS Technologies, Inc. 25 Rail Tank Cars Jan-98 672,388 6 - 24 OL
Railcar, Ltd. Gondola and Hopper Nov-98 4,550,304 120 OL
Railcars
Ralphs Grocery Company Forklifts Jan-98 275,385 8.49% 2 - 17 FP
Riceland Foods, Inc. 25 Rail Tank Cars Jan-98 130,032 4 OL
Rose Acres Farms, Inc. Food Processing Equipment Jan-98 185,461 62.96% 16 OL
Sarif, Inc. Wafer Fabrication Jan-98 224,702 23 FP
Equipment
Seaboard Commodity Trading 25 Rail Tank Cars Jan-98 525,618 6 - 22 OL
Company
Sebastiani Vineyards, Inc. Wine Barrels Jan-98 872,061 36 - 60 HP/FP
Sebastiani Vineyards, Inc. Wine Barrels Jul-98 201,470 36 HP
Sematec, Inc. Manufacturing Equipment Oct-97 1,303,600 36 HP
Sematec, Inc. Manufacturing Equipment Jul-98 2,400,000 36 OL
Sematech, Inc. Novellus Inova Pvd System Feb-99 3,500,000 36 FP
Sierra Pacific Power 28 Coal Hopper Rail Cars Dec-97 2,600,000 67 OL
Company & Idaho Power
Company
Signature Flight Support Rampmaster Fuel Truck Oct-98 320,700 96 FP
Corporation
Signature Flight Support Fuel Trucks Apr-97 760,000 89.01% 132 FP
Corporation
Signature Flight Support Fuel Trucks Jan-98 620,000 72.64% 96 - 132 FP
Corporation
Signature Flight Support Fuel Truck & Deicer Apr-98 518,997 78.24% 96 FP
Corporation
Signature Flight Support Isuzu Trucks Jul-98 722,275 78.53% 60 HP
Corporation
Signature Flight Support Isuzu Trucks Oct-99 29,409 60 HP
Corporation
Sisseton Milbank 9 Covered Hopper Railcars Jan-97 330,000 36 FP
Railroad, Inc.
Smitty's Super Valu, Inc. Furniture and Fixtures Jan-98 451,861 3 OL
Sony Pictures Sony Monitors Mar-98 1,278,900 36 OL
Entertainment, Inc.
Sony Pictures Cybex / Tectrix Fitness Jan-99 83,642 48 OL
Entertainment,Inc. Equipment
Sony Pictures Laserjet Printers & Dec-98 78,820 36 OL
Entertainment,Inc. Equipment
Southern Illinois Railcar Co. 9 Covered Hopper Railcars Jan-97 462,000 48 FP
Southern Pacific Locomotives Jan-98 397,658 9 OL
Transportation Company
Southwest Health Centre, Inc. Siemens Mammographic Jan-98 13,000 1 OL
System
Stater Brothers Markets Furniture and Fixtures Jan-98 13,643 2 FP
Tarmac America, Inc. / 22 CAT / Michigan Loaders Apr-97 350,000 18 OL
Tarmac Mid Atlantic, Inc.
Tarmac Minerals. Inc. 22 Steel Deck Barges Jan-98 7,335,250 60 OL
TASC, Inc. Office Automation Apr-98 1,143,297 36 HP
TASC, Inc. Office Automation Jul-98 952,230 36 FP
TASC, Inc. Office Automation Oct 97 - Jan 98 1,169,828 36 HP/FP
TASC, Inc. Office Automation Oct-98 581,810 36 HP
TASC, Inc. Office Automation Jan-99 555,260 36 HP
A-16
TASC, Inc. Office Automation Apr-99 1,122,413 36 HP
The Pittston Company Cat D11R Crawler Tractors Oct-98 to Dec-98 2,849,558 48 - 60 OL
Thompson Pipe & Steel Company Phone System, Furniture Jan-98 31,918 1 OL
and Fixtures
Thomson Saginaw Ball Machine Tools Jan-98 488,918 16 OL
Screw Company
Triad International Aircraft Access and Jan-98 954,125 36.77% 3 OL
Maintenance Corporation Ground Support
Equipment
Ultrabeam Lithography, Inc. 35 Manufacturing Feb-99 830,770 48 FP
Ultrabeam Lithography, Inc. 35 Manufacturing Equipment May-98 167,220 48 HP
Ultrabeam Lithography, Inc. 35 Manufacturing Equipment Aug-98 361,634 48 HP
Ultrabeam Lithography, Inc. 35 Technical Instrument Dec-97 269,888 48 HP
Confocal Metrology
System
United States Surgical Assorted Manufacturing Jul-98 3,747,760 120 FP
Corporation Equipment
Universal City Florida Office Automation Oct-98 to Apr-99 1,665,120 36 OL
Partners
Wagner College Desktop PCs Jan-98 91,951 7 - 9 OL
Wayne Farms, a division of Food Processing Equipment Jan-98 64,686 12 OL
Continental Grain Company
Wisconsin Packing Forklifts Jan-98 91,850 25 HP
Company, Inc.
Xerox Corporation FPD Inspection System Jan-98 3,521,046 60 HP
-------------- ------------
ATEL Capital Equipment Fund VII total: $287,743,685 $ -
============== ============
ATEL Capital Equipment Fund VIII
American Oncologic MRI Scanner Jul-00 $ 1,871,181 60 FP
Hospital, Inc.
BJ's Wholesale Club, Inc. Forklifts Apr-99 594,748 60 HP
Burlington Northern and Tri-level Auto Racks Sep-99 1,741,739 40 OL
Santa Fe Railroad
Burlington Northern and Locomotives Dec-99 11,750,000 19 OL
Santa Fe Railroad
Consolidated Diesel Company Telephone System Feb-99 406,030 55 HP
Consolidated Rail Corporation Railroad Gondolas and Jan-00 12,922,864 23.79% 36 OL
Ballast Cars
CSX Transportation, Inc. Rail Boxcars Sep-99 6,782,075 15 OL
CVS Corporation Telecommunications Oct-99 to Oct-00 1,874,614 60 HP
CVS Corporation Materials Handling Apr-00 to Oct-00 2,359,038 60 HP/FP
CVS Corporation Inventory Control Oct-00 207,987 36 HP
E. I. duPont de Lathe Jul-00 324,805 72 FP
Nemours & Company
Emery Worldwide Airlines Aviation Nov-99 5,725,300 32 OL
Emery Worldwide Airlines Aviation Jul-00 7,203,037 54 OL
Finnair OYJ Aviation Dec-99 15,448,037 26.54% 50 OL
General Electric Company 36 Machine Tools Mar-99 to Oct-00 16,666,891 84 OL/FP/HP
General Electric Company 36 Radiographic Inspection Sep-99 to Jan-00 225,876 84 HP
Facility
General Electric Company 36 Other manufacturing Oct-99 to Jul-00 882,964 84 FP
General Electric Company 36 Materials Handling Jan-00 to Aug-00 168,951 36 - 60 OL
General Electric Company 37 Injection Molding Oct-00 1,174,834 36 OL
General Electric Company 37 Extruder systems Oct-00 250,879 60 OL
General Electric Company 37 Extruder systems May-99 281,595 60 OL
Georgia Gulf Corporation Quad Hopper Cars Sep-99 1,416,678 58 OL
Great American Management Rail Boxcars Oct-99 3,627,223 30 OL
Services, Inc.
IMC-Agrico Company Storage Facility Jun-00 6,712,090 78 OL
Ispat Inland Inc. Coil Carriers May-00 867,000 60 OL
Lafarge Gypsum Forklifts Oct-00 766,805 36 OL
Minteq International, Inc. Laser Profiling System Nov-99 303,211 36 HP
National Gypsum Company CAT Loaders / Dozers Jul-00 1,147,259 36 OL
National Steel Corporation CAT Loaders Jan-00 1,135,900 36 OL
NVR, Inc. Home Manufacturing Aug-99 193,414 84 FP
Omnicom Group, Inc. 38 Office Automation Oct-98 1,749,913 36 HP
A-17
Omnicom Group, Inc. 38 Office Furniture Oct-98 321,976 60 FP
Overnite Transportation Conventional Tractors Apr-99 to Oct-00 15,066,231 48 OL
Company
Overnite Transporattion Trailers Jul-00 2,054,380 96 FP
Company
Seamex International, Ltd. 39, 40 Tug Supply Vessel Dec-98 3,952,500 44 OL
Sebastiani Vineyards, Inc. Bottle Filler Jan-00 365,913 84 FP
Sematech, Inc. Manufacturing Equipment Apr-00 1,230,000 36 OL
Solectron Corporation Chip Placers Sep-99 1,496,388 48 OL
Solectron Corporation Chip Placers Dec-99 15,366,268 48 OL
Solectron Corporation Fuji QP Module Jun-00 92,228 45 OL
Southwest Airlines Company 29 Boeing 737 Aircraft Mar-99 3,238,500 50 OL
Staples, Inc. Point of sale Jan-99 2,410,939 60 FP
Staples, Inc. Point of sale Apr-99 681,910 60 FP
Staples, Inc. Point of sale May-99 204,571 60 FP
Staples, Inc. Forklifts May-99 101,480 48 OL
Staples, Inc. Point of sale Sep-99 511,079 60 OL
Staples, Inc. Materials Handling Oct-99 68,030 48 OL
Stewart & Stevenson Gas Compressors Jul-99 to Oct-99 10,781,578 78 - 84 HP
Services, Inc.
Sysco Food Services Albany Refrigerated Trailers Sep-99 to Jun-00 1,499,820 96 FP
Sysco Food Services Albany Tractors Aug-00 935,378 84 FP
TASC, Inc. Office Automation Jul-99 494,787 36 FP
TASC, Inc. Office Automation Oct-99 675,132 36 FP
Transamerica Leasing, Inc. 41 Intermodal Containers Dec-98 21,250,000 120 FP
Union Pacific Fixed-end Gondola Cars Dec-99 5,021,142 72 OL
Railroad Company
Universal City Development Point of sale Apr-99 668,474 60 FP
Partners
Universal City Florida Hotel Laundry Sep-99 3,882,462 84 FP
Hotel Venture
Universal City Florida Office Automation Jul-99 to Jul-00 1,271,203 36 HP
Partners
Whirlpool Corporation Gantry Crane Jan-99 72,763 60 OL
Williams Distributed Power 42 Micro Turbine Systems Jan-00 to Oct-00 2,482,562 60 HP
Services, Inc.
Xerox Corporation Materials Handling Dec-98 to Dec-99 582,626 44 OL
-------------- ------------
ATEL Capital Equipment Fund VIII total: $203,563,258 $ -
============== ============
TOTAL OF ALL FUNDS: $699,584,064 $ 5,623,585
============== ============
A-18
TABLE V ACQUISITION OF EQUIPMENT FOOTNOTES
(1) In many cases, a Lease transaction is funded over a period of time according
to the Lessee's requirements. Therefore "Commencement Date (s)" expressed as a
range represents multiple commencement dates occurring or anticipated under the
same Lease line.
(2) "Acquisition Cost" includes either amounts committed to Lessees for funding
by the program, or the actual Equipment acquisition cost, less any Acquisition
Fees. All figures are rounded.
(3) "Acquisition Fees" include fees accrued by the program as of the Preparation
Date. For partially funded Lease lines, additional fees may be expended by the
program for future acquisitions made pursuant to the terms of the Lease.
(4) "Percent Leverage" represents the percent ratio of the original principal
amount of the debt acquired or assumed by the program, to the Acquisition Cost
of the Equipment. The Equipment may be "leveraged" (where a portion of the
Equipment Acquisition Cost is financed using non-recourse debt financing) at the
time of, or subsequent to, the acquisition of the Equipment by the program.
Therefore, actual leverage ratios may be more or less than indicated due to the
timing of the acquisition of the Equipment in relation to the amortization of
the principal amounts of the debt.
(5) "Lease Term" is expressed in terms of months, although the actual Lease Term
may be expressed as monthly, quarterly, semiannual or annual.
(6) A designation of "FP" indicates that the aggregate rents to be received
during the Lease Term exceed or are equal to the Acquisition Cost of the
Equipment. A designation of "OL" indicates that the aggregate rentals to be
received during the Lease Term are less than the Acquisition Cost. A designation
of "HP" indicates that the aggregate rents to be received during the Lease Term
exceed or are equal to 90% of the Acquisition Cost of the Equipment.
(7) Subject to a remarketing/residual sharing agreement with AT&T Credit
Corporation.
(8) Guaranteed by American President Companies.
(9) Equipment is subject to a full payout management agreement with MRXX
Corporation.
(10) Title to the equipment is held by a special purpose limited partnership.
The General Partner and/or an affiliate is the General Partner of the limited
partnership. The Fund owns a divisable interest in the equipment, as well as a
substantially identical vessel. Interst in a third vessel held by the limited
partnership has been acquired by an investor under a program managed by an
affiliate of the Fund. The Fund has a controlling interest in the limited
partnership.
(11) Title to the equipment is held by a special purpose limited partnership.
The General Partner and/or an affiliate is the General Partner of the limited
partnership. The Fund owns a divisable interest in the equipment. Interst in
additional vessels held by the limited partnership has been acquired by an
investor under a program managed by an affiliate of the Fund. The Fund has a
controlling interest in the limited partnership.
(12) A division of Waban, Inc.
(13) Equipment located in Canada.
(14) Guaranteed by Adolf Coors Company.
A-19
(15) The end-users of the Equipment are various governmental entities in the
United Kingdom.
(16) The equipment and lease is held in a trust. The Fund is the sole owner of
the beneficial interest in the trust.
(17) Guaranteed by NEC Corporation.
(18) Guaranteed by Omnicom Group, Inc. Actual lessees are various subsidiaries
of Omnicom Group Inc.: DDB Needham Worldwide Communications Group Inc.; Griffin
Bacal Inc.; DDB Needham Chicago Inc.; DDB Needham Dallas, Inc.; PGC Advertising,
Inc.; The Focus Agency, LP.; Elgin DDB Inc.; Group Management Services; and TLP,
Inc.
(19) Guaranteed by A.T. Massey Coal Company, Inc.
(20) Guaranteed by Perdue Farms, Inc.
(21) The lessee name represents the guarantor of the lease obligations (which
has since changed its name to the Morton's Restaurant Group, Inc.). Actual
lessees are various subsidiaries of the guarantor.
(22) Tarmac America, Inc.; Tarmac Mid-Atlantic, Inc.; and Tarmac Florida, Inc.
are co-lessees. Guaranteed by Tarmac PLC, a British Limited Liability Company.
(23) The equipment is subject to operating leases and managed by the lessee
under a pooled management arrangement. Rentals are variable. Average monthly
lease payments are estimated based on the minimum lease payments to be received
on similar Equipment owned by a prior program.
(24) Subject to a management agreement with Transamerica Leasing, Inc.
(25) Subject to a management agreement with First Union Rail Corporation.
(26) Title to the Equipment and Lease is held by an equipment trust. A divided
beneficial interest in the trust representing 24 of 34 of the diesel-electric
locomotives is owned by the program. A divided beneficial interest in the trust
representing the remaining 10 diesel-electric locomotives has been assigned to a
non-affiliate, however, such interest continues to be managed by an affiliate of
the program.
(27) Merged and name chacnged to "The Burlington Northern and Santa Fe Railroad
Company."
(28) Title to the equipment is held in a trust. The program has a 100% undivided
beneficial interest in the trust.
(29) The lessee name represents the manager of the rail tank cars. These rail
tank cars are not currently subject to a fixed term lease.
(30) Title to the equipment is held in a trust. A divided beneficial interest in
the trust representing 130 of 291 boxcars is owned by the program. A divided
interest in the trust representing the remaining 161 boxcars continues to be
owned by the seller of the Fund's interest, which seller is a non-affiliate.
(31) The underlying leases in this transaction are to various municipalities in
the United Kingdom. The underlying leases are being managed by Hambros Vendor
Finance Limited and include a residual sharing agreement.
(32) The underlying leases in this transaction are to various municipalities in
the United Kingdom. The underlying leases are being managed by Hastings Leasing
Limited and include a residual sharing agreement.
(33) Guaranteed by Hyundai Electronics Industries Co., Ltd.
(34) Guaranteed by Mobil Corporation. Title to the equipment is held in a trust
where the Fund is the sole beneficial owner.
A-20
(35) Co-lessee under the lease with Ultratech Stepper, Inc., UltraBeam
Lithography, Inc. and Verdant Technologies, Inc. as additional co-lessees.
(36) Lessee is General Electric Company, by its division GE Aircraft Engines.
(37) Lessee is General Electric Company, by its division GE Plastics.
(38) Guaranteed by Omnicom Group, Inc. Actual lessees are various subsidiaries
of Omnicom Group Inc.: The DDB Needham Worldwide Communications Group Inc.;
Griffin Bacal Inc.; DDB Needham Chicago, Inc.; DDB Needham Dallas, Inc.; PGC
Advertising, Inc.; The Focus Agency, LP.; Elgin DDB Inc.; Group Management
Services and TLP, Inc.
(39) Asset is held by a special purpose entity. Acquisition cost represents 51%
of the total cost. The remaining 49% is owned by another program and continues
to be managed by ATEL.
(40) Guaranteed 40% by Seacor Smit, Inc. and 60% by Trasportacion Maritima
Mexicana.
(41) Assets are on short-term sub-leases with various sub-lessees.
(42) Guaranteed by Williams Companies, Inc.
A-21
TABLE VI
SALES OR DISPOSALS OF EQUIPMENT
ATEL Cash Distribution Fund VI, ATEL Capital Equipment Fund VII and ATEL Capital
Equipment Fund VIII have disposed of equipment in their portfolios as of June
30, 2000. Set forth below is a summary of equipment sales and dispositions as of
such date. Sales were for consideration unless otherwise noted. Interim rent
(rent paid prior to formal commencement of a lease), hold-over rent (rent
received after termination of the initial lease term, but before formal
extension or disposition) and extension rent (rent paid after formal extension
of a lease) are included in the "Excess of Rents Over Expenses" column.
"Equipment Acquisition Price" includes acquisition fees. Dispositions are shown
on a per asset basis.
Excess
of
Equipment Rents Over
Acquisition Acquisition Sale Expenses
Lessee Type of Equipment Date (1) Price (2) Sale Date Price (3) (4)
- ------ ----------------- -------- --------- --------- --------- ---
ATEL CASH DISTRIBUTION FUND VI
American President Trucking Tractors Nov-95 $ 759,092 Jul-96 to Apr-97 $ 327,062 $ 225,942
Co., Ltd.
Armco, Inc. Linkbelt Sl6000 Scrapmaster Sep-95 to Jun-96 566,238 Nov-98 to Jan-99 166,938 691,107
At&T Communications, Inc. Printers/Folders Aug-95 to Jan-96 1,607,661 Dec-98 to Mar-99 155,000 1,953,642
Burlington Northern & Santa Fe 48'Aluminum External Sep-94 20,068 Jul-98 to Apr-99 16,287 53,407
Post Containers
Burlington Northern & Santa Fe 48'Aluminum External Nov-94 10,034 Oct-99 7,667 6,413
Post Containers
Consolidated Rail Corporation GM-EMD SD40-2 Diesel Sep-95 13,128,147 Mar-00 11,017,523 8,931,920
Electric Locomotive
Coors Transportation Company Utility Refrigerated Trailer Nov-95 52,024 Jul-98 to Aug-98 19,683 26,969
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Apr-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Apr-98 7,366 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,080 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Apr-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Mar-98 8,380 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 6,734 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Mar-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,024 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Feb-98 9,530 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Feb-98 8,380 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,080 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,024 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,080 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Apr-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Apr-98 9,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,080 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 May-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Mar-98 8,380 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Mar-98 8,507 8,990
Coors Transportation Company Utility Refrigerated Trailer Nov-95 17,341 Jan-98 8,080 8,990
The DDB Needham Worldwide Office Automation Jun-95 to Jun-96 786,108 Jul-99 to Jun-00 179,868 778,002
Genaral Motors Corporation Roboform CNC EDM Machines Jul-95 652,232 Nov-98 240,000 397,992
Hastings Leasing Limited Office Equipment Aug-96 103,752 Sep-98 41,247 231,841
Hastings Leasing Limited Office Automation Aug-96 305,088 Aug-99 to Jan-00 64,919 441,415
International Paper Company Materials Handling Apr-95 to Dec-96 1,307,495 Oct-98 to Jun-99 614,655 991,589
International Paper Company Materials Handling Mar-95 to Apr-96 1,603,379 Jul-99 to Jun-00 533,100 1,645,608
Louis Dreyfus Corporation Jumbo Covered Hopper Mar-96 176,313 Sep-98 to Apr-99 114,125 62,160
Railcars
Mobil Oil Corporation Petroleum Wax Car Feb-96 59,953 Jan-97 64,717 3,597
Mobil Oil Corporation Liquid Petroleum Tank Cars Nov-95 to Feb-96 135,997 May-99 to Jul-99 144,809 360,686
A-22
National Steel Corporation Materials Handling Apr-95 to Jan-96 2,643,021 Jul-99 to May-00 842,511 3,608,355
NEC Electronics, Inc. Manufacturing Sep-96 18,320,604 Jan-00 6,737,469 16,201,544
Omnicom Group, Inc. Office Automation Mar-95 to Jun-95 1,339,140 Jul-98 to Mar-99 170,696 1,402,467
Peerless Eagle Coal Company Driltech C50Kl Drills Jun-95 856,932 Nov-99 to Apr-00 80,000 833,678
Perdue Transportation Freightliner Tandem Tractor Nov-95 280,829 Nov-98 51,452 331,500
Incorporated
Perdue Transportation Tractors Nov-95 47,038 Feb-96 45,838 3,900
Incorporated
Quaker Coal Company Driltech C50Kl Crawler Drill Dec-95 457,497 Apr-00 20,000 494,979
TASC, Inc. Office Automation Mar-95 to Sep-96 973,844 Jul-98 to Jun-99 94,413 1,044,037
TASC, Inc. Office Automation Mar-95 to May-97 2,561,481 Jul-99 to Jun-00 271,904 3,530,919
The Atchison Topeka & Santa Intermodal Containers Jan-94 20,068 Jan-95 21,084 567
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Sep-94 10,034 Jan-95 10,446 335
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Sep-94 20,068 Jan-96 19,973 2,543
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Nov-94 10,034 Feb-95 10,446 1,159
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Nov-94 10,034 Jan-96 10,113 968
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Nov-94 9,633 Apr-96 9,588 1,240
Fe Railroad Company
The Atchison Topeka & Santa Intermodal Containers Nov-94 6,453 Apr-96 6,567 788
Fe Railroad Company
The Burlington Northern & Ext. Post Container Nov-94 9,633 Oct-97 8,767 3,379
Santa Fe Railway Co.
The Burlington Northern & Intermodal Container Sep-94 10,034 Jul-96 9,717 2,225
Santa Fe Railway Company
The Burlington Northern & Intermodal Container Nov-94 10,034 Jul-96 9,855 1,614
Santa Fe Railway Company
The Burlington Northern Utility Refrigerated Nov-95 312,145 Sep-97 to Dec-97 144,951 161,813
Railroad Company Trailers
The Burlington Northern Covered Hopper Cars Mar-96 70,526 Sep-97 to Dec-97 67,033 10,100
Railroad Company
The Burlington Northern Covered Hopper Cars Mar-96 70,000 Dec-96 to Jan-97 59,553 619
Railroad Company
Tracy Locke, Inc. Printers Mar-95 12,470 Sep-95 12,179 1,662
Trans Ocean Container Intermodal Containers Dec-95 53,198 Jul-98 to Jun-99 52,101 22,908
Corporation
Trans Ocean Container Intermodal Containers Dec-95 17,748 Oct-96 to Jan-97 20,730 1,107
Corporation
Trans Ocean Container Intermodal Containers Dec-95 11,063 Jul-97 to Dec-97 12,070 1,986
Corporation
Trans Ocean Container Intermodal Containers Dec-95 9,529 Jun-96 11,167 700
Corporation
Transamerica Leasing Inc. Intermodal Containers Dec-95 40,373 Oct-99 to Jun-00 27,577 77,735
Tyson Foods, Inc. Computers Jun-95 563,411 Jun-97 to Nov-97 66,323 522,877
Tyson Foods, Inc. Computers & Related Jun-95 195,152 Jun-97 23,080 181,113
Equipment
Xerox Corporation Materials Handling and Jan-95 to May-95 53,368 Aug-99 to Sep-99 5,500 43,033
Binding System
------------ ------------ ------------
$50,712,500 $22,849,005 $45,518,890
============ ============ ============
A-23
ATEL CAPITAL EQUIPMENT FUND VII
Anchor Glass Container Glass Packaging Equipment Dec-97 $ 325,684 Nov-98 $ 357,890 $ 116,336
Corporation
Anchor Glass Container Glass Packaging Equipment Apr-98 45,598 Jun-98 60,611 10,086
Corporation
Anchor Glass Container Various Computer Equipment Dec-97 404,995 Jul-99 19,021 456,356
Corporation
Applied Magnetics Manufacturing Dec-97 1,616,665 May-00 to Jun-00 357,525 992,344
Corporation
Avon Products, Inc. DEC Mira 11/83 System Dec-97 29,415 Aug-99 14,800 44,147
Burlington Northern Santa Fe 48'Aluminium Domestic Aug-98 to Sep-98 27,840 Jan-99 30,081 1,224
Container
Burlington Northern Santa Fe 48'Aluminium Domestic Jun-98 to Sep-98 64,960 Jul-99 to May-00 68,992 9,320
Container
Cargill, Inc. Railcars Jan-97 99,000 May-97 to Oct-97 96,747 9,415
Cargill, Inc. Covered Hopper Railcar Sep-98 12,103 Aug-99 18,000 5,253
Cargill, Incorporated Jumbo Covered Hopper Railcar Jan-97 66,000 Jul-99 to Jun-00 57,867 33,427
Consolidated Diesel Company Minolta Copiers Dec-97 15,697 Nov-98 to Mar-99 2,249 16,690
Consolidated Rail Domestic Container Aug-97 10,255 Jan-98 10,752 9,646
Corporation
Consolidated Rail Gooseneck Container Chassis Oct-97 6,315 Oct-99 5,896 1,714
Corporation
Costain Coal, Inc. Vme/Euclid 339Sd Rear Apr-98 805,181 Jun-98 886,985 161,683
Dump Truck
Danskin, Inc. Textile Manufacturing Dec-97 255,717 Aug-98 to Dec-98 248,350 110,500
Equipment
Dole Fresh Fruit Company 40'Hi-Cube Refrigerated Dec-97 91,204 Aug-99 to May-00 96,560 27,748
Container
Empire Blue Cross And Office Furniture Dec-97 696,766 May-00 1 957,747
Blue Shield
Exel Logistics, Inc. 1993 International 8200 Apr-98 88,610 May-98 89,307 16,341
Tractor
Exel Logistics, Inc. 1993 Monon Semi-Trailer Apr-98 45,337 May-98 45,693 8,360
Exxon Mobil Bell 206L-1 Long Ranger Nov-96 1,650,000 Mar-00 1,699,276 914,804
Helicopter
Grand Trunk Western 86'6" 100-Ton High Cube Dec-97 3,342,139 Jan-00 1,672,856 1,838,542
Railroad Box Car
Group Management Services Office Furniture / Fixtures Dec-97 170,867 Dec-99 143,378 72,544
Hartz Foods, Inc. Thermo Kings Refrigeration Dec-97 18,422 Oct-98 1 22,671
Unit
Hambros Vendor Leasing Applied 414 S2 Diesel Sep-97 16,864 Oct-99 4,349 21,038
Limited Sweeper
Hastings Leasing Limited Various Transportation Oct-97 7,260 Oct-99 to Feb-00 11,471 16,675
Equipment
Hughes Network Systems, Inc. Telecommunications Equipment Dec-97 71,860 Dec-99 - 266,154
Hyplains Beef, L.C. Food Processing Equipment Dec-97 1,235,019 Jan-99 1,145,190 684,040
IBM Corporation Stereolithography Dec-97 30,026 Dec-98 50,000 36,010
Illinois Central Railroad Plate "C" Cushioned Boxcar Jan-97 23,000 Nov-99 26,981 12,308
International Rectifier Corp. Two Zone Thermal Dec-97 190,911 Aug-98 to Oct-98 148,000 76,091
Shock Chamber
International Rectifier Corp. Furnace/Heat Base Apr-98 153,515 Jun-98 154,782 71,669
International Rectifier Corp. Bdf-41 Furnace W/Attachments Apr-98 124,193 Jun-98 125,218 57,233
International Rectifier Corp. Wafer Cleaning System Apr-98 86,791 Jun-98 95,000 26,672
International Rectifier Corp. Optical Assoc.Handler Apr-98 13,336 May-98 12,000 4,480
Assy W/Kit
International Rectifier Corp. VSLI Critical Dim. Apr-98 12,056 May-98 16,805 1,139
Measure System
International Rectifier Corp. Itc5511D Energy Apr-98 9,027 Jun-98 6,000 3,518
Testing System
ITO Corporation Taylor Stacker W/Fork Dec-97 104,878 Apr-99 - 119,136
Shifter
ITO Corporation Ottawa Commando 30 Yard Dec-97 15,678 Aug-99 - 115,010
Hustler
Louisiana Workers Printer Dec-97 2,200 Jun-99 - 11,393
Compensation Corp.
Maxtor Corporation Computer & Testing Equipment Dec-97 241,310 Aug-99 11,734 265,919
Nippon Yusen Kaisha (N.Y.K. 20'Aluminum Refrigerated Dec-97 17,432 Feb-99 20,995 3,059
Line) Container
North American Chemical Co. Mini Magnetic Flow Meters Dec-97 18,809 Dec-98 - 22,771
A-24
NVR, Inc. Home Manufacturing Equipment Oct-97 45,880 Nov-99 42,000 14,479
Plasmaquest, Inc. Tatung Sparcstations Dec-97 6,406 Aug-98 5,445 7,104
Ralphs Grocery Company Materials Handling Dec-97 95,598 Mar-00 - 138,424
Riceland Foods, Inc 23,700 Gal Uni-Temp Tank Car Jan-98 17,594 Apr-98 17,594 1,981
Rose Acres Farms, Inc. Automatic Case Packer Dec-97 185,461 Sep-99 64,700 155,180
Sarif, Inc. ECR Enhanced CVD System Dec-97 224,702 Apr-99 89,826 225,348
Sematech, Inc. Concept Two-Sequel-S Sep-97 1,303,600 Jun-00 762,236 1,119,336
Cvd (90%)
Smitty'S Super Valu, Inc. Furniture,Fixtures & Apr-98 451,861 Jun-98 601,960 139,202
Equipment
Southern Pacific EMD SD45-T2 Locomotive Dec-97 397,658 Mar-99 520,000 391,486
Transportation Company
Southwest Health Center, Siemens Mammographic X-Ray Apr-98 13,000 May-98 18,500 1,331
Inc.
Stater Brothers Markets Grocery Store Equipment Apr-98 13,643 Jun-98 - 16,315
Tarmac America, Inc. Tractors Mar-97 35,000 Aug-97 33,666 6,119
TASC, Inc. Office Equipment Oct-97 to Jul-98 27,247 Dec-98 to Jun-99 21,441 26,974
The Burlington Northern & General Electric C30-7 Dec-96 208,790 Jun-99 125,000 143,520
Santa Fe Railroad Company Locomotive
Thompson Pipe & Steel Office Furniture & Fixtures Apr-98 31,918 May-98 25,000 6,012
Company
Thomson Saginaw Ball Machine Tools Dec-97 488,917 Aug-98 382,771 242,618
Screw Co.
Triad Intl Maintenance Aircraft Access and Ground Dec-97 954,124 Jul-98 to Aug-98 1,306,184 367,159
Corporation Support Equipment
Union Tank Car Company Exterior-Coiled Insulat. Dec-97 33,212 Dec-99 to May-00 5,500 20,437
Tank Car
US Surgical Corporation Vascular Laser Stent Jun-98 55,829 May-00 360,397 92,723
Cutting Syst
Wagner College Various Desktop Computers Dec-97 91,951 Aug-98 to Oct-98 34,289 77,503
------------ ------------ ------------
$16,945,326 $12,227,872 $10,844,464
============ ============ ============
ATEL CAPITAL EQUIPMENT FUND VIII
Great American Management Pullman Xf Box Car Oct-99 $ 15,635 Nov-99 $ 15,780 $ -
Services
TASC, Inc. Office Automation Sep-99 9,652 Mar-00 9,520 1,601
Transamerica Leasing Inc. Standard 20'Imo1 Tank Dec-98 21,250 Nov-99 22,398 2,490
Container
------------ ------------ ------------
$ 46,537 $ 47,698 $ 4,091
============ ============ ============
TOTALS OF ALL FUNDS: $67,704,363 $35,124,575 $56,367,445
============ ============ ============
A-25
TABLE VI SALES OR DISPOSALS OF EQUIPMENT FOOTNOTES
(1) "Acquisition Date" is the date the Equipment was acquired by the prior
program.
(2) "Equipment Acquisition Price" is the actual cost of the item of Equipment,
including Acquisition Fees, and any other expenditures incurred by the prior
program in the acquisition of the Equipment.
(3) "Sale Price" is the actual cash received for the purchase, early termination
or casualty of the Equipment upon Lease termination, net of any direct
out-of-pocket closing costs incurred by the prior program as a result of such
termination.
(4) "Excess of Rents Over Expenses" is a total amount of Lease rents, less any
applicable direct out-of-pocket costs incurred by the prior program during the
term of the Lease for the particular Lease transaction.
A-26
EXHIBIT B
ATEL CAPITAL EQUIPMENT FUND IX, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
January 16, 2001
ATEL CAPITAL EQUIPMENT FUND IX, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
TABLE OF CONTENTS
Page
1. NAME AND PRINCIPAL PLACE OF BUSINESS..................................B-1
2. DEFINITIONS...........................................................B-1
3. BUSINESS AND PURPOSE..................................................B-7
4. TERM..................................................................B-8
5. MANAGER...............................................................B-8
6. INITIAL AND ADDITIONAL MEMBERS........................................B-8
Section 6.1 Initial Members........................................B-8
Section 6.2 Additional Members.....................................B-8
Section 6.3 Conditions to Admission................................B-8
Section 6.4 Admission as a Member..................................B-8
Section 6.5 Limitation on Additional Issuance......................B-8
Section 6.6 Escrow.................................................B-8
Section 6.7 Capital Account........................................B-9
7. LIABILITY AND STATUS OF MEMBERS.......................................B-9
8. COMPENSATION TO THE MANAGER AND/OR AFFILIATES.........................B-9
Section 8.1 General Limitation.....................................B-9
Section 8.2 Asset Management Fee...................................B-9
Section 8.3 Asset Management Fee Limit ............................B-9
Section 8.4 Other Services........................................B-10
Section 8.5 Payment of Fees on Removal............................B-11
Section 8.6 Employment of Broker-Dealers...........................B-11
9. FUND EXPENSES AND RESERVES...........................................B-11
Section 9.1 Reimbursement of Manager..............................B-11
Section 9.2 Limitation on Reimbursement...........................B-11
Section 9.3 Fund Expenses.........................................B-12
Section 9.4 Reserves..............................................B-13
10. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS.........................B-13
Section 10.1 Allocation of Net Income and Net
Loss Prior to Initial Closing Date.................B-13
Section 10.2 Allocation of Net Income and Net
Loss After Initial Closing Date....................B-13
B-ii
Section 10.3 Special Allocations..................................B-13
Section 10.4 Distribution of Cash From Operations.................B-15
Section 10.5 Distribution of Cash From Sales or Refinancing......B-15
Section 10.6 Distributions of Cash From Reserve Account..........B-15
Section 10.7 Determination of Amounts to be Distributed..........B-15
Section 10.8 Consent to Allocations..............................B-16
Section 10.9 Limitation on Distributions.........................B-16
Section 10.10 Allocation to Manager...............................B-16
Section 10.11 Return of Unused Capital............................B-16
Section 10.12 Distributions in Kind...............................B-16
Section 10.13 Withholding Taxes...................................B-17
11. ASSIGNMENT OF FUND INTERESTS.........................................B-17
Section 11.1 Limitations on Transfer..............................B-17
Section 11.2 Distributions and Effective Date of Transfer.........B-18
Section 11.3 Governmental Restrictions............................B-18
Section 11.4 Non-Complying Transfers..............................B-18
Section 11.5 Misrepresentations and Forfeit.......................B-18
12. SUBSTITUTED MEMBERS..................................................B-19
Section 12.1 Limitations on Substitution..........................B-19
Section 12.2 Consent to Admission.................................B-19
Section 12.3 Amendment of Agreement...............................B-19
13. REPURCHASE OF FUND INTERESTS.........................................B-19
14. BOOKS, RECORDS, ACCOUNTINGS AND REPORTS..............................B-20
Section 14.1 Books of Account and Records.........................B-20
Section 14.2 Audited Annual Financial Statements..................B-21
Section 14.3 Other Annual Reporting...............................B-21
Section 14.4 Quarterly Reports....................................B-22
Section 14.5 Unaudited Quarterly Financial Statements.............B-22
Section 14.6 Other Quarterly Reports..............................B-22
Section 14.7 Tax Returns..........................................B-23
Section 14.8 Governmental Reports.................................B-23
Section 14.9 Maintenance of Suitability Records...................B-23
15. RIGHTS, AUTHORITY, POWERS AND RESPONSIBILITIES
OF THE MANAGER.................................................B-23
Section 15.1 Services of the Manager..............................B-23
Section 15.2 Authority of the Manager.............................B-23
Section 15.3 General Powers and Fiduciary Duty....................B-26
Section 15.4 Limitations on Manager's Authority...................B-26
Section 15.5 Limitation on Manager's Liability....................B-29
Section 15.6 Tax Matters Member...................................B-29
Section 15.7 Minimum Investment in
Equipment /Maximum Front-End Fees....................B-29
Section 15.8 Reliance on Manager's Authority......................B-31
B-iii
16. RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS......................B-31
Section 16.1 Limitation on Member Authority.......................B-31
Section 16.2 Voting Rights........................................B-31
Section 16.3 Voting Procedures....................................B-31
Section 16.4 Limitations on Member Rights.........................B-33
Section 16.5 Limitations on Power to Amend Agreement..............B-33
Section 16.6 Member List..........................................B-33
Section 16.7 Dissenters' Rights and Limitations on
Mergers and Roll-ups.................................B-33
17. TERMINATION OF A MANAGER AND TRANSFER OF THE
MANAGER'S INTEREST.................................................B-34
Section 17.1 Removal or Withdrawal................................B-34
Section 17.2 Other Terminating Events.............................B-35
Section 17.3 Election of Successor Manager;
Continuation of Fund Business........................B-35
Section 17.4 Admission of Successor or Additional Manager.........B-35
Section 17.5 Effect of a Terminating Event........................B-35
Section 17.6 Election of Additional Manager.......................B-36
Section 17.7 Assignment of Manager's Interest.....................B-36
Section 17.8 Members' Participation in Manager's Bankruptcy.......B-36
18. CERTAIN TRANSACTIONS.................................................B-37
19. TERMINATION AND DISSOLUTION OF THE FUND..............................B-37
Section 19.1 Termination and Dissolution..........................B-37
Section 19.2 Accounting and Liquidation...........................B-37
20. SPECIAL POWER OF ATTORNEY............................................B-38
Section 20.1 Execution of Power of Attorney.......................B-38
Section 20.2 Special Power of Attorney............................B-38
21. INDEMNIFICATION......................................................B-39
Section 21.1 Indemnification of the Manager.......................B-39
Section 21.2 Limitations on Indemnification.......................B-39
Section 21.3 Insurance............................................B-40
22. MISCELLANEOUS........................................................B-40
Section 22.1 Counterparts.........................................B-40
Section 22.2 Successors and Assigns...............................B-40
Section 22.3 Severability.........................................B-40
Section 22.4 Notices..............................................B-40
Section 22.5 Captions.............................................B-40
Section 22.6 Number and Pronouns..................................B-40
Section 22.7 Manager Address......................................B-40
Section 22.8 Member Address.......................................B-40
Section 22.9 Construction.........................................B-41
Section 22.10 Qualification to Do Business.........................B-41
B-iv
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF ATEL CAPITAL EQUIPMENT FUND IX, LLC
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the "Agreement"), is entered
into as of the 27th day of September, 2000, by and between ATEL Financial
Corporation ("ATEL"), a California Corporation, as the Managing Member (the
"Manager"), and ATEL Capital Group as the initial Member, whereby the parties
together agreed to form a limited liability company pursuant to the California
Limited Liability Company Act, is hereby amended and restated in its entirety as
of this 16th day of January, 2001.
1. NAME AND PRINCIPAL PLACE OF BUSINESS
The name of the Fund shall be ATEL Capital Equipment Fund IX, LLC or
such other name as the Manager shall hereafter designate in writing to the
Members. The Fund's principal place of business shall be 235 Pine Street, 6th
Floor, San Francisco, California 94104, or such other place or places in the
State of California as the Manager may hereafter determine.
2. DEFINITIONS
The following terms used in this Agreement shall (unless otherwise
expressly provided herein or unless the context otherwise requires) have the
following respective meanings:
"Acquisition Expenses" shall mean expenses including, but not limited
to, legal fees and expenses, travel and communication expenses, costs of
appraisals, accounting fees and expenses, and miscellaneous expenses relating to
selection and acquisition of Equipment, whether or not acquired.
"Acquisition Fees" shall mean the total of all fees and commissions
paid by any party in connection with the initial purchase or manufacture of
Equipment. Included in the computation of such fees or commissions shall be any
commission, selection fee, financing fee, nonrecurring management fee, or any
fee of a similar nature, however designated.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance if any, in such Member's Capital Account as of the
end of the Fund taxable year, after giving effect to the following adjustments:
(a) Crediting to such Capital Account any amounts which such Member is obligated
to restore or is deemed to be obligated to restore pursuant to Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) Debiting from such Capital
Account the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),(5)
and (6). This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"Adjusted Invested Capital" shall mean, as of any date, the Original
Invested Capital attributable to the Units held by any Person on or before such
date, as decreased (but not below zero) by the amount which (i) all
Distributions from Cash from Operations and Cash from Sales and Refinancing with
respect to such Units on or before the date of determination pursuant to any
provision of this Agreement exceed (ii) the Priority Distribution attributable
to such Units for such period.
B-1
"Affiliate" of a Person shall mean (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) any Person owning or controlling 10% or more of the outstanding voting
securities or beneficial interests of such Person, (iii) any officer, director,
trustee or partner of such Person and (iv) if such Person is an officer,
director, trustee, partner or holder of 10% or more of the voting securities or
beneficial interests of such Person, any other company for which such Person
acts in such capacity. However, such term shall not include a Person who is a
partner in a partnership or joint venture with the Fund if such Person is not
otherwise an Affiliate.
"Asset Management Fee" shall mean the fee payable to the Manager and
its Affiliates under the provisions of Section 8.2 of this Agreement.
"Asset Management Fee Limit" means the total fees calculated pursuant
to the alternative fee schedule set forth under Section 8.3 of this Agreement,
equal to the aggregate of an Equipment Management Fee, Incentive Management Fee,
and Equipment Resale/Re-Leasing Fee, plus the Manager's Carried Interest,
determined in the manner described herein.
"Assignee" shall mean a Person who has acquired a beneficial interest
in one or more Units from a third party but who is neither a substituted Holder
nor an Assignee of Record.
"Assignee of Record" shall mean an Assignee who has acquired a
beneficial interest in one or more Units whose ownership has been recorded on
the books of the Fund and which ownership is the subject of a written instrument
of assignment, the effective date of which assignment has passed.
"ATEL" shall mean ATEL Financial Corporation, a California corporation.
"California Act" or "California Limited Liability Company Act" shall
mean the Beverly-Killea Limited Liability Company Act, Title 2.5, Chapters 1-15,
of the California Corporations Code, as it may be amended from time to time.
"Capital Account" shall mean, with respect to any Member, such Member's
Capital Account determined in accordance with Section 6.7.
"Carried Interest" shall mean the allocable share of Fund Distributions
of Cash from Operations and Cash from Sales or Refinancing payable to the
Manager, as Manager, pursuant to Sections 10.4 and 10.5 of this Agreement.
"Cash from Operations" shall mean the excess of Gross Revenues over
cash disbursements (including the Asset Management Fee and amounts reinvested by
the Fund in Equipment in compliance with Section 15.4.18) without reduction for
depreciation and amortization of intangibles such as organization and
underwriting costs but after a reasonable allowance for cash for repairs,
replacements, contingencies and anticipated obligations, as determined by the
Manager. Cash from Operations shall not include Cash from Sales or Refinancing
or Cash from Reserve Account.
"Cash from Reserve Account" shall mean that portion of the Net Proceeds
not utilized in the acquisition of Equipment, including cash maintained
according to the provisions of Section 9.4.
"Cash from Sales or Refinancing" shall mean the net cash realized by
the Fund from the sale, refinancing or other disposition of any Equipment
B-2
(including insurance proceeds or lessee indemnity payments arising from the
loss or destruction of any Equipment through casualty) after payment of all
expenses related to the transaction; provided, however that Cash from Sales or
Refinancing shall not include Cash from Reserve Account or Cash from Operations.
"Closing Date" shall mean such date designated by the Manager for the
termination of the offering of Units, but not later than January 16, 2003.
Extension of the offering beyond one year from the date of the Prospectus shall
be subject to the qualification of the offering for any such extension in those
jurisdictions which may limit the offering period to one year. "Initial Closing
Date" shall mean the date on which subscribers for Units, other than the initial
Holders, are first admitted to the Fund as Holders. "Final Closing Date" shall
mean the last date on which subscribers for Units are admitted to the Fund as
Holders.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
corresponding provisions of subsequent federal revenue laws.
"Distributions" shall mean any cash, tax credits or other property
allocated to or distributed to Holders and the Manager arising from their
respective interests in the Fund, but shall not include any compensation payable
to the Manager under the provisions of Article 8 or Article 9, except as
otherwise provided herein.
"ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended.
"Equipment" shall mean the equipment acquired and owned by the Fund to
be leased by the Fund to others as well as any Fund interest in equipment,
including without limitation its rights, whether direct or indirect, in all
trusts, joint ventures, leases, chattel paper, options and other contract rights
with respect to equipment.
"Equipment Management Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.
"Equipment Re-lease Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.
"Equipment Resale Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3 of this Agreement as provided therein.
"Front-End Fees" shall mean fees and expenses paid by any party for any
services rendered during the Fund's organization and acquisition phase including
Organization and Offering Expenses, Leasing Fees, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated. Notwithstanding the
foregoing, Front-End Fees shall not include any Acquisition Fees or Acquisition
Expenses paid by a manufacturer of Equipment to any of its employees unless such
Persons are Affiliates of the Manager.
B-3
"Full Payout Lease" shall mean a lease under which the non-cancellable
rental payments due during the initial term of the lease are at least sufficient
to cover the purchase price of the Equipment leased.
"Fund" shall mean the limited liability company created under this
Agreement.
"Fund Minimum Gain" shall have the meaning ascribed to the term
"partnership minimum gain" in Regulations Section 1.704-2(d)(1).
"Gross Income" shall mean the gross income of the Fund within the
meaning of section 61(a) of the Code.
"Gross Proceeds" shall mean the aggregate total of the Original
Invested Capital of the initial and all of the additional Holders.
"Gross Lease Revenues" shall mean all revenues attributable to the
Equipment other than from security deposits paid by lessees thereof. The term
"Gross Lease Revenues" shall not include revenues from the sale, refinancing or
other disposition of Equipment.
"High Payout Lease" shall mean a lease under which the noncancellable
rental payments and other payment obligations of the lessee due through the
initial term of the lease are equal to at least 90% of the original purchase
price paid by the Fund for the Equipment.
"Holders" shall mean owners of Units who are either Members or
Assignees of Record, and reference to a "Holder" shall be to any one of them.
The Manager shall not be considered to be a Holder except to the extent it also
owns Units.
"Incentive Management Fee" shall mean an element of the alternative fee
schedule calculation to determine the Asset Management Fee Limit under the
provisions of Section 8.3 of the Operating Agreement as provided therein.
"Independent Expert" shall mean a person with no current material or
prior business or personal relationship with the Manager or any of its
Affiliates who is engaged to a substantial extent in the business of rendering
opinions regarding the value of assets of the type held by the Fund, and who is
qualified to perform such work.
"IRA" shall mean an individual retirement account qualifying under
Section 408 of the Code.
"Investment in Equipment" shall mean the amount of Gross Proceeds
actually paid or allocated to the purchase of Equipment acquired by the Fund,
any amount of Gross Proceeds reserved pursuant to Section 9.4 hereof up to a
maximum of 3% of Gross Proceeds and other cash payments such as interest and
taxes, but excluding Front-End Fees.
"Leasing Fees" shall mean the total of all fees and commissions paid by
any party in connection with the initial lease of equipment acquired by the
Fund.
"Manager" or "Managing Member" shall mean ATEL Financial Corporation
("ATEL"), a California corporation, or any other Person or Persons which succeed
it in such capacity.
B-4
"Members" shall mean the Manager, the initial Members and any other
Persons who are admitted to the Fund as additional or substituted Members.
Reference to a "Member" shall refer to any one of them.
"Member Nonrecourse Debt" has the meaning ascribed to the term "partner
nonrecourse debt" in Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" shall have the meaning ascribed
to the term "partner nonrecourse debt minimum gain" in Regulations Sections
1.704-2(i)(2).
"Net Income" or "Net Loss" shall mean the taxable income or taxable
loss of the Fund (including the Fund's share of income or loss of any
partnership, venture or other entity which owns a particular item of Equipment),
as determined for federal income tax purposes, computed by taking into account
each item of Fund income, gain, loss, deduction or credit not already included
in the computation of taxable income and taxable loss.
"Net Lease Provisions" shall mean contractual arrangements under which
the lessee assumes responsibility for, and bears the cost of, insurance, taxes,
maintenance, repair and operation of the leased asset and where non-cancellable
rental payments under the lease are absolutely net to the lessor,
notwithstanding that some minor costs or responsibilities remain with the Fund
as lessor or that the Fund retains the option to require and pay for a higher
standard of care or greater level of maintenance or insurance than would be
imposed on the lessee under the terms of the lease.
"Net Proceeds" shall mean the total Gross Proceeds less Organization
and Offering Expenses.
"Nonrecourse Deductions" shall mean items of Fund loss, deductions or
Code Section 705(a)(2)(B) expenditures which are attributable to Nonrecourse
Liabilities.
"Nonrecourse Liability" means a Fund liability with respect to which no
Member or Related Person bears the economic risk of loss.
"Operating Agreement" or "Agreement" shall mean this Limited Liability
Company Operating Agreement of ATEL Capital Equipment Fund IX, LLC, as it may be
amended from time to time.
"Operating Lease" shall mean a lease under which the aggregate rental
payments due during the initial term of the lease are less than the purchase
price of the Equipment leased.
"Operating Revenues" means the total for any period of all Gross Lease
Revenues plus all Cash from Sales or Refinancing.
"Organization and Offering Expenses" shall mean those expenses incurred
in connection with preparing the Fund for registration and subsequently offering
and distributing Units to the public, including selling commissions and all
advertising expenses except advertising expenses related to the leasing of
Equipment.
"Original Invested Capital" shall mean the original gross purchase
price of the Units contributed by each Member to the capital of the Fund for his
interest in the Fund, which amount shall be attributed to Units in the hands of
a subsequent Holder.
B-5
"Person" shall mean any natural person, partnership, corporation,
association or other legal entity.
"Priority Distribution" shall mean a hypothetical amount determined
solely for purposes of the alternative fee schedule calculation to determine the
Asset Management Fee Limit under the provisions of Section 8.3 of this
Agreement. Such amount will equal, for any calendar year or other period with
respect to the Units held by any Person, the average Adjusted Invested Capital
with respect to such Units during such period multiplied by 10% per annum
(calculated on a cumulative basis, compounded daily, from the last day of the
calendar quarter in which the capital contribution of the initial purchaser of
such Units was received by the Fund and pro rated for any fraction of a calendar
year for which such calculation is made).
"Prospectus" shall mean the final prospectus filed in connection with
the registration of the Units with the Securities and Exchange Commission on
Form S-1, as amended, together with any supplement thereto which may be
subsequently filed with such Commission.
"Purchase Price of Equipment" shall mean 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.
"Qualified Plan" shall mean employee trusts (or employer individual
retirement accounts), Keogh Plans and corporate retirement plans qualifying
under Section 401(a) of the Code.
"Regulations" shall mean the income tax regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Reimbursable Administrative Expenses" shall mean the ordinary
recurring administration expenses incurred by the Manager and reimbursed by the
Fund. Such expenses shall not include interest, depreciation, equipment
maintenance or repair, third party services or other non-administrative
expenses.
"Reinvestment Period" shall mean the period commencing with the Initial
Closing Date and ending on a date 72 months after the last day of the fiscal
year during which the Final Closing Date occurs.
"Related Person" means a Person having a relationship with a Member
that is described in Regulations Section 1.752-4(b).
"Resident Alien" shall mean a resident alien as defined within the
Federal Aviation Act of 1958, as amended from time to time, or any successor
statute, or any regulations adopted pursuant to such Act or any successor
statute.
"Roll-Up" shall mean a transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the Fund and the
issuance of securities of a Roll-Up Entity. Such term does not include:
B-6
(a) any transaction if the securities of the Fund have been for at
least twelve months traded through the National Association of Securities
Dealers, Inc. Automated Quotation National Market System; or
(b) a transaction involving the conversion to corporate, trust or
association form of only the Fund, if, as a consequence of the transaction,
there will be no significant adverse change in any of the following:
(i) the Members voting rights;
(ii) the term of existence of the Fund;
(iii) the terms of compensation of the Manager
and its Affiliates; or
(iv) the Fund's investment objectives.
"Roll-Up Entity" means the partnership, trust, corporation or other
entity that would be created or would survive after the successful completion of
a proposed Roll-Up transaction.
"Service" shall mean the United States Internal Revenue Service or its
successor.
"Sponsor" shall mean any Person directly or indirectly instrumental in
organizing, wholly or in part, a Program or any Person who will manage or
participate in the management of a Program, and any Affiliate of any such
Person. Sponsor does not include the Program itself or a Person whose only
relation with the Program is that of an independent equipment manager and whose
only compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and underwriters whose only compensation
is for professional services rendered in connection with the offering of Program
interests.
"Substantially All of the Assets" shall mean, unless the context
otherwise dictates, Equipment representing 66 2/3% or more of the net book value
of all Equipment as of the end of the most recently completed fiscal quarter.
"Unit" shall mean the interest in the Fund representing Original
Invested Capital in the amount of $10 and shall entitle the Holder thereof to
the rights herein provided.
"United States Citizen" shall mean a "citizen of the United States" as
defined within the Federal Aviation Act of 1958, as amended from time to time,
or any successor statute, or any regulations adopted pursuant to such Act or any
successor statue.
3. BUSINESS AND PURPOSE
The primary purpose of the Fund is to purchase, own, lease and sell
various types of Equipment pursuant to such arrangements as the Manager in its
discretion may enter into on behalf of the Fund. The Fund may enter into
ventures, partnerships and other business arrangements with respect to Equipment
to the extent deemed prudent by the Manager in order to achieve successful
operations for the Fund, subject to the provisions of Section 15.4.8. The Fund
may also engage in such other lawful activities as may be deemed by the Manager
to be incident to its primary purpose or prudent and in the Fund's best
interest. The Fund's investment objectives shall be those set forth in the
Prospectus, and the Manager may not make any material change to such investment
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objectives without first obtaining the written consent or approval of
Members owning more than 50% of the total outstanding Units entitled to vote.
4. TERM
The Fund commenced as of the 27th day of September, 2000 and shall
continue until the 31st day of December, 2020, unless previously terminated in
accordance with the provisions of this Agreement.
5. MANAGER
The Manager has contributed $100 in cash to the Fund and at all times
during the existence of the Fund the Manager shall have a present and continuing
interest in Net Income, Net Losses and Distributions according to the provisions
of Article 10.
6. INITIAL AND ADDITIONAL MEMBERS
6.1 Initial Members. ATEL Capital Group, as the initial Member, has
contributed the sum of $500 to the capital of the Fund and has received 50 Units
in return therefor.
6.2 Additional Members. The Fund intends to sell and issue to Holders
not less than 120,000 nor more than 15,000,000 additional Units and to admit as
additional Members the Persons who contribute cash to the capital of the Fund
for such Units.
6.3 Conditions to Admission. Subject to the provisions of Section 6.6,
each Person who acquires any such additional Units shall become a Member in the
Fund at such time as he has: (i) purchased 250 or more Units (200 Units in case
of an IRA or Keogh Plan), (ii) contributed the sum of $10 in cash for each Unit
purchased (or such lesser net amount as may be provided in accordance with the
terms described in the Prospectus under "Plan of Distribution"), (iii) executed
and filed with the Fund a written instrument which sets forth an intention to
become a Member and requests admission to the Fund in that capacity, together
with such other instruments as the Manager may deem necessary or desirable to
effect such admission, including the written acceptance and adoption by such
Person of the provisions of this Agreement, and the execution, acknowledgment
and delivery to the Manager of a special power of attorney, the form, style and
content of which are more fully described herein, and (iv) the Manager accepts
such Person as a Member in the Fund.
6.4 Admission as a Member. Each Person who subscribes for Units under
Section 6.2 shall be admitted to the Fund promptly after the Manager's
acceptance of such subscription, but, except as provided in Section 6.6, in no
event later than 30 days after the receipt by the Fund of such subscription.
6.5 Limitation on Additional Issuance. The Fund shall not issue any
additional Units after the Final Closing Date.
6.6 Escrow. All Original Invested Capital of Holders shall be received
by the Fund in trust, and shall be deposited in an escrow account with a banking
institution designated by the Manager as escrow holder for the Original Invested
Capital, until such time as subscriptions for a total of 120,000 Units, in
addition to the Unit purchased by the initial Holder, representing Original
Invested Capital of $1,200,000 have been deposited therein. Not less than 15
days after receipt of a minimum of $1,200,000 of such additional Original
Invested Capital, the Fund will admit subscribers into the Fund as additional
Holders. At the time a subscriber is admitted as a Holder, the escrow holder
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shall transfer the subscriber's Original Invested Capital to the Fund. If
the $1,200,000 minimum is not obtained on or before a date one year from the
date of the Prospectus, all Original Invested Capital will be promptly refunded
to the investors. In any event, any interest earned on Original Invested Capital
while in escrow shall be paid to investors.
6.7 Capital Account. An individual Capital Account shall be maintained
for each Member. The Capital Account of a Member shall consist of the Original
Invested Capital of such Member, increased by (i) any additional contributions
to capital and (ii) such Member's share of Fund Net Income, and decreased by (i)
Distributions to such Member and (ii) such Member's share of Fund Net Loss. In
the event a Member transfers all or a portion of his Units, the Assignee shall
succeed to the Capital Account of the transferor (as adjusted for all events
preceding the date the transferee is deemed admitted to the Fund under Section
10.3.1) according to the number of Units, and the allocable portion of the
transferor's Capital Account, so transferred. No Holder shall have the
obligation to restore any deficit in his Capital Account upon termination or
dissolution of the Fund. The foregoing provisions of this Section 6.7 are
intended to comply with Regulation Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Regulations.
7. LIABILITY AND STATUS OF MEMBERS
Holders shall not be bound by, or be personally liable for, the
expenses, liabilities or obligations of the Fund, except to the extent, but only
to the extent, a Holder would be required to return any Distribution from the
Fund pursuant to Section 17254(e) of the California Act.
8. COMPENSATION TO THE MANAGER AND/OR AFFILIATES
8.1 General Limitation. The Manager and its Affiliates shall receive
compensation only as specified by this Agreement. In addition to the
compensation provided herein, the Manager will hold the Carried Interest and be
entitled to receive Distributions as provided in Article 10, and receive
reimbursement of costs and expenses advanced as provided in Article 9. The
Manager may delegate to its Affiliates all or a portion of its management duties
hereunder, as described in the Prospectus, and may assign all or a portion of
its compensation hereunder to one or more such Affiliates or other parties in
its discretion.
8.2 Asset Management Fee. The Fund will pay the Manager an Asset
Management Fee in an amount equal to 4% of Operating Revenues as compensation
for the Manager's services in establishing and supervising management of the
Fund's portfolio of Equipment and its operations. The Asset Management Fee will
be paid on a monthly basis. The amount of the Asset Management Fee payable in
any year will be reduced for that year to the extent it would otherwise exceed
the Asset Management Fee Limit.
8.3 Asset Management Fee Limit. The Asset Management Fee Limit will be
calculated each year during the Fund's term by calculating the total fees that
would be paid to the Manager for the year in question if the Manager were to be
compensated on the basis of an alternative fee schedule, to include an Equipment
Management Fee, Incentive Management Fee, and Equipment Resale/Re-Leasing Fee,
together with the Carried Interest, as provided herein. To the extent that the
total amount paid to the Manager for the year as the Asset Management Fee and
the Carried Interest would exceed the aggregate amount of fees that would have
been payable as calculated under this alternative fee schedule for that year,
the Asset Management Fee for that year will be reduced to equal the maximum
aggregate fees under the alternative fee schedule. The limitations set forth in
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this Section 8.3 will be subject to adjustment pursuant to the limitations
imposed under Section 15.7 relating to the Minimum Investment in Equipment.
Under Section 15.7, a separate calculation will be performed upon completion of
the offering of Units, final commitment of Net Proceeds to acquisition of
Equipment and establishment of final levels of permanent portfolio debt
encumbering such Equipment, and then annually thereafter. To the extent required
under the provisions of Section 15.7, the alternative fee schedule set forth
below will first be adjusted as provided therein. Thereafter, the Asset Fee
Limitation, using the alternative fee schedule as so adjusted, will be imposed
under this Section 8.3 and applied to the total Asset Management Fee and Carried
Interest for the year. The alternative fee schedule to be used for calculating
the Asset Management Fee Limit shall include:
8.3.1 An Equipment Management Fee calculated for each fiscal
quarter and in an amount equal to (i) 3.5% of the Gross Lease Revenues from
Operating Leases, except that if the services are performed by nonaffiliated
Persons under the active supervision of the Manager or its Affiliate, then the
amount payable to the Manager or such Affiliate shall be 1% of the Gross
Revenues from such Operating Leases, and (ii) 2% of Gross Revenues from Full
Payout Leases which contain Net Lease Provisions;
8.3.2 An Equipment Resale/Re-Leasing Fee calculated in an
amount equal to the following: for resale services, the lesser of (i) 3% of the
sales price of the Equipment, or (ii) one-half the normal competitive equipment
sale commission charged by unaffiliated parties for such services, but in either
case payable only after the Holders have received a return of their Original
Invested Capital plus a Priority Distribution; plus, for re-leasing services, an
amount equal to the lesser of (i) the competitive rate for comparable services
for similar equipment, or (ii) 2% of gross rental payments derived from the
re-lease of such Equipment after the time the re-lease is consummated as a
result of the recipient's efforts, payable as each rental payment is received by
the Fund over the term of the re-lease. No such re-lease fee will be calculated
in connection with the re-lease of Equipment to a previous lessee or its
Affiliates; and such fee will be calculated only to the extent the Manager or
its Affiliates have rendered substantial re-leasing services in connection with
such re-lease;
8.3.3 An Incentive Management Fee will be calculated in an
amount equal to (i) 4% of all Distributions of Cash from Operations until such
time as the Holders have received aggregate Distributions in an amount equal to
their Original Invested Capital plus a Priority Distribution, and (ii)
thereafter, in an amount equal to 7.5% of all Distributions of Cash from
Operations and Cash from Sales or Refinancing. For the purposes of calculating
the Incentive Management Fee for any period during which the Fund has available
both Cash from Operations and Cash from Sales or Refinancing, Distributions to
Holders shall first be treated as consisting of Cash from Operations unless
specifically designated otherwise by the Manager; and
8.3.4 The alternative fee schedule will include the Carried
Interest in Distributions provided in Article 10.
8.4 Other Services. Except as set forth in this Article 8 and Article 9
hereof, no other services may be performed by the Manager or its Affiliates for
the Fund except in extraordinary circumstances (which shall be defined as an
emergency situation requiring immediate action by the Manager or its Affiliate
and the service is not immediately available from an unaffiliated party). Any
such other services must meet the following criteria: (i) the compensation,
price or fee therefor must be comparable and competitive with the compensation,
price or fee of any other Person who is rendering comparable services or selling
or leasing comparable goods which could reasonably be made available to the Fund
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and shall be on competitive terms, (ii) the fees and other terms of the contract
shall be fully disclosed to Holders, (iii) the Manager or its Affiliates must be
previously engaged in the business of rendering such services or selling or
leasing such goods, independently of the Fund and as an ordinary and ongoing
business and at least 75% of such Person's gross revenues from such activity
must be derived from other than Affiliates of the Manager, and (iv) all services
for which the Manager or its Affiliates are to receive compensation shall be
embodied in a written contract which precisely describes the services to be
rendered and all compensation to be paid, which contract may only be modified by
a vote of the majority of the Holders. Said contract shall contain a clause
allowing termination without penalty on 60 days notice.
8.5 Payment of Fees on Removal. Should the Manager be removed from the
Fund according to provisions of Article 17, any portion of any fee payable to
the Manager according to the provisions of this Article 8 which is then accrued
and due, but not yet paid, shall be paid by the Fund to the Manager in cash
within 30 days of the date of expulsion as stated in the written notice of
expulsion.
8.6 Employment of Broker-Dealers. The Fund may employ underwriters and
selected broker-dealers, including Affiliates of the Manager as set forth in the
Prospectus, for the sale of Units.
9. FUND EXPENSES AND RESERVES
9.1 Reimbursement of Manager. Except as set forth in this Article 9,
all of the Fund's expenses shall be billed directly to and paid by the Fund. The
Manager and its Affiliates may be reimbursed for the following Fund expenses:
(i) Organization and Offering Expenses not in excess of 15% of Gross Proceeds up
to $25,000,000 plus 14% of all Gross Proceeds in excess of $25,000,000 (or an
amount equal to 12% of the Gross Proceeds if, upon termination of the offering
of Units, the total Gross Proceeds are in an amount less than $2,000,000); (ii)
the actual cost of goods and materials used for and by the Fund and obtained
from entities unaffiliated with the Manager; and (iii) administrative services
necessary to the prudent operation of the Fund, provided that such reimbursement
for administrative services will be at the lower of (A) the actual cost of such
services, or (B) the amount which the Fund would be required to pay independent
parties for comparable administrative services in the same geographic location;
provided further that, beginning with the first full year after the termination
of the offering of Units, the total amount of Reimbursable Administrative
Expenses payable by the Fund for the remainder of its term may not exceed a
cumulative limit. This cumulative limit on such Reimbursable Administrative
Expenses will equal, as of any date, a maximum equal to the sum of 1% per
annum of the total capital raised up to 75% of the maximum Gross Proceeds, and
0.5% per annum of any capital raised in excess of 75% of the maximum Gross
Proceeds. In addition, beginning with the first full year after the termination
of the offering of Units, the maximum amount of Reimbursable Administrative
Expenses payable by the Fund for any single year shall be limited to an amount
equal to 1% of the Gross Proceeds.
9.2 Limitation on Reimbursement. The Manager and its Affiliates will not
be reimbursed by the Fund for the following expenses:
9.2.1 Services for which the Manager or its Affiliates are
entitled to compensation in the form of a separate fee pursuant to Article 8
hereof;
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9.2.2 Rent or depreciation, utilities or capital equipment and
other administrative items of the Sponsor;
9.2.3 Salaries, fringe benefits, travel expenses or
administrative items incurred by or allocated to any Controlling Person of the
Manager or its Affiliates. For purposes of this subparagraph, "Controlling
Person" shall mean any person, regardless of title, who performs executive or
senior management functions for the Manager or its Affiliates similar to those
of executive management or senior management, and directors, or those holding 5%
or more equity interest in the Manager or its Affiliates; or persons having the
power to direct or cause the direction of the Manager or Affiliates through
ownership of voting securities, by contract or otherwise. It is not intended
that every person who carries a title such as vice president, senior vice
president, secretary, controller or treasurer be considered a Controlling
Person;
9.2.4 Organization and Offering Expenses of the Fund to the
extent such Organization and Offering Expenses exceed 15% of the Gross Proceeds
up to $25,000,000 plus 14% of all Gross Proceeds in excess of $25,000,000 (or an
amount equal to 12% of the Gross Proceeds if, upon termination of the offering
of Units, the total Gross Proceeds are in an amount less than $2,000,000), and
the Manager guarantees payment of any such excess expenses, which guarantee is
without recourse to, or reimbursement by, the Fund; and
9.2.5 All other expenses which are unrelated to the business
of the Fund.
9.3 Fund Expenses. Subject to Sections 9.1 and 9.2, the Fund shall pay
all expenses of the Fund which may include, but are not limited to: (i) all
costs of personnel employed by the Fund and involved in the business of the Fund
(which may include personnel who are employed by a Manager or one or more
Affiliates), (ii) all taxes and assessments on Equipment and other taxes
applicable to the Fund, (iii) legal, appraisal, audit, accounting, brokerage and
other fees, (iv) printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer, registration and recording
of documents evidencing ownership of an interest in the Fund or in connection
with the business of the Fund, (v) fees and expenses paid to independent
contractors, brokers and servicers, leasing agents, consultants, equipment lease
brokers, insurance brokers and other agents, (vi) expenses in connection with
the acquisition, disposition, replacement, alteration, repair, leasing and
operation of Equipment (including the costs and expenses of insurance premiums,
equipment lease brokerage and leasing commissions and of maintenance of such
Equipment), (vii) the cost of insurance as required in connection with the
business of the Fund, (viii) expenses of organizing, revising, amending,
converting, modifying or terminating the Fund, (ix) the cost of preparation and
dissemination of the informational material and documentation relating to
potential sale or other disposition of Equipment, (x) costs incurred in
connection with any litigation in which the Fund is involved, as well as the
examination, investigation or other proceedings conducted by any regulatory
agency, including legal and accounting fees incurred in connection therewith,
(xi) costs of any computer equipment or services used for or by the Fund, (xii)
costs of any accounting, or statistical bookkeeping equipment necessary for the
maintenance of the books and records of the Fund, and (xiii) the costs of
supervision and expenses of professionals employed by the Fund in connection
with any of the foregoing, including attorneys, accountants and appraisers;
provided, however, that the cost of any services relating to items (vi) or (vii)
above must either be attributable to services performed by Persons other than
the Manager or its Affiliates, be compensated by a specific fee described in
Article 8 (and thus would not be reimbursable by the Fund, as provided in
Section 9.2.1) or comply with the requirements for compensation for "other
services" as provided in Section 8.3.5.
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9.4 Reserves. The Fund shall initially establish a cash reserve for
general working capital purposes in an amount equal to at least one-half of 1%
of the Gross Proceeds. Upon the disposition of each item of Equipment, any cash
reserve which was specifically allocated to that Equipment need not be
maintained thereafter, but may be applied as reserves for other Equipment. Any
cash reserve used as aforesaid need not be restored and if restored, may be
restored out of Gross Lease Revenues.
10. ALLOCATION OF INCOME, LOSS AND DISTRIBUTIONS
10.1 Allocation of Net Income and Net Loss Prior to Initial Closing
Date. From the commencement of the Fund until the Initial Closing Date Net
Income and Net Loss shall be allocated 99% to the Manager and 1% to the initial
Holders.
10.2 Allocation of Net Income and Net Loss After Initial Closing Date.
10.2.1 Commencing with the Initial Closing Date, Net Income
and Net Loss shall be allocated 92.5% to the Holders and 7.5% to the Manager.
10.2.2 Notwithstanding Section 10.2.1 of this Agreement, items
of Net Loss arising out of the Fund's payment of expenditures classified as
syndication expenses pursuant to Regulations section 1.709-2(b) with respect to
each Unit shall be specially allocated to the Holder who acquires such Unit.
10.3 Special Allocations
10.3.1 Except as provided in section 10.3.2, Net Income, Net
Loss and Distributions allocable to the Holders shall be determined on a
quarterly basis and shall be allocated among the Holders in the ratio in which
the number of Units held by each of them bears to the total number of Units held
by all Holders as of the last day of the fiscal quarter with respect to which
such Net Income, Net Loss and Distributions are attributable; provided, however,
that, with respect to Net Income, Net Loss and Distributions attributable to the
offering period of the Units (including the full quarter in which the offering
terminates), such Net Income, Net Loss and Distributions shall be apportioned
among the Holders in the ratio in which (i) the number of Units held by each
Holder multiplied by the number of days during such period that such Holder was
the owner of such Units bears to (ii) the amount obtained by totaling the number
of Units outstanding on each day during such period. No Net Income, Net Loss or
Distributions with respect to any quarter shall be allocated to Units
repurchased by the Fund during such quarter, and such Units shall not be deemed
to have been outstanding during such quarter for purposes of the foregoing
allocations.
10.3.2 Notwithstanding anything in this Agreement to the
contrary, the following items of Fund income and loss shall be specially
allocated to the Members in the manner described below:
(i) Gain characterized as recapture income under Sections 1245
or 1250 of the Code shall be allocated to those Members who
claimed the deductions giving rise to such recapture income.
(ii) Except as provided in Section 10.3.2(iii) and 10.3.2(iv),
in the event any Member unexpectedly receives any
adjustments, allocations or distributions described
in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of
the Regulations or any other event creates an
B-13
Adjusted Capital Account Deficit for such Member, items of
Fund gross income and gain (consisting of a pro rata portion
of each item of the Fund's income, including gross income, and
gain for such year) shall be allocated to such Member in an
amount and manner sufficient to eliminate, to the extent
required by Regulations, the Adjusted Capital Account Deficit
created by such adjustments, allocations or distributions as
quickly as possible. This Section 10.3.2(ii) is intended to
comply with the qualified income offset requirement in Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
(iii) If there is a net decrease in Member Nonrecourse Debt
Minimum Gain, each Member with a share of the Member
Nonrecourse Debt Minimum Gain (as determined in accordance
with Regulations Section 1.704-2(i)(5)) shall be specially
allocated items of Fund income and gain for such year (and, if
necessary, subsequent years) in proportion to, and to the
extent of, an amount equal to the portion of such Member's
share of the net decrease in Member Nonrecourse Debt Minimum
Gain during such year. The items to be so allocated shall be
determined in accordance with Regulations Section 1.704-
2(i)(4). This Section 10.3.2(iii) is intended to comply with
the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith.
(iv) If there is a net decrease in Fund Minimum Gain during
any Fund taxable year, each Member shall be specially
allocated items of Fund income and gain for such year (and, if
necessary, subsequent years) in proportion to, and to the
extent of, an amount equal to the portion of such Member's
share of the net decrease in Fund Minimum Gain during such
year (within the meaning of Section 1.704-2(g)(2) of the
Regulations). The items to be so allocated shall be determined
in accordance with Section 1.704-2(f) of the Regulations. This
Section 10.3.2(iv) is intended to comply with the minimum gain
chargeback requirement contained in Section 1.704-2(f) of the
Regulations and shall be interpreted consistently therewith.
(v) After giving effect to the allocations set forth in
Sections 10.3.2(ii), (iii) and (iv), in the event any Member
receives any actual or deemed distribution (i.e., under
section 752 of the Code) during a taxable year which exceeds
the adjusted tax basis of such Member's Units at the end of
such taxable year (determined immediately before giving effect
to such distribution), such Member shall be allocated an
amount of gross income or gain equal to such excess.
(vi) In the event any fee to which the Manager or an Affiliate
thereof is entitled is treated as a Fund distribution by the
Service, a special allocation of Fund gross income shall be
made annually to the Manager or an Affiliate thereof in an
amount equal to any such recharacterized fee for that taxable
year.
(vii) The Manager will specifically allocate items of gain
from the sale or other disposition of items of Equipment for
any year in which the sale or disposition of any item of
Equipment occurs (and, if necessary, subsequent years) to any
Holder in such amounts and in such manner so as to equalize
the Capital Account balances of the Holders; provided,
however, that such allocations are reasonably consistent with,
and reasonably supportable under, the Code.
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(viii) Net Loss shall not be allocated to any Holder if such
allocation would cause or increase an Adjusted Capital Account
Deficit for such Holder at the end of any Fund taxable year,
and any such Net Loss shall instead be allocated to the
Manager. This limitation shall be applied on a Holder by
Holder basis so as to allocate the maximum permissible Net
Loss to each Holder under Section 1.704-1(b)(2)(ii)(d) of the
Regulations.
(ix) To the extent an adjustment is made to the adjusted tax
basis of any Fund asset pursuant to Code Section 734(b) or
Code Section 743(b), the Members, Capital Accounts shall be
adjusted as provided in Regulations Section
1.704-1(b)(2)(iv)(m).
(x) Except as otherwise provided herein, Nonrecourse
Deductions shall be allocated 92.5% to the Holders and 7.5% to
the Manager.
(xi) Any deduction attributable to Member Nonrecourse Debt
shall be allocated to the Members that bear the economic risk
of loss for the Member Nonrecourse Debt.
10.4 Distribution of Cash From Operations. Cash from Operations shall
be distributed 92.5% to the Holders and 7.5% to the Manager.
10.5 Distribution of Cash From Sales or Refinancing. Cash from Sales
or Refinancing shall be distributed 92.5% to the Holders and 7.5% to the
Manager.
Notwithstanding anything to the contrary herein, however, no cash
Distribution shall be made to a Holder to the extent that, after giving effect
to all allocations under sections 10.1, 10.2 and 10.3 which would accompany such
Distribution (including allocations of gross income and gain under section
10.3.2(iv)), such Distribution would exceed the tax basis of the Holder to whom
such Distribution is otherwise payable.
10.6 Distributions of Cash from Reserve Account. Distributions of Cash
from Reserve Account, if any, shall be distributed in the same manner as Cash
from Sales or Refinancing.
10.7 Determination of Amounts to be Distributed. The Manager shall have
sole discretion in determining the amount of any Distributions. Subject to
provisions of Section 15.4.18 of this Agreement, the Manager may use any funds
of the Fund not distributed to Holders to purchase additional Equipment during
the Reinvestment Period or otherwise as permitted by this Agreement; provided,
however, that the Manager will not reinvest in Equipment, but will distribute,
subject to payment of any obligations of the Fund, such available Cash from
Operations and Cash from Sales or Refinancing as may be necessary to cause total
Distributions to Holders to equal the following amounts for the specified
periods:
10.7.1 Through the first full fiscal quarter ending at least
six months after termination of the offering of Units, an amount equal to the
lesser of (a) a rate of return on their original capital contribution equal to
3.5% over the average yield on five-year United States Treasury Bonds for the
fiscal quarter immediately preceding the date of distribution, as published in a
national financial newspaper from time to time (with a minimum of 9% per annum
and a maximum of 11% per annum), or (b) 90% of the total amount of cash
available for distributions; and
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10.7.2 For each quarter during the balance of the Reinvestment
Period, an amount equal to a rate of return on their original capital
contribution equal to 3.5% over the average yield on five-year United States
Treasury Bonds for the period from the commencement of the offering of Units
through a date six months following the termination date of the offering (with a
minimum of 9% per annum and a maximum of 11% per annum), as published in a
national financial newspaper.
10.7.3 Such amounts with respect to each year which are
sufficient to allow a Holder in a 31% federal income tax bracket (but not a
higher bracket) to pay the federal income taxes and state income taxes due with
respect to Net Income derived by him from the Fund for such year.
10.8 Consent to Allocations. The methods hereinabove set forth by which
Distributions and allocations of Net Income and Net Loss are made and
apportioned are hereby expressly consented to by each Member as an express
condition to becoming a Member.
10.9 Limitation on Distributions. All Distributions are subject to the
payment of Fund expenses and to maintenance and repair of Equipment.
10.10 Allocation to Manager. To the extent that the Fund shall be
entitled to any deduction for federal income tax purposes as a result of any
interest in Net Income or Net Loss granted to a Manager, such deduction shall be
allocated for federal income tax purposes to such Manager.
10.11 Return of Unused Capital. In the event that any portion of the
Net Proceeds received by the Fund during the first twelve months after the date
of the Prospectus is not invested or committed for investment within eighteen
months of the date of the Prospectus, or in the event any portion of the Net
Proceeds received by the Fund thereafter is not invested or committed for
investment within six months from the Final Closing Date (except for any amounts
used to pay Fund operating expenses, including amounts set aside for reserves as
set forth in Section 9.4), such portion of the Net Proceeds shall be distributed
to the Holders pro rata by the Fund as a return of capital. In addition, the
Manager shall contribute to the Fund, and the Fund shall distribute pro rata to
the Holders, the amount by which (x) the amount of unused capital distributed
pursuant to the foregoing sentence, divided by (y) the percentage of the Gross
Proceeds which remain after payment of all Front End Fees, exceeds the unused
capital so distributed. For the purposes of this Section 10.11, funds will be
deemed to have been committed to investment and will not be returned to the
Holders to the extent written agreements in principle or letters of
understanding were executed at any time prior to the end of said period,
regardless of whether any such investment is actually consummated, and to the
extent any funds have been reserved to make contingent payments in connection
with any Equipment, regardless of whether any such payment is actually made.
10.12 Distributions in Kind. Distributions in kind shall not be
permitted except upon dissolution and liquidation, and then only to a
liquidating trust which has been established for the purpose of the liquidation
of the assets of the Fund, and the distribution of cash in accordance with the
terms of the Agreement.
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10.13 Withholding Taxes.
10.13.1 In the event the Fund pays to any federal, state or
local government authority any amount of tax, penalty, interest, fee or other
expenditure which is attributable to the particular status of one or more
Holders including, without limitation, the status of a Holder as a nonresident
of California or any other state imposing such a charge, the Manager shall treat
such tax, penalty, interest or fee, and in its discretion may treat other
related Fund expenditures, as a distribution of Cash from Operations or Cash
from Sales or Refinancing as appropriate, to such Holders. Such a distribution
shall reduce the amount of Cash from Operations or Cash from Sales or
Refinancing otherwise payable by the Fund to such Holders. Such Holders shall be
distributed any refund of any such tax, penalty, interest or other amounts
received by the Fund; provided, however, that the distribution due such Holders
shall be reduced by any Fund expenses (and such expenses shall be specially
allocated to such Holders) incurred in connection with the payment or obtaining
of the refund of such taxes, penalties, interest or other amounts and the Fund
shall have no duty or obligation to seek to obtain or collect any such refund or
expend any amount to reduce the amount of any withholding, penalty, interest or
other amount otherwise payable to any government authority. The Manager may
require from a Holder the appropriate documentation with respect to any
distribution hereunder.
10.13.2 As security for any withholding tax or other amount
referred to in section 10.14.1 or other liability or obligation to which the
Fund may be subject as a result of any act or status of any Holder, the Fund
shall have (and each Holder hereby grants to the Fund) a security interest in
all Cash from Operations or Cash from Sales or Refinancing distributable to such
Holder to the extent of the amount of such withholding tax or other liability or
obligation. The Fund shall have a right of set-off against any such
distributions of Cash from Operations or Cash from Sales or Refinancing in the
amount of such withholding tax or other liability or obligation.
11. ASSIGNMENT OF FUND INTERESTS
11.1 Limitations on Transfer. A Holder may not transfer all or part of
his legal and equitable interest in his Units except in compliance with the
provisions of this Agreement. The Manager may condition any proposed transfer on
receipt by the Fund of such representations and warranties of the transferor and
the assignee, opinions of counsel for the Fund and other assurances as it may
deem necessary and appropriate to ensure that:
11.1.1 such assignments or transfers do not result, in the
opinion of counsel for the Fund, in the Fund being considered to have terminated
within the meaning of Section 708 of the Code;
11.1.2 the assignee is not a minor or an incompetent;
11.1.3 the transfer or assignment does not violate federal or
state securities laws;
11.1.4 the transferor or the assignee does not hold Units
representing Original Invested Capital of less than $2,500 ($2,000 in the case
of IRAs and Keogh Plans);
11.1.5 such assignee is a Citizen of the United States;
11.1.6 such assignment or transfer does not cause the assets
of the Fund to be deemed "plan assets" for ERISA purposes;
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11.1.7 such assignment or transfer does not constitute a
transfer "on a secondary market (or the substantial equivalent thereof)" within
the meaning of Section 7704 of the Code or otherwise adversely affecting the tax
status of the Fund; and
11.1.8 the transferor files with the Fund a duly executed and
acknowledged counterpart of the instrument effecting such assignment or
transfer, which instrument evidences the written acceptance by the assignee or
transferee of all of the terms and provisions of this Agreement, contains a
representation that such assignment or transfer was made in accordance with all
applicable laws and regulations (including any investor suitability
requirements) and in all other respects being satisfactory in form and substance
to the Manager.
11.2 Distributions and Effective Date of Transfer. An Assignee of
Record shall be entitled to receive Distributions from the Fund attributable to
the Units acquired by reason of such assignment from and after the effective
date of the assignment of such Units; provided, however, that notwithstanding
anything herein to the contrary, the Fund and the Manager shall be entitled to
treat the assignor of such Units as the absolute owner thereof in all respects,
and shall incur no liability for allocations of Net Income, Net Loss or
Distributions, or transmittal of reports and notices required to be given to
Holders hereunder, which are made in good faith to such assignor until such time
as the written instrument of assignment has been received by the Fund and
recorded on its books and the effective date of the assignment has passed. The
effective date of such assignment on which the Assignee shall be deemed an
Assignee of Record shall be the last day of the first full calendar month
following the later of (i) the date set forth on the written instrument of
assignment or (ii) the date on which the Fund has actual notice of the
assignment of Units and has received complete documentation of the assignment.
Notwithstanding anything to the contrary contained herein, no Distributions
shall be made in any calendar quarter with respect to Units repurchased by the
Fund during such calendar quarter.
11.3 Governmental Restrictions. No assignment, sale, transfer, exchange
or other disposition of Units may be made except in compliance with the then
applicable rules of any other applicable governmental authority. All Units
originally issued pursuant to qualification under the California Corporate
Securities Law of 1968 shall be subject to, and all documents of assignment and
transfer evidencing such securities shall bear, the following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
No transfer of any such Unit shall be made unless the transferor shall have
obtained, if necessary, the written consent of the California Commissioner of
Corporations to such transfer.
11.4 Non-Complying Transfers. Any assignment, sale, exchange or other
transfer in contravention of any of the provisions of this Article 11 shall be
void and shall not bind or be recognized by the Fund.
11.5 Misrepresentation and Forfeit. Subject to the discretion of the
Manager, in the event a Holder who originally obtained Units in the Fund's
offering misrepresented that he was a Citizen of the United States, or that it
was not an IRA or Qualified Plan or purchasing on behalf of an IRA or Qualified
Plan, such person fails to remain a Citizen of the United States, or a
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subsequent transferee of Units is not or fails to remain a Citizen of the
United States, such Person may, in the Manager's discretion if it deems that the
Fund will fail certain citizenship requirements with respect to its Equipment,
be required to forfeit such Units to the Fund and no longer be entitled to cash
Distributions or allocations of the Fund, receipt of Fund reports and voting
privileges, although he may realize proceeds upon the transfer of his Units to a
Citizen of the United States, which subsequent transferee would be entitled to
the full economic benefits and other privileges attributable to such Units.
12. SUBSTITUTED MEMBERS
12.1 Limitations on Substitution. No Assignee shall have the right to
become a substituted Member of the Fund in place of his assignor unless all of
the following conditions are first satisfied:
12.1.1 A duly executed and acknowledged written instrument of
assignment covering no less than 250 Units (200 in the case of an IRA or Keogh
Plan) shall have been filed with the Fund, which instrument shall specify the
number of Units being assigned and set forth the intention of the assignor that
the Assignee succeed to the assignor's interest as a substituted Member.
12.1.2 The assignor and Assignee shall have executed and
acknowledged such other instruments as the Manager may deem necessary or
desirable to effect such substitution, including the written acceptance and
adoption by the Assignee of the provisions of this Agreement, as the same may be
amended and his execution, acknowledgment and delivery to the Manager of a
special power of attorney, the form and content of which are described herein;
12.1.3 The written consent of the Manager to such substitution
shall have been obtained, the granting of which may be withheld by the Manager
in its sole discretion, and any exercise of such discretion intended to preserve
the tax consequences of Unit ownership shall presumptively be deemed reasonable;
12.1.4 A transfer fee not to exceed $100 shall have been paid
to the Fund to cover all reasonable expenses connected with such substitution;
and
12.1.5 The provisions of Section 11.1 and 11.3 of this
Agreement are complied with.
12.2 Consent to Admission. By executing or adopting this Agreement,
each Holder hereby consents to the admission of additional or substituted
Holders by the Manager and to any Assignee becoming a substituted Holder, in
accordance with the provisions herein.
12.3 Amendment of Agreement. The Manager shall cause this Agreement to
be amended to reflect the admission and/or substitution of Members at least once
in each fiscal quarter.
13. REPURCHASE OF FUND INTERESTS
13.1 In the event a Holder ceases to be a United States Citizen or
Resident Alien for any reason whatsoever, he may be required, in the Manager's
discretion, to tender his Units to the Fund for repurchase as of the date of
such event. The Fund will have the absolute right to purchase such Units at a
price equal to 100% of the Holder's Capital Account as of such date, in all
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cases determined as of the last day of the quarter prior to the fiscal
quarter during which such Units are repurchased. IT SHOULD BE NOTED THAT THE
FUND WILL NOT BE OBLIGATED TO PURCHASE UNITS FROM HOLDERS WHO CEASE TO BE UNITED
STATES CITIZENS OR RESIDENT ALIENS.
13.2 The Manager may otherwise use available Reserves to repurchase
Units, in its discretion and on terms it determines to be appropriate under
given circumstances, in the event the Fund Manager deems such repurchase to be
in the best interest of the Fund; provided, the Fund shall never be required to
repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered
Units shall be canceled and shall no longer be deemed to represent an interest
in the Fund; and, provided further, that any such repurchase shall not impair
the capital of the Fund, or cause the Fund or any of its remaining Members to
incur an adverse tax consequence as a result of such repurchase.
13.3 The Manager shall cause this Agreement to be amended to reflect
the change in the interests of the Holders (including the person whose Units
were repurchased) in the Net Income, Net Loss and Distributions of the Fund at
least once in each fiscal quarter.
13.4 Neither the Manager nor its Affiliates may request the Fund to
repurchase any Units owned by them.
14. BOOKS, RECORDS, ACCOUNTINGS AND REPORTS
14.1 Books of Account and Records. The Manager shall, for income tax
purposes, keep on an accrual basis adequate books of account and records of the
Fund wherein shall be recorded and reflected all of the contributions to the
capital of the Fund and all of the expenses and transactions of the Fund.
14.1.1 Such books of account and records shall include the
following:
(i) A current list of the full name and last known
business or residence address and business telephone
number of each Member set forth in alphabetical order
together with the Original Invested Capital, the
Units held and the share in Net Income and Net Loss
of each Member, which list shall be updated at least
quarterly to reflect changes in the information
contained therein;
(ii) A copy of the Articles of Organization and all
amendments, together with executed copies of any
powers of attorney pursuant to which any certificate
has been executed;
(iii) Copies of the Fund's federal, state and local
income tax or information returns and reports, if
any, for the six most recent taxable years;
(iv) Copies of the original of this Agreement and
all amendments;
(v) Financial statements of the Fund for the six most
recent fiscal years; and
(vi) The Fund's books and records for at least the
current and past three fiscal years.
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14.1.2 Such books of account and records shall be kept at the
principal place of business of the Fund in the State of California, and each
Member and his authorized representatives shall have, at all times during normal
business hours and at any other reasonable time, free access to and the right to
inspect and copy at their expense such books of account and all records of the
Fund.
14.1.3 Upon the request of a Member, the Manager shall mail to
such Member within ten days of the request a copy of the information described
in Section 14.1.1(i), (ii) and (iv). The information described in Section
14.1.1(i) shall be printed in alphabetical order, on white paper, and in a
readily readable type size (in no event smaller than ten-point type). The Fund
may require payment of a reasonable charge for copy work.
14.1.4 If the Manager neglects or refuses to exhibit, produce
or mail a copy of the information in Section 14.1.1(i) above as requested and
required under this Agreement, the Manager shall be liable to the Member
requesting the information for the costs, including attorneys' fees, incurred by
the Member for compelling production of the information and for actual damages
suffered by the Member 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 information is to secure the list of Members or other
information for the purpose of selling such list or copies thereof, or of using
the same for a commercial purpose other than in the interest of the requesting
person as a Member relative to the affairs of the Fund. The Manager may require
that a Member requesting the information in Section 14.1.1(i) above represent
that the list is not requested for a commercial purpose unrelated to the
Member's interest in the Fund. The remedies provided hereunder to Members
requesting copies of the information in Section 14.1.1(i) above are in addition
to, and shall not in any way limit, other remedies available to Limited Members
under federal law or the laws of any state.
14.1.5 Subject to any change pursuant to Section 15.2.8, all
books and records of the Fund shall be kept on the basis of an annual accounting
period ending December 31, except for the final accounting period which shall
end on the dissolution or termination of the Fund. All references herein to a
"year of the Fund" are to such an annual accounting period, and all references
to a Fund "quarter" shall refer to a calendar quarter unless and until such
periods are changed by an amendment hereto. Accelerated methods of depreciation
with respect to Fund assets and other elections available to the Fund may be
used by the Fund for purposes of reporting federal or state income taxes.
14.2 Audited Annual Financial Statements. The Manager shall have
prepared and distributed to the Holders at least annually, at Fund expense,
financial statements (each of which shall include a balance sheet, statement of
income or loss, statement of Members' equity, and statement of cash flow)
prepared in accordance with generally accepted accounting principles and
accompanied by a report thereon containing an opinion of an independent
certified public accounting firm. Such opinion shall also state that reported
"Cash from Operations" is consistent with the definition of Cash from Operations
herein. Copies of such statements and report shall be distributed to each Holder
within 120 days after the close of each taxable year of the Fund.
14.3 Other Annual Reporting. The Manager shall have prepared and
distributed to the Holders at least annually, at Fund expense: (i) a statement
of cash flow, (ii) Fund information necessary in the preparation of the Holders'
and Assignees' federal income tax returns; (iii) a report of the business of the
Fund, which shall include for each piece of Equipment which individually
represents at least 10% of the Fund's total investment in Equipment, a status
report to indicate: (a) the condition of the Equipment, (b) how the Equipment is
being used as of the end of the year (leased, operated, held for lease, repair,
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or sale), (c) the remaining term of the Equipment leases, (d) the projected
use of Equipment for the next year (renewal of lease, re-lease, retirement, or
sale), and (e) such other information relevant to the value or use of the
Equipment as the Manager deems appropriate, including the method used as basis
for valuation; (iv) a statement as to the compensation received by the Manager
and its Affiliates from the Fund during the year, which statement shall set
forth the services rendered or to be rendered by the Manager and its Affiliates
and the amount of fees received; (v) a report identifying Distributions from:
(a) Cash from Operations for that year, (b) Gross Revenues of prior years held
in reserves, (c) Cash from Sales or Refinancing, and (d) Cash from Reserve
Account and other sources; and (vi) a special report prepared in accordance with
the American Institute of Certified Public Accountants United States Auditing
Standards relating to special reports, containing an opinion of an independent
certified public accounting firm, to report the breakdown of the costs
reimbursed by the Fund to the Manager or its Affiliates. Such special report
shall at a minimum provide: (a) a review of the time records of individual
employees, the costs of whose services were reimbursed, and (b) a review of the
specific nature of the work performed by each such employee. The additional
costs of such special report shall be itemized by the auditors among all
programs sponsored by the Manager and its Affiliates on a program-by-program
basis and may be reimbursed to the Manager or its Affiliates to the extent that
such reimbursement, when added to the cost for administrative services rendered,
does not exceed the competitive rate for comparable services performed by
independent parties in the same geographic location. Copies of the reports
hereunder shall be distributed to each Holder within 120 days after the close of
each taxable year of the Fund; provided, however, that all Fund information
necessary in the preparation of the Holders' and Assignees' federal income tax
returns shall be distributed to each Holder and Assignee not later than 75 days
after the close of each taxable year of the Fund.
14.4 Quarterly Reports. The Manager shall have prepared quarterly, at
Fund expense, commencing with the first full quarter after the Closing Date: (i)
a statement as to the compensation received by the Manager during such quarter
from the Fund which statement shall set forth the services rendered or to be
rendered by the Manager during such quarter from the Fund and the amount of fees
received, and (ii) other relevant information. Copies of such statements shall
be distributed to each Holder within 60 days after the end of each quarterly
period.
14.5 Unaudited Quarterly Financial Statements. The Manager shall have
prepared, at Fund expense, a quarterly report covering each of the first three
quarters of Fund operations in each calendar year, unaudited financial
statements (each of which shall include a balance sheet, statement of income or
loss for said quarterly period and statement of Cash from Operations and Cash
from Sales or Refinancing for said quarterly period) and a statement of other
pertinent information regarding the Fund and its activities during the quarterly
period covered by the report. Copies of such statements and other pertinent
information shall be distributed to each Holder within 60 days after the close
of the quarterly period covered by the report of the Fund.
14.6 Other Quarterly Reports. The Manager shall have prepared, at Fund
expense, after the end of each quarter in which Equipment is acquired and until
the Net Proceeds are fully invested or returned to investors, a notice which
shall describe therein: (i) a statement of the actual purchase price of the
Equipment, including the terms of the purchase, (ii) a statement of the total
amount of cash expended by the Fund to acquire such items of Equipment
(including and itemizing all commissions, fees, expenses and the name of each
payee), and (iii) a statement of the amount of proceeds in the Fund which remain
unexpended or uncommitted. Copies of such notice shall be distributed to each
Holder within 60 days after the end of such quarter. If deemed appropriate by
the Manager such notice may be prepared and distributed to each Holder more
frequently than quarterly.
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14.7 Tax Returns. The Manager, at Fund expense, shall cause income tax
returns for the Fund to be prepared and timely filed with appropriate
authorities.
14.8 Governmental Reports. The Manager, at Fund expense, shall cause to
be prepared and timely filed with appropriate federal and state regulatory and
administrative bodies, all reports required to be filed with such entities under
then current applicable laws, rules and regulations. Such reports shall be
prepared on the accounting or reporting basis required by such regulatory
bodies. Any Holder shall be provided with a copy of any such report upon request
without expense to him.
14.9 Maintenance of Suitability Records. The Manager, at Fund expense,
shall maintain for a period of at least six years, a record of the information
obtained to indicate that a Holder meets the suitability standards set forth in
the Prospectus.
15. RIGHTS, AUTHORITY, POWERS AND RESPONSIBILITIES OF THE MANAGER.
15.1 Services of the Manager. The Manager shall be responsible for
providing the following services to the Fund:
15.1.1 Supervising the organization of the Fund and the
offering and sale of Units;
15.1.2 Supervising Fund management, which includes (i)
establishing policies for the operation of the Fund; (ii) causing the Fund's
agents or employees to arrange for the provision of services necessary to the
operation of the Fund (including Equipment management and investor, accounting
and legal services, and services relating to Distributions by the Fund); (iii)
approving actions to be taken by the Fund; (iv) providing advice, consultation,
analysis and supervision with respect to the functions of the Fund as an owner
of the Equipment (including, without limitation, decisions regarding adjustments
to rental schedules, the sale or disposition of Equipment and compliance with
federal, state and local regulatory requirements and procedures); (v) executing
documents on behalf of the Fund; (vi) having a fiduciary responsibility for the
safekeeping and use of all funds of the Fund, whether or not in the Manager's
immediate possession or control; and (vii) making all decisions as to accounting
matters; and
15.1.3 Approval of the terms of the sale or other disposition
of Equipment, including establishing the terms for and arranging any such
transaction.
15.2 Authority of the Manager. The conduct of the Fund's business shall
be controlled solely by the Manager in accordance with this Agreement. The
Manager shall have fiduciary responsibility for the safekeeping and use of all
funds and assets of the Fund, whether or not in its immediate possession or
control, and shall have all authority, rights and powers conferred by law and
those required or appropriate to the management of the Fund business which, by
way of illustration but not by way of limitation, shall, subject only to the
provisions of Section 15.4, include the right, authority and power:
15.2.1 To acquire, lease, sell, hold and dispose of Equipment,
interests therein or appurtenances thereto, as well as personal or mixed
property connected therewith, including the purchase, lease, improvement,
maintenance, exchange, trade or sale of such Equipment, at such price, rental or
amount, for cash, securities (in compliance with appropriate securities
regulations) or other property, and upon such terms, as the Manager deems in its
sole discretion, to be in the best interest of the Fund; provided that, as of
the date of the final investment of Net Proceeds and completion of the
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permanent financing of the Equipment portfolio, at least 50% of the Fund's
Equipment, by aggregate purchase cost, shall be subject to initial leases which
are High Payout Leases.
15.2.2 To place record title to, or the right to use Fund
assets in, the name or names of a nominee or nominees, trustee or trustees for
any purpose convenient or beneficial to the Fund;
15.2.3 To acquire and enter into any contract of insurance
which the Manager deems necessary or appropriate for the protection of the Fund
and the Manager, for the conservation of Fund assets, or for any purpose
convenient or beneficial to the Fund;
15.2.4 To employ Persons in the operation and management of
the business of the Fund including, but not limited to, supervisory managing
agents, insurance brokers and equipment lease brokers and Persons to perform, on
behalf of the Fund, the activities enumerated in Section 15.2.1, on such terms
and for such compensation as the Manager shall determine, subject, however, to
the limitations with respect thereto as set forth in Article 8; provided that no
Person is employed to provide duplicative services; and provided further that
agreements with the Manager or their Affiliates for the services set forth in
Article 8 shall contain the terms and limitations as to fees and expenses as set
forth in said Article 8 and any of such agreements shall be terminable
immediately upon dissolution of the Fund under Section 19.1;
15.2.5 To prepare or cause to be prepared reports, statements
and other relevant information for distribution to Holders, as provided in
Article 14 and as they otherwise deem appropriate;
15.2.6 To open accounts and deposit and maintain funds in the
name of the Fund in banks or savings and loan associations; provided, however,
that the Fund funds shall not be commingled with the funds of any other Person;
15.2.7 To cause the Fund to make or revoke any of the
elections referred to in the Code;
15.2.8 To select as the Fund's accounting year a calendar
year or such fiscal year as approved by the Service;
15.2.9 To determine the appropriate accounting method or
methods to be used by the Fund;
15.2.10 To offer and sell Units in the Fund directly or
through any licensed Affiliate of the Manager or nonaffiliate and to employ
personnel, agents and dealers for such purpose;
15.2.11 To amend this Agreement to reflect the addition or
substitution of Holders, the reduction of capital accounts upon the return of
capital to Members or the change in the interests of the Holders in the Net
Income, Net Loss and Distributions of the Fund after the repurchase of Units;
15.2.12 To require in all Fund obligations that the Manager
shall not have any personal liability thereon but that the Person contracting
with the Fund is to look solely to the Fund and its assets for satisfaction of
such obligations; and in the event that the Manager has personal liability with
respect to any such obligation, the Manager may require its satisfaction prior
to obligations with respect to which the Manager has no personal liability;
provided, however, that the inclusion of the aforesaid provisions shall not
materially affect the cost of the service or material being supplied and all
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Fund obligations are satisfied in accordance with prudent business
practices as to the time and manner of payment;
15.2.13 To execute and file certificates of amendment and
cancellation of the articles of organization, and certificates of dissolution of
the Fund;
15.2.14 Subject to the provisions of Article 10, to determine
the amount of Cash from Operations and Cash from Sales or Refinancing used to
purchase additional Equipment and to make Distributions;
15.2.15 To purchase Equipment in its own name, the name of an
Affiliate or in the name of a nominee, a trust or a corporation or otherwise and
hold title thereto on a temporary or interim basis (generally not in excess of
six months) for the purpose of facilitating the acquisition of such Equipment or
completion of manufacture of the Equipment, or any other purpose related to the
business of the Fund; provided, however that: (i) the transaction is in the best
interest of the Fund; (ii) such Equipment is purchased by the Fund for a
purchase price no greater than the cost of such Equipment to the Manager or
Affiliate (including any out-of-pocket carrying costs), except for compensation
permitted by this Agreement; (iii) there is no difference in interest terms of
the loans secured by the Equipment at the time acquired by the Manager or
Affiliate and the time acquired by the Fund; (iv) there is no benefit arising
out of such transaction to the Manager or its Affiliate apart from the
compensation otherwise permitted by this Agreement; and (v) all income generated
by, and all expenses associated with, Equipment so acquired shall be treated as
belonging to the Fund.
15.2.16 Subject to Sections 15.4.21 and 15.4.22, to borrow
money and, if security is required therefor, to mortgage or subject any
Equipment to any other security device, to obtain replacements of any mortgage
or other security device, and to prepay, in whole or in part, refinance,
increase, modify, consolidate or extend any mortgage or other security device,
all of the foregoing at such terms and in such amounts as the Manager, in its
sole discretion, deems to be in the best interests of the Fund;
15.2.17 To invest (i) the Gross Proceeds or Net Proceeds
temporarily prior to investment in Equipment, (ii) other funds of the Fund prior
to the investment in Equipment or the distribution to Holders and (iii) the
Fund's capital reserves, in short-term, highly liquid investments where there is
appropriate safety of principal;
15.2.18 In addition to any amendments otherwise authorized
herein, this Agreement may be amended from time to time by the Manager, without
the consent of any of the Holders
(i) to add to the representations, duties or obligations of
the Manager or its Affiliates or surrender any right or power
granted to the Manager or its Affiliates herein, for the
benefit of the Holders;
(ii) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect
to matters or questions arising under this Agreement which
will not be inconsistent with the provisions of this Agreement
provided that no amendment hereunder will change the voting
rights of Holders;
B-25
(iii) to delete or add any provision of this Agreement
required to be so deleted or added by the staff of the
Securities and Exchange Commission or by a state "Blue Sky"
administrator or similar such official, which addition or
deletion is deemed by such staff or official to be for the
benefit or protection of the Holders; or
(iv) to amend the provisions of Article 10 of this Agreement
relating to the allocations of Net Income, Net Loss and
Distributions among Members or any other provisions hereof if
the Fund is advised at any time by the Fund's accountants or
legal counsel that the allocations or such other provisions
set forth in this Agreement are unlikely to be respected,
either because of promulgation of Regulations under Sections
704 or 706 of the Code or other developments in the law, but
only to the minimum extent necessary in accordance with such
advice of accountants and/or counsel to cause such provisions
of this Agreement to be respected. Such amendment or
amendments made by the Manager in reliance upon the advice of
the accountants or counsel described above shall be deemed to
be made pursuant to the fiduciary obligation of the Manager to
the Fund and the Holders, and no such amendment or amendments
shall give rise to any claim or cause of action by any Holder.
15.2.19 To execute, acknowledge and deliver any and all
instruments to effectuate the foregoing, and to take all such action in
connection therewith as the Manager shall deem necessary or appropriate.
15.3 General Powers and Fiduciary Duty. The Manager shall, except as
otherwise provided in this Agreement, have all the rights and powers and shall
be subject to all the restrictions and liabilities provided for the manager of a
limited liability company under the California Act. Notwithstanding any other
provision of this Agreement, in no event may the Manager modify or compromise,
by contract or otherwise, its fiduciary duty to the Fund or the Holders, whether
such duty is imposed under the common law or by statute.
15.4 Limitations on Manager's Authority. Neither the Manager nor any
Affiliate shall have the authority to:
15.4.1 Enter into contracts with the Fund which would bind the
Fund after the expulsion, adjudication of bankruptcy or insolvency of a Manager,
or continue the business of the Fund with Fund assets after the occurrence of
such an event;
15.4.2 Grant to the Manager or any Affiliate an exclusive
listing for the sale of Fund assets, including Equipment;
15.4.3 Sell Substantially All of the Assets in a single sale,
or in multiple sales in the same twelve-month period, except in the orderly
liquidation and winding up of the business of the Fund upon its termination and
dissolution;
15.4.4 Pledge or encumber Substantially All of the Assets in a
single transaction or in multiple transactions in the same twelve-month period
other than in connection with the acquisition or improvement of assets or the
refinancing of existing obligations;
15.4.5 Alter the primary purpose of the Fund as set forth in
Article 3;
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15.4.6 Receive from the Fund a rebate or give-up or
participate in any reciprocal business arrangements which would circumvent the
provisions of this Agreement, nor shall any such person permit any reciprocal
business arrangement which would circumvent the restrictions herein against
dealing with the Manager and its Affiliates;
15.4.7 Sell or lease any Equipment to any entity in which a
Manager or any Affiliate has an interest, other than a joint venture or similar
program which complies with the conditions set forth in Section 15.4.8 hereof;
15.4.8 Cause the Fund to invest in any program, partnership or
other venture unless: (i) the other Member or joint owner is not a Manager (but
it may be an Affiliate of a Manager, provided the Affiliate is formed and
operated for the primary purpose of investment in and operation of or gain from
an interest in equipment, and has substantially identical investment objectives
to those of the Fund); (ii) such joint venture owns and operates particular
Equipment and the Fund or the Fund and Affiliate, as the case may be, acquire
the controlling interest in such partnership, or joint venture; (iii) the
agreement of joint venture does not authorize the Fund to do anything as a
Member or joint venturer with respect to the Equipment which the Fund, or a
Manager, could not do directly because of the provisions of this Agreement; (iv)
the Fund's investment is on substantially the same terms and conditions as the
investment of any Affiliate; (v) no compensation (other than as provided for by
this Agreement) is received in connection therewith by the Manager or any of its
Affiliates, there are no duplicate equipment management or any other duplicate
fees and such investment shall not result in the impairment, abrogation or
circumvention of any of the terms or provisions of this Agreement; (vi) the
joint venture is in the best interest of both co-venturers; and (vii) in joint
venture arrangements with an Affiliate of a Manager, if all of the following
additional conditions are met: the compensation of the Manager is substantially
identical to that received by the sponsor of such Affiliate, the Fund has a
right of first refusal to buy, if such Affiliate wishes to sell, equipment held
in the joint venture, and the joint venture is established either for the
purpose of effecting appropriate diversification of the Fund's investment
portfolio or for the purpose of relieving the Manager or its Affiliates or
nominees from a commitment entered into pursuant to Section 15.2.15 of this
Agreement; for the purposes of this Section, a controlling interest shall
include: (1) ownership of more than 50% of the venture's capital or profits; or
(2) provisions in the venture agreement giving the Fund effective control;
15.4.9 Except as provided in the Sections 15.2.15, 15.4.7 and
15.4.8, purchase or lease Equipment from the Fund or sell or lease Equipment to
the Fund;
15.4.10 Cause the Fund to loan any funds or property to any
Manager or Affiliate of a Manager;
15.4.11 Cause the Fund to borrow from any of the Manager or
its Affiliates on terms which provide for interest, financing charges or fees in
excess of the amounts charged by unrelated lending institutions on comparable
loans for the same purpose, or in excess of the ledger's cost of funds, or, in
any event, to cause the Fund to obtain "permanent financing" (defined as
financing with a term in excess of 12 months) from any such Person;
15.4.12 Cause the Fund to exchange Units for property other
than cash;
15.4.13 Do any action in contravention of this Agreement or
which would make it impossible to carry on the ordinary business of the Fund;
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15.4.14 Confess a judgment against the Fund in connection
with any threatened or pending legal action;
15.4.15 Possess any Equipment or assign the rights of the
Fund in specific Equipment for other than a Fund purpose;
15.4.16 Admit a Person as a Manager except with the consent
of the Holders as provided in Article 17 hereof;
15.4.17 Perform any act (other than an act required by this
Agreement or any act taken in good faith reliance upon counsel's opinion) which
would, at the time such act occurred, subject any Holder to liability as a
Manager in any jurisdiction;
15.4.18 Reinvest any funds of the Fund after the end of the
Reinvestment Period other than to invest in Equipment pursuant to commitments
entered into prior to the expiration of the Reinvestment Period or in Equipment
to be used in connection with Equipment under an existing lease, or reinvest any
funds of the Fund during the Reinvestment Period unless such reinvestment is
effected for all Holders on the same terms and is otherwise in compliance with
Section 10.7 hereof;
15.4.19 Invest any of the Gross Proceeds in Equipment which
is non-income producing;
15.4.20 Employ, or permit any Person to employ, the funds or
assets of the Fund in any manner except for the exclusive benefit of the Fund;
this provision shall not prohibit the Manager from causing Fund funds to be
deposited in a separate Fund account with a bank or other financial institution
which aggregates all funds held on behalf of the Manager and its Affiliates in
calculating qualifying balances for purposes of discounts on service charges or
other account benefits, provided that the Fund benefits on a pro rata basis from
any such discounts or other favorable terms, and, provided further, that no
creditor of any party other than the Fund shall have any recourse to funds held
in the Fund's separate account;
15.4.21 Incur any indebtedness wherein the lender will have or
acquire, at any time as a result of making the loan, any direct or indirect
interest in the profit, capital or property of the Fund other than as a secured
creditor; or incur any indebtedness specifically for the purpose of funding
operating distributions, provided however that the Fund may enter into
refinancing transactions with respect to its Equipment and distribute net
proceeds from any such refinancing to the extent consistent with its investment
objectives;
15.4.22 Incur aggregate Fund borrowings which, as of the date
of the final investment of the Net Proceeds and, thereafter, on the date any
subsequent indebtedness is incurred, are in excess of 50% of the purchase price
of all Equipment on a combined basis. "Purchase price" for purposes of this
Section 15.4.22 shall mean the sum of the cash downpayment and any indebtedness
incurred in connection with the acquisition of an item of Equipment by the Fund,
or to which the Equipment is taken subject, plus any Acquisition Fees paid, but
does not include loan points, prepaid interest, or other prepaid expenses;
15.4.23 Commingle Fund funds with those of any other Person;
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15.4.24 Except as otherwise provided herein, cause the Fund to
enter into any transaction with any other partnership in which a Manager or any
of its Affiliates have an interest, including, but not limited to, any
transaction involving the sale, lease or purchase of any Equipment to or from
the Fund, the rendering of services to or from the Fund, or the lending of any
monies or other property to or from the Fund;
15.4.25 Directly or indirectly pay or award any finder's fees,
commissions or other compensation to any Person engaged by a potential investor
for investment advice as an inducement to such advisor to advise the purchaser
regarding the purchase of Units; provided, however, that the Manager shall not
be prohibited from paying the normal sales commissions payable to a registered
broker-dealer or other properly-licensed Person for selling Units;
15.4.26 Operate the Fund in such a manner as to have the Fund
classified as an "investment company" for purposes of the Investment Company Act
of 1940;
15.4.27 Except as provided herein, invest any of the Gross
Proceeds in units of limited partnership interest, junior mortgages, deeds of
trust or other similar instruments or obligations;
15.4.28 Cause the Fund to enter into any agreements with a
Manager or any Affiliate of a Manager which are not subject to termination
without penalty by either party upon not more than 60 days' written notice,
except for agreements which comply with the provisions of Section 15.2.15 or
those which comply with the provisions of Section 15.4.8 and relate to the
purchase of Equipment by the Fund and an Affiliate as joint venturers;
15.4.29 Cause the Fund to acquire any single item of Equipment
that has a contract purchase price in excess of $1,000,000 unless prior to final
funding of the acquisition it obtains a future value appraisal of the Equipment
from a qualified independent third party appraiser;
15.4.30 Cause the Fund to invest cash in an aggregate amount
in excess of $30,000,000 in Equipment leased to a single lessee.
15.5 Limitation on Manager's Liability. The Manager shall have no
personal liability for the repayment of the Original Invested Capital of any
Holder or to repay the Fund any portion or all of any negative balance in its
Capital Account.
15.6 Tax Matters Member. ATEL is hereby designated as the "Tax Matters
Member" in accordance with Section 6231(a)(7) of the Code and, in connection
therewith and in addition to all other powers given therein, shall have all
other powers needed to perform fully hereunder including, without limitation,
the power to retain all attorneys and accountants of its choice and the right to
settle any audits without the consent of Members. The designation made in this
paragraph is hereby consented to by each Member as an express condition to
becoming a Member. The Fund hereby indemnifies ATEL from and against any damages
or losses (including attorney's fees) arising out of or incurred in connection
with any action taken or omitted to be taken by it in carrying out its
responsibilities as tax matters Member, subject to the same conditions under
which indemnification is provided the Manager in Article 21 hereof.
15.7 Minimum Investment in Equipment / Maximum Front-End Fees. The
Manager must commit not less than 85.875% of the Gross Proceeds to Investment in
Equipment, with the balance thereof available to pay Organization and Offering
Expenses and Front End Fees, however designated.
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Under the North American Securities Administrators Association, Inc. ("NASAA")
Statement of Policy concerning Equipment Programs, as amended through October
24, 1991 (referred to herein as the "NASAA Guidelines"), the Fund is required to
commit a minimum percentage of the Gross Proceeds to Investment in Equipment,
calculated as the greater of: (i) 80% of the Gross Proceeds reduced by 0.0625%
for each 1% of indebtedness encumbering the Fund's Equipment; or (ii) 75% of
such Gross Proceeds. Based on the formula in the NASAA Guidelines, with 50%
portfolio leverage the Fund's minimum Investment in Equipment would equal
76.875% of Gross Proceeds (80% - [50% x .0625%] = 76.875%), and the Fund's
minimum Investment in Equipment would therefore exceed the NASAA Guideline
minimum by 9%. The NASAA Guidelines permit the Manager and its Affiliates to
receive compensation in the form of a carried interest in Fund Net Income, Net
Loss and Distributions equal to 1% for the first 2.5% of excess Investment in
Equipment over the NASAA Guidelines minimum, 1% for the next 2% of such excess,
and 1% for each additional 1% of excess Investment in Equipment. With a minimum
Investment in Equipment of 85.875% and 50% leverage, the Manager and its
Affiliates may receive an additional carried interest equal to 6.5% of Net
Profit, Net Loss and Distributions under the foregoing formula (2.5% + 2% + 4.5%
= 9%; 1% + 1% + 4.5% = 6.5%]. At the lowest permitted level of minimum
Investment in Equipment, the NASAA Guidelines would permit the Manager and its
Affiliates to receive a promotional interest equal to 5% of Distributions of
Cash from Operations and 1% of Distributions of Sale or Refinancing Proceeds
until Members have received total Distributions equal to their Original Invested
Capital plus an 8% per annum cumulative return on their Adjusted Invested
Capital, and, thereafter, the promotional interest could increase to 15% of all
Distributions. With the additional carried interest calculated as described
above, the maximum aggregate fees payable to the Manager and Affiliates under
the NASAA Guidelines as carried interest and promotional interest would equal
11.5% of Distributions of Cash from Operations (6.5% + 5% = 11.5%), and 7.5% of
Distributions of Sale or Refinancing Proceeds (6.5% + 1% = 7.5%), before the
subordination level was reached, and 21.5% of all Distributions thereafter. The
maximum amounts to be paid under the terms of this Agreement are subject to the
application of the Asset Management Fee Limit provided in Section 8.3, which
limits the annual amount payable to the Manager and its Affiliates as the Asset
Management Fee and the Carried Interest to an aggregate not to exceed the total
amount of fees that would be payable to the Manager and its Affiliates under the
alternative fee schedule set forth in Section 8.3. This overall limitation on
annual fees will include, in addition to the Equipment Management Fee and
Equipment Resale/Releasing Fee, amounts equal to 11.5% of Distributions of Cash
from Operations (4% as an Incentive Management Fee plus 7.5% as the Fund
Manager's Carried Interest) and 7.5% of Distributions of Sale or Refinancing
Proceeds (as the Fund Manager's 7.5% Carried Interest) before the Priority
Return, and 15% of all Distributions thereafter (7.5% as an Incentive Management
Fee plus 7.5% as the Carried Interest). Upon completion of the offering of
Units, final commitment of Net Proceeds to acquisition of Equipment and
establishment of final levels of permanent portfolio debt encumbering such
Equipment, the Manager shall calculate the maximum carried interest and
promotional interest payable to the Manager and its Affiliates under the NASAA
Guidelines and compare such total permitted fees to the total of the Incentive
Management Fees and Carried Interest. If and to the extent that the fees
calculated under the alternative fee schedule provided in Section 8.3 as the
Incentive Management Fee and the Carried Interest should exceed the maximum
promotional interest plus carried interest permitted under the NASAA Guidelines,
as described above, the fees payable to the Manager and its Affiliates shall be
reduced as described herein. In such event, Section 8.3 of this Agreement shall
be amended immediately to reduce the amounts calculated as the Incentive
Management Fee and/or the Carried Interest by an amount sufficient to cause the
total of such compensation to comply with the limitations in the NASAA
Guidelines on the aggregate of promotional interests and carried interests. A
comparison of the Front End Fees actually paid by the Fund and the NASAA
Guideline maximums shall be repeated, and any required adjustments shall be
made, at least annually thereafter.
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15.8 Reliance on Manager's Authority. The Manager shall conduct the
business of the Fund, devoting such time thereto as it, in its sole discretion,
shall determine to be necessary to manage the Fund business and affairs in an
efficient manner. Any Person dealing with the Fund or the Manager may rely upon
a certificate signed by the Manager as authority with respect to: (i) the
identity of the Manager or any Holder hereof; (ii) the existence or
non-existence of any fact or facts which constitute a condition precedent to
acts by the Manager or are in any other manner germane to the affairs of the
Fund; (iii) the Persons who are authorized to execute and deliver any instrument
or document on behalf of the Fund; or (iv) any act or failure to act by the Fund
as to any other matter whatsoever involving the Fund or any Members.
16. RIGHTS, POWERS AND VOTING RIGHTS OF THE MEMBERS
16.1 Limitation on Member Authority. Members shall take no part in the
control, conduct or operation of the Fund and shall have no right or authority
to act for or bind the Fund except as expressly provided herein.
16.2 Voting Rights. Members shall have the right, by the vote of
Members who own more than 50% of the total outstanding Units entitled to vote (a
"majority-in-interest"), to approve the following matters affecting the basic
structure of the Fund:
16.2.1 Removal or withdrawal of a Manager;
16.2.2 Subject to the further requirements of Article 17,
continuation of the Fund and election of a successor Manager upon the
termination of a Manager;
16.2.3 Termination and dissolution of the Fund;
16.2.4 Amendment of this Agreement, provided such amendment is
not for any of the purposes set forth in Sections 16.4 or 16.5, and provided,
further, that the Members shall have the right to approve or disapprove by
separate vote each proposed amendment to this Agreement;
16.2.5 The pledge or granting of a security interest in, or
sale of, Substantially All of the Assets in a single transaction, or in multiple
transactions in the same twelve-month period, except in the liquidation and
winding up of the business of the Fund upon its termination and dissolution; and
16.2.6 The extension of the term of the Fund.
16.3 Voting Procedures. In any vote of the Members, each Member shall
be entitled to cast one vote for each Unit which he owns as of the designated
record date. Notwithstanding any other provision of this Agreement, any Units
held by a Manager or an Affiliate of a Manager will not be entitled to vote, and
will not be considered to be "outstanding" Units for purposes of any vote, upon
matters which involve a conflict between the interests of such Manager and the
Fund, including, but not limited to, any vote on the proposed removal or
withdrawal of such Manager or on any proposed amendment to this Agreement which
would expand or extend the rights, authorities or powers of such Manager.
16.3.1 Meetings of the Members to vote upon any matters as to
which the Members are authorized to take action under this Agreement, as the
same may be amended from time to time, may be called at any time by the Manager
or by one or more Members holding more than 10% of the outstanding
B-31
Units by delivering written notice, either in person or by registered mail, of
such meeting to the Manager. Promptly, but in any event within 10 days following
receipt of such request, the Manager shall cause a written notice, either in
person or by certified mail, to be given to the Members entitled to vote at such
meeting, which notice shall state that a meeting will be held at a time and
place fixed by the Manager, which is to be convenient to the Members as a group,
and which is not less than 15 days nor more than 60 days after the mailing of
the notice of the meeting; provided, however, that such maximum period for the
giving of notice and the holding of meetings may be extended for an additional
60 days if such extension is necessary to obtain the qualification with the
California Commissioner of Corporations of the matters to be acted upon at such
meeting, the clearance by the Securities and Exchange Commission or other
appropriate governing agency of the solicitation materials to be forwarded to
Members in connection with such meeting or any other administrative
authorizations which may be required. Included with the notice of a meeting
shall be a detailed statement of the action proposed, including a verbatim
statement of the wording of any resolution proposed for adoption by the Members
and of any proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Fund.
16.3.2 In order to establish the Members of record entitled to
act upon matters by vote or written consent, the Manager or Members holding more
than 10% of the Units may fix in advance a record date (the "Record Date") which
is not more than 60 nor less than 10 days prior to the date of the meeting or
the date upon which written consents are to be delivered. If no Record Date is
fixed in the notice of meeting or action by written consent, the Record Date
shall be deemed to be at the close of business on the business day next
preceding the date on which notice is given. A new Record Date shall be fixed if
a meeting is adjourned for more than 45 days from the date set for the original
meeting.
16.3.3 Upon adjournment of a meeting to another time or place,
notice of the new time or place shall be announced at the meeting at which
adjournment is taken. If the adjournment is for more than 45 days or if, after
the adjournment, a new Record Date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each Member of record entitled to
vote at the meeting.
16.3.4 Personal presence of the Members at a meeting shall not
be required, provided that sufficient Units are represented at the meeting, by
Members appearing in person and/or by duly executed proxies, to take any action
proposed for a vote at such meeting. Attendance by a Member at any meeting and
voting in person shall revoke any proxies of such Member submitted with respect
to action proposed to be taken at such meeting. Submission of a later proxy with
respect to any action shall revoke an earlier one as to such action. Only the
votes, whether in person or by proxy, of Members holding Units as of the Record
Date established for such meeting shall be counted.
16.3.5 Any matter as to which the Members are authorized to
take action under this Agreement or under law may be taken by the Members
without a meeting and shall be as valid and effective as action taken by the
Members at a meeting duly assembled, if written consents to such action by the
Members are (i) signed by the Members entitled to vote upon such action at a
meeting who held, as of the Record Date for such actions, the number of Units
required to authorize such action and (ii) delivered to the Manager as of the
date set for such action. Any action taken without a meeting shall be effective
15 days after the required minimum number of Members have signed the consent and
shall be effective immediately if the Manager and Limited Members holding at
least 90% of the outstanding Units as of the Record Date have signed the
consent.
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16.3.6 In the event that there shall be no Manager, the
Members may take action without a meeting by the written consent of Members
having the requisite voting power of the Members entitled to vote.
16.4 Limitations on Member Rights. No Holder shall have the right or
power to: (i) withdraw or reduce his contribution to the capital of the Fund
except as a result of the repurchase of the Units as provided in Article 13, the
dissolution of the Fund or as otherwise provided by law, (ii) bring an action
for partition against the Fund, (iii) cause the termination and dissolution of
the Fund by court decree or otherwise, except as set forth in this Agreement, or
(iv) demand or receive property other than cash in return for his contribution.
No Holder shall have priority over any other Holder either as to the return of
contributions of capital or as to Net Income, Net Loss or Distributions. Other
than upon the termination and dissolution of the Fund as provided by this
Agreement there has been no time agreed upon when the contribution of each
Holder may be returned.
16.5 Limitations on Power to Amend Agreement. Except as provided in
Section 15.2.18, and notwithstanding anything to the contrary contained in this
Agreement, this Agreement may not, without the consent of each of the Members
who would be adversely affected thereby, be amended to:
16.5.1 Convert a Holder into a Manager;
16.5.2 Modify the limited liability of a Holder;
16.5.3 Alter the interest of any Member in Net Income, Net
Loss or Distributions; or
16.5.4 Affect the status of the Fund as a partnership for
federal income tax purposes.
16.6 Member List. Upon the written request of a Member and for any
non-commercial purpose reasonably related to the exercise of rights under this
Agreement, the Manager will furnish to such Member or his representative, at his
expense, a list containing the name and address of, and the Units held of record
by, each Member, as provided in Section 14.1.3.
16.7 Dissenters' Rights and Limitations on Mergers and Roll-ups.
16.7.1 Any proposal that the Fund enter into a Roll-Up will
require approval by Members of not less than 90% of the outstanding Units.
Members who dissent with respect to a Roll-Up proposal will have the rights of a
dissenting Member as provided under Sections 15679.1 through 15679.14 of the
California Act. The Fund shall not reimburse the sponsor of a proposed Roll-Up
for the costs of its proxy contest or any other costs of the transaction in the
event the Roll-Up is not approved by the Members as provided herein.
16.7.2 In connection with a proposed Roll-Up, an appraisal of
all Fund assets shall be obtained from a competent, independent expert (defined
as a Person with no current material or prior business or personal relationship
with the Manager or its Affiliates who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of the type held by
the Fund, and who is qualified to perform such work). If the appraisal will be
included in a Prospectus used to offer the securities of a Roll-Up Entity, the
appraisal shall be filed with the SEC and the states as an Exhibit to the
Registration Statement for the offering. Accordingly, an issuer using the
appraisal shall be subject to liability for violation of Section 11 of the
Securities Act of 1933 and comparable provisions under state
B-33
laws for any material misrepresentations or material omissions in the appraisal.
Fund assets shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information, and shall indicate the value
of the Fund's assets as of a date immediately prior to the announcement of the
proposed Roll-Up transaction. The appraisal shall assume an orderly liquidation
of Fund assets over a 12-month period. The terms of the engagement of the
Independent Expert shall clearly state that the engagement is for the benefit of
the Fund and its Holders. A summary of the independent appraisal, indicating all
material assumptions underlying the appraisal, shall be included in a report to
the Holders in connection with a proposed Roll-Up transaction.
16.7.3 In connection with a proposed Roll-Up, the Person
sponsoring the Roll-Up transaction shall offer to Holders who vote "no" on the
proposal the choice of:
(a) accepting the securities offered in the proposed Roll-Up
transaction; or
(b) one of the following:
(i) remaining as Holders in the Fund, and preserving
their interests therein on the same terms and conditions as existed previously;
or
(ii) receiving cash in an amount equal to the
Holders' pro-rata share of the appraised value of the net assets of the Fund.
16.7.4 The Fund shall not participate in any proposed Roll-Up
transaction which would result in Holders having democracy rights which are less
than those provided for under this Agreement. If the resulting entity is a
corporation, the voting rights of Holders shall correspond to the voting rights
provided for in this Agreement to the greatest extent possible.
16.7.5 The Fund shall not participate in any proposed Roll-Up
transaction which includes provisions which would operate to materially impede
or frustrate the accumulation of shares by any purchaser of the securities of
the Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the entity). The Fund shall not participate in any proposed Roll-Up
transaction which would limit the ability of a Holder to exercise the voting
rights of the securities of the Roll-Up Entity on the basis of the number of
Units held by that Holder.
16.7.6 The Fund shall not participate in any proposed Roll-Up
Transaction in which Holders' rights of access to the records of the Roll-Up
Entity will be less than those provided for under this Agreement.
17. TERMINATION OF A MANAGER AND TRANSFER OF THE MANAGER'S INTEREST
17.1 Removal or Withdrawal. The following conditions shall govern the
voluntary withdrawal or removal of the Manager:
17.1.1 The Manager may not voluntarily withdraw from the Fund
without the approval of Members holding more than 50% of the total outstanding
Units entitled to vote.
17.1.2 The Manager may be removed upon a vote of Holders
owning more than 50% of the total outstanding Units entitled to vote. Written
B-34
notice of removal of the Manager shall be served either by certified or by
registered mail, return receipt requested, or by personal service. Such notice
shall set forth the date upon which the removal is to become effective.
17.2 Other Terminating Events. In the event of the adjudication of
bankruptcy, filing of a certificate of dissolution, death or adjudication of
insanity or incompetency of the Manager (each of such events, as well as
removal, resignation and withdrawal of a Manager, being herein referred to as a
"Terminating Event"), the Fund shall be dissolved and shall be liquidated under
the provisions of Article 19, subject to the provisions of Section 17.3.
17.3 Election of Successor Manager; Continuation of Fund Business. The
following provisions shall govern the election of a successor Manager and
continuation of the business of the Fund upon the occurrence of a Terminating
Event with respect to a Manager (the "Retiring Manager"):
17.3.1 If at the time of a Terminating Event the Fund has one
or more Managers other than the Retiring Manager, any remaining Manager or a
majority-in-interest of the Limited Members may elect, within 90 days
thereafter, to continue the Fund business, in which case the Fund shall not
dissolve. So long as there is at least one remaining Manager which so elects, or
if a majority-in-interest of the Members so elect and a remaining Manager does
not so elect, any remaining Manager which is not willing to elect to continue
the Fund business will be deemed to have been removed from the Fund by vote of
the Members.
17.3.2 If at the time of a Terminating Event the Retiring
Manager is the sole remaining Manager, the Fund shall be dissolved unless a
majority-in-interest of the Members elect to continue the Fund business. In the
event of such election, the Fund business may be continued if the Members making
such election, within 90 days after the occurrence of the Terminating Event,
elect a successor Manager and continue the Fund's business on the same terms and
conditions as are contained herein, but with a name which does not include or in
any way refer to the name of any Retiring Manager.
17.4 Admission of Successor or Additional Manager. The following
conditions shall be satisfied before any Person shall become a successor Manager
or an additional Manager:
17.4.1 Such Person shall have been elected in accordance with
Section 17.3 or 17.6;
17.4.2 Such Person shall have accepted and agreed to be bound
by all the terms and provisions of this Agreement;
17.4.3 If such Person is a corporation, it shall have provided
the Fund with evidence satisfactory to counsel for the Fund of its authority to
become a Manager and to be bound by this Agreement; and
17.4.4 Any amendments and filings required or appropriate
under the California Act shall have been made.
17.5 Effect of a Terminating Event. Upon the occurrence of a Terminating
Event, the following provisions shall be applicable:
17.5.1 The Retiring Manager shall immediately cease to be a
Manager and shall not have any right to participate in the management of the
B-35
affairs of the Fund or to receive any fees under this Agreement not already
paid or earned; provided, however, that the Retiring Manager shall receive all
amounts then accrued and payable by the Fund and shall be, and shall remain,
liable as a Manager for all obligations and liabilities incurred by the Fund
prior to the effective date of the Terminating Event, but shall be free from any
obligation or liability incurred on account of the activities of the Fund from
and after such time.
17.5.2 If the business of the Fund is continued, as aforesaid,
the Retiring Manager shall be entitled to receive from the Fund the then present
fair market value of its interest in the Fund, determined by agreement of the
Retiring Manager and the remaining or new Managers, or, if they cannot agree, by
arbitration in accordance with the then current rules of the American
Arbitration Association. The expense of such arbitration shall be borne equally
by the Fund and the Retiring Manager, and such arbitration shall be conducted in
San Francisco, California unless otherwise agreed by both parties. The Fund
shall forthwith pay to the Retiring Manager an amount equal to the then present
fair market value of the interest so determined. If the Retiring Manager has
voluntarily withdrawn from the Fund, payment shall be in the form of a
non-interest bearing unsecured promissory note with principal payable, if at
all, out of Distributions the Retiring Manager would otherwise have received
under this Agreement had such Manager not been terminated. If the Retiring
Manager has been terminated involuntarily, the payment shall be in the form of
an interest bearing promissory note payable in equal annual installments over a
term of not less than five years. Such payment when made shall constitute
complete and full discharge of all amounts to which the Retiring Manager is
entitled in respect to such interest.
17.5.3 All executory contracts between the Fund and the
Retiring Manager or any Affiliate thereof (unless such Affiliate is also an
Affiliate of the remaining or new Manager or Members) may be terminated by the
Fund effective upon written notice to the party so terminated. The Retiring
Manager or any Affiliate thereof (unless such Affiliate is also an Affiliate of
the remaining or new Manager or Members) may also terminate and cancel any such
executory contract effective upon 60 days' prior written notice of such
termination and cancellation given to the remaining or new Manager or Members,
if any, or to the Fund.
17.6 Election of Additional Manager. Members owning in excess of 50% of
the outstanding Units may at any time and from time to time elect an additional
Manager, and, upon satisfaction of the conditions set forth in Section 17.4, the
Person so elected shall be admitted as an additional Manager. Admission of an
additional Manager shall not cause dissolution of the Fund.
17.7 Assignment of Manager's Interest. The Manager may not transfer its
Membership in the Fund without the consent of Members owning in excess of 50% of
the total outstanding Units, unless such an assignment is to an entity which
succeeds to all of the assets of the assigning Manager and of which at least 80%
of the voting and beneficial interest is controlled by Persons controlling 80%
or more of the voting and beneficial interest of the assigning Manager. Any
entity to which the entire interest of a Manager in the Fund is assigned in
compliance with this Section 17.7 shall be substituted as a Manager by the
filing of appropriate amendments to this Agreement. Notwithstanding the
foregoing, the Manager may delegate to any of its subsidiaries or other
Affiliates responsibility for specific services to be performed for the Fund and
may assign all or a portion of the compensation due the Manager to such
subsidiaries or other Affiliates.
17.8 Members' Participation in Manager's Bankruptcy. In the event the
Manager is subject to a voluntary or involuntary petition for reorganization or
liquidation under the federal Bankruptcy Act, the Manager will cause separate
counsel to be retained on behalf of the Fund, at Fund expense, to represent
B-36
the Members' interests in the bankruptcy action. In such event, the Fund will
also bear any reasonable and necessary expenses of a duly appointed committee of
Members incurred while acting on behalf of all of the Members as a group in
connection with such bankruptcy action.
18. CERTAIN TRANSACTIONS
18.1 The Manager and its Affiliates, the Holders, any shareholder,
officer, director, Member or employee thereof, or any Person owning a legal or
beneficial interest therein, may engage in or possess an interest in any other
business or venture of every nature and description, independently or with
others, including, but not limited to, the ownership, financing, leasing,
operation, management and brokerage of equipment. Except as described in the
Prospectus, and subject to their fiduciary duties to the Fund, neither the
Manager nor its Affiliates shall be obligated to present to the Fund any
particular investment opportunity, regardless of whether such opportunity is of
such character that the Fund could take advantage thereof if it were presented
to the Fund, and the Manager and its Affiliates shall have the right to take for
their own accounts (individually or otherwise) or to recommend to others any
such investment opportunity.
19. TERMINATION AND DISSOLUTION OF THE FUND
19.1 Termination and Dissolution. The Fund shall be terminated
and dissolved upon the earliest to occur of the following:
19.1.1 The withdrawal, removal, adjudication of bankruptcy,
insolvency, insanity or incompetency, death or dissolution of a Manager unless a
remaining Manager or a majority-in-interest of the Members, within 90 days of
the date of such event, elects to continue the business of the Fund, and, if
necessary, elects a replacement Manager, in the manner provided in Article 17;
provided that expenses incurred on behalf of the Manager and/or Members in the
continuation or reformation, or attempted continuation or reformation, of the
Fund hereunder shall be deemed expenses of the Fund;
19.1.2 The Members owning more than 50% of the total
outstanding Units vote in favor of dissolution and termination of the Fund;
19.1.3 The term of the Fund expires; or
19.1.4 The Fund disposes of all interests in Equipment and its
other assets and receives final payment in cash of the proceeds of such
dispositions.
19.2 Accounting and Liquidation. Upon the dissolution and termination
of the Fund for any reason, the Manager shall take full account of the Fund
assets and liabilities, shall liquidate the assets as promptly as is consistent
with obtaining the fair value thereof, and shall apply and distribute the
proceeds therefrom in the following order:
19.2.1 To the payment of creditors of the Fund but excluding
secured creditors whose obligations will be assumed or otherwise transferred on
the liquidation of Fund assets;
19.2.2 To the repayment of any outstanding loans made by the
Manager to the Fund; and
B-37
19.2.3 To the Manager and Holders in accordance with their
respective Capital Account balances, after giving effect to all allocations
described in Article 10 of this Agreement; provided, however, that prior to any
allocation under Section 10 of this Agreement, Gross Income shall be specially
allocated to the Manager to the extent, if any, necessary to cause its Capital
Account balance to be zero as of the close of such final taxable year (after
crediting the Manager's Capital Account with the Manager's share of Fund Minimum
Gain). For purposes of making the foregoing allocation, Net Income and Net Loss
for the final taxable year of the Fund shall first tentatively be computed by
including all Gross Income as an element thereof; then, to the extent, if any,
that the Capital Account balance of the Manager is negative as of the close of
such final taxable year (after giving effect to all Fund distributions), Gross
Income shall be separately stated and allocated away from the Holders and to the
Manager pursuant to this Section 19.2.3.
19.2.4 Distributions in liquidation shall be made by the end
of the taxable year in which the liquidation occurs or, if later, within 90 days
of the liquidating event and shall otherwise comply with Regulations Section
1.704-1(b).
20. SPECIAL POWER OF ATTORNEY
20.1 Execution of Power of Attorney. By executing this Agreement, each
Holder is hereby granting to the Manager a special power of attorney irrevocably
making, constituting and appointing ATEL, its duly appointed officers, and any
one of them, as the attorney-in-fact for such Holder, with power and authority
to act alone in his name and on his behalf to execute, acknowledge and swear to
the execution, acknowledgement and filing of the following documents:
20.1.1 This Agreement, the Articles of Organization, any
separate certificates, as well as any amendments to the foregoing which, under
the laws of the State of California or the laws of any other state, are required
to be filed or which the Manager deems advisable to file;
20.1.2 Any other instrument or document which may be required
to be filed by the Fund under the laws of any state or by any governmental
agency, or which the Manager deems advisable to file; and
20.1.3 Any instrument or document which may be required to
effect the continuation of the Fund, the admission of an additional or
substituted Holder, or the dissolution and termination of the Fund (provided
such continuation, admission or dissolution and termination are in accordance
with the terms of this Agreement), or to reflect any reductions in amount of
contributions of Members.
20.2 Special Power of Attorney. The special power of attorney being
granted hereby:
20.2.1 Is a special power of attorney coupled with an
interest, is irrevocable, shall survive the death or legal incapacity of the
granting Holder, and is limited to those matters herein set forth;
20.2.2 May be exercised by the Manager acting alone for each
Holder by a facsimile signature of such Manager or by one of its officers, or by
listing all of the Holders executing any instrument with a single signature of a
Manager, or of one of the Manager's officers, acting as attorney-in-fact; and
B-38
20.2.3 Shall survive an assignment by a Holder of all or any
portion of his Units except that, where the Assignee of the Units owned by a
Holder has been approved by the Manager for admission to the Fund as a
substituted Holder, the special power of attorney shall survive such assignment
for the sole purpose of enabling the Manager to execute, acknowledge and file
any instrument or document necessary to effect such substitution.
21. INDEMNIFICATION
21.1 Indemnification of the Manager. The Fund, its receiver or its
trustee, shall indemnify, save harmless and pay all judgments and claims against
the Manager and any of its Affiliates who perform services for the Fund from any
liability, loss or damage incurred by them or the Fund by reason of any act
performed or omitted to be performed by them when acting in connection with the
business of the Fund, including costs and attorneys' fees and any amounts
expended in the settlement of any claims or liability, loss or damage; provided,
however, that, if such liability, loss or claim arises out of any action or
inaction of the Manager or Affiliates who perform services for the Fund, the
Manager or Affiliates who perform services for the Fund must have determined, in
good faith, that such course of conduct was in the best interest of the Fund and
did not constitute fraud, negligence, breach of fiduciary duty or misconduct by
the Manager or Affiliates who perform services for the Fund; and provided
further, that any such indemnification shall be recoverable only from the assets
of the Fund and not from the assets of the Holders. All judgments against the
Fund and the Manager, wherein a Manager is entitled to indemnification, must
first be satisfied from Fund assets before such Manager may be held responsible.
Persons entitled to indemnification hereunder shall be entitled to receive
advances for attorney's fees and other legal costs and expenses arising out of
claims made against them, provided that (i) no such advances may be made for
such fees, costs or expenses resulting from claims made by Holders; and (ii)
advances for such fees and expenses relating to claims made by parties other
than Holders may only be made if the action relates to the performance of duties
or services by the indemnified party on behalf of the Fund, the indemnified
party obtains an opinion of independent counsel that such party will be entitled
to indemnification pursuant to this Agreement under the specific circumstances
of the claim in question, and the indemnified party undertakes in writing prior
to receipt of such advances that such party will repay in full any such advanced
funds together with interest thereon in the event that, upon the ultimate
disposition of the claim, the party would not be entitled to indemnification
hereunder. Nothing contained herein shall constitute a waiver by a Holder of any
right which he may have against any party under federal or state securities
laws.
21.2 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in the foregoing Section 21.1, neither the Manager nor any of
its Affiliates performing services for the Fund nor any party acting as a
broker-dealer shall be indemnified from any liability, loss or damage incurred
by them in connection with (i) any claim or settlement involving violations of
state or federal securities laws by the Manager or by any Affiliate performing
services for the Fund; or (ii) any liability imposed by law, such as liability
for fraud, bad faith or negligence; provided, however, that indemnification will
be allowed for settlements and related expenses of lawsuits alleging securities
law violations, and for expenses incurred in successfully defending such
lawsuits, provided that a court either (x) approves the settlement and finds
that indemnification of any payment in settlement and related costs should be
made; or (y) approves indemnification of litigation costs if a successful
defense is made, or a dismissal with prejudice is obtained, as to the indemnitee
on the merits of each count involving alleged securities law violations; and (z)
the parties seeking indemnification apprise the court of the positions of the
securities law administrators of any state in which the Units were offered or
sold, including the Massachusetts Securities Division, and the Securities and
B-39
Exchange Commission with respect to indemnification for securities laws
violations before seeking court approval for indemnification. Furthermore, the
Manager shall indemnify the Fund against any loss or liability which it may
incur as a result of the violation by the Manager or any of its Affiliates
performing services for the Fund of any state or federal securities laws.
21.3 Insurance. The Fund shall not pay for any insurance covering
liability of the Manager or any of its Affiliates for actions or omissions for
which indemnification is not permitted hereunder; provided, however, that
nothing contained herein shall preclude the Fund from purchasing and paying for
such types of insurance, including extended coverage liability and casualty and
worker's compensation, as would be customary for any Person owning comparable
Equipment and engaged in a similar business or from naming the Manager and any
of its Affiliates as additional insured parties thereunder, provided that such
addition does not add to the premiums payable by the Fund.
22. MISCELLANEOUS
22.1 Counterparts. This Agreement may be executed in several
counterparts and all so executed shall constitute one Agreement, binding on all
parties hereto, notwithstanding that all of the parties are not signatory to the
original or the same counterpart.
22.2 Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the successors and
assigns of the respective Members.
22.3 Severability. In the event any sentence or paragraph of this
Agreement is declared by a court of competent jurisdiction to be void, such
sentence or paragraph shall be deemed severed from the remainder of this
Agreement and the balance of this Agreement shall remain in effect.
22.4 Notices. All notices under this Agreement shall be in writing and
shall be given to the Person entitled thereto, by personal service or by mail,
posted to the address maintained by the Fund for such Person or at such other
address as he may specify in writing.
22.5 Captions. Article and section titles or captions contained in this
Agreement are inserted only as a matter of convenience and for reference. Such
titles and captions in no way define, limit, extend or describe the scope of
this Agreement nor the intent of any provision hereof.
22.6 Number and Pronouns. Whenever required by the context hereof, the
singular shall include the plural, and vice-versa; the masculine gender shall
include the feminine and neuter genders, and vice-versa.
22.7 Manager Address. The address of the Manager is:
ATEL Financial Corporation
235 Pine Street, 6th Floor
San Francisco, California 94104
22.8 Member Addresses. The names, addresses and capital contributions
of the Members are set forth on Exhibit I attached hereto, which exhibit shall
be maintained at the principal place of business of the Fund.
B-40
22.9 Construction. Notwithstanding the place where this Agreement may
be executed by any of the parties hereto, the parties expressly agree that all
the terms and provisions hereof shall be construed under the laws of the State
of California and that the Fund shall be governed by the California Act, as
amended, governing limited liability companies formed under California law.
22.10 Qualification to Do Business. In the event the business of the
Fund is carried on or conducted in states in addition to the State of
California, then the parties agree that this Fund shall exist under the laws of
each state in which business is actually conducted by the Fund, and they
severally agree to execute such other and further documents as may be required
or requested in order that the Manager may qualify the Fund to conduct business
in such states. The power of attorney granted to the Manager by each Holder in
Article 20 shall constitute authority for the Manager to perform the ministerial
duty of qualifying the Fund under the laws of any state in which it is necessary
to file documents or instruments of qualification. A Fund office or principal
place of business in a state may be designated from time to time by the Manager.
INITIAL MEMBERS:
ATEL FINANCIAL CORPORATION, Manager
By: /s/ A. J. BATT
----------------------------------------
A. J. Batt, President
ATEL CAPITAL GROUP, Initial Member
By: /s/ A. J. BATT
----------------------------------------
A. J. Batt, President
B-41
EXHIBIT I
Schedule of Members
Capital
Name Address Contribution
ATEL Capital Group $500/50 Units
235 Pine Street
6th Floor
San Francisco, CA 94104
ATEL Financial Corporation $100
235 Pine Street
6th Floor
San Francisco, CA 94104
B-42
EXHIBIT C
HOW TO INVEST
TO THE INVESTOR:
Prior to the satisfaction of the escrow condition (sale of 120,000 Units), make
your check payable to "U.S. Bank - ACEF IX Escrow". Thereafter, make your check
payable to"ATEL Capital Equipment Fund IX". Investments must be made in
increments of $10, minimum of $2,500 (or $2,000 for an IRA, Keogh or qualified
plan) in most states. See the discussion under Plan of Distribution-State
Requirements in the prospectus for exceptions.
IMPORTANT INSTRUCTIONS:
- ----------------------
Fully complete sections 1, 2, and 3 of the Subscription Agreement.
All subscribers must: 1) sign each appropriate section where indicated,
2) initial each appropriate section (sections 3A - 3D)
where indicated on the bottom of the subscription
agreement.
If you would like your distributions sent to an address other than your own
(mutual fund, bank, etc.). please fill in the optional check address section
(section 6).
ADD-ON INVESTMENTS
The subscription agreement accompanying additional investments in Fund IX must
have an authorized signature of a Broker/Dealer, but does not require the
signature of the investor. Add-on investments must bear the exact name in which
the previous investment was registered, or a new signed subscription form will
be required.
FOREIGN INVESTOR OPTION
As described in the Prospectus, the Manager has elected to permit limited
investment in Units by nonresident alien investors. In section 1 of the
Subscription Agreement there are three boxes, one of which must be checked to
indicate whether an investor is a resident alien, nonresident alien or U.S.
citizen residing outside the United States. If none of the three boxes is
checked, the executed Subscription Agreement will constitute the investor's
representation that he or she is a U.S. citizen residing in the United States.
TO THE SELLING REPRESENTATIVE:
Please complete the Broker/Dealer Information section (Box 7) using your
office address rather than the home office address. This section must be
completed for all investments, including add-on investments by previous
subscribers. Please make sure that the exact same name is used for the
registered owner if the investment is an additional subscription. Also please
make sure that the investor satisfies any other special investment standards
imposed by the state in which he or she resides, as set forth in the Prospectus
under the caption "Plan of Distribution - State Requirements."
Please have the subscription document signed by your branch manager or other
authorized signatory.
Mail original white, pink and yellow copies
Retain blue copy for Broker/Dealer
Retain green copy for the investor unless otherwise specified by your home
office, (all IRA investments must be submitted directly to the custodian and
they will then forward the subscription on to ATEL) to:
ATEL SECURITIES CORPORATION
SUBSCRIPTION PROCESSING DESK
235 PINE STREET, Suite 600
SAN FRANCISCO, CA 94104
(415) 989-8800
(800) 543-ATEL
E-mail: securities@atel.com
C-1
The investor whose signature appears in Section 2 on the reverse side hereof
(the "Investor") hereby subscribes for the number of Units of ATEL Capital
Equipment Fund IX, LLC (the "Fund") set forth in Section I of this subscription
Agreement in the manner described in the prospectus to which this agreement is
an exhibit (the "Prospectus"). Prior to the satisfaction of the escrow condition
(sale of 120,000 Units), there is transmitted herewith as the subscription price
a check payable to "U.S. Bank - ACEF IX Escrow" in the amount required to
purchase such Units ($10 per Unit). Such funds will be promptly transmitted (as
defined in Rule 15c2-4 under the Securities Exchange Act of 1934 and NASD Notice
to members 84-64). No subscription funds will be released to the Fund unless and
until subscriptions for a minimum of 120,000 units have been received and
collected by the escrow agent prior to a date 12 months after the date of the
Prospectus. After the escrow condition of 120,000 Units sold has been satisfied,
checks should be made payable to "ATEL Capital Equipment Fund IX". Minimum
initial investment is 250 Units (200 Units for Individual Retirement Accounts or
Qualified Plans).
The Investor agrees that if this subscription is accepted it will be held,
together with the accompanying payment, on the terms described in the Prospectus
and that, if accepted as a holder of the Units ("Holder"), the Investor shall be
bound by the terms and conditions of the Operating Agreement set forth as
Exhibit B to the Prospectus, including the special power of attorney set forth
therein. The subscription may be cancelled by the subscriber at any time during
a period of five days after the subscriber has submitted this executed
subscription agreement to the Fund.
The assignability and transferability of the Units will be governed by the
Agreement and all applicable laws, and the Investor must have adequate means of
providing for his current needs and personal contingencies and must have no need
for liquidity in this investment.
The Investor may not be able to consummate a sale or transfer of the Units, or
any interest therein, or receive any consideration therefor, without the prior
written consent of the Commissioner of Corporations of the State of California,
except as permitted in the Commissioner's Rules, and the Units, or any document
of assignment or transfer evidencing the Units, will bear a legend reflecting
the substance of the foregoing understanding if such Units have been issued
pursuant to qualification under the California Corporate Securities Law of 1968.
The undersigned acknowledges that U.S. Bank Trust National Association is acting
only as an escrow agent in connection with the offering of the Units, and has
not endorsed, recommended or guaranteed the purchase, value or repayment of such
Units.
INSTRUCTIONS FOR COMPLETING THE SUBSCRIPTION AGREEMENT Note- Please type or
print legibly when completing the Subscription Agreement.
Section 1: Units Purchased.
- - Fill in the total dollar amount and the number of Units to be acquired.
Please note there are no fractional Units. All purchases must be in
increments of $10.
- - Indicate whether this is an original investment in the Fund or an
additional investment to an existing Fund account with the exact same
registration by checking the appropriate box. Please note the minimum
requirements. Only the dollar amount, subscriber name and broker/dealer
information sections of the subscription forms need be completed for
additional subscriptions by the same investor.
C-2
(continued)
Section 2: Registered Owner.
- - Fill in the name(s) and addresses for the investment as they should
appear in the registration.
- - Check the applicable citizen status boxes.
- - Enter the appropriate taxpayer identification number for this
investment, depending on the type of ownership. For IRAs and Keoghs
please include both the custodian's taxpayer identification and
investor's social security number.
- - Check whether monthly or quarterly distributions are desired.
- - Please read the Subscription Agreement, then sign and date the form.
- - Single Ownership - one signature required
- - Joint Tenants - all parties must sign
- - Community Property - one signature required
- - Tenants in Common - all parties must sign
- - Tenants in Entirety - one signature required
- - In all other cases, the custodian, trustee, general partner or authorized
corporate officer must sign. Where the documents establishing such
representative capacity require more than one signature for execution
of instruments on behalf of the represented entity, then all signatures
required by such documents are required here.
Section 3: Subscriber Information
- - Each applicable item must be initialed.
Section 4: Legal Form of Ownership.
- - Mark only one box. Fill in any information requested and note whose
signature(s) is (are) required in Section 2.
Section 5: Investor Mailing Addresses.
- - Fill in name and address if different from Section 1, as with IRAs and
Keoghs.
Section 6: Optional Check Addresses.
- - Complete this section only if you want your distribution checks mailed
to an address other than that shown in Section 2.
Section 7: Broker/Dealer Information.
- - Fill in the name of the licensed Broker/Dealer firm, the name of the
Account Executive, and the telephone number and mailing address of the
Account Executive. The name, address and phone number of the Account
Executive are required so he/she can receive copies of all investor
communications.
- - An authorized Branch Manager or Registered Principal of the
Broker/Dealer firm must sign the form. Orders cannot be accepted
without Broker/Dealer authorization.
Mailing Address.
Mail the completed form with a check payable as indicated in Section 1 to:
ATEL Securities Corporation
Attention: Subscription Processing Desk
235 Pine Street, Suite 600
San Francisco, CA 94104
If you have any additional questions about completing this Subscription
Agreement, please call ATEL Securities Corporation Subscription Processing Desk
at (800) 543-ATEL.
C-2
ATEL CAPITAL EQUIPMENT FUND IX, LLC - SUBSCRIPTION AGREEMENT
Please type or print the following information: 1.UNITS PURCHASED Make checks
payable to "ATEL Capital Equipment Fund IX" $_________ is for the purchase, as a
Holder, of _______ Units
and should be registered as indicated in the Registered Owner section
below.
2. REGISTERED OWNER.
Name(s) and addresses will be recorded exactly as printed below.
(Include custodial address if applicable.)
___Mr. ___Ms. ___Mr. and Mrs. ___Mrs.
Investor(s) Name and/or
Custodian/Nominee_________________________________________________________
Investor Name(s)__________________________________________________________
Address___________________________________________________________________
City ______________________________________State_____ZipCode______________
Investor Phone Number (____)______________E-mail__________________________
Investor Account # (if any)_______________________________________________
X______________________________________________Date_______________________
Subscriber's Signature
X______________________________________________Date_______________________
Subscriber/Custodian/Nominee or Authorized Signature
___INITIAL INVESTMENT $10 per unit ($2,500/250 Unit Minimum, $2,000/200 Unit
Minimum for IRA or Qualified Plan, unless a higher minimum is required in the
investor's state - see the Prospectus)
___ ADDITIONAL INVESTMENT ($500/50 Units, unless a higher minimum is required in
the investor's state - see the Prospectus)
___ Check if you are a resident alien.
___ Check if you are a nonresident alien (please include W-8 form).
___ Check if you are a U.S. citizen residing outside the U.S.
TAXPAYER IDENTIFICATION NUMBER
Note: If the account is in more than one name, the number should be that of
the first person listed.
- -- -- -- -- -- -- -- -- --
Include BOTH numbers for IRAs and Keoghs.
SOCIAL SECURITY NUMBER
- -- -- -- -- -- -- -- -- --
HAVE YOU INVESTED IN ANY PRIOR ATEL FUND?
___YES ___NO
DISTRIBUTION OPTION (check one)
___ Quarterly ___Monthly
PRIVACY ELECTION (check if desired)
____ By checking this box the undersigned directs the Manager to treat all
information concerning the undersigned as confidential, and not to disseminate
any such information to any party, without the undersigned's consent, except as
may be required under an applicable statute or regulation or by the order of a
court or governmental agency.
No representations should be relied upon other than those contained in the
Prospectus, as amended and/or supplemented. The subscriber represents, warrants
and agrees as set forth on the reverse side of this signature page; further, the
undersigned declares under penalty of perjury that to the best of his knowledge
the information supplied above is true and correct and may be relied upon by the
Manager and the Fund in connection with his investment as a Holder in the Fund.
The subscriber hereby subscribe(s) for the purchase of fully-paid and
nonassessable Units of the Fund as indicated.
C-3
(continued)
3. SUBSCRIBER INFORMATION (EACH APPLICABLE ITEM MUST BE INITIALED):
In order to induce the Manager to accept this subscription, the
Investor hereby represents to you as follows (initial in the space provided):
A. The Investor has (a) a net worth of at least $150,000 in excess of his
investment in Units, or (b) has a net worth of at least $45,000 in excess of his
investment in Units and had during the last tax year or estimates that he will
have during the current tax year a minimum of $45,000 annual gross income. In
all cases net worth is exclusive of home, home furnishings and automobiles.
INITIAL HERE________
B. If the undersigned is acting in a representative capacity for a corporation,
partnership, trust or other entity, or as agent for any person or entity, he
hereby represents and warrants that he has full authority to enter into this
agreement in such capacity.
INITIAL HERE________
C. If the undersigned is 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 the undersigned is so
purchasing.
INITIAL HERE________
D. Under the penalties of perjury, the undersigned certifies that (l) the number
provided herein is his correct Taxpayer Identification Number; and (2) he is not
subject to backup withholding either because he has not been notified that he is
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified him that he is no longer
subject to backup withholding. (If the undersigned is currently subject to
backup withholding, he has stricken the language under clause (2) above before
signing).
INITIAL HERE________
4. LEGAL FORM OF OWNERSHIP (Check Only One)
___ Single Ownership
___ Joint Tenants With Rights of Survivorship
___ Husband and Wife as Community Property
___ Tenants in Common
___ Tenants in Entirety
C-3
(continued)
___ Sep IRA
___ IRA __regular __rollover
___ Trust - Trust Date (Month/Day/Year) ___/___/___
___ Custodian
___ Custodian for___________________________________
___ UGMA / UTMA - State of:_______
___ Limited Liability Company
___ Pension Plan
___ Profit Sharing Plan
___ Corporation
___ Partnership
___ Non-Profit Organization
___ Other__________________
5. INVESTOR MAILING ADDRESS
(if different from above, as with IRAs and Keoghs)
Name________________________________________________________________________
Name________________________________________________________________________
Address_____________________________________________________________________
City__________________________________________State_____Zip Code____________
Investor Phone Number (_____)_______________________________________________
6. OPTIONAL CHECK ADDRESS If you would like your distribution checks mailed to
an address other than registered owner's address, please complete.
___ Designated for all Units or,
___ Designated for Partial Units ________
Receiving Entity____________________________________________________________
Address_____________________________________________________________________
City__________________________________________State_____Zip Code____________
Fund Name______________________________Account Number_______________________
7. BROKER/DEALER INFORMATION The Broker/Dealer must sign below to complete
order. Broker/Dealer hereby warrants that it is a duly licensed Broker/Dealer
and may lawfully offer Units in the state designated as the Investor's residence
and, further, that it has reasonable grounds to believe, based on information
obtained from the Subscriber concerning his investment objectives, other
investments, financial situation and needs and any other information known by
the Broker/Dealer, that investment in the Fund is suitable for the Subscriber in
light of his/her financial position, net worth and other suitability
characteristics, and that the Broker/Dealer has informed the Subscriber as to
the limited liquidity and marketability of the Units. The undersigned
Broker/Dealer warrants that a current Prospectus was delivered to the
Subscriber.
Licensed Firm Name__________________________________________________________
Account Executive Name_________________________________B/D Rep #____________
A/E Mailing Address____________________________________________Suite#_______
City__________________________________________State_____Zip Code____________
Telephone(____)____________________ NumberFax(____)_________________________
E-mail______________________________________________________________________
X_____________________________________________________Date__________________
Authorized signature (Branch Manager or Registered Principal).
Order cannot be accepted without signature.
This transaction, for Blue Sky purposes, took place in the State of ______.
ACCEPTANCE BY MANAGER
FOR MANAGER'S USE ONLY
Received and Subscription Accepted
ATEL Financial Corporation, Manager
By__________________________________________________________________________
Amount___________________________ Date______________ B/D Rep #______________
RETURN TOP 3 COPIES: WHITE - ATEL COPY, YELLOW - BROKER/DEALER COPY,
PINK - INVESTOR COPY
RETAIN: BLUE - BROKER/DEALER COPY, GREEN - INVESTOR COPY
ATEL SECURITIES CORPORATION
235 PINE STREET - 6th FLOOR - SAN FRANCISCO, CA 94104
(800) 543-2835 - E-Mail: securities@atel.com
C-3
[Outside Back Cover]
The Fund has not authorized anyone to give any information or to make
any representations other than those contained in this Prospectus in connection
with the offer of its Units, and unauthorized information or representations
must not be relied upon. This Prospectus is not an offer or solicitation by
anyone in any state or other jurisdiction in which the offer or solicitation is
not authorized or in which the person making an offer is not qualified to do so
or to any person to whom it is unlawful to make an offer or solicitation.
Neither the delivery of this Prospectus or any Supplement nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the facts set forth herein since the date hereof; however, if
any material change not contemplated hereby occurs while this Prospectus is
required to be delivered, this Prospectus will be amended or supplemented
accordingly.
Until a date 90 days after the effective date of this Prospectus, all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution may be required to deliver a Prospectus. This
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
ATEL CAPITAL EQUIPMENT FUND IX, LLC 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 regulated by that Act.
[GRAPHIC OMITTED]
ATEL SECURITIES CORPORATION
SUBSCRIPTION PROCESSING DESK
235 PINE STREET, Suite 600
SAN FRANCISCO, CA 94104
(415) 989-8800
(800) 543-ATEL
E-mail: securities @atel.com