As filed with the Securities and Exchange Commission on May 28, 2010

Registration Number 333-166195

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SQN Alternative Investment Fund III, L.P.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

120 Wall Street

18^th Floor

New York, New York 10005

(212) 422-2166

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

 

 

Jeremiah J. Silkowski

President and Chief Executive Officer

SQN Capital Management, LLC

120 Wall Street

18^th Floor

New York, New York 10005

(212) 422-2166

(Name, address, including zip code, and telephone

number, including area code, of agent for service)

 

 

 

 

With a Copy to:

 

Brinkley Dickerson, Esq.

Troutman Sanders LLP

Bank of America Plaza

600 Peachtree Street, NE

Atlanta, Georgia 30308

(404) 885-3000

 

 

 

 

Approximate date of commencement of proposed offering to the public:  As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

SUBJECT TO COMPLETION, DATED May 28, 2010

 

 

SQN Alternative Investment Fund III, L.P.

Units of Limited Partner Interests at $1,000 per Unit

Minimum Offering Proceeds — 1,200 Units ($1,200,000)

Maximum Offering Proceeds — 50,000 Units ($50,000,000)

We are SQN Alternative Investment Fund III, L.P., a Delaware limited partnership. Our General Partner is SQN AIF III GP, LLC, a Delaware limited liability company, and our Investment Manager is SQN Capital Management, LLC, a Delaware limited liability company. We are offering a minimum of 1,200 units ($1.2 million) and a maximum of 50,000 units ($50.0 million). We intend to use the net proceeds from this offering to invest in business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams. Many of our investments will be structured as equipment leases, but we also intend to use other structures, including, but not limited to, participation agreements, residual sharing agreements, project financings and vendor and rental (hire) programs.

We expect that approximately 95.0% of the proceeds of this offering will be available for investment and to pay fees, 4.0% of the proceeds of this offering will be used to pay fees and expenses associated with our organization and this offering and 1.0% of the proceeds from this offering will be used to fund a capital reserve. Our principal objectives are to generate non-correlated capital appreciation and make regular cash distributions to you. We anticipate that during our initial years of operation our distributions will be substantially tax-deferred due primarily to depreciation deductions on a portion of our equipment and operating losses.

Investing in our units involves a high degree of risk. You should purchase these securities only if you can afford a complete loss of your investment. You should read “Risk Factors,” beginning on page 16 of this prospectus, for a discussion of factors you should consider before buying our units. Among the most prominent of these risks are the following:

 

 

Our General Partner or its affiliates currently intend to purchase 100 of our units offered hereby at a purchase price of $1,000 per unit. We will not pay any Distribution Expenses in connection with units sold to our General Partner or its affiliates.

SQN Securities, LLC, which is an affiliate of our General Partner, will act as the exclusive selling agent for the offering of our units. The units will be offered on a “best efforts,” “minimum-maximum” basis. This means the selling agent must sell at least 1,200 units and receive subscription proceeds of at least $1.2 million in order for this offering to close (excluding subscription proceeds from our General Partner or its affiliates and from residents of Pennsylvania), and it must use only its best efforts to sell our remaining units. Our subscription proceeds will be held in an interest bearing escrow account until $1.2 million has been received. At that time we will admit investors as limited partners, receive the escrowed subscription proceeds from the escrow agent and pay in cash to such investors interest earned on their escrowed subscription proceeds, net of bank fees. This offering will not extend beyond          , 2012. If the minimum subscription proceeds are not received by January 1, 2011, then your subscription will be promptly returned to you from the escrow account with any interest earned thereon and without deduction for any fees.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The use of forecasts in this offering is prohibited. Any representations to the contrary and any predictions, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in this program is not permitted.

SQN Securities, LLC — Selling Agent

 

The date of this prospectus is          , 2010

 

TABLE OF CONTENTS

 

In this prospectus, “we,” “us,” “our,” “the Fund,” and “SQN” refer to SQN Alternative Investment Fund III, L.P., a Delaware limited partnership, references to our “General Partner” refer to SQN AIF III GP, LLC, a Delaware limited liability company, and references to our “Investment Manager” refer to SQN Capital Management, LLC, a Delaware limited liability company.

 

Our units are illiquid assets and are not freely transferable. There is no public market in which to sell our units, and we do not expect a public market for the sale of our units to develop. You should purchase our units only if you:

 

 

 

Our units are not an appropriate investment if you must rely on distributions from us as an important source of income or if you are seeking to shelter other sources of income from taxation. Thus, you must, at a minimum, meet the requirements described below in order to purchase our units.

 

We, or the selling agent, must have reasonable grounds to believe, on the basis of information obtained from you, (i) that an investment in our units is suitable and appropriate for you in light of your age, investment objectives, investment experience, income, financial situation and needs and other investments; (ii) that your net worth is sufficient to sustain the risks inherent in an investment in our units, including loss of investment and lack of liquidity; and (iii) that you are or will be in a financial position appropriate to enable you to realize to a significant extent the benefits described in this prospectus. We and the selling agent will rely on what you tell us in your subscription agreement, the form of which is attached to this prospectus as Appendix C, about your financial situation and investment objectives, and the selling agent must maintain documents in its files disclosing the basis on which it made the suitability determination of an investment in us by the investors to whom it sold our units. Thus, it is important that you provide complete and accurate information on your subscription agreement.

 

When evaluating your suitability for this investment using the standards listed below, keep in mind that net worth does not include the value of your home furnishings, personal automobiles and the equity in your home. Also, you must value the assets included in your net worth calculation at their fair market value. For fiduciary accounts, such as IRA’s, Keogh Plans, and other benefit plans or trusts, these suitability standards must be met by the beneficiary, the IRA, plan or trust or the donor or grantor who directly or indirectly supplies the funds to purchase our units, if that donor or grantor is the fiduciary of the IRA, plan or trust. We will maintain your suitability records for a minimum period of six years.

 

Investment in our units involves substantial risks. You should carefully consider the information in the “Risk Factors” section and all other information included in this prospectus before investing in our units.

 

You must meet our general suitability requirements in order to purchase our units. In general, you must have either:

 

 

Residents of certain states are required to meet suitability requirements that differ or are in addition to the general investor suitability requirements stated above. In addition, we are required to make certain disclosures regarding an investment in the units and their transferability. If you are a resident of one of the following states, the differing investor suitability requirements and/or disclosures apply to you. Any additional investor suitability requirements imposed by a state after the date of this prospectus will be disclosed in a supplement to this prospectus. You are urged to review any supplement to this prospectus to determine whether more restrictive standards apply to your investment.

 

 

You will receive units that have certain additional restrictions on transfer as summarized by the following legend:

 

IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER’S RULES.

 

 

 

 

An investment in our units will not, in and of itself, create an IRA or qualified plan. To form an IRA or qualified plan, an investor must comply with all applicable provisions of the Internal Revenue Code (the “Code”) and the Employee Retirement Income Security Act of 1974 (“ERISA”). IRAs, qualified plans and tax-exempt organizations should consider the following when deciding whether to invest:

 

 

Although our units may represent suitable investments for some IRAs, qualified plans and tax-exempt organizations, our units may not be suitable for your plan or organization due to the particular tax rules that apply to your plan or organization. Furthermore, the investor suitability requirements represent minimum requirements, and the fact that your plan or organization satisfies them does not mean that an investment would be suitable or prudent under your particular facts and circumstances. You should consult your plan’s tax and financial advisors to determine whether this investment would be advantageous for your particular situation.

 

If you are a fiduciary or investment manager of a qualified plan or IRA, or if you are a fiduciary of another tax-exempt organization, you should consider all risks and investment concerns, including those related to tax considerations, in deciding whether this investment is appropriate and economically advantageous for your plan or organization. See the “Risk Factors” and “Material U.S. Federal Income Tax Consequences” sections of this prospectus.

 

Our units are subject to substantial transfer restrictions and may be transferred only under certain circumstances and then subject to certain conditions. One condition is that you may sell or transfer our units only to a recipient who meets all applicable investor suitability requirements. If the transfer is affected through a member firm of the Financial Industry Regulatory Authority (“FINRA”), the member firm must be satisfied that a proposed buyer meets investor suitability standards for this investment. FINRA conduct rules also require the member firm to inform the proposed buyer of all pertinent facts relating to the liquidity and marketability of our units. See the “Risk Factors” and the “Summary of Our Partnership Agreement — Transfer of Units” sections of this prospectus.

 

You should purchase our units only if you:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROSPECTUS SUMMARY

 

SQN Alternative Investment Fund III, L.P.

The Partnership		We are a Delaware limited partnership formed on March 10, 2010. We will operate a fund in which the capital you invest will be pooled with capital invested by other investors. This pool of capital is then used to invest in business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams. The pooled capital contributions also will be used to pay fees and expenses associated with our organization and this offering and to fund a capital reserve.
		Many of our investments will be structured as full payout or operating equipment leases. In addition, we intend to invest by way of participation agreements and residual sharing agreements where we acquire an interest in a pool of equipment or other assets or rights to those equipment or other assets, at a future date. We also may structure investments as project financings that are secured by, among other things, essential use equipment and/or assets. Finally, we may use other investment structures, such as vendor and rental (hire) programs, that our Investment Manager believes will provide us the appropriate level of security, collateralization, and flexibility to optimize our return on investment while protecting against downside risk. In most cases, the structure will include us holding title to or a priority position in the equipment or other asset.

		Although the composition of our portfolio cannot be determined at this stage, we expect to invest in assets and equipment that are considered essential use or core to a business or operation in the agricultural, energy, environmental, medical, manufacturing, technology, and transportation industries. Our Investment Manager also may identify other assets or industries that meet our investment objectives. We expect to invest in assets and equipment located primarily within the United States, Canada and the European Union. See “Investment Objectives and Strategies” section of this prospectus beginning on page 46.

		We expect that we will conduct our activities for at least seven years and divide the life of the Fund into three periods:
		Offering Period.  We will raise money from investors during this period which we expect will last for up to two years from the date of this prospectus. After we have raised $1.2 million (excluding cash subscriptions from our General Partner or its affiliates and from residents of Pennsylvania), we will begin to invest in business-essential, revenue-producing (or cost-saving) equipment and Other Physical Assets with substantial economic lives and, in many cases, associated revenue streams.

		Operating Period.  After we begin investing the offering proceeds, the Operating Period will begin and, unless extended by our General Partner, will last for three years from the date it begins. We anticipate that the Operating Period will overlap with the Offering Period. During this period, we will continue to invest and re-invest in business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams.
		Liquidation Period.  Unless extended by our General Partner, the Liquidation Period will last four years. During the Liquidation Period we will make irregular distributions to you and our other limited partners as the investments in the portfolio mature. We generally will not be reinvesting the proceeds from investments during this period. It is our intention to wind down the portfolio and distribute proceeds to you and the other limited partners during this period.

Management		Our General Partner, SQN AIF III GP, LLC, and our Investment Manager, SQN Capital Management, LLC, will manage all aspects of our business. Our General Partner will manage all of our day to day activities and operations and our Investment Manager will make all of our investment decisions and manage our investment portfolio. The principal office of our General Partner and Investment Manager is 120 Wall Street, 18th Floor, New York, New York 10005, and their telephone number is (212) 422-2166. Neil A. Roberts is the Chairman and Jeremiah J. Silkowski is the President and CEO of our General Partner and our Investment Manager and would be considered our promoters. Neil A. Roberts, Jeremiah J. Silkowski, Michael Miroshnikov, Hugh Shelmerdine and Timothy R. Spring are the current members of our Investment Manager’s investment committee. Messrs. Silkowski and Roberts will maintain ultimate investment discretion and will have to be in agreement on the funding of any transactions. They may be contacted at SQN Capital Management, LLC, 120 Wall Street, 18th Floor, New York, New York 10005, telephone (212) 422-2166. See the “Management — Investment Committee” section of this prospectus beginning on page 41.

		The management team of our General Partner, our Investment Manager and their affiliates has substantial experience in the lease investment and finance industries. See the “Management” section of this prospectus beginning on page 39.

Investment Objectives		Our investment objectives are to:
		• preserve, protect and return your invested capital;
		• generate semi-annual cash distributions to you and our other partners during the Operating Period;
		• during the period from the date of the initial closing through the end of the Operating Period (i) make investments in business-essential, revenue-producing (or cost-saving) equipment and other physical assets with substantial economic lives and, in many cases, associated revenue streams;

		• during the Liquidation Period wind down our portfolio and distribute the proceeds therefrom to you and our other limited partners;
		• generate investment returns that are not correlated to stock, bond, real estate or commodity markets; and
		• generate a favorable total return on your investment.
		During the Operating Period, we plan to make semi-annual distributions of cash to you and our other partners, if, in our Investment Manager’s opinion, such distributions are in our best interests. Therefore, the amount and rate of cash distributions could vary and are not guaranteed. The targeted distribution rate is 6% annually, paid semi-annually as 3%, of your capital contribution.

		See the “Investment Objectives and Strategies” section of this prospectus beginning on page 46 and the “Income, Losses and Distributions” section of this prospectus beginning on page 58.

		Most, if not all, of our equipment under our operating leases, but not under our full payout leases or other investments, is expected to be depreciated using accelerated depreciation methods under the Modified Accelerated Cost Recovery System. See the “Material U.S. Federal Income Tax Consequences” section of this prospectus beginning on page 60.

Risk Factors		Investing in our units involves a high degree of risk. Accordingly, you should read this entire prospectus, including the section entitled “Risk Factors,” before making an investment decision.
		• A substantial portion, and possibly all, of the cash distributions you receive from us will be a return of capital and not a return on capital.
		• This is a “blind-pool” offering because we have not specifically identified our investments at the time you invest. As a result, you cannot evaluate the risks of, or potential returns from, any of our investments at the time you invest.
		• Our units will not be listed on any stock exchange or interdealer quotation system, and there are significant restrictions in our partnership agreement on your ability to transfer your units. We do not intend to assist in the development of any secondary market for, or provide qualified matching services for purchasers and sellers of, our units. Any sale that you may be able to arrange for your units, including the redemption of the units by us, which is at our General Partners sole discretion, is likely to be at a substantial discount to your investment, partnership equity per unit or other measures of value. Therefore, your units will effectively be illiquid. You should be prepared to hold your units for the life of the Fund, which is anticipated to be approximately seven years, but may be longer.
		• You will have very limited voting rights and you must rely on our General Partner, our Investment Manager and their affiliates to manage us.

		• A prolonged economic recession and/or changes in general economic conditions, including fluctuations in demand for equipment and other portfolio assets, lease rates, and interest rates may result in delays in investment and reinvestment, delays in leasing, re-leasing and disposition of equipment, and reduced returns on capital.
		• Higher than expected lease and other investment defaults may result in our inability to fully recover our investment or expected income from the affected equipment or physical assets and could reduce our cash distributions to you and our other limited partners. Uncertainties associated with the equipment leasing industry may have an adverse effect on our business and may adversely affect our ability to provide you any economic return from our units or a complete return of your capital.
		• Our success will depend in part on our ability to realize residual value from a portion of our assets and equipment once the leases on those assets and equipment terminate.
		• Our General Partner, our Investment Manager and their affiliates will receive significant compensation from us, which will reduce distributions to you.
		• There are potential conflicts of interest between us and our General Partner, our Investment Manager and their affiliates.
		• There are material income tax risks associated with this offering.
		See the “Risk Factors” section of this prospectus beginning on page 16.

Income, Losses, and Distributions		Our income, losses and distributions will be allocated 99% to you and our other limited partners and 1% to our General Partner until you and our other limited partners have received total distributions equal to your and their capital contributions plus an 8% per annum, compounded annually, cumulative return on your and their capital contributions. After such time, all distributed Cash Available for Distribution and distributed Net Disposition Proceeds will be allocated 80% to you and our other limited partners and 20% to our General Partner. Until the end of the Operating Period (and in certain circumstances, during the Liquidation Period), we may invest our Net Disposition Proceeds in additional investments. See the “Income, Losses and Distributions” section of this prospectus beginning on page 58.

Material U.S. Federal Income Tax Consequences		This prospectus has a discussion of material U.S. Federal income tax consequences relating to an investment in our units. Our counsel, Troutman Sanders, LLP, is of the opinion that we will be treated as partnership and not an association taxable as a corporation for federal income tax purposes and that we will not be a “publicly traded partnership” within the meaning of Section 7704 of the Code. For a more complete description of the Federal income tax consequences you should read the “Material U.S. Federal Income Tax Consequences” section of this prospectus beginning on page 60. Investors should consult with their tax and

		financial advisors to determine whether an investment in our units is suitable for their portfolio.
Investor Suitability Requirements		The units are a long-term investment. Investors must satisfy minimum net worth and income requirements. We have established minimum investor suitability requirements and many state securities commissioners have established investor suitability standards different from these minimum standards which apply to investors in their respective jurisdictions. See the “Investor Suitability” section of this prospectus beginning on page iv.
Glossary		In general, defined terms in this prospectus have the meanings assigned to them in the Glossary to this prospectus, or if not defined therein, in our partnership agreement, which is attached as Appendix A to this prospectus.

 

The Offering

Securities Offered		A minimum of 1,200 units ($1.2 million) and a maximum of 50,000 units ($50.0 million). Our General Partner and Investment Manager have determined that the minimum offering amount represents a level of subscription proceeds which will enable our portfolio to be sufficiently diversified. Our General Partner and Investment Manager limited our maximum offering amount to 50,000 units ($50.0 million) in order to be able to remain selective in choosing our investments.
Minimum Investment		You must purchase a minimum of 25 units for $25,000. However, the minimum may be waived by our General Partner, at its sole discretion, on a case by case basis.
Offering Period		The earlier of (i) two years from the date hereof, or (ii) the date that the we have raised $50.0 million. This offering will terminate if we do not receive and accept subscriptions for the minimum offering amount of 1,200 units ($1.2 million), excluding cash subscriptions from our General Partner or its affiliates and from residents of Pennsylvania, by January 1, 2011.
Escrow		We will deposit your investment in an interest-bearing escrow account until we have received the minimum offering amount or until January 1, 2011, whichever is earlier. If we have not received the minimum offering amount by January 1, 2011, all of your funds will be promptly returned to you with any interest earned, and without deduction for any fees. If we receive the minimum offering amount on or before January 1, 2011, however, then:
		• you will be admitted as a limited partner, in our General Partner’s discretion;
		• your escrowed subscription proceeds will be delivered to us for use as described in this prospectus; and

		• the interest earned on your escrowed subscription proceeds, net of bank fees, will be paid to you in cash.

Estimated Use of Proceeds		Assuming that the maximum offering of 50,000 units being offered hereby are sold, we expect that approximately 95.0% of the gross proceeds will be available for investment and to pay fees, 4.0% of

		the gross proceeds will be used to pay fees and expenses associated with our organization and this offering and 1.0% of the gross proceeds will be used to fund a capital reserve. See the “Estimated Use of Proceeds” section of this prospectus beginning on page 9.
Fees of Our General Partner and its Affiliates		Our General Partner, our Investment Manager and their affiliates, including SQN Securities, LLC in its capacity as the selling agent, will receive fees and compensation from the offering of our units, including the following:

		• Distribution Expense:  We will pay the selling agent Distribution Expenses of 2.0% of the aggregate offering proceeds (excluding proceeds we receive from the sale of our units to our General Partner or its affiliates). Distribution Expense includes, among other things, all due diligence expenses incurred, or to be incurred, by the selling agent in connection with the offering and sale of our units.

		• O&O Expense:  Our General Partner will receive an organization and offering expense allowance (the “O&O Expense Allowance”) of 2.0% of our offering proceeds to reimburse it for expenses incurred in preparing us for registration or qualification under federal and state securities laws and subsequently offering and selling our units. The O&O Expense Allowance will not exceed the actual fees and expenses incurred by our General Partner and its affiliates.
		• Management Fee:  Our Investment Manager will receive a management fee in an amount equal to the greater of (i) 1.975% per annum of the aggregate offering proceeds, or (ii) $60,000, payable monthly.
Our General Partner’s and Investment Manager’s Relationship with Us May be Conflicted		Our General Partner, our Investment Manager and their affiliates may be subject to conflicts of interest because of their relationship to us. These potential conflicts include:
		• our General Partner, our Investment Manager and their affiliates may compete with us;
		• no independent underwriter conducted due diligence with respect to this offering;
		• we and our General Partner, our Investment Manager and their affiliates are not represented by separate counsel;
		• the receipt of fees and other compensation by our General Partner, our Investment Manager and their affiliates;
		• we will rely on employees of our General Partner, our Investment Manager and their affiliates;
		• the resolution of conflicts will be undertaken by the investment committee of our Investment Manager; and
		• our General Partner will act as our tax matters partner.

		See the “Conflicts of Interest and Fiduciary Responsibilities” section of this prospectus beginning on page 31 and the “Other Programs Managed by Our Investment Manager or its Affiliates” section of this prospectus beginning on page 44.

Partnership Agreement		You and the other purchasers of our units will be our limited partners. Our partnership agreement will govern the following:
		• our activities;
		• the relationships among you and our other limited partners; and
		• the relationship between our General Partner, our Investment Manager and their affiliates, on the one hand, and you and our other limited partners, on the other hand.
		The following is a brief summary of some of the principal provisions of our partnership agreement, apart from the income, loss and distribution allocation provisions and the fees of our General Partner, our Investment Manager and their affiliates described previously in this summary. See the “Summary of Our Partnership Agreement” section of this prospectus beginning on page 82. In addition, you should read the form of our partnership agreement, which is included as Appendix A to this prospectus.
		• Voting rights:  You will have one vote for each unit you purchase. You and our other limited partners are entitled to vote on specified fundamental matters, such as:

		• amendments to our partnership agreement;
		• removal of our General Partner and election of a substitute general partner;
		• our merger with another entity;
		• the sale of all, or substantially all, of our assets (except during the Liquidation Period); or
		• our dissolution.

		Otherwise, you and our other limited partners have no participation in determining our operations or policies.
		• Meetings:  Our General Partner, or our limited partners holding 10% or more of our outstanding units, may call a meeting of the limited partners on matters on which they are entitled to vote.
		• Limited liability:   So long as you do not participate in the control of our business and otherwise act in conformity with our partnership agreement, your liability as a limited partner will be limited to the amount of your invested capital, plus your share of any of our undistributed profits and assets.
		• Transferability of units:  Our partnership agreement restricts the transfer of units so that we will not be treated as a “publicly traded partnership” for federal income tax purposes and will not be taxed as a corporation. As a result of these restrictions, you probably will not be able to transfer your units if, or when, you want to.

		• Removal of general partner:  Our General Partner may be removed only on a vote of limited partners holding a majority of our outstanding units. Neither our General Partner nor any of its affiliates may participate in any vote by you and our other limited partners to remove our General Partner as general partner.
		• Amendment of partnership agreement:  Our partnership agreement generally may be amended by the vote of limited partners holding a majority of our outstanding units. However, no amendment may be made that would change any partner’s interest in distributions without the consent of all affected partners.
		• Term:  Our term will end at midnight on December 31, 2034, unless sooner dissolved or terminated by our General Partner.
Subscription Procedure		You must fill out and sign a subscription agreement, the form of which is attached to this prospectus as Appendix C, in order to purchase our units. You should send your subscription agreement and a check for the purchase price of your units as instructed in the subscription agreement. Wire transfer instructions are available on request.

Closings		We will hold the initial closing of this offering when we receive subscription proceeds of at least $1.2 million, excluding subscription proceeds from Pennsylvania residents and from our General Partner and its affiliates. At that time, we will (1) admit investors as limited partners, (2) receive the escrowed subscription proceeds from the escrow agent and (3) pay to them in cash the interest earned on each of their escrowed subscription proceeds, net of bank fees. After the initial closing, we will hold regular closings until we have sold all of the units or this offering closes, whichever comes first.

 

The table below sets forth information about our expected use of proceeds from this offering, assuming we pay the maximum compensation and expense reimbursements under our partnership agreement. Many of the amounts set forth below, such as the amount of offering and organization expenses, distribution expenses and capital reserves, are only estimates and not statements of expenditures already incurred. The actual amounts will depend on the course of the offering of our units and our operations. We expect to commit approximately 95.0% of the gross proceeds of this offering to the cash portion of the purchase price of our portfolio.

 

 

 

 

 

 

 

 

The following table includes estimates of the maximum amounts of all compensation and other payments that our General Partner, our Investment Manager and their affiliates will receive, directly or indirectly, in connection with our operations. The terms of the compensation of our General Partner, our Investment Manager and their affiliates were not determined by arms’-length negotiation, but are consistent with the guidelines set forth by the North American Securities Administrators Administration. Our partnership agreement does not permit our General Partner, our Investment Manager or their affiliates to receive more than the maximum fees or expenses stated for each type of compensation by reclassifying such items under a different category.

 

We estimate that the total amount of expenses we will reimburse to our General Partner, our Investment Manager and their affiliates for their administrative services on our behalf during our first full year of operations, assuming we sell the maximum number of units, will be approximately $0.

 

We have adopted a single Management Fee plus the Promotional Interest as a means of compensating our General Partner and the Investment Manager for sponsoring us and managing our operations, respectively. While this compensation structure is intended to simplify management compensation for purposes of investors’ understanding, state securities administrators use a more complicated compensation structure in their review of equipment program offerings in order to assure that those offerings are fair under the states’ merit review guidelines. The total of all Front-End Fees, the Promotional Interest and the Management Fee will be subject to the Sponsor Fee Limit in order to assure these state administrators that we will not bear greater fees than permitted under the states’ merit review guidelines. The North American Securities Administrators Association (“NASAA”) is an organization of state securities administrators and those state government agencies responsible for qualifying securities offerings in their respective states. NASAA has established standards for the qualification of a number of different types of securities offerings and investment products, including its Statement of Policy on Equipment Programs (the “NASAA Equipment Leasing Guidelines”). Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines establish the standards for payment to program sponsors of reasonable carried interests, promotional interests and fees for equipment acquisition, management, resale and releasing services, and sets the maximum compensation payable to the sponsor and its affiliates from an equipment leasing program such as us. The Sponsor Fee Limit will equal the maximum compensation payable under Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines as in effect on the date of our prospectus (the “NASAA Fee Limitation”). Under the Sponsor Fee Limit, we will calculate the maximum fees payable under the NASAA Fee Limitation and guarantee that the Management Fee we will pay the Investment Manager and its affiliates, when added to our General Partner’s Promotional Interest, will never exceed the fees and interests payable to a sponsor and its affiliates under the NASAA Fee Limitation.

 

Sponsor Fee Limit.  The Sponsor Fee Limit will be calculated each year during our term by calculating the total fees that would be paid to our General Partner, our Investment Manager and their affiliates, if our General Partner, our Investment Manager and their affiliates were to be compensated on the basis of the maximum compensation payable under the NASAA Fee Limitation through the end of such year, including our General Partner’s Promotional Interest. To the extent that the amount paid as Front-End Fees, the Management Fee, and the Promotional Interest for any year would, when added to amounts paid in all prior years, cause the total fees through the end of such year to exceed the aggregate amount of fees calculated under the NASAA Fee Limitation for the same period, the Management Fee and/or Promotional Interest for that year will be reduced so that the total of all such compensation paid through the end of the period will not exceed the maximum aggregate fees under the NASAA Fee Limitation. 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 our Investment Manager or our General Partner, as the case may be, in a subsequent period, but only to the extent that the deferred compensation would be within the Sponsor Fee Limit as calculated through that later period. Any deferred fees that cannot be paid under the applicable limitations through the date of liquidation would be forfeited by our General Partner or Investment Manager, as the case may be, at liquidation.

 

Under the NASAA Equipment Leasing Guidelines, we are required to commit a minimum percentage of the Gross Offering Proceeds to Investment in Equipment, calculated as the greater of: (i) 80% of the Gross Offering Proceeds reduced by 0.0625% for each 1% of indebtedness encumbering our equipment; or (ii) 75% of such Gross Offering Proceeds. We intend to incur total indebtedness equal to 0% of the aggregate cost of its equipment. Our partnership agreement requires us to commit at least 95.0% of the Gross Offering Proceeds to Investment in Equipment and to pay fees. Based on the formula in the NASAA Equipment Leasing Guidelines, our minimum Investment in Equipment would equal 80.00% of gross proceeds (80%−0% ×.0625% = 80.00%),

and our minimum Investment in Equipment therefore would exceed the NASAA Fee Limitation minimum by 15.0%.

 

The amount of the Promotional Interest our General Partner is permitted under the NASAA Fee Limitation will be dependent on the amount by which the percentage of Gross Offering Proceeds we ultimately commit to Investment in Equipment exceeds the minimum Investment in Equipment under the NASAA Fee Limitation. The NASAA Fee Limitation permits our General Partner 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 95.0%, our General Partner and its affiliates may receive an additional carried interest equal to 12.5% of Net Profit, Net Loss and Distributions under the foregoing formula (2.5% + 2% + 10.5% = 15%; 1% + 1% + 10.5% = 12.5%). At the lowest permitted level of Investment in Equipment, the NASAA Guidelines would permit our General Partner 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 limited partners have received total Distributions equal to their capital contributions plus an 8% per annum cumulative return on their adjusted invested capital, as calculated under the NASAA Equipment Leasing Guidelines 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 our General Partner, our Investment Manager and their affiliates under the NASAA Equipment Leasing Guidelines as carried interest and promotional interest would equal 17.5% of Distributions of Cash from Operations (12.5% + 5% = 17.5%), and 13.5% of Distributions of Sale or Refinancing Proceeds (12.5% + 1% = 13.5%), before the subordination level was reached, and 27.5% of all Distributions thereafter. The maximum amounts to be paid under the terms of the our partnership agreement are subject to the application of the Sponsor Fee Limit provided in Section 9.4(e) of our partnership agreement, which limits the annual amount payable to our General Partner, our Investment Manager and their affiliates as the Front-End Fees, Management Fee and the Promotional Interest to an aggregate not to exceed the total amount of fees that would be payable to our General Partner, our Investment Manager and their affiliates under the NASAA Fee Limitation.

 

Upon completion of the offering of our units, final commitment of offering proceeds to acquisition of equipment and other assets and establishment of final levels of permanent portfolio debt, if any, our General Partner will calculate the maximum carried interest and promotional interest payable to our General Partner and its affiliates under the NASAA Fee Limitation and compare such total permitted fees to the total of the Front-End Fees, Management Fee and Promotional Interest. If and to the extent that the Front-End Fees, Management Fee and Promotional Interest would exceed the fees calculated under the NASAA Fee Limitation, the fees payable to our General Partner, our Investment Manager and their affiliates will be reduced by an amount sufficient to cause the total of such compensation to comply with the NASAA Fee Limitation. The adjusted Sponsor Fee Limit will then be applied to the Management Fee and/or Promotional Interest as described above. A comparison of the Front-End Fees actually paid by us and the NASAA Fee Limitation maximums will be repeated, and any required adjustments will be made, at least annually thereafter.

 

Definitions of certain capitalized terms used in the foregoing “Management Compensation” section are as follows:

 

“Cash Available for Distribution” means our cash funds provided from operations, without deduction for depreciation, but after deducting cash funds used to pay all other expenses plus cash available for distribution from our reserves less amounts set aside for restoration or creation of reserves.

 

“Distributions” means any cash distributed to holders and our General Partner arising from their respective interests in us.

“Front-End Fees” means fees and expenses paid by any party for any services rendered during our 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 our General Partner.

 

“Investment in Equipment” means the amount of capital contributions actually paid or allocated to purchase, manufacture, or renovate equipment and other portfolio assets (such as physical assets or leases) acquired by us, including the purchase of equipment, working capital reserves allocable thereto (except that working capital reserves shall not be included), and other cash payments such as interest and taxes but excluding Front-End Fees.

 

“Net Disposition Proceeds” means the proceeds we realized from the sale, refinancing or other disposition of our investments (including insurance proceeds or lessee or borrower indemnity payments arising from the loss or destruction of an asset) less all our liabilities.

 

“Net Income” or “Net Loss” means our taxable income or taxable loss as determined for federal income tax purposes, computed by taking into account each item of income, gain, loss, deduction or credit not already included in the computation of taxable income and taxable loss, but does not mean Distributions.

 

“Promotional Interest” means the allocable share of all distributed Cash Available for Distribution and distributed Net Disposition Proceeds (after a return to our limited partners of their respective capital contributions plus an 8% per annum cumulative return on their capital contributions) payable to our General Partner pursuant to Sections 9.4 of our partnership agreement.

 

“Sponsor Fee Limit” means the total fees payable calculated pursuant to the NASAA Fee Limitation determined in the manner described therein.

 

This investment involves a high degree of risk. You should consider the following risk factors together with all of the other information included in this prospectus in evaluating the purchase of our units. If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In that case, you may lose some or all of your investment.

 

We may not return all of your investment or any rate of return on your investment.

 

A substantial portion, and possibly all, of the cash distributions you receive from us will be a return of capital. The portion of your total distributions that is a return of capital and the portion that is investment income will depend on a number of factors and cannot be determined until all of our investments have been sold or matured. At that time, you will be able to compare the total amount of all cash distributions received by you to your total capital invested in us, and determine your investment income.

 

We cannot predict the amount of cash we will generate. Therefore, we cannot predict the amount of cash distributions we will make to you and our other partners.

 

We cannot predict the amount of cash we will generate and, as a result, the amount of distributions we may pay you and our other partners, if any. The actual amounts of cash we generate will depend on numerous factors which may be beyond our control and may reduce or delay our cash distributions to you and our other partners, including:

 

 

 

 

The amount and timing of distributions may vary over time and cash distributions may not be made on schedule.

 

From time to time, our General Partner may vary the amount of, or completely suspend, cash distributions to you and our other partners if it believes it to be in our best interests to do so. Losses from our investments or unavailability of liquid assets also may result in suspensions of distributions. Furthermore:

 

 

During the Operating Period, we plan to pay you and our other partners semi-annual distributions in an aggregate amount equal to 3.0% on your and their respective capital contributions. However, you should not assume that we will generate cash sufficient to pay you and our other partners all or any part of the 3.0% semi-annual distribution.

 

You should not rely on the cash distributions from your units as a regular source of cash.

 

Because we do not know what the composition of our investment portfolio will be, you cannot evaluate our portfolio at the time you invest.

 

We are what is typically referred to as a “blind pool” offering because we have not specifically identified any of our investments. We will begin to develop our portfolio after we receive the minimum offering proceeds and are ready to invest our funds. Therefore, you will not be able to assess all of the potential risks

associated with the investment in our units as you do not have information about the transactions we will enter into, including:

 

 

You must rely upon our Investment Manager’s judgment and ability to select our investments, evaluate the asset’s condition, evaluate the ability of end-users to perform their obligations to us and negotiate transaction documents. We cannot assure you that our Investment Manager will be able to perform such functions in a manner that will achieve our investment objectives.

 

Our and our General Partner’s and our Investment Manager’s lack of operating history decreases your ability to evaluate your investment.

 

We and our General Partner were formed in March 2010 and have no performance history upon which to evaluate your investment. Also, we cannot predict whether our intended operations will meet our stated investment objectives. SQN I and SQN II, which are prior private equipment leasing and finance funds sponsored by our Investment Manager are still in their operating stages and have only a limited performance history. Thus, our Investment Manager has only a limited history in managing funds similar to us for you to evaluate. See “Appendix B — Prior Performance Tables,” to this prospectus.

 

Since there is no public market for our units, an investment in our units is considered illiquid. You should be prepared to hold your units for the duration of the Fund, which is anticipated to be approximately seven years, but may be longer.

 

Our units will not be listed on any national securities exchange at any time and we will take steps to ensure that no public trading market develops for our units. Your ability to sell or transfer your units will be very limited. You should be prepared to hold your units for the life of the Fund, which is anticipated to be approximately seven years, but may be longer.

 

We have established these restrictions to comply with federal and state securities laws and so that we will not be considered to be a publicly traded partnership that is taxed as a corporation for federal income tax purposes. Thus, you probably will not be able to sell or otherwise liquidate your units in the event of an emergency and if you were able to arrange a sale, the price you would receive for your units would likely be at a substantial discount to the price you paid for your units.

 

You should invest in us only if you are prepared to hold your units for at least seven years, which is the period consisting of:

 

 

Our General Partner, our Investor Manager and their affiliates will manage our operations and may make decisions with which you do not agree or which do not achieve our business objectives.

 

Our General Partner, our Investment Manager and their affiliates will have all management control over our operations and you are not permitted to take part in managing, establishing or changing our investment objectives or policies. Our success will significantly depend upon:

 

 

Unlike a holder of common stock in a corporation, as a limited partner you will have only limited voting rights on matters affecting our business. For example, an affirmative vote of partners owning not less than a majority of our units is required to remove our General Partner or anyone else as general partner. You should not purchase our units unless you are willing to entrust all aspects of our management to our General Partner and our Investment Manager.

 

If you request that we redeem your units you may receive much less than if you kept your units for the duration of our term.

 

At any time after you have been admitted as one of our limited partners, you may request us to redeem some or all of your units. However, the redemption of your units is subject to the following:

 

 

If we do agree to redeem your units, the redemption price may provide you a much lower value than the value you would realize if you kept your units for the duration of our term. Depending on when you request redemption, the redemption price may be less than the unreturned amount of your investment.

 

Spreading the risks of leasing by diversifying our investments will be reduced if we raise only the minimum offering proceeds.

 

We may begin operations with a minimum capitalization of $1.2 million (excluding cash subscriptions from our General Partner or its affiliates and from residents of Pennsylvania). Should we raise less than our maximum offering amount of $50.0 million, our portfolio may be less diversified than would otherwise be the case. As we will be limited in the types and number of transactions we may enter into, a single transaction may have a greater impact on the overall performance of our portfolio. If we only raise the minimum offering, or have a low level of capitalization, a loss on any single transaction may have a greater negative impact on our financial performance.

 

If we do not raise our minimum offering amount we will not commence operations.

 

We require a minimum capitalization of $1.2 million to commence operations. If the amount of proceeds raised as of January 1, 2011 are insufficient to constitute the minimum offering, all subscription proceeds deposited by you into our escrow account will be returned to you, together with any interest earned and without deduction for fees, commissions or expenses. In such a case we will not begin any business operations, we will not make any investments and we will not make any distributions.

Any delays in the investment of the offering proceeds may diminish the returns on our investments.

 

We will receive only minimal, if any, returns on the offering proceeds until the time the offering proceeds are invested in equipment, other assets or other investments. If we do not invest the offering proceeds promptly, the delay may diminish the returns that the investment would have otherwise realized had a given investment been made earlier.

 

The price of the units offered by this prospectus has been arbitrarily determined. You should not rely on this price as an indication of the value of the units.

 

The offering price per unit has been determined arbitrarily and is not based upon our actual or potential earnings or any other criteria for determining value. No representation is made hereby that a unit has a market value equal to the purchase price or could be sold at the purchase price or at any other price.

 

Lack of independent counsel or an independent underwriter may reduce the due diligence review of us and our General Partner, our Investment Manager and their affiliates.

 

The legal counsel that represents our General Partner, our Investment Manager and their affiliates, including our selling agent, also represents us. You and our other limited partners, as a group, have not been represented by separate legal counsel, and the selling agent’s due diligence examination of us and this offering cannot be considered to be independent. See the “Conflicts of Interest and Fiduciary Responsibilities — Lack of Independent Underwriter and Due Diligence Investigation in This Offering” section of this prospectus.

 

You could be liable for our obligations if you participate in the control of our business, and you may be required to return improperly received distributions.

 

In general, limited partners are not liable for the obligations of a limited partnership unless they participate in the control of the limited partnership’s business. If it were determined that any of the following rights, or the exercise of those rights by the limited partners as a group, constituted participation in the control of our business, then you could be held liable for our obligations to the same extent as a general partner:

 

 

This means that if you were deemed to be a general partner, you could be held personally liable for our obligations and losses beyond the amount you paid for your units.

 

In addition, under the laws of the State of Delaware you may be required to return to us any distribution you received from us if you knew at the time the distribution was made that it was improper because it rendered us insolvent. For a further discussion of your liabilities as a limited partner, you should read the “Summary of Our Partnership Agreement — Limited Liability of Limited Partners” section of this prospectus.

 

Your ability to begin an action against our General Partner, our Investment Manager and their affiliates is limited by our partnership agreement.

 

Our partnership agreement provides that none of our General Partner, our Investment Manager or their affiliates will have any liability to us for any loss we suffer arising out of any action or inaction of our General Partner, our Investment Manager or their affiliates, if our General Partner, our Investment Manager or their affiliates, as the case may be, determined, in good faith, that the course of conduct was in our best interests and did not constitute negligence or misconduct. As a result of these provisions in our partnership agreement, your right to begin an action against our General Partner may be more limited than it would be without these provisions. For a discussion of these provisions of our partnership agreement, you should read the “Conflicts of Interest and Fiduciary Responsibilities — Fiduciary Duty of Our General Partner” section of this prospectus.

 

Poor economic conditions may adversely affect our ability to build our portfolio.

 

A prolonged economic slowdown in the United States, European Union, and/or Canada could adversely affect our ability to invest the proceeds of this offering as quickly as we would like to if businesses aggressively seek to reduce their costs. If this happens, our distributions to you and our other partners during the initial period of our operations may be less than if our offering proceeds were fully invested in accordance with our timetable. It also could result in reduced interest rates, which could reduce the returns we can obtain on our investments and, as a consequence, the distributions we can make to you and our other partners. Depending primarily on the severity and duration of a general economic slowdown, the creditworthiness of our end-users could be adversely affected if they have difficulty obtaining financing for their business operations, which could cause them to default on their obligations to us and cause us to incur a loss.

 

Our success will be subject to risks inherent in the equipment leasing and finance business, any of which may affect our ability to operate profitably.

 

A number of factors may affect our ability to operate profitably including, the following:

 

 

 

 

Fluctuations in demand for equipment may affect the ability of a leasing and finance program to invest its capital in a timely manner. Equipment lessors have experienced a more difficult market in which to make suitable investments during historical periods of reduced growth and recession in the U.S. economy as a result of the softening demand for capital equipment during these periods. Economic recession resulting in lower levels of capital expenditure by businesses may result in more used equipment becoming available on the market and downward pressure on prices and lease rates due to excess inventory. Periods of low interest rates exert downward pressure on lease rates and may result in less demand for lease financing. There can be no assurance as to what future developments may occur in the economy in general or in the demand for equipment and lease financing in particular.

 

Higher than expected equipment lease or other investment defaults may result in losses.

 

Higher than expected equipment lease or other investment defaults may result in a loss of anticipated revenues. These losses may adversely affect our ability to make distributions to you and our other partners and, if the level of defaults is sufficiently large, may result in our inability to fully recover our investment.

 

While we will seek to repossess and re-lease or sell any equipment or other asset that is subject to a defaulted lease, we may not be able to do so on terms that are favorable to us. In some cases, the cost of repossessing the equipment or other asset subject to a defaulted lease or other investment may make trying to recover the equipment or other asset impractical. Also, if a lessee or borrower under a defaulted lease or other investment files for protection under the bankruptcy laws, then:

 

 

 

In addition, we may suffer a loss, or our ability to make distributions may be adversely affected, by the high costs of:

 

 

The equipment leasing industry is highly competitive, which may hinder our ability to source appropriate or attractive investments.

 

The equipment leasing industry both in the U.S. and abroad, and across different equipment classes, is highly competitive. In particular:

 

 

The equipment leasing and finance business is highly fragmented. We will compete with:

 

 

Some of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than either we or our General Partner and its affiliates will have, even if we sell the maximum number of units in this offering.

 

If we are unable to realize the residual value of our equipment or other assets under our operating leases, we may incur losses.

 

We expect that some of our leases will be “operating leases,” under which the net present value of aggregate rental payments during the initial lease term is structured to result in our recovery of an amount less than or equal to 90% of the purchase price of the equipment or other asset. Thus, our ability to recover the full purchase price of the equipment or other asset and our expected return in connection with an operating lease depends on the potential value of the equipment or other asset once the primary lease term expires. We call this the “residual value.” The residual value will depend on numerous factors beyond our control, including:

 

 

We cannot assure you that our value assumptions will be accurate or that the equipment or other assets will not lose value more rapidly than we anticipated.

The market value of our equipment or any asset may be lower than anticipated, resulting in a loss on our investment.

 

When we enter into a lease, we will not know what the remarketing price of the equipment or other asset leased will be when the lease ends and the equipment or other asset is returned to us. If the remarketing price is lower than anticipated, we will either lose money or receive lower returns than anticipated. There are numerous factors beyond our control which can materially adversely affect the remarketing price we can achieve for equipment or other asset, including:

 

 

Additionally, there is a risk that the best remarketing price available is only obtainable in a market where we do not have appropriate or adequate remarketing resources. We cannot assure you that our assumptions with respect to value will be accurate or that the equipment or other asset will not lose value more rapidly than we anticipate.

 

Our inability to obtain insurance for certain types of losses means we must bear the cost of any losses from the non-insurable risks.

 

While our leases will generally require lessees to have comprehensive insurance on the equipment or other assets under lease and to assume the risk of loss, some losses may be either uninsurable or not economically feasible to insure, such as losses from war, earthquakes or terrorist acts. Furthermore, we can neither anticipate nor obtain insurance against all possible contingencies that may affect the equipment or other asset. If an event occurs for which we have no insurance, we could lose some or all of our investment in the affected equipment or other asset. Furthermore, lessees who are obliged to insure equipment or any asset may nevertheless fail to do so in breach of their lease contract.

 

In leasing some types of equipment and other assets we may be exposed to environmental tort liability.

 

In leasing some types of equipment and other assets, such as transportation assets designed to carry hazardous materials, we may be exposed to environmental tort liability. Although we will use reasonable efforts to minimize the possibility of and exposure to environmental tort liability, including by means of attempting to obtain insurance, we cannot assure you that our equipment and other assets will be protected against those claims.

 

Failure to maintain equipment registrations and unexpected regulatory compliance costs may result in losses.

 

Certain types of transportation equipment are subject to registration requirements by governmental agencies in the United States and abroad. Should we fail to properly maintain registration of that equipment, we may lose the ability to own or operate that equipment. In addition to impairing our ability to earn rentals from that equipment, penalties may be imposed upon us and we may be forced into a sale of that equipment on unfavorable terms. Furthermore, governmental agencies may require changes or improvements to equipment resulting in increased costs and loss of rental revenue while the changes are made. This would adversely affect our anticipated returns from that investment.

If we are, or become, subject to usury laws, it could result in reduced revenues or, possibly, loss on our investment.

 

Leases of equipment and other assets have sometimes been deemed to be loan transactions subject to state usury laws. These laws impose maximum interest rates that may be charged on loans as well as penalties for violation, including restitution of any excess interest received and declaring the debt to be unenforceable. We will seek to structure our leases of equipment and other assets so that they will not be deemed to be loans and violate state usury laws. However, uncertainties in the application of some laws may result in inadvertent violations which could result in reduced investment returns or, possibly, loss on our investment in the affected equipment and other assets.

 

Interest rate changes may reduce the value of our portfolio and our returns.

 

Changes in interest rates will affect the market value of our portfolio. In general, the market value of an equipment lease will change in inverse relation to an interest rate change when the lease has a fixed rate of return. Thus, in a period of rising interest rates, the market value of our equipment leases will decrease. A decrease in the market value of our portfolio will adversely affect our ability to liquidate it.

 

Participation with affiliated programs or third-parties in joint ventures may require us to pay additional costs or incur losses because of actions taken by the third-parties.

 

Our partnership agreement permits us to invest in equipment or other assets through joint venture arrangements with our General Partner’s affiliated investment programs or independent third-parties. Investing in joint ventures involves risks not present when we invest by ourself. These risks include:

 

 

Although our partnership agreement requires that any joint venture arrangement in which we participate must permit us to buy equipment or other assets from the other co-venturer in the case of a proposed sale of the equipment or other assets, we may not have the resources to do so. See the “Conflicts of Interest And Fiduciary Responsibilities — We May Enter Into Joint Ventures With Affiliated Programs” section of this prospectus.

 

We may suffer losses as a result of transacting business in foreign countries, dealing with foreign clients or having our equipment or other assets located in a foreign jurisdiction.

 

It is likely that we will enter into transactions:

 

 

These transactions involve a number of risks, including the following:

 

 

 

Movements in foreign currency rates may result in losses.

 

We will enter into purchase, sale and lease contracts for equipment and other assets where the payments to be made or received are not in U.S. dollars. We do not anticipate that we will hedge our portfolio against foreign currency fluctuation risk. If we are due to receive payments from a client or purchaser in a currency other than U.S. dollars, a strengthening of the U.S. dollar against that currency will mean we are receiving less, as expressed in U.S. dollars, than initially anticipated, which would have a negative impact on our returns.

 

Negative movement in the residual value of some of our investments in residual interests may impact our ability to meet our investment objectives and to pay distributions to you.

 

Negative movements in the residual value of our investments in residual interests may result in us receiving less proceeds than anticipated. This is because there is no underlying income stream payable to us during the initial lease or other contract term. Therefore there will be an increase in the sensitivity of these investments to changes in the residual value of equipment or assets in which we have invested. This could affect our ability to meet our investment objectives and to pay distributions to you.

 

Realizations from investments in residual interests may be subject to the satisfaction of obligations to a third party and failure of such could affect our ability to recover our investment or realize a return on that investment.

 

Investments in residual interests are generally subject to the satisfaction of obligations to a third party under an initial lease term or other contract such as a receivable sale. Failure of the obligor to satisfy those obligations, which includes making payments, could affect our ability to recover our investment or realize a return on that investment if the third party, in the event of a default, forecloses on the underlying asset or equipment.

 

Our General Partner, our Investment Manager and their affiliates may be subject to various conflicts of interest arising out of their relationship to us.

 

The decisions of our General Partner, our Investment Manager and their affiliates will be subject to various conflicts of interest arising out of their relationship to us and their affiliates. Conflicts of interest that may affect us and our limited partners include:

 

 

Our General Partner’s, our Investment Manager’s or their affiliates’ operating systems could be damaged or disrupted by events beyond their control, which could interfere with our ability to conduct our business and make us less attractive to customers as a source of equipment leases.

 

Our ability to manage our operations and realize residual values from our leases of equipment and other investments depends on the operating systems of our General Partner, our Investment Manager and their affiliates. In particular, this includes our General Partner’s, our Investment Manager’s or their affiliates’ computer and telecommunications and related equipment, and their ability to protect those systems against damage or disruptions from such contingencies as:

 

 

Although our General Partner, our Investment Manager and their affiliates will implement security and protective measures, these systems could still be vulnerable. Any damage or disruption to these systems could make us less attractive to end-users as a source of equipment or other asset leases.

 

Our Investment Manager’s investment committee is not independent.

 

Any conflicts in determining and allocating investments between us and our General Partner, or between us and another program managed by our General Partner, our Investment Manager or their affiliates will be resolved by our Investment Manager’s investment committee, which also will serve as the investment committee for other funds managed by our Investment Manager. Since all of the members of our Investment Manager’s investment committee are officers of our General Partner, and are not independent, matters determined by the investment committee, including conflicts of interest between us and our General Partner, our Investment Manager and their affiliates involving investment opportunities, may not be as favorable to you and our other partners as they would be if independent members were on the committee. Generally, if an investment is appropriate for more than one program, our Investment Manager and its investment committee will allocate the investment to a program (which includes us) after taking into consideration at least the following factors:

 

 

Notwithstanding the foregoing, our Investment Manager and its investment committee may make exceptions to these general policies when, in our Investment Manager’s judgment, other circumstances make application of these policies inequitable or uneconomic.

 

Also, under our partnership agreement our General Partner, our Investment Manager and their affiliates may engage in equipment acquisitions, refinancing, leasing and releasing opportunities on their own behalf or on behalf of other partnerships, even if they compete with us.

 

We, our General Partner, our Investment Manager and their affiliates do not have independent audit and compensation committees.

 

Although our General Partner believes that the fees and other compensation we will pay to it, our Investment Manager and their affiliates are reasonable and competitive in the industry, they were established by our General Partner and were not determined by an independent compensation committee composed of persons who are not affiliates of our General Partner. Also, our General Partner and our Investment Manager, rather than an independent audit committee composed of persons who are not affiliates of either our General Partner or our Investment Manager, will select our independent registered public accounting firm and supervise the preparation of our audited financial statements included in our annual reports to you. See the “Management Compensation” and “Reports to Limited Partners” sections of this prospectus.

 

Our internal controls over financial reporting may not be effective or our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business.

 

After our first full year of operations, our General Partner will be required to evaluate our internal controls over financial reporting in order to allow management to report on, and if and when required, our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations of the SEC hereunder, which we refer to as “Section 404.” During the course of testing, our General Partner may identify deficiencies that it may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended

from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions or the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, our General Partner and its affiliates may be required to incur costs in improving our internal control system and the hiring of additional personnel.

 

Our Investment Manager may have difficulty managing its growth, which may divert its resources and limit its ability to expand its operations successfully.

 

The amount of assets that our Investment Manager manages has grown substantially since our Investment Manager was formed in December 2007, and our Investment Manager intends to continue to sponsor funds similar to us, which may be concurrent with us, and our Investment Manager expects to experience further growth in their respective assets under management. Our Investment Manager’s future success will depend on the ability of its officers and key employees to implement and improve its operational, financial and management controls, reporting systems and procedures, and manage a growing number of assets and investment funds. Our Investment Manager, however, may not implement improvements to its management information and control systems in an efficient or timely manner and may discover deficiencies in its existing systems and controls. Thus, our Investment Manager’s anticipated growth may place a strain on its administrative and operations infrastructure, which could increase its costs and reduce its efficiency and could negatively impact our operating results.

 

Our General Partner, our Investment Manager and their affiliates may receive expense reimbursements and fees from us and those reimbursements and fees are likely to exceed the income portion of distributions made to you during our early years.

 

Before making any distributions to you and our other partners, we may reimburse our General Partner, our Investment Manager and their affiliates for expenses incurred on our behalf, and pay our General Partner, our Investment Manager and their affiliates fees for selling our units and acquiring, managing, and realizing our investments for us, regardless of whether we are profitable. The expense reimbursements and fees of our General Partner, our Investment Manager and their affiliates were established by our General Partner and, are not based on arm’s-length negotiations, but are subject to the limitations set forth in our partnership agreement. Nevertheless, the amount of these expense reimbursements and fees is likely to exceed the income portion of distributions made to you in the early years of our term.

 

In general, expense reimbursements and fees will be paid without regard to the amount of our cash distributions to you and our other partners, and regardless of the success or profitability of our operations. For example, after we receive our minimum offering proceeds and begin operations, our General Partner, our Investment Manager and their affiliates may be entitled to certain fees and expense reimbursements. Some of those fees and expense reimbursements may be paid at the time of the Initial Closing in this offering or as we acquire our portfolio and we may pay other expenses, such as accounting and interest expenses, costs for supplies, etc., even though we may not yet have begun to receive revenues from our investments.

 

You may be required to pay taxes on income from us, even if you do not receive commensurate cash distributions from us.

 

Generally, you will be required to pay federal income taxes, and probably state and local income taxes, on your share of our taxable income, regardless of whether or not you receive cash distributions from us. For example, your share of our taxable income could exceed the amount of cash that we distribute to you if we repay the principal of any debt we incur with our rental or interest income or net proceeds from the sale of our investments. This could happen because repaying the principal amount of a debt reduces the amount of cash available for distribution to you and our other partners, but is not tax deductible. Thus, your cash

distributions from us may not equal your share of our taxable income or even equal your tax liability resulting from that income. See the “Material U.S. Federal Income Tax Consequences — Our Income Versus Our Distributions” section of this prospectus.

 

We will not apply for an advance ruling from the Internal Revenue Service as to any federal tax consequence of an investment in us, and if the Internal Revenue Service classifies us as a corporation you will lose tax benefits.

 

We will not apply for an advance ruling from the Internal Revenue Service (“IRS”) as to whether we will be treated as a partnership for federal tax purposes or with respect to any other tax consequence to you of an investment in us. Instead, we intend to rely on the opinion of our counsel, Troutman Sanders LLP, that we will be treated as a partnership and not an association taxable as a corporation for federal income tax purposes and that we will not be a “publicly traded partnership” within the meaning of Section 7704 of the Code. See the “Material U.S. Federal Income Tax Consequences — Opinion of Counsel” section of this prospectus. If the IRS were to successfully contend that we should be treated as a “publicly traded partnership,” then we would be treated as a corporation for federal income tax purposes rather than a partnership. This would have the following principal consequences to you:

 

 

To reduce the possibility that the IRS could successfully contend that our units are “publicly-traded,” Section 13.2 of our partnership agreement places substantial restrictions on your ability to transfer your units. With respect to our tax status as a partnership, see the “Material U.S. Federal Income Tax Consequences — Opinion of Counsel,” “— Taxation of Limited Partnerships in General,” and “— Publicly Traded Partnerships” sections of this prospectus.

 

We could lose cost recovery or depreciation deductions if the IRS treats our operating leases as sales or financings.

 

We intend to claim cost recovery or depreciation deductions on the equipment subject to our operating leases, but not the equipment subject to our full payout leases or other investments. In this regard, we anticipate that some portion of our leases will be operating leases and others will be full payout leases. In addition, our equipment and other assets may be financed for others under secured financings. If the IRS were to successfully contend that our operating leases were actually sales, including full payout leases or other investments, rather than operating leases, we would not be entitled to cost recovery or depreciation deductions with respect to the equipment covered by those leases. See the “Investment Objectives and Strategies — Equipment and Other Assets for Lease to End-Users” section of this prospectus. The IRS could also challenge our method of calculating our cost recovery or depreciation deductions, or our other deductions, and the amount of our deductions could be reduced if we were audited. See the “Material U.S. Federal Income Tax Consequences — Tax Treatment of Leases,” “— Cost Recovery,” and “— Limitations on Cost Recovery Deductions” sections of this prospectus.

 

You will need passive income in order to deduct any tax losses we may generate.

 

Because our operations generally will be treated as passive activities by you and our other partners, your share of any tax losses we generate will likely be passive losses which you may use on your personal federal income tax returns only to offset passive income you receive from us or from other passive activities (other than publicly-traded partnerships) in which you invest, if any, in calculating your personal federal income tax liability. For example, you cannot use a passive loss from us to offset any “active” (i.e., non-passive) income, such as your salary, on your personal federal income tax returns. In addition, a portion of your share of our

gross income might be treated for federal income tax purposes as portfolio income or gross income that is not from a passive activity, which cannot be offset by passive losses. See the “Material U.S. Federal Income Tax Consequences — Deductibility of Losses; Passive Activity Losses, Tax Basis and At “Risk” Limitation” section of this prospectus.

 

You will likely be subject to state and local taxes as a result of purchasing our units.

 

You will likely be subject to state and local taxes imposed by the various jurisdictions in which we do business or own property. It is your responsibility to file all of your personal federal, state and local tax returns. Our special tax counsel has not given any opinion on the state or local tax consequences of an investment in us. We urge you to seek advice based on your particular circumstances from an independent tax advisor with respect to the state and local tax consequences of purchasing our units. See the “Material U.S. Federal Income Tax Consequences — State and Local Taxation” section of this prospectus.

 

An IRS audit of our annual federal information tax return may result in adjustments to, or an audit of, your personal income tax returns.

 

We anticipate incurring tax losses during at least our early years due primarily to depreciation of equipment leased to others under our operating leases, and operating expenses. Also, we may be required to file disclosure reports with the IRS and its Office of Tax Shelter Analysis if the tax results of our intended activities cause us to be a “reportable transaction” under the Internal Revenue Code and the Treasury Regulations. Our anticipated tax losses and any reportable transaction reports to the IRS would increase the risk of an IRS audit of our federal information income tax returns, and could result in an IRS audit of your personal federal income tax returns. Also, any adjustments to our returns required by the IRS could require you to make corresponding adjustments on your personal federal income tax returns. In addition, an IRS audit of your personal federal income tax return could include an examination by the IRS of your returns for prior years, and could cover items unrelated to your investment in us. See the “Material U.S. Federal Income Tax Consequences — Audit by the IRS” and “— Registration, Reportable Transactions, Interest and Penalties” sections of this prospectus.

 

Your investment in us may cause you to pay alternative minimum tax.

 

You may have to pay alternative minimum tax as a result of your investment in us, because you will be allocated a share of our alternative minimum tax preference and adjustment items. For example, depreciation or cost recovery deductions of equipment subject to our operating leases generally are computed differently for regular federal income tax purposes than for alternative minimum tax purposes. This would increase your alternative minimum taxable income, as compared to your regular taxable income, during the early years of the applicable cost recovery or depreciation period of the equipment subject to our operating leases. See the “Material U.S. Federal Income Tax Consequences — Alternative Minimum Tax” section of this prospectus.

 

IRA’s and tax-exempt organizations may have unrelated business taxable income from an investment in us.

 

Tax-exempt organizations, such as pension plans, IRA’s, and certain types of foreign entities or persons are potentially subject to tax on UBTI. Although rental and interest income generally are not included in UBTI, our General Partner anticipates that most of your income, if any, from an investment in us could constitute UBTI, because of a special rule in the Internal Revenue Code that treats such income as UBTI to the extent it is attributable to equipment leases. See the “Material U.S. Federal Income Tax Consequences — Taxation of Tax-Exempt Organizations” section of this prospectus.

 

Foreign investors in us will be subject to U.S. Tax withholding.

 

We generally will be required to withhold federal income tax at the highest applicable rate under the Internal Revenue Code on the income, if any, we allocate to units owned by foreign investors, regardless of whether any corresponding cash distributions are made to them. If too much tax is withheld, foreign investors will have to file U.S. income tax returns to seek a refund. See the “Material U.S. Federal Income Tax Consequences” section of this prospectus.

 

 

Certain statements within this prospectus, including statements contained in the sections entitled “Prospectus Summary,” “Risk Factors,” “Investment Objectives and Strategies,” and “Management’s Discussion and Analysis of Financial Condition,” contain forward-looking statements concerning our objectives, plans, intentions, strategies, expectations and predictions concerning our future investment activities, results of operations and other future events or conditions based on views and opinions of our General Partner and our Investment Manager. For this purpose, any statements contained herein that are not of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “believes,” “may,” “will,” “could,” “intends,” “anticipates,” “estimates,” “expects” or “might,” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These forward-looking statements include such things as:

 

 

These statements are based on certain assumptions and analyses made by us, our General Partner and our Investment Manager in light of our experience and our perception of historical trends, current conditions, and expected future developments. However, whether actual results will conform with these expectations is subject to a number of risks and uncertainties, many of which are beyond our control. Such risks include, but are not limited to, those described under the “Risk Factors” section of this prospectus and the following:

 

 

Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we cannot assure investors that our expectations will be attained or that any deviations will not be material. You are cautioned that forward-looking statements speak only as of the date they are made and that, except as required by law, we undertake no obligation to update these forward-looking statements to reflect any future events or circumstances. All subsequent written or oral forward-looking statements attributable to us or to individuals acting on our behalf are expressly qualified in their entirety by this paragraph.

 

 

Our General Partner and our Investment Manager may be subject to various conflicts of interest arising out of their relationship to us. Because of our General Partner’s and our Investment Manager’s organizational and operational control over us, these conflicts will not be resolved through arms’-length negotiations but, rather, through the exercise of our General Partner’s and Investment Manager’s judgment consistent with their fiduciary responsibilities to you and us. Some provisions of our partnership agreement are designed to protect the interests of you and our other partners if conflicts arise. In this regard, you should read Article IX of our partnership agreement and, in particular, Section 9.5. These sections do the following:

 

 

However, our partnership agreement does not necessarily directly respond to each potential conflict, and there will be no established mechanism to resolve these conflicts. In these situations, our Investment Manager will rely solely on its judgment, subject to its fiduciary duties, to resolve the conflict. The potential conflicts include those set forth below.

 

We will pay fees and other substantial compensation to our General Partner, our Investment Manager and their affiliates. Further, we may reimburse our General Partner, our Investment Manager and their affiliates for costs incurred by them in managing us and our portfolio.

 

Subject to its fiduciary duties and the terms of our partnership agreement, our Investment Manager has sole discretion with respect to the terms and timing of our investments, although it is anticipated that those investments will be consistent with our investment objectives and policies. The agreements and arrangements, including those relating to compensation, between us and our General Partner, our Investment Manager and their affiliates are not the result of arms’-length negotiations and may create conflicts between the interests of our General Partner, our Investment Manager and their affiliates on the one hand and us and our partners on the other. However, our General Partner believes that the compensation and fees provided for in our partnership agreement are consistent with practices in the industry and the NASAA Equipment Leasing Guidelines in effect as of on the date of this prospectus.

 

The amount of cash we have available for distribution to you and our other partners will be affected by decisions of our General Partner and our Investment Manager regarding various matters, including:

 

 

See the “Management Compensation” section of this prospectus beginning on page 10.

Our General Partner will be liable for our obligations to the extent that they exceed our assets. As a result, our General Partner has the right to cause us to establish and maintain cash reserves that it believes are necessary to meet our obligations. Because our General Partner may be exposed to liability to our creditors if our reserves are insufficient to pay our contingent liabilities, our General Partner may have a conflict of interest in allocating our cash flow between distributions to you and our other partners or to our reserve accounts. To the extent that our General Partner increases the amount of cash it allocates to reserves, the amount of cash available for distributions to you and our other partners will decrease and our General Partner’s exposure to our contingent liabilities may be lessened.

 

Our partnership agreement does not prohibit our General Partner, our Investment Manager or their affiliates from investing in, acquiring or leasing equipment or other assets, and they will continue to engage in equipment and other asset acquisitions, leasing and re-leasing opportunities on their own behalf or on behalf of other partnerships or entities. None of our General Partner, our Investment Manager or their affiliates may, however, publicly offer for sale interests in more than one direct participation program simultaneously unless the programs:

 

 

Our General Partner, our Investment Manager and their affiliates have the right to take for their own accounts, or to recommend to any program they manage, any particular investment opportunity, subject to the limitations set forth in our partnership agreement.

 

Any conflicts in determining and allocating investments between us and our General Partner, our Investment Manager or their affiliates, or between us and another program managed by our General Partner, our Investment Manager or their affiliates, will be resolved by our Investment Manager’s investment committee, which also serves as SQN I and SQN II’s investment committee as discussed in the “Management — Investment Committee” section of this prospectus beginning on page 41. Generally, if an investment is appropriate for more than one program our Investment Manager’s investment committee will allocate the investment to a program (which includes us) after taking into consideration at least the following factors:

 

 

Notwithstanding the foregoing, our Investment Manager’s investment committee may make exceptions to these general policies when, in its judgment, other circumstances make application of these policies inequitable or uneconomic.

 

We may invest in joint ventures with other programs that are sponsored by our General Partner, our Investment Manager or their affiliates. These investments may result in conflicts of interest resulting from the differing financial positions of the co-venturers. For example, it may be in the interest of one entity to sell

jointly-held equipment while it may be in the interest of the other entity to continue holding the equipment. However, we will not participate in a joint venture unless:

 

 

 

Notwithstanding, there may be an impasse on joint venture decisions since neither we nor the other program will have complete control over the joint venture’s equipment and, although we will have the right to buy the equipment from the other joint venturer in the event of a sale, we may not have the resources do so.

 

We Do Not Have Any Employees and Rely on the Employees of Our General Partner, Our Investment Manager and Their Affiliates

 

We will not have any independent employees or officers, and will rely solely on our General Partner and Investment Manager to manage us and our operations. Our General Partner and our Investment Manager will provide us with those administrative services necessary for our prudent operation in accordance with the terms of our partnership agreement. Those employees are not required to spend all of their time on affairs which effect us and in fact may devote significant time to the affairs of our General Partner, our Investment Manager or their affiliates and will be compensated by our General Partner, our Investment Manager or their affiliates for those services. The availability or lack thereof of these employees to provide services to us may create significant conflicts between us and our General Partner, our Investment Manager and their affiliates.

 

We may reimburse our General Partner, our Investment Manager and their affiliates for costs incurred by them in managing us and our portfolio, including specified costs incurred by them in providing corporate staff and support services properly allocable to us. See the “Management Compensation” section of this prospectus beginning on page 10.

 

Troutman Sanders LLP, the legal counsel that represents our General Partner, our Investment Manager and their affiliates, including the selling agent, also represents us. You and our other limited partners, as a group, have not been represented by legal counsel. Prospective investors should seek independent counsel if they so desire or if any legal matters discussed in this prospectus are unclear.

 

No independent lead underwriter has been engaged for the distribution of our units. Therefore, we will not have the benefit of an independent “due diligence” review and investigation of the type normally performed by an unaffiliated, independent lead underwriter in connection with an offering of securities. Although the selling agent believes that its investigation of us, our General Partner and our Investment Manager for purposes of this offering of units has been as complete as would be the case in dealing with

unaffiliated parties, there is no assurance that the due diligence has been performed in the same manner as that of an independent lead underwriter.

 

You and our other partners may present your units to us for redemption at any time. This creates the following conflicts of interest between you and our General Partner:

 

 

See the “Redemption of Units” section of this prospectus beginning on page 88.

 

Our General Partner will serve as our tax matters partner and represent us before the IRS and all other taxing authorities. As tax matters partner, our General Partner will have broad authority to act on behalf of you and our other partners in any administrative or judicial proceeding involving the IRS or other tax agencies, and this authority may involve conflicts of interest. For example, a potential conflict would include whether to contest or settle a proposed adjustment by the IRS to the amount of our depreciation deductions under our operating leases, which are allocated 99% to you and our other partners, which would also affect your personal income tax returns. While our General Partner will take into account the interests of you and our other partners as a whole, there is no assurance that any settlement would be in the best interest of you or any other particular partner given your or his particular tax situation.

 

Our General Partner or its affiliates currently intend to purchase 100 units. These subscriptions will not be included in the minimum number of units required for us to begin operations. Thus these partners generally will:

 

 

 

The purchase of units by our General Partner, its officers, directors, or other affiliates as limited partners will dilute the voting rights of you and our other partners and there may be a conflict with respect to certain matters. See the “Summary of Our Partnership Agreement — Voting Rights of Limited Partners” section of this prospectus beginning on page 85.

 

To reduce, but not eliminate, certain conflicts of interest we will not:

 

 

 

 

 

 

 

Also, except as permitted under the Management, Origination and Servicing Agreement and our partnership agreement, our General Partner may not enter into any other agreements, contracts or arrangements on our behalf with itself or any of its affiliates.

 

It is likely that our Investment Manager will manage the investments of other equipment leasing funds in the future. Investment opportunities may arise which are suitable both for us and for those other equipment leasing funds. In those cases, when allocating investment opportunities between us and other equipment leasing funds it manages, our Investment Manager will take into consideration factors which include the following:

 

 

These considerations will not restrict our Investment Manager or its affiliates or other funds managed by our Investment Manager or its affiliates from considering or accepting investment opportunities.

 

We are a Delaware limited partnership formed pursuant to the Delaware Revised Uniform Limited Partnership Act. The Delaware Revised Uniform Limited Partnership Act provides that the general partner of a Delaware limited partnership owes the traditional fiduciary duties of loyalty and care to the limited partnership and its partners, but allows the limited partnership to contractually modify or eliminate any and all liabilities for breach of duties, including fiduciary duties, of a general partner other than liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing.

 

The fiduciary duty owed by a general partner is analogous to the fiduciary duty owed by directors to a corporation and its stockholders and is subject to the same rule, commonly referred to as the “business judgment rule.” Under this rule, directors are not liable for mistakes made 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.

 

Our General Partner’s duty of loyalty under Delaware law is limited to the following:

 

 

 

 

Our General Partner’s duty of care under Delaware law is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

 

Our partnership agreement generally does not excuse our General Partner from liability for, or provide it with any defenses against, any breaches of its fiduciary duties under Delaware law. However, our partnership agreement permits our General Partner, our Investment Manager and their affiliates to have business interests or activities that may conflict with ours, and includes provisions to resolve conflicts in allocating investment opportunities among us and other programs that may be sponsored by our General Partner, our Investment Manager or their affiliates. In addition, under the terms of our partnership agreement our General Partner, our Investment Manager and their affiliates have limited their liability to us and to you and our other partners for any loss suffered by us or by you and our other partners that arises out of any action or inaction on their part if:

 

 

 

 

If our partnership agreement did not explicitly permit our General Partner and its affiliates to acquire investments or to manage similar programs and thereby allocate investment opportunities among us and other programs it and its affiliates manage, a Delaware court could apply certain fiduciary obligations to our General Partner commonly applied to a general partner of a limited partnership formed under Delaware law. If a Delaware court were to so hold, our General Partner might not be permitted to serve as our general partner and our Investment Manager might not be permitted to serve as our investment manager while acting as the manager, general partner and/or investment manager of any programs that might make investments in equipment and other physical assets at the same time. The provisions in our partnership agreement benefit our General Partner, our Investment Manager and their affiliates since those provisions allow them and such affiliates to act as the manager for more than one program and to make investments in equipment or other physical assets, which a Delaware court potentially might not permit absent such provisions. The right of our General Partner, our Investment Manager and their affiliates to manage similar programs and make investments on their own behalf may operate as a detriment to you because there may be opportunities that will not be made available to us. However, our General Partner believes that we should benefit from the experience that our Investment Manager and its affiliates have gained from acting as a manager, general partner or investment manager of more than one program. Furthermore, our partnership agreement attempts to resolve any conflicts arising from the management of multiple programs in a manner consistent with the expectations of the investors of all of these programs, our General Partner’s and Investment Manager’s duties and obligations and our and other programs’ investment objectives.

 

In addition, in some respects our partnership agreement imposes a higher fiduciary standard than that provided for under Delaware law, because it limits the liability of our General Partner, our Investment Manager and their affiliates to only those instances where their course of conduct did not constitute negligence or misconduct. In the absence of such a provision, Delaware law would limit liability for those instances where their course of conduct did not constitute gross negligence, reckless conduct or intentional misconduct. This provision in our partnership agreement is therefore beneficial to our limited partners and detrimental to our General Partner, our Investment Manager and their affiliates, because our General Partner, our Investment

Manager and their affiliates could have liability under our partnership agreement for certain actions and inactions that they would not otherwise have liability for under Delaware law.

 

This is a rapidly developing and changing area of the law and if you have questions concerning the duties of our General Partner, our Investment Manager and their affiliates you should consult with your legal counsel.

 

In addition, as permitted by Delaware law and as discussed above, we will indemnify our General Partner, our Investment Manager and their affiliates against any loss of the kind described in the preceding sentences to the extent of our assets, but without any additional obligation on the part of you and our other partners. However, we will not indemnify our General Partner, our Investment Manager or their affiliates for any violation, or alleged violation, of federal or state securities laws unless:

 

 

 

 

The effect of the foregoing provisions may be to limit your recourse to our General Partner, our Investment Manager and their affiliates. However, you should be aware that, in the SEC’s opinion, the indemnification for liabilities under the Securities Act of 1933, as amended, is contrary to public policy and therefore unenforceable.

 

The Delaware Revised Uniform Limited Partnership Act provides that a limited partner may institute legal action (a “derivative” action) on a partnership’s behalf to recover damages from a third-party when the general partner refuses to institute the action or where an effort to cause the general partner to do so is not likely to succeed. In addition, the statutory or case law may permit a limited partner to institute legal action on behalf of himself and all other similarly situated limited partners (a “class action”) to recover damages from a general partner for violations of its fiduciary duties to the limited partners. In addition, we will not incur the cost of that portion of any insurance that insures any party against any liability the indemnification of which is prohibited under our partnership agreement; provided, however, that with respect to public liability insurance obtained by us in connection with any of our equipment, other assets, leases or business operations, our General Partner is permitted to add itself and its affiliates as additional insureds thereunder so long as, and to the extent that, our General Partner or its affiliates pays for the resulting incremental premium costs. For this purpose, “public liability insurance” includes insurance that would cover damage to property or personal injury to non-affiliated persons incurred during the performance of services related to us and our operations.

 

Our General Partner is SQN AIF III GP, LLC, a Delaware limited liability company with offices at 120 Wall Street, 18^th Floor, New York, New York 10005. Our General Partner was formed in March 2010. The sole member of our General Partner is SQN Capital Management, LLC, our Investment Manager. As of the date of this prospectus, the executive officers of our General Partner are as follows:

 

 

Biographical information regarding the officers and directors of our General Partner follows the table setting forth information regarding our Investment Manager’s current managing directors and executive officers.

 

Our Investment Manager is SQN Capital Management, LLC, a Delaware limited liability company with offices at 120 Wall Street, 18th Floor, New York, New York 10005. Our Investment Manager was formed in December 2007 to act as the manager of direct participation programs and its managing directors and executive officers will be responsible for selecting, managing and disposing of our assets, equipment and leases. In this regard, after we receive the minimum offering proceeds and hold our initial closing, we intend to enter into the Management, Origination and Servicing Agreement under which our Investment Manager will originate leases and other investments for us, and our Investment Manager will service our portfolio of leases and other investments. Our Investment Manager had a Net Worth as of December 31, 2009, its most recent fiscal year end, in excess of the NASAA Equipment Leasing Guidelines minimum of $1,000,000. Our Investment Manger is responsible for all aspects of the performance by its affiliates of services necessary to our operation and for the facilities, personnel, equipment, financial and other resources used by its affiliates in the performance of those services.

 

As of the date of this prospectus, the managing directors and executive officers of our Investment Manager are as follows:

 

 

Neil A. Roberts has served as Managing Director of our Investment Manager since December 2007 and Chairman since April 2010 and has served as Chairman of our General Partner since March 2010. Mr. Roberts has been Managing Director of Summit Asset Management Limited, a premier London based asset finance company, since forming the company in 1992. From 1996 to 1998, Mr. Roberts was Chairman of ICON Capital Corp., one of the largest privately held equipment leasing and asset based income fund managers in

the United States. From 1988 to 1991, Mr. Roberts served as CEO of Parc Limited, a leading UK technology vendor finance company and under his leadership grew it threefold. From 1984 to 1988, Mr. Roberts was a Managing Director of HSBC, where he was responsible for its UK and ultimately European asset finance operations. From 1972 to 1984, Mr. Roberts worked for Chemical Bank and its subsidiaries in various capacities, including Deputy General Manager of its Italian leasing subsidiary, Vice President and European Credit Manager and Managing Director of its UK asset finance subsidiary.

 

Jeremiah J. Silkowski has been President and Chief Executive Officer of SQN Capital Corporation, a company that provides asset-backed and lease-based financing to multiple under-served market sectors including the off-shore oilfield services industry, since its inception in January 2006. Mr. Silkowski has served as Managing Director of our Investment Manager since December 2007 and President and Chief Executive Officer since April 2010 and has served as President and Chief Executive Officer of our General Partner since March 2010. Prior to forming SQN Capital Corporation, Mr. Silkowski spent 13 years in various capacities with ICON Capital Corp., including Senior Vice President of Operations and head of Portfolio Management, Remarketing, Cash Management, Tax, Middle Market Acquisitions, and Structured Finance. Mr. Silkowski was responsible for the day-to-day management of over $1.0 billion dollars of assets including two securitizations and eight public partnerships. Mr. Silkowski received his B.A. in Economics from New York University.

 

David Charles Wright has been the Chief Financial Officer of our Investment Manager since December 2007 and of our General Partner since March 2010. Mr. Wright is a Certified Public Accountant with more than 25 years of accounting and audit experience with top level finance and leasing companies throughout the United States. Mr. Wright has held senior positions with both public and private reporting requirements. Mr. Wright has been an SEC Audit Manager and the Senior Vice President and Controller of three public reporting partnerships and three limited liability companies with more than 30,000 investors, approximately $921,000,000 of total assets under management and approximately $153,000,000 in total revenue. Mr. Wright is a member of the American Institute of Certified Public Accountants, the New York State Society of Certified Public Accountants, and the SEC Practice Section Committee of the New York State Society of Certified Public Accountants.

 

Timothy R. Spring has served as Senior Vice President — Asset Management of our Investment Manager since April 2010, and of our General Partner since March 2010. Previously from December 2007 to March 2010, Mr. Spring served as Vice President — Asset Management of our Investment Manager. Since 1993, Mr. Spring has served as Commercial Director of Summit Asset Management Limited, responsible for transaction finance and documentation, residual investment policy and asset management. From 1996 to 1998, Mr. Spring was a Director of ICON Capital Corp. From 1983 to 1989, Mr. Spring was Commercial Manager at HSBC’s equipment leasing subsidiary and from 1989 to 1993, Commercial Manager and ultimately Commercial Director at Kleinwort Benson’s IT leasing subsidiary.

 

Michael C. Ponticello has served as Vice President of SQN Capital Corporation since April 2007 and was responsible for the establishment and development of the equity-raising arm of the company through our Investment Manager. Mr. Ponticello has also served as Senior Vice President and National Sales Manager of our Investment Manager since December 2007, and of our General Partner since March 2010. From June 2001 until December 2004, Mr. Ponticello served as a Management Associate of ICON Capital Corp., from December 2004 to January 2006, he served as Regional Marketing Director of the Southwest for ICON Securities Corp. and from March 2006 to April 2007, he served as Assistant Vice President of Operations at ICON Capital Corp. responsible for the management and monitoring of eight-investment funds with assets in excess of $1.0 billion. Mr. Ponticello received his B.B.A. from the Zicklin School of Business at Baruch College.

 

Hugh Shelmerdine has served as Chief Credit Officer of our Investment Manager since October 2009 and of our General Partner since March 2010. From 1977 to 1985, Mr. Shelmerdine served as a Director of Chemco Equipment Finance Ltd., the asset finance subsidiary of Chemical Bank. From 1985 to 1995, Mr. Shelmerdine served as a Director of Concord Leasing, the asset finance subsidiary of HSBC, from 1996 to 1997, served as Director Vendor Finance of Nikko Bank (UK) plc. From 1997 to 1999, Mr. Shelmerdine

served as Senior Account Manager of de Lage Landen Leasing, the leasing subsidiary of Rabobank. From 2000 until 2006, Mr. Shelmerdine served as a Business Adviser of Business Link for London. From 2006 to 2009, Mr. Shelmerdine served as a Director of The Business Development Experience Ltd. The last two appointments were providing coaching, mentoring and business advice to business owners.

 

Michael Miroshnikov has served as Vice President of our Investment Manager since April 2008 and of our General Partner since March 2010. Since March 2006, Mr. Miroshnikov also has served as Senior Analyst of SQN Capital Corporation. From October 2001 until May 2003, Mr. Miroshnikov was employed by ICON Capital Corp. where he served in an Operations Assistance capacity supporting its equipment leasing and income funds. Mr. Miroshnikov has developed a specific expertise in oil field services, energy and marine transportation companies and assets. Mr. Miroshnikov graduated Cum Laude with a B.B.A. in Investment Finance from the Zicklin School of Business at Baruch College and has received a Juris Doctorate degree from Brooklyn Law School. He also holds Series 7, 24, and 63 licenses.

 

Our Investment Manager’s investment committee will review all transactions involving us that, in their judgment, are significant as well as potential conflicts of interest regarding the acquisition of an investment by us and another affiliated program. The current members of the investment committee are Messrs. Roberts, Silkowski, Miroshnikov, Spring, and Shelmerdine. Mr. Silkowski and Mr. Roberts will maintain ultimate investment discretion and will have to be in agreement on the funding of any transactions.

 

The members of the investment committee may change from time to time in the discretion of our Investment Manager. In addition, other executive officers of our Investment Manager may be called on by our Investment Manager to provide advice to the investment committee on an as needed basis. We will not pay fees to the members of our investment committee.

 

See the “Investment Objectives and Strategies” section of this prospectus beginning on page 46 for a discussion of the various services the investment committee will provide on behalf of us and our General Partner.

 

Because we do not directly employ any persons, we rely on a Code of Business Conduct and Ethics adopted by our General Partner that applies to the principal executive officer, principal financial officer and principal accounting officer of our General Partner, as well as to persons performing services for us generally. You may request a copy of this code of ethics from our General Partner at SQN AIF III GP, LLC, 120 Wall Street, 18th Floor, New York, New York 10005.

 

We do not pay the officers or directors of our General Partner, our Investment Manager or their affiliates any compensation. However, we will pay our General Partner, our Investment Manager and their affiliates fees and reimburse certain of their expenses incurred on our behalf as described in the “Management Compensation” section of this prospectus beginning on page 10. These expense reimbursements include reimbursing our General Partner, our Investment Manager and their affiliates for certain costs incurred on our behalf, including the cost of personnel, other than controlling persons of our General Partner, our Investment Manager and their affiliates, who will perform administration, accounting, secretarial, transfer and other services required by us. These individuals also will perform similar services for our General Partner, our Investment Manager or their affiliates and other affiliated investment programs, including our Investment Manager’s prior equipment leasing and finance programs, as well as investment programs to be formed in the future by our General Partner and its affiliates. Our partnership agreement provides that expense reimbursements paid by us to our General Partner, our Investment Manager and their affiliates must be limited to the lesser of their actual cost or the cost of comparable services from third-parties. We expect that we will allocate the cost of compensation and benefits of our General Partner’s officers, the officers and employees of

our Investment Manager, and the officers and employees of their affiliates, excluding expenses allocable to their controlling persons, based on the amount of their business time spent on our business.

 

Our General Partner may withdraw as general partner, or be removed as general partner by our limited partners, under the circumstances described in the “Summary of Our Partnership Agreement — Withdrawal or Removal of Our General Partner” section of this prospectus beginning on page 83.

 

Neil A. Roberts and Jeremiah J. Silkowski would be considered our General Partner’s “promoters.” As an officer of our General Partner and an officer and managing director of our Investment Manager, each of Messrs. Roberts and Silkowski would indirectly receive a portion of the compensation received by our General Partner and our Investment Manager as set forth under “Management Compensation.”

 

SQN Securities, LLC, the selling agent for this offering, is a Delaware limited liability company and a majority-owned subsidiary of SQN Capital Management, LLC, our Investment Manager. It anticipates that it will be registered as a broker-dealer with the SEC, and a member of Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation.

 

Our capitalization, as of the date of this prospectus and as adjusted to reflect the issuance and sale of the units offered hereby assuming (i) that we receive the minimum offering amount of $1.2 million, and (ii) that the maximum 50,000 units are sold at the public offering price of $1,000 per unit is as follows:

 

 

Our Investment Manager and its affiliates previously sponsored two private equipment leasing and finance programs in the last 10 years. SQN Alternative Investment Fund I, LLC (“SQN I”) was created in December 2007 and our Investment Manager serves as its investment manager. SQN I had its final closing in March 2009, with total offering proceeds of approximately $7.0 million from 84 investors. SQN Alternative Investment Fund II, LLC (“SQN II”) was created in April 2009 and our Investment Manager serves at its investment manager. SQN II anticipates that it will have its final closing in May 2010, with total offering proceeds of approximately $7.25 million from 97 investors.

 

According to their respective offering materials these private programs, which are still in their respective operating periods, expect to sell or otherwise dispose of all of their respective assets on an orderly basis and liquidate during the time periods set forth below, which are not binding on the programs under their respective partnership agreements:

 

 

Set forth below for SQN I and SQN II are charts of their respective equipment portfolios broken out by equipment type and by business type as of March 31, 2010. These charts will vary from time to time in each of those programs as investments in the portfolio mature and reinvestments are made. The charts below combine operating leases, full payout leases and secured financings for summary purposes.

 

SQN I Portfolio by Equipment Type

 

SQN I Portfolio by Business Type

 

 

SQN II Portfolio by Equipment Type

 

SQN II Portfolio by Business Type

 

 

Further information concerning SQN I and SQN II and their respective results of operations can be found in Appendix B to this prospectus.

 

Our principal objectives are to invest in business-essential, revenue-producing (or cost-saving) equipment and Other Physical Assets with substantial economic lives and, in many cases, associated revenue streams. Many of our investments will be structured as full payout or operating equipment leases. In addition, we intend to invest by way of participation agreements and residual sharing agreements where we would acquire an interest in a pool of equipment or other assets, or rights to that equipment or other assets, at a future date. We also may structure investments as project financings that are secured by, among other things, essential use equipment and/or assets. Finally, we may use other investment structures that our Investment Manager believes will provide us the appropriate level of security, collateralization, and flexibility to optimize our return on investment while protecting against downside risk. In most cases, the structure will include us holding title to or a priority position in the equipment or other asset.

 

We will focus our investments in business-essential, revenue-producing equipment and other assets with high in-place value and long (relative to the investment term) economic life. We will acquire investments (i) originated and warehoused by certain affiliates of our Investment Manager; (ii) originated directly by us; or (iii) originated from brokers or other leasing/investment companies or banks.

 

Originating an investment involves, among other things, identifying a lessee or other end-user, inspecting the equipment or other asset, undertaking a business, credit, and industry review, projecting the residual value of the equipment or other asset, pricing the investment, and documenting the transaction. When we acquire investments from an affiliate of our Investment Manager, such affiliate will likely perform all of these originating services and fund the transaction directly. In this situation, subject to the NASAA Equipment Leasing Guidelines, we will purchase the investment in the same way that the investments have been sold to third parties which have historically yielded investors an above average return. Additionally, the affiliate will take a first loss position as a co-investor to our benefit. When we originate a transaction, our Investment Manager will perform these originating services on our behalf and we will fund the transaction directly.

For equipment and other assets that have a minimum economic life of six to ten years, the typical investment term will be three to five years. Each investment will typically be a “hell or high water,” triple-net lease that requires the lessee or other counterparty to bear all tax, maintenance, insurance, and other costs related to the lease or the operation of the underlying equipment or other asset. The contract provisions governing the investment will require that the end-user carry insurance covering all insurable damage that could occur to the equipment or other assets, including total loss insurance.

 

We will concentrate on transaction sizes below $10.0 million with a maximum equity investment of $3.0 million, or 10% of the total proceeds raised in this offering, whichever is higher. By doing so, we will be operating in areas with limited competition. We have made the decision to limit our size, in terms of the maximum offering proceeds, to $50.0 million so that we may be selective in choosing our investments. We will focus our investments on specific industries and asset types where the members or officers of our Investment Manager have extensive expertise and a deep and well developed sales and remarketing network. Our Investment Manager will focus on identifying equipment and other assets that are considered essential use or core to a business or operation in the agricultural, energy, environmental, medical, manufacturing, technology, and transportation industries. Our Investment Manager also may identify other assets or industries that meet our investment objectives.

 

We will invest through a variety of different legal structures which are all designed to grant us direct title to the underlying equipment or asset(s) or a security interest that would provide the same degree of control and collateralization. The primary structures that we intend to use are single investor lease transactions, participation agreements, and purchases of residual interests. We will generally make investments in the United States, Canada and the European Union. We intend to invest in as much as $200.0 million of original equipment or other asset cost.

 

Single Investor Leases.  Single investor leases will generally be leases in which we will pay 100% of the equipment or other asset cost. In a single investor lease, we receive 100% of the lease payments over the term of the lease. At all times, we hold unencumbered title to the underlying equipment or assets.

 

Participation Agreements.  We will use participation agreements when investing in larger assets or pools of assets. When we do this, we are generally granted a priority interest in the entire pool or underlying asset(s) even though our ownership interest is less than 100%. We use this structure as a form of credit enhancement and to protect against the loss of a single asset in a pool affecting our investment. Cash flow from investments in participation agreements can be monthly, quarterly, annually, or deferred until a later date.

 

Purchase of Residual Interests.  We will participate in the benefits of leveraged leases and other larger transactions by way of purchasing residual interests in assets or equipment. When we purchase residual interests, we are purchasing the rights and/or title to equipment or assets at the end of the initial lease term or other underlying contract term. Cash flow from the purchase of residual interests generally does not commence until all of the obligations under the initial term are satisfied. Once those obligations are satisfied, unencumbered rights and/or title to the underlying equipment or assets is transferred to us.

 

Using participation agreements and purchasing residual interests allows us to invest in larger, higher-yielding transactions while minimizing our risks and increasing our investment diversification. Under all of the structures, it is our objective that the original term payments pay down all or substantially all of the original equipment or other asset cost and, in some cases, with a rate of return before the residual value is taken into account. The residual value is the projected market value of the equipment or other asset at the end of the original term.

 

At the end of the original term of most leases or other form of investment, the end-user will have three options:

 

(1) Extend the term for an agreed upon rental amount which may be for the same amount or a discounted amount. In some cases, such as in vessels or modular building transactions, the extension rate may be higher than the original rate.

 

(2) Purchase the equipment or other assets from us at an agreed price.

 

(3) Return the equipment or other assets to us which includes, among other things, records, manuals, power cables, and all components. There are also certain usage standards that have to be met otherwise the end-user must pay a stipulated loss amount for the condition of the equipment or other assets. In many cases it is not economical for them to return the equipment or other assets.

 

Some contracts will have pre-negotiated end term provisions setting the price for an extension or sale. Many contracts will be open-ended or have fair market value (“FMV”) end term provisions. In all cases, this is taken into account in pricing the investment.

 

We will realize the majority of our returns from the residual value of the equipment or other assets. Based on historical experience, our Investment Manager expects to begin to distribute returns on capital between years three and five and expects us to conclude within five to seven years from the first closing date of this offering.

 

As discussed above, certain affiliates of our Investment Manager will regularly originate transactions and offer to sell all or part of such transactions to us either individually or as a portfolio depending upon, among other things, the appropriateness of the proposed investment for us (as determined by our Investment Manager, in its sole discretion) and the amount available for investment by us at such time. During the Operating Period, we will have a right of first refusal, subject to the existing rights of SQN I and SQN II (which will be in different stages in their respective investment cycles), on all transactions originated by affiliates of our Investment Manager that meet our investment objectives.

 

In the event an affiliate of our Investment Manager proposes to sell an asset or portfolio of assets (or a participation interest therein or any other suitable investment) to us, we may purchase such asset or portfolio of assets (or a participation interest therein or any other suitable investment) from our General Partner or any of its affiliates (but not including an affiliated program) if:

 

 

 

 

 

 

Our Investment Manager intends to structure each of our investments at a price that it determines will provide a present value return to us, including the estimated residual value of the equipment which may or may not be fully realized by us. However, our Investment Manager may not be successful in achieving our investment objectives.

We plan to make semi-annual distributions of cash to you and our other partners, if, in our Investment Manager’s opinion, such distributions are in our best interests. We expect to begin distributions in the sixth month of the Operating Period and thereafter, every six months during the Operating Period. However, we cannot assure you of the following:

 

 

We also expect that during the early years of our operations our distributions to you and our other limited partners will be substantially tax-deferred.

 

See the “Risk Factors,” and “Income, Losses and Distributions — Timing of Distributions” sections of this prospectus.

 

We will purchase equipment and other assets for lease to end-users. We expect that the cost per unit of the equipment or other asset we purchase generally will range from $50,000 to $3.0 million and the average per unit cost will be between $400,000 and $1.5 million.

 

In addition to other investments, we will enter into both full payout leases and operating leases.

 

 

We are not limited as to type of leases we may enter into and, as a result, either operating leases or full payout leases could possibly constitute most of our portfolio.

 

We also may acquire portfolios of equipment or other assets subject to existing leases from our General Partner’s or our Investment Manager’s respective affiliates or independent third-parties. We anticipate that at the end of this offering our purchased portfolio of existing leases probably will not exceed 30% of our total investments. While the per unit cost range and average per unit cost for the equipment or other asset will depend on the existing portfolios of leases we may select for purchase, we anticipate that these costs may be less, and possibly materially less, than the cost of investments that we originate directly or through affiliates of our General Partner or our Investment Manager.

 

We expect that we will focus on equipment and other assets to invest in that are essential for businesses to conduct their operations so that the end–users will be highly motivated to make the required payments in

order to keep the equipment or other assets in place during the initial term and afterward. We will particularly focus on business-essential equipment or other assets in the following areas:

 

 

Equipment leasing and asset finance are methods by which companies access capital to sustain, grow, or improve their businesses and operations. Often, equipment leasing provides companies with the lowest cost means to acquire revenue generating or other business essential assets. Companies choose to lease or finance assets for a variety of different reasons including, but not limited to, cash flow management, preservation of working capital, off balance sheet treatment, the ability to pass the cost off to customers, and/or flexibility of capital equipment management.

 

We group domestic lease providers into the four major categories set forth below:

 

 

The industry and market data contained in this prospectus are based on independent industry publications, reports by governmental agencies or market research firms or other published independent sources and, in each case, are believed by us to be reasonable estimates. However, industry and market data is subject to change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. We have not independently verified market and industry data from third-party sources. In addition, consumption patterns and customer preferences can and do change. The industry and market data sources are publicly available and were not prepared for our benefit or paid for by us, nor were they paid by or prepared for the benefit of our General Partner’s or our Investment Manager’s affiliates.

 

The following figures provide an overview of features of the equipment leasing industry:

 

 

 

¹  Source: World Leasing Yearbook 2009, Euromoney Yearbooks, as of 2007.

 

²  Source: Equipment Leasing and Finance Association 2009 Annual Report.

 

Our investment strategy is based on the fundamental principles of asset-backed finance. Our competitive advantage lies in our approach to equipment leasing and asset finance. Other companies have one of two investment strategies depending on their cost of capital. Companies such as GE, CIT, and major banks make lease investments based on low risk credit score models on specific equipment only. These companies earn low margins but do tremendous standardized volume and are often tax driven. Private leasing companies with higher costs of capital purchase leases in the secondary market from banks and other institutions when their tax advantages have run their course to the original lessor. Leasing companies with a higher cost of capital generate profits through their expertise in residual pricing by buying these leases based on different assumptions of the residual value.

 

We approach leasing as an innovative financing vehicle to provide growth capital to strong management teams with solid business models in need of revenue producing assets. We take the time to understand the underlying business in addition to having an existing expertise in the specific equipment being financed. We are not restricted to formulaic, cookie-cutter leases. We take a private equity-like approach to investing in businesses and therefore target private equity-like yields.

 

By maintaining a small fund size and working with the equipment expertise of our affiliates, we will be investing in opportunities not sufficiently served by other leasing companies and banks simply because the detail-specific nature of the investments and the amount of capital the other companies need to put to work does not make it an efficient market for them to invest in.

 

Our strategy is effective in all market conditions. When access to the inexpensive capital is limited, leasing provides a less capital intensive way for business owners to acquire equipment. When business cycles are strong, equipment leasing increases with the growth of businesses.

 

We believe the key factors in establishing and maintaining our portfolio of equipment, other assets and leases are as follows:

 

 

 

Overview of our underwriting policies and procedures

 

Our Investment Manager will be underwriting transactions from a diverse number of sources to a wide range of end-users attracting a premium return that reflects the nature of the underlying risks as well as the complexity of the transactions. The investment committee of our Investment Manager will assess risk with the intention that transactions are underwritten for the benefit of the portfolio within the specification and characteristics of the portfolio and with the intention of achieving our stated investment objectives.

 

Investments will be made in equipment and equipment leases but also may be made in other equipment and other physical asset related transactions that allow for the direct or indirect participation in the benefits and risks of ownership or usage. Such transactions may include but are not limited to equipment trading, residual sharing agreements, forward purchase agreements, investments in companies which lease equipment, participation agreements, equipment purchase options, and other transactions involving physical assets and equipment.

 

The key elements of risk will be identified and mitigation of those risks will be sought to secure an acceptable risk reward ratio as determined by the investment committee of our Investment Manager.

 

The policy and procedures identifies the ways that we will seek to minimize the risk from each transaction while enabling us to meet our strategic objectives.

 

Summary of Policy

 

It is the intention of the policy to ensure that there is a mix of risk that will not create an imbalance of exposure for us in any industry, asset, or credit. Individual credit exposure to a single legal body shall not exceed 10% of our total equity raised or $3.0 million whichever is the greater. There shall be no greater than 35% of total equity raised invested in a single industry. The normal investment period is expected to be between 36 and 60 months but in no event shall exceed 84 months.

 

All transactions must be clearly summarized enabling the investment committee of our Investment Manager to understand:

 

 

Financial Information

 

The investment committee of our Investment Manager must have sufficient financial information on the lessee, guarantor or any other participant or counterparty within the transaction to enable it to make an informed decision on the ability of the parties to be able to perform their obligations required within the transaction. The investment committee of our Investment Manager typically requires the following financial information:

 

 

General Information

 

Additional information must also be provided, when relevant, to assist in our Investment Manager’s assessment of the potential creditworthiness of a lessee or other counterparty including:

 

 

Summary of Procedure

 

 

 

 

We believe successful realization of residuals at the end of a lease term depends on an accurate residual value assessment at the beginning of a lease. Our Investment Manager, as servicer of our leases, will make residual value assessments on our behalf using information from a number of sources, including:

 

 

Based on its analysis of this information, our Investment Manager will establish a residual value for the end of each term for each type of equipment or other asset. However, as to any particular piece of equipment or other asset, our Investment Manager may not be able to re-lease or sell the equipment or other asset on our behalf at the end of the original lease term at a rate or price that will provide us the residual value our Investment Manager estimated on that equipment or other asset.

 

Our Investment Manager’s collections policy is designed to identify payment problems early enough to permit it to address delinquencies in our leases quickly and, when necessary, to act on our behalf to preserve our interest in the equipment or other assets.

 

 

 

Certain terms and provisions, however, generally will be included in all of our leases. For example, we anticipate that each lease will hold the lessee responsible for:

 

 

Similar provisions will be included in our other investment documentation.

 

Our investments will usually have terms ranging from 36 to 60 months. We anticipate that the average term over our aggregate portfolio will range from 42 to 54 months. We also anticipate that most of our investments will not be cancelable during their initial terms. However, we may agree to allow cancellation of a lease if the lessee pays us sufficient compensation so that the cancellation will not prevent us from achieving our objectives. At the end of each lease term, the lessee may have the option to buy the equipment or other assets, or renew the lease, either at set prices or at prices tied to current fair market value.