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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2004
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
Commission File Number 333-103503
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ICON Income Fund Ten, LLC
(Exact name of registrant as specified in its charter)
Delaware 35-2193184
- -------------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, 10th floor, New York, New York 10011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 418-4700
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Liability
Company Shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last day of the registrant's most recently completed second fiscal quarter:
Not applicable. There is no established market for shares of the registrant.
Table of Contents
Item
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
5. Market for the Registrant's Securities and Related Security Holder Matters 8
6. Selected Financial Data 9
7. Manager's Discussion and Analysis of Financial
Condition and Results of Operations 10-22
7A. Qualitative and Quantitative Disclosures About Market Risk 22
8. Financial Statements 23-43
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
9A. Controls and Procedures 44
PART III
10. Directors and Executive Officers of the Registrant's Manager 44-45
11. Executive Compensation 45-46
12. Security Ownership of Certain Beneficial Owners and Management 46
13. Certain Relationships and Related Transactions 46
14. Principal Accountant Fees and Services 46
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
SIGNATURES 48
Certifications 49-51
Page 2
PART I
Item 1. Business
General Development of Business
ICON Income Fund Ten, LLC (the "LLC") was formed on January 2, 2003 as a
Delaware limited liability company. When used in this report, the terms "we"
"us" and "our" refers to the LLC.
Our initial capitalization was $1,000 contributed by the Managing Member,
ICON Capital Corp. We ceased accepting new capital contributions on April 5,
2005, and except for a small amount of member shares reserved for issuance to
existing investors for reinvestment of April's distributions, we have sold all
of our member shares at April 5, 2005 and terminated the offering. We were
declared effective by the Securities and Exchange Commission on June 2, 2003.
Our initial closing was on August 22, 2003 when we admitted 5,065.736 additional
members shares, representing $5,065,736 in capital contributions. For the year
ended December 31, 2004 and for the period from August 22, 2003 (commencement of
operations) through December 31, 2003, we admitted 85,192.914 and 23,784.330
additional members shares, respectively, representing capital contributions of
$85,192,914 and $23,784,330, respectively. From August 22, 2003 (commencement of
operations) through December 31, 2004 we redeemed 115.910 additional member
shares for $110,026. From December 31, 2004 through March 31, 2005, we admitted
34,585.364 additional member shares representing capital contributions of
$34,585.364. The LLC will continue until December 31, 2023, unless terminated
sooner.
Our Manager is ICON Capital Corp. (the "Manager"), a Connecticut
corporation. The Manager manages and controls the business affairs of our
equipment leases and financing transactions under the terms of a management
agreement.
Segment Information
We have only one operating segment: the business of acquiring and managing
equipment subject to leases with companies that we believe to be creditworthy.
Narrative Description of Business
We are an equipment leasing income fund. Our principal investment objective
is to obtain the maximum economic return from our investments for the benefit of
our members. To achieve this objective we intend to: (i) acquire a diversified
portfolio of leases and financing transactions; (ii) make monthly cash
distributions to our members commencing with each member's admission to the LLC;
(iii) re-invest substantially all undistributed cash from operations and cash
from sales of equipment and financing transactions during the reinvestment
period; and (iv) sell our investments and distribute the cash from sales of such
investments to our members.
During 2004, we were still in our offering period and sold 85,192.914
additional member shares totaling $85,192,914. At December 31, 2004 and 2003, we
had total assets of $137,518,353 and $20,651,972, respectively. During the year
ended December 31, 2004, our total revenue was $10,320,406, which was derived
from four leases which accounted for 98% of our rental income. We incurred a net
loss for the year ended December 31, 2004 of $3,183,857. For the period from
August 22, 2003 (commencement of operations) through December 31, 2003, we sold
23,784.330 additional member shares totaling $23,784,330 and our total revenue
was $370,684 which was derived from one lease. We incurred a net loss for the
period from August 22, 2003 (commencement of operations) through December 31,
2003 of $133,271.
Page 3
We have no direct employees. The Manager has full and exclusive control
over our management and operations.
Our Competition
The equipment leasing industry is highly competitive. When seeking leasing
transactions for acquisition, we compete with leasing companies, manufacturers
that lease their products directly, equipment brokers and dealers and financial
institutions, including commercial banks and insurance companies. Many
competitors are larger than us and have greater financial resources than we do.
Lease Transactions
We entered into transactions for the year ended December 31, 2004 and for
the period from August 22, 2003 (commencement of operations) through December
31, 2003, as follows:
1979 McDonnell Douglas DC-10-30F Aircraft
During March 2004, we and ICON Income Fund Eight A L.P. ("Fund Eight A"),
an entity also managed by the Manager, formed a joint venture, ICON Aircraft
46837, LLC ("ICON Aircraft 46837"), for the purpose of acquiring a 1979
McDonnell Douglas DC-10-30F aircraft on lease to Federal Express Corporation
("FedEx") with a remaining lease term of 36 months. We acquired a 71.4%
ownership interest in this joint venture for a total of approximately $2,466,000
in cash. The aircraft owned by ICON Aircraft 46837 is subject to non-recourse
debt which accrues interest at 4.0% per year and matures in March 2007. The
lender has a security interest in the aircraft and an assignment of the rental
payments under the lease with FedEx.
In connection with the formation of the joint venture, Fund Eight A
acquired an option from us for $10,000 to acquire an additional 61.4% ownership
interest in ICON Aircraft 46837. During the third quarter 2004, this option was
exercised by Fund Eight A and we sold 61.4% of our ownership interest to Fund
Eight A. The exercise price was approximately $2,297,000.
FedEx is a global provider of transportation, e-commerce and supply chain
management services. Services offered by its companies include worldwide express
delivery, ground small-package delivery, less-than-truck load freight delivery,
express delivery, global logistics, supply chain management and customs
brokerage, as well as trade facilitation and electronic commerce solutions. This
information was obtained from http://www.hoovers.com.
3,300 TEU Container Vessels
During June 2004, we acquired, through two wholly-owned subsidiaries, ICON
Containership I, LLC and ICON Containership II, LLC, a 100% interest in two
3,300 TEU container vessels, the 1991 ZIM Korea and the 1990 ZIM Canada
(collectively, the "Vessels") from ZIM Israel Navigation Co., Ltd. ("ZIM") and
simultaneously entered into bareboat charter agreements with ZIM for the
Vessels. The purchase price for the Vessels was approximately $70,700,000,
comprised of (i) approximately $18,400,000 cash, and (ii) approximately
$52,300,000 of non-recourse indebtedness. The indebtedness has a five-year term
and bears interest at a variable interest rate of the London Interbank Offering
Rate ("LIBOR") plus 1.50%. Simultaneously with the closing we entered into an
interest rate swap with Fortis Bank in which the variable interest rate was
swapped for fixed interest rates of 5.36% per year. The lender has a security
interest in the Vessels and an assignment of the rental payments under the
lease.
During December 2004, we entered into a Memorandum of Agreement with ZIM to
purchase a third 3,300 TEU container vessel, the ZIM Italia (the "Italia
Vessel") which is subject to a five year bareboat charter with ZIM. The Italia
Vessel is owned by ICON Containership III, LLC, a wholly-owned subsidiary of
Page 4
ours.The purchase price for the Italia Vessel was $35,350,000, comprised of
(i) approximately $9,200,000 cash and (ii) approximately $26,150,000 of
non-recourse debt. The non-recourse debt has a five year term and bears interest
at a variable interest rate of LIBOR plus 1.50% per year. On December 30, 2004,
we entered into a Commitment Agreement with Fortis Capital Corp., which arranged
the financing for the acquisition of the Italia Vessel. Simultaneously with the
closing we entered into an interest rate swap with Fortis Bank in which the
variable interest rate was swapped for fixed interest rates of 5.80% per year.
The lender has a security interest in the Italia Vessel and an assignment of the
rental payments under the lease with ZIM. The Italia Vessel was delivered in
January 2005.
ZIM is owned by the ZIM Israel Corporation Ltd., which is one of the
largest container-shipping companies in the world and the flagship of Israeli
shipping. ZIM offers transportation services along most of the major
international trading routes to customers throughout the world. From its
corporate headquarters in Haifa, it operates an intermodal system which combines
sea, land and air transportation services around the world. It ranks tenth among
the world's container service operators and fifteenth as a maritime container
operator. The ultimate parent, the Ofer Group, is the 6th largest maritime
tonnage supplier on a global basis. This information was obtained from ZIM's
website.
Through its subsidiaries, ZIM offers ancillary services such as shipping
agencies, storage and distribution, forwarding, and land transportation. Its
sophisticated information and communication network enables ZIM to locate and
control, at any time, the exact whereabouts of every shipment to optimize the
loading of containers and to facilitate the planning of schedules. This
information was obtained from ZIM's website.
Refrigeration Equipment
During July 2004, we purchased Hussman refrigeration equipment which is on
lease to P.W. Supermarkets, Inc. The lease is for a three year period,
commencing August 6, 2004, with an option to extend the lease for one additional
year. The purchase price of this equipment was approximately $1,310,000 in cash.
P.W. Supermarkets operates ten supermarkets throughout the South Bay area
of California, including Gilroy and Castro Valley, California. These are
relatively small, strip center supermarkets. This information was obtained from
the P.W. Supermarkets website. The equipment consists of various supermarket
refrigeration equipment including refrigerated and freezer cases along with its
accessories like condenser box coils, protocols and satellite compressors.
Noritsu QSS 3011 Digital Mini-Labs
During December 2004, the LLC entered into an Assignment Agreement with
Imaging Financial Services, Inc., an affiliate of G.E. Capital Corp., for the
purchase of 101 Noritsu QSS 3011 digital mini-labs subject to leases with Rite
Aid Corporation. The monthly base rental payments are $241,451. The lease terms
have approximately 35, 36, and 45 months remaining. The purchase of this
equipment occurred simultaneously with the execution of the Assignment
Agreement. The purchase price of this equipment was approximately $9,203,000 in
cash.
The Noritsu QSS-3011 Digital Mini-lab delivers outstanding performance and
high-quality output using its laser exposure system and the Noritsu's
multi-paper matching technology. The Noritsu QSS-3011 Digital Mini-lab has
received awards such as: Digital Imaging Marketing Association (DIMA) 2004
Innovative Digital Product Award; Digital Printer Shoot-Out RA4 Digital Printer
Award (in conjunction w/ Kodak DLS software and Edge Paper); and Photographic
Processing Magazine Top Digital Mini-lab of the Year (2003). This information
was obtained from a Noritsu equipment brochure.
Page 5
Rite Aid Corporation, founded in 1958, is the number three drugstore chain
by revenue and number of stores in the United States. It runs nearly 3,400
drugstores in twenty-eight states and Washington, DC with a total of almost
73,000 employees. Rite Aid stores fill prescriptions and sell health and beauty
aids, convenience foods, provide one-hour photo development services, and other
general merchandise, including more than 2,100 private-label products. About
half of the Rite Aid stores are freestanding facilities that are not attached to
any other establishments. This information was obtained from
http://www.hoovers.com.
Mitel Networks 3340 Global Branch Office Solution Phone Systems
During December 2004, we entered into an Assignment Agreement with The CIT
Group/Equipment Financing, Inc. for the purchase of a Mitel Networks 3340 Global
Branch Office Solution Phone System subject to lease with CompUSA, Inc. The
purchase occurred simultaneously with the execution of the Assignment Agreement.
The lease expires in December 2008. The purchase price was approximately
$2,976,000 in cash.
During March 2005, we entered into a second Assignment Agreement with The
CIT Group/Equipment Financing, Inc. for the purchase of an additional Mitel
Networks 3340 Global Branch Office Solution Phone System subject to lease with
CompUSA, Inc. The lease expires in December 2009. The purchase price was
approximately $1,174,000 in cash.
The Mitel 3340 Branch Office Solution is an advanced converged
communications solution that networks over a company's Wide Area Network. Branch
offices have speech-enabled applications, unified messaging, telephone, PC, PDA
productivity tools integration, voice/data mobility solutions, voice and video
conferencing and contact center solutions that are as robust and feature-rich as
they are at corporate headquarters. This information was obtained from a Mitel
equipment brochure.
CompUSA Inc., founded in 1984, is the nation's leading computer retailer
operating about 225 stores that sell computer hardware and software, along with
televisions, DVD players, home theater systems, speakers, digital cameras,
camcorders, videogame consoles, and even wireless phones. Beyond its new
emphasis on consumer electronics, CompUSA is also focusing on services, such as
in-store repair and in-home installation. CompUSA acquired consumer electronics
chain Good Guys in late 2003, allowing the retailer to increase its store count
in the western United States of America. This information was obtained from
http://www.hoovers.com.
Four Double Box Girder Cranes
During December 2004, we entered into a Purchase Agreement with Varilease
Finance Group, Inc. for the purchase of Four Double Box Girder Cranes
(collectively the "Cranes") manufactured by Proserv Anchor Crane Group on lease
to WPS, Inc. ("WPS") with an expiration date of March 2009. The purchase price
of the Cranes is approximately $894,048, of which we paid $251,589 during
December 2004. The remaining balance of the purchase price is to be paid as
follows: (a) we will pay $27,220 on the date we receive an Installation
Certificate for the first shipment; (b) we will pay $511,230 on the due date of
the second installment, as defined in the agreement and (c) we will pay $104,009
on the date we receive an Installation Certificate for the second shipment. The
lease will commence on the first day of the calendar quarter following our
receipt of the Second Installation Certificate. The lease term is for 48 months.
This transaction was completed in February 2005.
The Cranes are electrically powered and are mounted on tracks or rails that
are affixed to the ceiling of the facility. Two of the Cranes have an eighty-ton
capacity with auxiliary capacity of twenty tons. One of the Cranes has a
forty-ton capacity with a twenty-ton auxiliary capacity. The remaining Crane has
a twenty-ton capacity with no auxiliary capacity. The Cranes run the whole
length of the structure in which each is housed. This means that the Cranes can
move material from one end of the facility to the other without obstruction.
Cranes of this nature are used in petrochemical facilities, steel warehouses,
structural fabrication shops, machine shops, bucket and magnet applications,
pulp and paper mills, power plants and various other manufacturing environments.
Page 6
WPS is a privately held company that manufactures air and gas compressors,
process control instruments for measuring, displaying and controlling industrial
process variables and provides support activities for oil and gas field
operations. This information was obtained from the WPS website.
Bedside Entertainment and Communication Terminals
During December 2004, we entered into a Commitment Agreement with Summit
Asset Management, Ltd. for the purchase of approximately 8,762 bedside
entertainment and communication terminals, subject to lease with Premier Telecom
Contracts Limited. The equipment will be installed in several National Health
Service hospitals in the United Kingdom. The Lessee is one of four companies in
the United Kingdom to receive the right to install and operate the equipment in
the hospitals, and the Lessee anticipates it will have the exclusive right to
install and operate the equipment in fifteen hospitals by December 2006. The
original cost of the equipment is anticipated to be (Pounds Sterling)12,700,000.
The lease term is for eighty-four months. At December 31, 2004, we paid a
deposit of $5,862,843, which is included in escrow deposits in the accompanying
consolidated balance sheet, which represents approximately (Pounds
Sterling)3,045,000 of the total cost of (Pounds Sterling)12,700,000.
United Kingdom Information Technology Equipment Portfolio
During December 2004, we entered into a Commitment Agreement with Summit
Asset Management, Ltd. to purchase a 75% interest in a portfolio of leases
currently in effect and performing with various United Kingdom lessees. The
portfolio is mostly comprised of information technology equipment, including
laptops, desktops and printers. The leases expire within five years of our
acquisition. The purchase price was approximately $2,600,000 in cash and the
assumption of approximately $20,000,000 in non-recourse indebtedness. This
transaction was completed during February 2005.
Sun Servers, HP servers, Dell desktop computers, and Panasonic laptop
computers
During April 2004, we acquired a 74% interest in information technology
equipment consisting of Sun servers, HP servers, Dell desktop computers, and
Panasonic laptop computers, which are subject to a three year lease with
Government Employees Insurance Company ("GEICO"). The expiration of the lease is
March 31, 2007. Our share of the purchase price was $4,330,626 in cash.
GEICO, a wholly-owned subsidiary of Berkshire Hathaway, has traditionally
provided insurance to preferred low risk demographic groups. This information
was obtained from http://www.hoovers.com. It is one of largest private-passenger
auto insurers in the United States. A.M. Best has affirmed the financial
strength rating of A (Superior) for GEICO and its members. Their ratings reflect
GEICO's superior financial strength, favorable operating performance and brand
name recognition.
Boeing 767 Aircraft Rotables
During September 2003, we acquired Boeing 767 aircraft rotables and
accessories, of which approximately 80% were on lease to Flugfelagid Atlanta hf,
which is conducting business as Air Atlanta Icelandic ("Air Atlanta"). This
lease expired on November 30, 2004, but the lessee paid additional rent through
January 2005. Currently, all of the Boeing 767 aircraft rotables are held for
sale or lease and the equipment is currently in the process of being remarketed.
The remaining 20% was on lease with Air Atlanta, but is now held for sale or
lease and has a net book value of approximately $478,000. The equipment was
originally purchased for $3,600,000 in cash.
Page 7
Available Information
Our Annual Reports on Form 10-K and our most recent Quarterly Reports on
Form 10-Q and amendments to those reports, if any, are available free of charge
on our internet website at http://www.iconcapital.com as soon as reasonably
practicable after such reports are electronically filed with or furnished to the
Securities and Exchange Commission. This information is also available on the
Securities and Exchange Commission's website, at http://www.sec.gov.
Item 2. Properties
We neither own nor lease office space or any other real property in our
business at the present time.
Item 3. Legal Proceedings
In the ordinary course of conducting our business, there may be certain
claims, suits, and complaints filed against us. In the opinion of management,
the outcome of such matters, if any, will not have a material impact on our
consolidated financial position or results of operations. No material legal
proceedings are currently pending against us or against any of our assets.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter 2004.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
Our shares are not publicly traded nor is there currently a market for our
shares. It is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of March 18, 2005
--------------------------- ---------------------------------
Manager (as a member) 1
Additional members 4,146
We do not, in the normal course of business, pay dividends. We do pay
monthly distributions to our members beginning with the first month after the
additional members' admission through the termination of the operating period,
which we anticipate will be during April 2010. We paid distributions to
additional members totaling $4,662,642 for the year ended December 31, 2004. For
the period from August 22, 2003 (commencement of operations) through December
31, 2003, we paid distributions of $273,126 to our additional members.
Additionally, the Manager was paid distributions of $47,159 and $2,759,
respectively, for the year ended December 31, 2004 and for the period from
August 22, 2003 (commencement of operations) through December 31, 2003.
In order for the National Association of Securities Dealers ("NASD")
members and their associated persons to have participated in the offering and
sale of our member shares pursuant to the offering or to participate in any
future offering of our member shares, we are required pursuant to NASD Rule
2710(c)(6) to disclose in each annual report distributed to members a per share
estimated value of the shares, the method by which it was developed and the date
of the data used to develop the estimated value. In addition, we must prepare
annual statements of estimated share values to assist fiduciaries of retirement
plans subject to the annual reporting requirements of the Employee Retirement
Income Security Act ("ERISA") in the preparation of their reports relating to an
investment in our shares. For these purposes, the estimated value of the shares
Page 8
shall be deemed to be $1,000 per unit at December 31, 2004. The foregoing
valuation was performed solely for the ERISA purposes described above. The basis
for this valuation is the fact that we are still in our offering period.
However, as set forth below, there is no significant public trading market for
the shares at this time, and there can be no assurance that shareholders could
receive $1,000 per share if such a market did exist and they sold their shares
or that they will be able to receive such amount for their shares in the future.
The foregoing valuation was performed solely for the ERISA and NASD purposes
described above. There is no market for our shares, and, accordingly, this value
does not represent an estimate of the amount a shareholder would receive if he
were to seek to sell his shares. Furthermore, there can be no assurance as to
the amount we may actually receive if and when we seek to liquidate our assets
or the amount of lease payments and equipment disposition proceeds we will
actually receive over our remaining life.
Item 6. Selected Financial Data
The selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in Item 8,
Financial Statements and Supplemental Data contained elsewhere in this report.
Period From
August 22, 2003
(Commencement
of Operations)
Year Ended Through
December 31, 2004 December 31, 2003
----------------- -----------------
Total revenues $ 10,320,406 $ 370,684
================ =============
Net loss $ (3,183,857) $ (133,271)
================ =============
Net loss allocable to Additional members $ (3,152,018) $ (131,938)
================ =============
Net loss allocable to Managing member $ (31,839) $ (1,333)
================ =============
Weighted average number of additional
members shares outstanding 61,190 13,050
================ =============
Net loss per weighted average
additional members share $ (51.51) $ (10.11)
================ =============
Distributions to additional members $ 4,662,642 $ 273,126
================ =============
Distributions per weighted average
additional member shares $ 76.20 $ 20.93
================ =============
Distributions to the Managing Member $ 47,159 $ 2,759
================ =============
December 31,
2004 2003
---- -----
Total assets $ 137,518,353 $ 20,651,972
================ =============
Notes payable $ 47,795,602 $ -
================ =============
Members' equity $ 86,604,433 $ 20,165,289
================ =============
Page 9
Item 7. Manager's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Information - Certain statements within this document may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are identified by
words such as "anticipate," "believe," "estimate," "expects," "intend,"
"predict" or "project" and similar expressions. This information may involve
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. We believe that the expectations reflected
in such forward-looking statements are based on reasonable assumptions. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Any such forward-looking
statements are subject to risks and uncertainties and our future results of
operations could differ materially from historical results or current
expectations. Some of these risks are discussed in this report, and include,
without limitation, fluctuations in oil and gas prices; level of fleet additions
by competitors and industry overcapacity; changing customer demands for
aircraft; acts of terrorism; unsettled political conditions, war, civil unrest
and governmental actions, and environmental and labor laws. Our actual results
could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which may be beyond our control,
including, without limitation:
o changes in our industry, interest rates or the general economy;
o the degree and nature of our competition;
o availability of qualified personnel;
o cash flows from operating activities may be less than our current level
of expenses and debt obligations;
o the financial condition of lessees; and
o lessee defaults.
a. Overview
We are an equipment leasing business formed on January 2, 2003. We began
active operations on August 22, 2003. We primarily engage in the business of
acquiring equipment subject to lease and, to a lesser degree, acquiring
ownership rights to items of leased equipment at lease expiration. Some of our
equipment leases will be acquired for cash and are expected to provide current
cash flow, which we refer to as "income" leases. The majority of the purchase
price of our other equipment leases will be borrowed, so these leases will
generate little or no current cash flow because substantially all of the rental
payments received from a lessee will be paid to a lender. For these "growth"
leases, we anticipate that the future value of the leased equipment will exceed
the cash portion of the purchase price paid for the equipment.
Capital Resources and Liquidity
We expect to invest most of the net proceeds from our offering in items of
equipment that will be subject to a lease. After the net offering proceeds have
been invested, it is anticipated that additional investments will be made with
the cash generated from our initial investments to the extent that cash is not
needed for expenses, reserves and distributions to investors. The investment in
additional equipment in this manner is called "reinvestment." We anticipate
purchasing equipment from time to time until five years from the date we
complete the current offering of membership units. That time frame is called the
"reinvestment period," which we may extend at our discretion for an additional
three years. After the "reinvestment period," we will then sell our assets in
the ordinary course of business during a time frame called the "liquidation
period." If we believe it would benefit investors to reinvest our cash flow in
equipment during the liquidation period, we may do so, but we will not receive
any additional fees in connection with such reinvestments. Our goal is to
complete the liquidation period in three years after the end of the reinvestment
period, but it may take longer to do so. Accordingly, an investor should expect
to hold his shares for at least 10 years from the time he invests.
From January 1, 2004 through December 31, 2004, we raised $85,192,914
through the issuance of 85,192.914 additional member shares. For the period from
August 22, 2003 (commencement of operations) through December 31, 2003, we
raised $23,784,330, through the issuance of 23,784.330 additional member shares.
From August 22, 2003 (commencement of operations) through December 31, 2004, we
redeemed 115.910 additional member shares for $110,026.
Page 10
Our current equipment portfolio, which we own directly or through joint
venture investments with affiliates, consists primarily of the following:
Containership Industry
o A 100% investment in three 3,300 TEU container vessels, on bareboat charter
lease to ZIM Israel Navigation Co. Ltd. ("ZIM"), the 1991 ZIM Korea, the
1990 ZIM Canada and the 1991 ZIM Italia. The 1991 ZIM Korea and the 1990
ZIM Canada have bareboat charter leases that expire during June 2009 and
the ZIM Italia has a bareboat charter that expires during December 2009.
The purchase price for the ZIM Korea and ZIM Canada was $70,700,000
comprised of (i) $18,400,000 in cash, and (ii) $52,300,000 of non-recourse
debt. The purchase price for the ZIM Italia was $35,350,000 comprised of
(i) $9,200,000 in cash, and (ii) $26,150,000 of non-recourse debt.
Information Technology Industry
o A 74% interest in information technology equipment, such as Sun servers, HP
servers, Dell desktop computers, and Panasonic laptop computers, which are
subject to a three year lease with Government Employees Insurance Company
("GEICO"). The expiration of the lease is March 31, 2007. Our share of the
purchase price was $4,330,626 in cash.
o A 75% interest in a portfolio of leases currently in effect and performing
with various U.K. lessees. The portfolio is mostly comprised of information
technology equipment, including laptops, desktops and printers. The leases
all expire in less than five years. The purchase price was approximately
$2,600,000 in cash and the assumption of approximately $20,000,000 in
non-recourse indebtedness.
o A 100% interest in two Mitel Networks 3340 Global Branch Office Solution
Phone Systems on lease to CompUSA, Inc. One lease has a lease term of
approximately 48 months while the second has a lease term of approximately
58 months. The purchase price of the two systems was approximately
$2,976,000 in cash and approximately $1,174,000 in cash, respectively.
o A 100% interest in 101 Noritsu QSS 3011 digital mini-labs on lease to the
Rite Aid Corporation. The lease expires during December 2008. The purchase
price of the equipment was approximately $9,203,000 in cash.
Substantially all of our recurring operating cash flows are generated from
the operations of the "income" leases in our portfolio. On a monthly basis, we
deduct the expenses related to the recurring operations of the portfolio from
such revenues and assess the amount of the remaining cash flows that will be
required to fund known re-leasing costs and equipment management costs. Any
residual operating cash flows are considered available for distribution to the
additional members and are paid monthly (up until the liquidation period). We
anticipate increases in cash available for distributions to the additional
members from the acquisition of more single-investor transactions.
Portfolio Activity
1979 McDonnell Douglas DC-10-30F Aircraft
During March 2004, we and ICON Income Fund Eight A L.P. ("Fund Eight A"),
an entity also managed by the Manager, formed a joint venture, ICON Aircraft
46837, LLC ("ICON Aircraft 46837") for the purpose of acquiring a 1979 McDonnell
Douglas DC-10-30F aircraft on lease to Federal Express Corporation ("FedEx")
with a remaining lease term of 36 months. We acquired a 71.4% ownership interest
in this joint venture for a total of $2,466,226 in cash. The aircraft is subject
Page 11
to non-recourse debt which accrues interest at 4.0% per annum and matures
in March 2007. The lender has a security interest in the aircraft and an
assignment of the rental payments under the lease with FedEx.
In connection with the formation of the joint venture, Fund Eight A
acquired an option from us for $10,000 to acquire an additional 61.4% ownership
interest in ICON Aircraft 46837. During the third quarter 2004, this option was
exercised by Fund Eight A and we sold 61.4% of our ownership interest to Fund
Eight A. The exercise price was $2,296,879.
Sun Servers, HP servers, Dell desktop computers, and Panasonic laptop
computers
During April 2004, we acquired a 74% interest in information technology
equipment consisting of Sun servers, HP servers, Dell desktop computers, and
Panasonic laptop computers, which are subject to a three year lease with
Government Employees Insurance Company ("GEICO"). The expiration of the lease is
March 31, 2007. Our share of the purchase price was $4,330,626 in cash.
Hussman Refrigeration Equipment
During July 2004, we purchased Hussman refrigeration equipment which is on
lease to P.W. Supermarkets, Inc. The lease is for a three year period,
commencing August 6, 2004, with an option to extend the lease for one additional
year. The purchase price of this equipment was approximately $1,310,000 in cash.
3,300 TEU Container Vessels
During June 2004, we acquired, through two wholly-owned subsidiaries, ICON
Containership I, LLC and ICON Containership II, LLC, a 100% interest in two
3,300 TEU container vessels, the 1991 ZIM Korea and the 1990 ZIM Canada
(collectively, the "Vessels") from ZIM Israel Navigation Co., Ltd. ("ZIM") and
simultaneously entered into bareboat charter agreements with ZIM for the
Vessels. The purchase price for the Vessels was approximately $70,700,000,
comprised of (i) approximately $18,400,000 in cash, and (ii) approximately
$52,300,000 of non-recourse indebtedness. The indebtedness has a five-year term
and bears interest at a variable interest rate of LIBOR plus 1.50% per year.
Simultaneously with the closing we entered into an interest rate swap with
Fortis Bank in which the variable interest rate was swapped for fixed interest
rates of 5.36% per year. The lender has a security interest in the Italia Vessel
and an assignment of the rental payments under the lease with ZIM.
During December 2004, we entered into a Memorandum of Agreement with ZIM to
purchase a third 3,300 TEU container vessel, the ZIM Italia (the "Italia
Vessel") which is subject to a five year bareboat charter with ZIM. The Italia
Vessel is owned by ICON Containership III, LLC, a wholly-owned subsidiary of
ours. The purchase price for the Italia Vessel was $35,350,000, comprised of (i)
approximately $9,200,000 cash and (ii) approximately $26,150,000 of non-recourse
debt. The non-recourse debt has a five year term and bears interest at a
variable interest rate of LIBOR plus 1.50% per year. On December 30, 2004, we
entered into a Commitment Agreement with Fortis Capital Corp., which arranged
the financing for the acquisition of the Italia Vessel. Simultaneously with the
closing we entered into an interest rate swap with Fortis Bank in which the
variable interest rate was swapped for fixed interest rates of 5.80% per year.
The lender has a security interest in the Italia Vessel and an assignment of the
rental payments under the lease with ZIM. The Italia Vessel was delivered in
January 2005.
101 Noritsu QSS 3011 Digital Mini-Labs
During December 2004, the LLC entered into an Assignment Agreement with
Imaging Financial Services, Inc., an affiliate of G.E. Capital Corp., for the
purchase of 101 Noritsu QSS 3011 digital mini-labs subject to leases with Rite
Aid Corporation. The monthly base rental payments are $241,451. The lease terms
have approximately 35, 36, and 45 months remaining. The purchase of this
equipment occurred simultaneously with the execution of the Assignment
Agreement. The purchase price of this equipment was approximately $9,203,000 in
cash.
Page 12
Mitel Networks 3340 Global Branch Office Solution Phone Systems
During December 2004, we entered into an Assignment Agreement with The CIT
Group/Equipment Financing, Inc. for the purchase of a Mitel Networks 3340 Global
Branch Office Solution Phone System subject to lease with CompUSA, Inc. The
purchase occurred simultaneously with the execution of the Assignment Agreement.
The lease expires in December 2008. The purchase price was approximately
$2,976,000 in cash.
During March 2005, we entered into an Assignment Agreement with The CIT
Group/Equipment Financing, Inc. for the purchase of a second Mitel Networks 3340
Global Branch Office Solution Phone System subject to lease with CompUSA, Inc.
The lease expires in December 2009. The purchase price was approximately
$1,174,000 in cash.
Four Double Box Girder Cranes
During December 2004, we entered into a Purchase Agreement with Varilease
Finance Group, Inc. for the purchase of Four Double Box Girder Cranes
manufactured by Proserv Anchor Crane Group on lease to WPS, Inc. with an
expiration date of March 2009. The purchase price was $894,048, of which we paid
$251,589 during December 2004. The remaining balance of the purchase price is to
be paid as follows: (a) we will pay $27,220 on the date we receive an
Installation Certificate for the first shipment; (b) we will pay $511,230 on the
due date of the second installment, as defined in the agreement and (c) we will
pay $104,009 on the date we receive an Installation Certificate for the second
shipment. The lease will commence on the first day of the calendar quarter
following our receipt of the Second Installation Certificate. The lease term is
for 48 months. This transaction was completed in February 2005.
United Kingdom Information Technology Equipment Portfolio
During December 2004, we entered into a Commitment Agreement with Summit
Asset Management, Ltd. to purchase a 75% interest in a portfolio of leases
currently in effect and performing with various United Kingdom lessees. The
portfolio is mostly comprised of information technology equipment, including
laptops, desktops and printers. The leases expire within five years of our
acquisition. The purchase price was approximately $2,600,000 in cash and the
assumption of approximately $20,000,000 in non-recourse indebtedness. This
transaction was completed during February 2005.
Bedside Entertainment and Communication Terminals
During December 2004, we entered into a Commitment Agreement with Summit
Asset Management, Ltd. for the purchase of approximately 8,762 bedside
entertainment and communication terminals, subject to lease with Premier Telecom
Contracts Limited. The equipment will be installed in several National Health
Service hospitals in the United Kingdom. The Lessee is one of four companies in
the United Kingdom to receive the right to install and operate the equipment in
the hospitals, and the Lessee anticipates it will have the exclusive right to
install and operate the equipment in fifteen hospitals by December 2006. The
total cost of the equipment is anticipated to be (Pounds Sterling)12,700,000.
The lease term is for eighty-four months. At December 31, 2004 we paid a deposit
of $5,862,843 which is approximately (Pounds Sterling)3,045,000 of the total
cost.
Status of Current Portfolio
Containership Vessels
We currently lease three containerships to ZIM. ZIM is one of the largest
container-shipping companies in the world and the flagship of Israeli shipping.
ZIM offers transportation services along most of the major international trading
routes to customers throughout the world. From its corporate headquarters in
Haifa, it operates an intermodal system which combines sea, land and air
transportation services around the world. It ranks tenth among the world's
container service operators and fifteenth as a maritime container operator. The
ultimate parent, the Ofer Group, is the 6th largest maritime tonnage supplier on
a global basis. This information was obtained from the ZIM website.
Page 13
Computer Equipment
We currently have an equipment lease with GEICO which is a wholly owned
subsidiary of Berkshire Hathaway, which has traditionally provided insurance to
preferred low risk demographic groups. This information was obtained from
http://www.hoovers.com. It is one of largest private-passenger auto insurers in
the United States. A.M. Best has affirmed the financial strength rating of A
(Superior) for GEICO and its members. Their ratings reflect GEICO's superior
financial strength, favorable operating performance and brand name recognition.
We have several phone system leases with CompUSA. CompUSA was founded in
1984 and is the nation's leading computer retailer, operating about 225 stores
that sell computer hardware and software, along with televisions, DVD players,
home theater systems, speakers, digital cameras, camcorders, videogame consoles,
and even wireless phones. Beyond its new emphasis on consumer electronics,
CompUSA is also focusing on services, such as in-store repair and in-home
installation. CompUSA acquired consumer electronics chain Good Guys in late
2003, allowing the retailer to increase its store count in the western United
States of America. This information was obtained from http://www.hoovers.com.
Digital Mini-labs
We have a lease with Rite Aid, founded in 1958, for the Noritsu QSS-3011
Digital Mini-labs. Rite Aid is the number three drugstore chain by revenue and
number of stores in the United States. It runs nearly 3,400 drugstores in
twenty-eight states and Washington, DC with a total of almost 73,000 employees.
Rite Aid stores fill prescriptions and sell health and beauty aids, convenience
foods, provide one-hour photo development services, and other general
merchandise, including more than 2,100 private-label products. About half of
Rite Aid stores are freestanding facilities that are not attached to any other
establishments. This information was obtained from http://www.hoovers.com.
Economic and Industry Factors
Our results continue to be impacted by a number of factors influencing the
United States of America's economy as well as the equipment leasing industry,
some of which are discussed below.
United States Economy
The economy of the United States of America appears to be recovering, and
the leasing industry's outlook for the foreseeable future is encouraging. We
foresee an increase in capital spending by corporations through 2007 which
should increase the pool of available leases, and to that end, we believe there
will be more opportunities in this market. Nonetheless, a key obstacle still
facing the leasing industry is the continued low interest rate environment,
which reduces leasing volume inasmuch as customers are more prone to purchase
than lease. Other factors which may negatively affect the leasing industry are
the proposed legal and regulatory changes that may affect tax benefits of
leasing and the continued misperception by potential lessees, stemming from
Enron, WorldCom and others, that leasing should not play a central role as a
financing alternative. However, as economic growth continues and interest rates
inevitably begin to rise over time, we are optimistic that more lessees will
return to the marketplace.
Containership Industry
The containership industry experienced high levels of demand during 2004.
The volume of trade with China and other countries has been the primary catalyst
for this growth. China has reported significant growth increases in both its
volume of imports and exports in the past two years. This increased volume of
trade has resulted in shortages of containerships and container capacity.
Shipping lines report that freight rates have increased in line with the strong
demand. Although, favorable market conditions currently exist there are possible
Page 14
problems on the horizon; sharply rising oil prices, the increased freight rates
and increased port congestion all negatively affect the containership industry.
Information Technology Industry
As a result of the computer hardware market's cyclical behavior and its
focus on the consumer, all hardware manufacturers are vulnerable to market down
turns. Regardless of the product being offered, the intrinsic boom-bust nature
of the technology sector challenges hardware companies to constantly try to
improve and/or create innovative hardware, aggressively pushing the incumbent
equipment into obsolescence. There is no assurance that we will be able to
locate a willing buyer or lessee for our assets, or if one is located, that the
buyer or lessee will pay a price for the asset at least equal to the appraised
value.
Inability to Remarket Assets
The market for some of our assets is not very liquid. If current equipment
lessees choose not to renew their leases or purchase the equipment upon
expiration of the lease, we will need to remarket the equipment. There is no
assurance that we will be able to locate a willing buyer or lessee for our
assets, or if one is located, that the buyer or lessee will pay a price for the
asset at least equal to the appraised value.
Critical Accounting Policies
An appreciation of our critical accounting policies is necessary to
understand our financial results. These policies may require the Manager to make
difficult and subjective judgments regarding uncertainties, and as a result,
such estimates may significantly impact our financial results. The precision of
these estimates and the likelihood of future changes depend on a number of
underlying variables and a range of possible outcomes. We applied our critical
accounting policies and estimation methods consistently in all periods
presented. We consider the following accounting policies to be critical to our
business:
o Lease classification and revenue recognition
o Asset impairments
o Depreciation
Lease Classification and Revenue Recognition
The equipment we lease to third parties is classified either as a finance
lease, a leveraged lease, or an operating lease, which is determined based upon
the terms of each lease. Initial direct costs are capitalized and amortized over
the term of the related lease for both a finance lease and a leveraged lease.
For an operating lease, the initial direct costs are included as a component of
the cost of the equipment and depreciated. For finance leases, we record, at
lease inception, the total minimum lease payments receivable from the lessee,
the estimated unguaranteed residual value of the equipment at lease termination,
the initial direct costs related to the lease and the related unearned income.
Unearned income represents the difference between the sum of the minimum lease
payments receivable plus the estimated unguaranteed residual minus the cost of
the leased equipment. Unearned income is recognized as finance income ratably
over the term of the lease.
For leveraged leases, we record, at lease inception, our net investment in
the equipment which consists of the minimum lease payments receivable, the
estimated unguaranteed residual value of the equipment at lease termination and
the initial direct costs related to the lease, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income over the life of the lease at a constant rate of return on
the positive net investment.
For operating leases, income is recorded as rental income and is recognized
on the straight line method over the lease term.
Page 15
Our Manager has an Investment Committee that approves each new equipment
acquisition. As part of their process they determine the residual value to be
used once the acquisition has been approved. The factors considered in
determining the residual value include, but are not limited to, the
creditworthiness of the potential lessee, the type of equipment being
considered, how the equipment is integrated into the potential lessees business,
the length of the lease and industry in which the potential lessee operates.
Residual values are reviewed in accordance with our policy to review all
significant assets in our portfolio.
Asset Impairments
The significant assets in our asset portfolio are periodically reviewed, at
least annually, by management, to determine whether events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Management uses qualified third party appraisers to assist in the
review process. An impairment loss will be recognized only if the carrying
amount of a long-lived asset is not recoverable and exceeds its fair value. In
such circumstances, we will estimate the future cash flows (undiscounted and
without interest charges) expected to result from the use of the asset and its
eventual disposition. Future cash flows are the cash inflows expected to be
generated by an asset less the future outflows expected to be necessary to
obtain those inflows. An impairment loss will be measured as the amount by which
the carrying amount of a long-lived asset exceeds its fair value.
The events or changes in circumstances which generally indicate that an
asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than our carrying value or (ii) the lessee is experiencing
financial difficulties and it does not appear likely that the estimated proceeds
from the disposition of the asset will be sufficient to satisfy the remaining
obligation to the non-recourse lender and our residual position in the asset.
Generally in the latter situation, the residual position relates to equipment
subject to third party notes payable non-recourse where the lessee remits their
rental payments directly to the lender and we do not recover our residual
position until the note payable non-recourse is repaid in full.
Depreciation
We record depreciation expense on equipment classified as an operating
lease. In order to calculate depreciation, we first determine the depreciable
equipment cost, which is the cost less estimated residual value. The estimated
residual value is our estimate of the value of the equipment at lease
termination. The estimated residual value is reviewed annually, by management,
to determine whether an impairment charge may be required. Management uses
qualified third party appraisers to assist in the review process. Depreciation
expense is recorded ratably over the term of the related lease.
Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which established new accounting
and reporting standards for derivative instruments. SFAS 133 has been amended by
SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in June 2000 and by
SFAS No. 149, issued in June 2003.
SFAS No. 133, as amended, requires us to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments.
Page 16
We adopted SFAS No. 133, as amended, on January 1, 2004. Upon adoption, we
recorded interest rate swap hedging instruments at fair value in the balance
sheet and recognized the offsetting gains or losses in net income or other
comprehensive income, as appropriate.
New Accounting Pronouncements
During December 2004, the FASB issued SFAS No. 153 "Exchanges of
Nonmonetary Assets--an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153
is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
Opinion 29, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. SFAS 153
is effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not expect the adoption of SFAS 153 to have an impact
on our financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
b. Results of Operations for the Year Ended December 31, 2004 ("2004") and for
the period from August 22, 2003 (commencement of operations) through December
31, 2003 ("2003")
Revenue for 2004 and 2003 are summarized as follows:
2004 2003 Change
---- ----- -------
Total revenue $ 10,320,406 $ 370,684 $ 9,949,722
============== ============= =============
Rental income $ 10,293,367 $ 367,828 $ 9,925,539
Income from investments in joint ventures $ 8,146 $ - $ 8,146
Net gain on sale of equipment $ 18,893 $ - $ 18,893
Interest income $ - $ 2,856 $ (2,856)
Revenues for 2004 increased by $9,949,722, or 2,684.2%, as compared to
2003. The increase in revenue is due primarily to the fact that we commenced
operations on August 22, 2003 and therefore we only had approximately four
months of activity in 2003 as compared to a full year of activity in 2004.
During 2003, we entered into one lease: Air Atlanta Icelandic. During 2004, we
entered into the following leases: two separate leases with ZIM for the
container vessels the ZIM Korea and the ZIM Canada and a lease with P.W.
Supermarkets for refrigeration equipment. We anticipate rental income increasing
substantially in 2005 due to the leases we entered into at the end of December
2004.
During December 2004 and through March 20, 2005, we entered into the
following transactions:
o During December 2004, an Assignment Agreement with Imaging Financial
Services, Inc., an affiliate of G.E. Capital Corp., for the purchase
of 101 Noritsu QSS 3011 digital mini-labs subject to a lease with the
Rite Aid Corporation. The purchase occurred simultaneously with the
execution of the Assignment Agreement. The lease expires in December
2007. The purchase price of the equipment was approximately $9,203,000
in cash.
o During December 2004, an Assignment Agreement with The CIT
Group/Equipment Financing, Inc. for the purchase of a Mitel Networks
3340 Global Branch Office Solution Phone System subject to lease with
CompUSA, Inc. The purchase occurred simultaneously with the execution
of the Assignment Agreement. The lease expires in December 2008. The
purchase price was approximately $2,976,000 in cash.
Page 17
o During March 2005, we entered into an Assignment Agreement with
The CIT Group/Equipment Financing, Inc. for the purchase of
another Mitel Networks 3340 Global Branch Office Solution Phone
System subject to lease with CompUSA, Inc. The lease expires in
December 2009. The purchase price was approximately $1,174,000 in
cash.
o During December 2004, an Assignment Agreement with Varilease
Finance Group, to purchase four Proserv Cranes subject to lease
with WPS, Inc. The purchase price of the Cranes is $894,048, of
which we paid $251,589 in December 2004. The balance was paid
during January and February 2005.
o During December 2004, a Commitment Agreement with Summit Asset
Management, Ltd. for the purchase of approximately 8,762 bedside
entertainment and communication terminals, subject to lease with
Premier Telecom Contracts Limited. The lease term is for
eighty-four months. At December 31, 2004 we paid a deposit of
$5,862,843 which is approximately (Pounds Sterling)3,045,000 of
the total cost of (Pounds Sterling)12,700,000.
o During December 2004, a Commitment Agreement with Summit Asset
Management, Ltd. to purchase a 75% interest in a portfolio of
leases currently in effect and performing with various United
Kingdom lessees. The portfolio is mostly comprised of information
technology equipment, including laptops, desktops and printers.
The leases expire within five years of our acquisition. The
purchase price was approximately $2,600,000 in cash and the
assumption of approximately $20,000,000 in non-recourse
indebtedness. This transaction was completed during February
2005.
Expenses for 2004 and 2003 are summarized as follows:
2004 2003 Change
---- ---- ------
Total expenses $ 13,504,263 $ 503,955 $ 13,000,308
================= ============ ==============
Depreciation $ 8,396,861 $ 274,102 $ 8,122,759
Amortization of prepaid service fees $ 1,511,351 $ 127,986 $ 1,383,365
Interest $ 1,544,254 $ - $ 1,544,254
Management fees - Manager $ 644,184 $ 18,391 $ 625,793
Administrative expense reimburesement - Manager $ 1,216,345 $ 7,357 $ 1,208,988
General and administrative $ 151,987 $ 76,119 $ 75,868
Minority interest $ 39,281 $ - $ 39,281
Expenses for 2004 increased by $13,000,308 or 2,579.7%, over 2003. The
overall increase in expenses is due primarily to the fact that we commenced
operations on August 22, 2003 and therefore only had approximately four months
of activity as compared to a full year of activity in 2004. As discussed above,
we entered into one lease during 2003 and entered into an additional three
leases in 2004. The leases we entered into in 2004 had a greater equipment cost
than the leases we entered into in 2003, which accounts for the increase in
depreciation. The increase in amortization of prepaid service fees is due to our
continued admission of new members during 2004 and the resulting amortization of
these fees. The increase in interest expense is due solely to the acquisition of
the ZIM Korea and the ZIM Canada. We financed a large portion of these
acquisitions in 2004. In 2003, we did not finance any of our acquisitions. The
increase in management fees - Manager is a direct result of the acquisitions
during 2004 and a full year of fees on the 2003 lease. The increase in
administrative expense reimbursements - Manager is due to the additional
services provided by the Manager during 2004 as compared to 2003. The Manager
performs certain functions relating to the management of our equipment. Such
services include the collection of lease payments from the lessee of the
equipment, re-leasing services in connection with equipment which is off-lease,
inspections of the equipment, liaison with and general supervision of lessees to
assure that the equipment is being properly operated and maintained, monitoring
performance by the lessees of their obligations under the leases and the payment
of operating expenses.
Page 18
Net Loss
As a result of the foregoing factors, the net loss in 2004 and 2003 was
$3,183,857 and $133,271, respectively. The net loss per weighted average number
of additional members' shares outstanding was $51.51 and $10.11, for 2004 and
2003, respectively.
d. Liquidity and Capital Resources
Sources of Cash
We believe that with the cash we have currently available, the additional
cash we received through the closing of the fund, which occurred during April
2005, and from cash being generated from our leases, we have sufficient cash to
continue our operations into the foreseeable future. We do not anticipate the
need to borrow from our line of credit.
Our main source of cash flow for 2004 and 2003 was from financing
activities. Our principal source of financing cash flows was through the
issuance of additional members' shares totaling approximately $74,746,000 and
$20,573,000, respectively, net of sales and offering expenses. For the year
ended December 31, 2004 and for the period from August 22, 2003 (commencement of
operations) through December 31, 2003, we admitted 85,192.914 and 23,784.330
additional members' shares, respectively. Through March 18, 2005 we have raised
gross proceeds of approximately $140,888,000. We expect to continue raising
capital until March or April 2005.
Our primary cash outflows were the result of acquiring equipment subject to
lease during 2004. We paid approximately $42,155,000 for equipment during 2004.
Additionally, we paid approximately $17,976,000 of escrow deposits during
December 2004 for equipment purchases that were finalized during January and
February 2005. We expect to continue acquiring equipment subject to lease, and
also make other types of related investments during 2005.
For the year ended December 31, 2004 and for the period from August 22,
2003 (commencement of operations) through December 31, 2003 we had cash flows
provided by operations of approximately $576,000 and $402,000, respectively. For
additional information, please refer to our consolidated statement of cash flows
located in Item 8, Financial Statements and Supplementary Data.
Financings and Borrowings
During June 2004, we acquired two 3,300 TEU container vessels, the 1991 ZIM
Korea and the 1990 ZIM Canada. We financed a portion of the purchase price,
approximately $52,300,000 of non-recourse indebtedness. The indebtedness has a
five-year term and bears interest at a variable rate of LIBOR plus 1.50% per
year. Simultaneously with the closing we entered into an interest rate swap with
Fortis Bank in which the variable interest rate was swapped for fixed interest
rates of 5.36% per year. The lender has a security interest in the vessels and
an assignment of the rental payments under the lease.
During December 2004, we entered into a Memorandum of Agreement to purchase
a third 3,300 TEU container vessel, the ZIM Italia. We financed a portion of the
purchase price, approximately $26,150,000 of non-recourse debt. The non-recourse
debt has a five year term and bears interest at a fixed rate of approximately
Page 19
5.80% per year. On December 30, 2004, we entered into a Commitment Agreement
with Fortis Capital Corp., which arranged for the financing. The original
non-recourse debt associated with the acquisition of the Italia Vessel had a
variable interest rate. Simultaneously with the closing we entered into an
interest rate swap with Fortis Bank in which the variable interest rate was
swapped for fixed interest rates of 5.80% per year. The lender has a security
interest in the vessel and an assignment of the rental payments under the lease.
Certain of our affiliates, specifically; ICON Cash Flow Partners L.P.
Seven, ICON Income Fund Eight A L.P.; ICON Income Fund Eight B L.P. and ICON
Income Fund Nine, LLC (collectively, the "Initial Funds"), were parties to a
Loan and Security Agreement dated as of May 30, 2002, as amended (the "Loan
Agreement"). Under the terms of the Loan Agreement, the Initial Funds may borrow
money from Comerica Bank with all borrowings to be jointly and severally
collateralized by (i) cash and (ii) the present values of certain rents
receivable and equipment owned by the Initial Funds. Such Loan Agreement,
effective August 5, 2004, was amended to add us as a borrower to the Loan
Agreement. On December 6, 2004, we together with certain of our affiliates: ICON
Cash Flow Partners L.P. Seven, ICON Income Fund Eight A L.P., ICON Income Fund
Eight B L.P., and ICON Income Fund Nine, LLC, entered into a Sixth Amendment to
the Loan and Security Agreement with Comerica Bank wherein the maturity date of
the loan was extended from December 31, 2004 to December 30, 2005. The Loan and
Security Agreement provides for a joint and several line of credit of up to
$17,500,000 collateralized by the present value of rents receivable and
equipment owned by the borrowers.
In connection with the Loan Agreement, the Initial Funds previously entered
into a Contribution Agreement dated as of May 30, 2002, as amended (the
"Contribution Agreement"). Pursuant to the Contribution Agreement, the Initial
Funds agreed to restrictions on the amount and the terms of their respective
borrowings under the Loan Agreement in order to minimize the unlikely risk that
a Fund would not be able to repay its allocable portion of the outstanding
revolving loan obligation at any time, including restrictions on any Fund
borrowing in excess of the lesser of (A) an amount each Fund could reasonably
expect to repay in one year out of its projected free cash flow, or (B) the
greater of (i) the Borrowing Base (as defined in the line of credit agreement)
as applied to such Fund, and (ii) 50% of the net worth of such Fund. The
Contribution Agreement provides that, in the event a Fund pays an amount under
the agreement in excess of its allocable share of the obligation under the
agreement whether by reason of an Event of Default or otherwise, the other Funds
will promptly make a contribution payment to such Fund in such amount that the
aggregate amount paid by each Fund reflects its allocable share of the aggregate
obligations under the agreement. The Initial Funds' obligations to each other
under the Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. In order to facilitate our addition to the
Contribution Agreement, the Initial Funds entered into a Second Amended and
Restated Contribution Agreement effective as of August 5, 2004. The Second
Amended and Restated Contribution Agreement contains substantially identical
terms and limitations as did the original Contribution Agreement.
Effective March 8, 2005, the Initial Funds and the LLC entered into a
Seventh Amendment to the Loan and Security Agreement with Comerica Bank. This
Agreement releases ICON Cash Flow Partners L.P. Seven from all of its
obligations under the Loan and Security Agreement dated as of May 30, 2002. As
such, ICON Cash Flow Partners L.P. Seven is no longer a party to the $17,500,000
line of credit.
Aggregate borrowings by all Funds under the line of credit agreement
amounted to $10,272,992 at December 31, 2004. We currently have no borrowings
under this line.
Distributions
We pay monthly distributions to our members beginning with the first month
after the additional members' admission through the termination of the operating
period, which we anticipate will be during April 2010. We paid distributions to
additional members totaling $4,662,642 for the year ended December 31, 2004. For
the period from August 22, 2003 (commencement of operations) through December
31, 2003, we paid distributions of $273,126 to our additional members.
Additionally, the Manager was paid distributions of $47,159 and $2,759,
respectively, for the year ended December 31, 2004 and for the period from
August 22, 2003 (commencement of operations) through December 31, 2003.
Page 20
Commitments
At December 31, 2004 we are parties to non-recourse debt. The lenders have
security interests in equipment relating to the non-recourse debt and an
assignment of the rental payments under the leases. If the lessee were to
default on the non-recourse debt the equipment would be returned to the lender
in extinguishment of the non-recourse debt. For a table of the aggregate
maturities of our non- recourse debt refer to Note 6 in our consolidated
financial statements located in Item 8, Financial Statements and Supplementary
Data.
At December 31, 2004 we had material commitments to purchase various pieces
of equipment to be utilized in our equipment leasing business. We have
summarized these commitments, as follows:
2005
----
Proserv Cranes $ 642,459
Bedside Terminals 18,590,000
-------------
Total $ 19,232,459
=============
Risks and Uncertainties
At December 31, 2004, except as noted above in the Overview section and
listed below and to the best of our knowledge, there were no known trends or
demands, commitments, events or uncertainties which are likely to have a
material effect on our liquidity.
Set forth below and elsewhere in this report and in other documents we file
with the Securities and Exchange Commission are risks and uncertainties that
could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report and
other periodic statements we make, including, but not limited to, the following:
o We may face difficulty remarketing the aircraft rotables. Due to
the current condition of the airline industry, there is a
depressed market for these rotables. Therefore, we cannot assure
when, or if, we will be able to re-sell these rotables.
o Some states and countries require relatively burdensome processes
to repossess and sell equipment subject to a defaulted debt. In
the event repossession is required, there is no assurance that we
will be able to quickly repossess the asset and remarket it.
o The current market is improving for wide-body freighters, such as
our 1979 McDonnell Douglas DC-10-30F, but the market is still
soft. It is expected that there may be a gradual improvement
during 2005 and full recovery for freighter aircraft by lease
termination. While the market for these aircraft is cyclical,
there can be no assurance that the market will recover by lease
termination. Failure of the market to recover significantly may
result in our inability to realize our investment in the
residuals of the 1979 McDonnell Douglas DC-10-30F aircraft
currently on lease to FedEx.
o As a result of the computer hardware market's cyclical behavior
and its focus on the consumer, all hardware manufacturers are
vulnerable to market down turns. Regardless of the product being
offered, the intrinsic boom-bust nature of the technology sector
challenges hardware companies to constantly try to improve and/or
create innovative hardware, aggressively pushing the incumbent
equipment into obsolescence. There is no assurance that we will
be able to locate a willing buyer or lessee for our assets, or if
one is located, that the buyer or lessee will pay a price for the
asset at least equal to the appraised value.
Page 21
o Our operations are subject to the jurisdiction of a number of
federal agencies, including the Federal Aviation Administration.
New regulatory rulings may negatively impact our financial
results and the economic value of our assets.
o Our results are exposed to foreign exchange rate fluctuations as
the rental payments are converted from the local currency into
United States currency. As exchange rates vary, revenue and other
operating results, when converted, may differ materially from
expectations. We are also subject to gains and losses on foreign
currency transactions, which could vary based on fluctuations in
exchange rates and the timing of the transactions and their
settlement.
o The equipment leasing industry is highly competitive. When
seeking leasing transactions for acquisition, we compete with
leasing companies, manufacturers that lease their products
directly, equipment brokers and dealers and financial
institutions, including commercial banks and insurance companies.
Many competitors are larger than us and have greater financial
resources than we do.
e. Inflation and Interest Rates
The potential effects of inflation on us are difficult to predict. If the
general economy experiences significant rates of inflation, however, it could
affect us in a number of ways. We do not currently have or expect to have rent
escalation clauses tied to inflation in our leases. The anticipated residual
values to be realized upon the sale or re-lease of equipment upon lease
terminations (and thus the overall cash flow from our leases) may be expected to
increase with inflation as the cost of similar new and used equipment increases.
If interest rates increase significantly, the lease rates that we can
obtain on future leases may be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
We, like most other companies, are exposed to certain market risks, which
includes changes in interest rates and the demand for equipment (and the related
residuals) owned by us. We believe to the best of our knowledge that our
exposure to other market risks, including foreign currency exchange rate risk,
commodity risk and equity price risk, are insignificant, at this time, to both
our financial position and our results of operations.
In general, we manage our exposure to interest rate risk by obtaining fixed
rate debt. The fixed rate debt is structured so as to match the cash flows
required to service the debt to the payment streams under fixed rate lease
receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. We may finance leases with a floating interest rate
and we are therefore exposed to interest rate risk until fixed rate financing is
arranged.
To hedge our interest rate risk, we entered into two interest rate swap
contracts that effectively convert the underlying floating interest rates to a
fixed interest rate. At December 31, 2004, the average variable interest rate
was 4.6% while the average fixed interest rate was 5.36% per year.
In general, these swap agreements eliminate our interest rate risk
associated with variable interest rate borrowings. However, we are exposed to
and manage credit risk associated with the counterparty to the swap agreement by
dealing only with institutions it considers financially sound.
Page 22
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements 23
Report of Independent Registered Public Accounting Firm 24
Consolidated Balance Sheets at December 31, 2004 and 2003 25-26
Consolidated Statements of Operations for the Year Ended
December 31, 2004, and for the Period From August 22, 2003
(Commencement of Operations) Through December 31, 2003 27
Consolidated Statements of Changes in Members' Equity for the
Period From August 22, 2003 (Commencement of Operations)
Through December 31, 2003, and for the Year Ended December 31, 2004 28
Consolidated Statements of Cash Flows for the Year Ended
December 31, 2004, and for the Period From August 22, 2003
(Commencement of Operations) Through December 31, 2003 29-30
Notes to Consolidated Financial Statements 31-43
Page 23
The Members
ICON Income Fund Ten, LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of ICON Income
Fund Ten, LLC (a Delaware limited liability company) and subsidiaries as of
December 31, 2004 and 2003 and the related consolidated statements of
operations, changes in members' equity, and cash flows for the year ended
December 31, 2004 and the period from August 22, 2003 (commencement of
operations) to December 31, 2003. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ICON Income
Fund Ten, LLC and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for the year ended December 31, 2004
and the period from August 22, 2003 (commencement of operations) to December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America.
/s/Hays & Company LLP
April 7, 2005
New York, New York
Page 24
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Balance Sheets
December 31,
ASSETS
2004 2003
----- ----
Cash and cash equivalents $ 25,006,190 $ 15,908,041
--------------- --------------
Investments in operating leases:
Equipment, at cost 93,644,312 2,880,000
Accumulated depreciation (7,097,993) (219,423)
---------------- --------------
Net investments in operating leases 86,546,319 2,660,577
--------------- --------------
Escrow deposits 19,001,619 -
Equipment held for sale or lease, net 477,715 665,321
Prepaid service fees, net 5,444,167 1,417,995
Due from affiliates 574,725 38
Investments in joint ventures 382,479 -
Other assets, net 85,139 -
--------------- --------------
Total assets $ 137,518,353 $ 20,651,972
=============== ==============
See accompanying notes to consolidated financial statements.
Page 25
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Balance Sheets
December 31,
LIABILITIES AND MEMBERS' EQUITY
2004 2003
----- -----
Notes payable - non-recourse $ 47,795,602 $ -
Security deposits and other liabilities 360,802 233,524
Deferred rental income 1,248,166 -
Member refunds payable - 203,000
Due to Manager and affiliates 129,831 50,159
Interest rate swap contracts 303,619 -
Minority interest 1,075,900 -
----------------- ---------------
Total liabilities 50,913,920 486,683
----------------- ---------------
Commitments and Contingencies
Members' equity:
Manager (one share outstanding,
$1,000 per share original issue price) (82,090) (3,092)
Additional members (108,861.334 and 23,784.330
shares outstanding,$1,000 per share original issue price) 86,990,142 20,168,381
Accumulated other comprehensive loss (303,619) -
----------------- ----------------
Total members' equity 86,604,433 20,165,289
----------------- ----------------
Total liabilities and members' equity $ 137,518,353 $ 20,651,972
================= ===============
See accompanying notes to consolidated financial statements.
Page 26
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Operations
Period From
August 22, 2003
(Commencement
of Operations)
Year Ended Through
December 31, 2004 December 31, 2003
----------------- -----------------
Revenue:
Rental income $ 10,293,367 $ 367,828
Income from investment in joint venture 8,146 -
Net gain on sale of equipment 18,893 -
Interest income - 2,856
---------------- --------------
Total revenue 10,320,406 370,684
---------------- --------------
Expenses:
Depreciation expense 8,396,861 274,102
Amortization of prepaid service fees 1,511,351 127,986
Interest 1,544,254 -
Management fees - Manager 644,184 18,391
Administrative expense reimbursements - Manager 1,216,345 7,357
General and administrative 151,987 76,119
Minority interest 39,281 -
---------------- --------------
Total expenses 13,504,263 503,955
---------------- ---------------
Net loss $ (3,183,857) $ (133,271)
================ ===============
Net loss allocable to:
Additional members $ (3,152,018) $ (131,938)
Manager (31,839) (1,333)
---------------- ----------------
$ (3,183,857) $ (133,271)
================ ===============
Weighted average number of additional
members shares outstanding 61,190 13,050
================ ================
Net loss per weighted average
additional members share $ (51.51) $ (10.11)
================ ===============
See accompanying notes to consolidated financial statements.
Page 27
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statement of Changes in Members' Equity
Period From August 22, 2003 (Commencement of Operations)
Through December 31, 2003
and For The Year Ended December 31, 2004
Additional Members' Distributions
(Per weighted average share)
---------------------------- Accumulated
Other Total
Return of Investment Additional Managing Comprehensive Members'
Capital Income Members Member Income (Loss) Equity
------- ------ ------- ------ ------------- ------
Balance at August 22, 2003 $ - $ 1,000 $ - $ 1,000
Proceeds from issuance of additional
members shares (23,784.330 shares) 23,784,330 - - 23,784,330
Sales and offering expenses (3,210,885) - - (3,210,885)
Cash distributions to members $ 20.93 $ - (273,126) (2,759) - (275,885)
Net loss (131,938) (1,333) - (133,271)
------------- ----------- ------- ------------
Balance, December 31, 2003 20,168,381 (3,092) - 20,165,289
Proceeds from issuance of additional
members shares (85,192.914 shares) 85,192,914 - - 85,192,914
Sales and offering expenses (10,446,467) - - (10,446,467)
Additional member shares redeemed (110,026) - - (110,026)
Cash distributions to members $ 76.20 $ - (4,662,642) (47,159) - (4,709,801)
Unrealized decrease in interest rate
swap contracts - - (303,619) (303,619)
Net loss (3,152,018) (31,839) - (3,183,857)
------------- ----------- --------- -------------
Balance, December 31, 2004 $ 86,990,142 $ (82,090) $(303,619) $ 86,604,433
============ =========== ========== ============
See accompanying notes to consolidated financial statements.
Page 28
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Cash Flows
Period From
August 22, 2003
(Commencement
of Operations)
Year Ended Through
December 31, 2004 December 31, 2003
---------------- -----------------
Cash flows from operating activities
Net loss $ (3,183,857) $ (133,271)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Rental income paid directly to lenders by lessees (7,628,646) -
Interest expense on non-recourse financing paid directly
to lenders by lessees 1,502,754 -
Gain on sale of equipment (18,893) -
Amortization of prepaid service fees 1,511,351 127,986
Depreciation 8,396,861 274,102
Income from investment in joint venture (8,146) -
Minority interest 39,281 -
Changes in operating assets and liabilities:
Other assets (85,139) -
Security deposits and other liabilities 45,413 83,524
Deferred rental income 499,900 -
Due to Manager and affiliates, net (495,015) 50,121
---------------- --------------
Net cash provided by operating activities 575,864 402,462
--------------- --------------
Cash flows from investing activities:
Investments in operating leases, net of security deposits assumed (42,154,800) (2,730,000)
Investment in equipment held for sale or lease - (720,000)
Investment held in escrow (17,975,620) -
Prepaid service fees paid (5,537,523) (1,545,981)
Proceeds from sale of equipment 61,000 -
Sales of interest in joint venture 2,296,879 -
--------------- --------------
Net cash used in investing activities (63,310,064) (4,995,981)
---------------- --------------
Cash flows from financing activities:
Issuance of additional members shares, net of
sales and offering expenses paid 74,746,447 20,573,445
Cash distributions to members (4,709,801) (275,885)
Member shares redeemed (110,026) -
Minority interest contribution in joint venture 1,629,776 -
Distributions to minority interest holders in joint ventures 478,953 -
Member refunds payable (203,000) 203,000
---------------- --------------
Net cash provided by financing activities 71,832,349 20,500,560
--------------- --------------
Net increase in cash and cash equivalents 9,098,149 15,907,041
Cash and cash equivalents, beginning of the period 15,908,041 1,000
--------------- --------------
Cash and cash equivalents, end of the year $ 25,006,190 $ 15,908,041
=============== ==============
See accompanying notes to consolidated financial statements.
Page 29
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Cash Flows
Period
From
August 22, 2003
(Commencement
of Operations)
Year Ended Through
December 31, 2004 December 31, 2003
----------------- -----------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ - $ -
================ ==============
Supplemental disclosure of non-cash investing and financing activities:
Non-cash portion of equipment purchased through non-recourse debt $ 70,057,207 $ -
================= ==============
Equipment transferred in connection with the execution
of an option agreement $ 15,216,101 $ -
================ ==============
Principal and interest paid on non-recourse notes payable
directly to lenders by lessees $ 9,131,400 $ -
================ ==============
See accompanying notes to consolidated financial statements.
Page 30
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(1) Organization
ICON Income Fund Ten, LLC (the "LLC") is an equipment leasing business
formed in the State of Delaware on January 2, 2003 as a limited liability
company. The LLC is engaged in one business segment, the business of acquiring
equipment subject to leases.
The principal objective of the LLC is to obtain the maximum economic return
from its investments for the benefit of its members. To achieve this objective,
the LLC: (i) acquires a diversified portfolio of leases and financing
transactions; (ii) makes monthly cash distributions to its members commencing
with each member's admission to the LLC, continuing through the reinvestment
period, which period will end no later than the eighth anniversary after the
final closing date; (iii) re-invests substantially all undistributed cash from
operations and cash from sales of equipment and financing transactions during
the reinvestment period; and (iv) will sell the LLC's investments and distribute
the cash from sales of such investments to its members after the end of the
reinvestment period, which is the liquidation period.
The initial capitalization of the LLC was $1,000 contributed by ICON
Capital Corp. (the "Manager"). The LLC is offering membership interests on a
"best efforts" basis with the intention of raising up to $150,000,000 of capital
from additional members. The LLC had its initial closing on August 22, 2003 when
it admitted 5,065.736 additional members shares, representing $5,065,736 in
capital contributions. At December 31, 2003 the LLC had admitted an additional
18,718.594 additional members shares representing $18,718,594 in capital
contributions, bringing the total capital contributions and additional member
shares to $23,784,330 and 23,784.330, respectively. At December 31, 2004 the LLC
had admitted an additional 85,192.914 additional members shares representing
$85,192,914 in capital contributions, bringing the total capital contributions
and additional member shares to $108,977,244 and 108,977.244 respectively. The
LLC redeemed 115.910 additional member shares in 2004, leaving 108,861.334
additional member shares outstanding at December 31, 2004. The LLC will continue
until December 31, 2023, unless terminated sooner.
The LLC has admitted additional members through March 31, 2005 of
39,852.482 aggregating $39,852,482 in capital contributions.
The Manager is a Connecticut corporation. The Manager manages and controls
the business affairs of the LLC's equipment leases and financing transactions
under the terms of a management agreement with the LLC. Additionally, the
Manager has a 1% ownership interest in the LLC.
ICON Securities Corp., an affiliate of the Manager, receives or is entitled
to receive, an underwriting fee from the gross proceeds from sales of all shares
to the additional members. The Manager is also entitled to receive organization
and offering expenses and prepaid service fees from the gross proceeds of such
sales. The total of prepaid service fees and underwriting compensation paid by
the LLC, which includes underwriting commissions, sales commissions to
unaffiliated selling dealers, public offering expense reimbursements, and due
diligence activities is limited to 20% of gross proceeds up to the first
$37,500,000 raised, 19% of gross offering proceeds from $37,500,001 to
$75,000,000 and 18% of gross offering proceeds from $75,000,001 to $150,000,000.
Through December 31, 2004, sales and offering expenses aggregating $4,939,192
were paid or accrued to the Manager or its affiliates and charged directly to
members' equity. In addition, $7,083,504 of prepaid service fees were paid to
the Manager or its affiliates and capitalized in the accompanying balance sheet.
The balance of those fees paid or accrued during the periods were to entities
unaffiliated with the Manager.
Page 31
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(1) Organization - continued
Profits, losses, cash distributions and disposition proceeds are allocated
99% to the additional members and 1% to the Manager until each additional member
has received cash distributions and disposition proceeds sufficient to reduce
their adjusted capital contribution account to zero and receive, in addition,
other distributions and allocations which would provide an 8% per annum
cumulative return on their outstanding adjusted capital contribution account.
After such time, the distributions will be allocated 90% to the additional
members and 10% to the Manager.
(2) Summary of Significant Accounting Policies
Consolidation and Minority Interest
The consolidated financial statements include the accounts of the LLC and
its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The LLC accounts for its
interests in minority owned joint ventures under the equity method of
accounting. In such cases, the LLC's original investment is recorded at cost and
adjusted for its share of earnings, losses and distributions. In joint ventures
where the LLC's ownership interest is majority owned, minority interest
represents the minority venturer's proportionate share of their equity in the
joint venture. The minority interest is adjusted for the minority venturer's
share of the earnings or loss of the joint venture.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid
investments with original maturity dates of three months or less.
Concentration of Credit Risk
Concentrations of credit risk with respect to customers are dispersed
across different industry segments within the United States of America and
throughout the world; accordingly the LLC is exposed to business and economic
risk. Although the LLC does not currently foresee a concentrated credit risk
associated with these customers, lease payments are dependent upon the financial
stability of the segments in which they operate.
Allowance for Doubtful Accounts
The LLC estimates uncollectibility of receivables by analyzing historical
bad debts, customer concentrations and credit worthiness and current economic
trends when evaluating the adequacy of the allowance for doubtful accounts. The
LLC records an allowance for doubtful accounts when the analysis indicates that
the probability of full collection is unlikely.
Investment in Operating Leases
Investments in operating leases are stated at cost less accumulated
depreciation. Depreciation is being provided for using the straight-line method
over the term of the related equipment lease to its estimated residual value at
lease end. Upon the final disposition of the equipment, the cost and related
accumulated depreciation are removed from the accounts and the resulting profit
Page 32
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
or loss is reflected in the consolidated statement of operations. Revenues from
operating leases are recognized on a straight line basis over the lives of the
related leases.
Asset Impairments
The LLC's asset portfolio is periodically reviewed, at least annually, to
determine whether events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss shall be recognized
only if the carrying amount of a long-lived asset is not recoverable and exceeds
its fair value. In such circumstances, the LLC will estimate the future cash
flows (undiscounted and without interest charges) expected to result from the
use of the asset and its eventual disposition. Future cash flows are the future
cash inflows expected to be generated by an asset less the future outflows
expected to be necessary to obtain those inflows. An impairment loss shall be
measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value.
The events or changes in circumstances which generally indicate that an
asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than our carrying value or (ii) the lessee is experiencing
financial difficulties and it does not appear likely that the estimated proceeds
from the disposition of the asset will be sufficient to satisfy the remaining
obligation to the non-recourse lender and our residual position in the asset.
Generally in the latter situation, the residual position relates to equipment
subject to third party notes payable non-recourse where the lessee remits their
rental payments directly to the lender and we do not recover our residual
position until the note payable non-recourse is repaid in full.
Equipment Held for Sale or Lease
Equipment held for sale or lease is recorded at the lower of cost or market
value expected to be realized upon sale and consists of equipment previously
leased to end users which has been returned to the LLC following lease
expiration.
Prepaid Service Fees
The LLC pays the Manager a service fee based upon 6.5% of the gross
proceeds from the sale of shares to additional members. In exchange for these
fees, the Manager provides services related to the selection and acquisition of
equipment and interests in equipment with the offering proceeds. The Manager's
obligation to perform these services extends until six months after the final
admission of additional members. Since these costs relate to the acquisition of
equipment on lease, they are capitalized on the LLC's balance sheet and
amortized to operations over the offering period plus six months.
Share Redemption
The LLC may, at its discretion, redeem shares from a limited number of its
additional members, as defined in its membership agreement. The redemption price
for any shares approved for redemption is based upon a formula, as defined in
the membership agreement.
Page 33
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
Per Unit Data
Net income (loss) and distributions per unit are based upon the weighted
average number of units outstanding during the period.
Revenue Recognition
The LLC leases equipment to third parties which may be classified as either
a finance lease or an operating lease, which is determined based upon the terms
of each lease. Initial direct costs are capitalized and amortized over the term
of the related lease for a finance lease. For an operating lease, the initial
direct costs are included as a component of the cost of the equipment and
depreciated.
For finance leases, the LLC records, at lease inception, the total minimum
lease payments receivable from the lessee, the estimated unguaranteed residual
value of the equipment at lease termination, the initial direct costs related to
the lease and the related unearned income. Unearned income represents the
difference between the sum of the minimum lease payments receivable plus the
estimated unguaranteed residual minus the cost of the leased equipment. Unearned
income is recognized as finance income over the term of the lease using the
effective interest rate method.
For operating leases, rental income is recognized on the straight line
method over the lease term. Billed and uncollected operating lease receivables
are included in other assets. Deferred income is the difference between the
timing of the cash payments and the income recognized on a straight line basis.
Derivative Financial Instruments
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which established new
accounting and reporting standards for derivative instruments. SFAS No. 133 has
been amended by SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in
June 2000 and by SFAS No 149, issued in June 2003. The LLC adopted SFAS 133
effective January 1, 2004.
We use derivative financial instruments to mitigate changes in interest
rates. All derivatives are recognized on the balance sheet at fair value.
Certain derivatives, at inception, are designated as hedges and evaluated for
effectiveness at least quarterly throughout the hedge period. These derivatives
are designated as either (i) a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (a fair value hedge), or (ii) a
hedge of a forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability (a cash flow hedge).
The LLC has only cash flow hedges at December 31, 2004.
We record changes in the fair value of cash flow hedges, along with the
changes in the fair value of the hedged asset or liability that is attributable
to the hedged risk, in other comprehensive income, net of income taxes, which is
a component of members' equity, until earnings are affected by the variability
of cash flows of the hedged transaction.
Page 34
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
We formally document all relationships between hedging instruments and
hedged items, as well as the risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value or cash flow hedges to specific
assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Significant estimates primarily include
the allowance for doubtful accounts and unguaranteed residual values. In
addition, management is required to disclose contingent assets and contingent
liabilities. Actual results could differ from those estimates.
Recent Accounting Pronouncements
During December 2004, the FASB issued SFAS No. 153 "Exchanges of
Nonmonetary Assets--an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153
is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
Opinion 29, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. SFAS 153
is effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not expect the adoption of SFAS 153 to have an impact
on our financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the accompanying consolidated
financial statements for the period from August 22, 2003 (commencement of
operations) through December 2003 to conform to the current period presentation.
(3) Joint Ventures
The LLC and its affiliates, entities also managed by the Manager, formed
the two joint ventures, discussed below for the purpose of acquiring and
managing various assets. The LLC and these affiliates have substantially
identical investment objectives and participate on identical terms and
conditions. The LLC and the other joint venturers have a right of first refusal
to purchase the equipment, on a pro-rata basis, if any of the other joint
venturers desire to sell their interests in the equipment or joint venture.
Page 35
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(3) Joint Ventures - continued
The joint venture described below is majority owned and consolidated with
the LLC.
ICON GeicJV
On April 30, 2004, the LLC and ICON Income Fund Nine, LLC ("Fund Nine")
formed a joint venture, ICON GeicJV, for the purpose of purchasing information
technology equipment subject to a three year lease with Government Employees
Insurance Company ("GEICO"). The LLC paid $4,330,626, in cash for its 74%
ownership interest in the joint venture.
The joint venture described below is minority owned and is accounted for
under the equity method.
ICON Aircraft 46837, LLC
On March 31, 2004, the LLC and ICON Income Fund Eight A L.P. ("Fund Eight
A") formed a joint venture, ICON Aircraft 46837, LLC ("ICON Aircraft 46837"),
for the purpose of acquiring a 1979 McDonnell Douglas DC-10-30F aircraft on
lease to Federal Express Corporation ("FedEx") with a remaining lease term of 36
months. The LLC acquired a 71.4% ownership interest in this joint venture for a
total of $2,466,226 in cash. The aircraft owned by ICON Aircraft 46837 is
subject to non-recourse debt which accrues interest at 4.0% per annum and
matures in March 2007. The lender has a security interest in the aircraft and an
assignment of the rental payments under the lease with FedEx. Legal and bank
fees of $238,621 were also paid and capitalized as part of the cost of the
aircraft.
In connection with the formation of the joint venture, Fund Eight A
acquired an option from the LLC for $10,000 to acquire an additional 61.4%
ownership interest in ICON Aircraft 46837 from the LLC. Effective July 1, 2004
Fund Eight A exercised its option and the LLC sold its 61.4% interest in ICON
Aircraft 46837 to Fund Eight A. The exercise price received by the LLC was
$2,296,879. There was no gain or loss recognized by the LLC on this transaction.
As a result of the sale, effective July 1, 2004, the LLC began accounting for
its remaining minority interest of 10% using the equity method of accounting.
Information as to the financial position and results of operations of ICON
Aircraft 46837 at December 31, 2004 and for the year ended December 31, 2004 are
summarized below:
December 31, 2004
------------------
Assets $ 17,412,031
===============
Liabilities $ 13,587,252
===============
Equity $ 3,824,779
===============
LLC's share of equity $ 382,479
===============
Year Ended
December 31, 2004
-----------------
Net income $ 81,460
===============
LLC's share of net income $ 8,146
===============
Page 36
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(4) Investments in Operating Leases
Investments in operating leases consist of the following at December 31:
2004 2003
------------- -------------
Equipment at cost, beginning of year $ 2,880,000 $ -
Equipment acquisitions 90,764,312 2,880,000
------------- -------------
Equipment at cost, end of year 93,644,312 2,880,000
------------- -------------
Accumulated depreciation, beginning of year 219,423 -
Depreciation expense 6,878,570 219,423
------------- -------------
Accumulated depreciation, end of year 7,097,993 219,423
------------- -------------
Net investment in operating leases, end of year $ 86,546,319 $ 2,660,577
============= =============
On December 31, 2004, the LLC entered into an Assignment Agreement with
Imaging Financial Services, Inc., an affiliate of G.E. Capital Corp., for the
purchase of 101 Noritsu QSS 3011 digital mini-labs subject to leases with Rite
Aid Corporation. The monthly base rental payments are $241,451. The lease terms
have approximately 35, 36, and 45 months remaining. The purchase of this
equipment occurred simultaneously with the execution of the Assignment
Agreement. The purchase price of this equipment was approximately $9,203,000 in
cash.
On December 30, 2004, the LLC entered into an Assignment Agreement with The
CIT Group/Equipment Financing, Inc. for the purchase of a Mitel Networks 3340
Global Branch Office Solution Phone System subject to lease with CompUSA, Inc.
The monthly base rental payment is $63,940. The lease term has approximately 48
months remaining and expires in December 2008. The purchase of this equipment
occurred simultaneously with the execution of this Assignment Agreement. The
purchase price of this equipment was approximately $2,976,000 in cash.
During June 2004, the LLC acquired two shipping container vessels (the
"Vessels") from ZIM Israel Navigation Co., Ltd. ("ZIM"). The Vessels are owned
by two wholly-owned subsidiaries of the LLC, ICON Containership I, LLC and ICON
Containership II, LLC. The LLC simultaneously entered into a bareboat charter
agreement with ZIM for the use of the Vessels. The monthly rental payment is
$488,000 per vessel for a five-year period, starting June 24, 2004, with two
one-year extension periods. The purchase price of the Vessels was $70,700,000
which was funded with cash of $18,400,000 and the assumption of non-recourse
debt of $52,300,000. Bank fees, legal fees and other expenses of $810,238 were
also paid and capitalized as part of the acquisition cost of the Vessels. The
lender has a security interest in the Vessels and an assignment of the rental
payments under the lease with ZIM.
During July 2004, the LLC purchased Hussman refrigeration equipment which
is on lease to P.W. Supermarkets, Inc. The monthly rental payment is $44,411 for
two years and $20,839 for the final year, commencing August 6, 2004, with an
option to extend the lease for one additional year. The purchase price of this
equipment was approximately $1,310,000 in cash.
Page 37
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(4) Investments in Operating Leases - continued
Aggregate minimum future rentals receivable from each of the LLC's
non-cancelable leases discussed above consist of the following at December 31,
2004:
Year Ending
December 31,
2005 $ 17,631,000
2006 $ 17,631,000
2007 $ 15,783,000
2008 $ 12,502,000
2009 $ 4,880,000
(5) Escrow Deposits
On December 30, 2004, the LLC entered into a Commitment Agreement with
Summit Asset Management, Ltd., an unaffiliated third party, for the purchase of
approximately 8,762 bedside entertainment and communication terminals subject to
lease with Premier Telecom Contracts Limited. The equipment will be installed in
several National Health Service hospitals in the United Kingdom. The original
cost of the equipment is anticipated to be (Pounds Sterling)12,700,000
($24,452,580 at December 31, 2004). The lease term is for eighty-four months. At
December 31, 2004 the LLC had advanced $5,862,843, in cash, which is included in
escrow deposits in the accompanying consolidated balance sheet and which is
approximately (Pounds Sterling)3,045,000 of the total cost of (Pounds
Sterling)12,700,000.
On December 30, 2004, the LLC entered into a Commitment Agreement with
Summit Asset Management, Ltd., an unaffiliated third party, to purchase a 75%
interest in a portfolio of leases currently in effect and performing with
various United Kingdom lessees. The portfolio is mostly comprised of information
technology equipment, including laptops, desktops and printers. The leases all
expire in less than five years. The purchase price is $2,655,682 in cash, which
is included in escrow deposits in the accompanying consolidated balance sheet at
December 31, 2004, and the assumption of approximately $20,000,000 in
non-recourse debt. The transaction was completed during February 2005.
On December 30, 2004, the LLC entered into an Assignment Agreement with
Varilease Finance Group, Inc., an unrelated third party, to purchase four
Proserv Cranes (the "Cranes") subject to lease with WPS, Inc. The purchase price
of the Cranes is $894,048, of which the LLC paid $251,589 in cash, which is
included in escrow deposits in the accompanying consolidated balance sheet at
December 31, 2004. The remaining balance of the purchase price is to be paid as
follows; (a) $27,220 on the date the LLC receives an Installation Certificate
for the first shipment; (b) $511,230 on the due date of the second installment,
as defined in the agreement and (c) $104,009 on the date the LLC receives an
Installation Certificate for the second shipment. The lease will commence on the
first day of the calendar quarter following the LLC's receipt of the second
Installation Certificate. The lease term is for 48 months with monthly rental
payments of $21,757.
Page 38
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(5) Escrow Deposits - continued
On December 14, 2004, the LLC entered into a Memorandum of Agreement with
ZIM to purchase a 3,300 TEU container vessel, the ZIM Italia (the "Italia
Vessel"), which is subject to a five year bareboat charter. The purchase price
for the Italia Vessel will be $35,350,000, comprised of (i) $9,200,000 cash,
which is included in escrow deposits in the accompanying consolidated balance
sheet at December 31, 2004 and $55,505 of costs paid which will be capitalized
as part of the acquisition cost of the Italia Vessel and (ii) approximately
$26,150,000 of non-recourse debt. The non-recourse debt will have a five year
term and will bear interest at a variable rate of LIBOR plus 1.50% per year. On
December 30, 2004, the LLC entered into a Commitment Agreement with Fortis
Capital Corp., which arranged the financing for the acquisition of the Italia
Vessel. The lender has a security interest in the Italia Vessel and an
assignment of the rental payments under the lease with ZIM. The Italia Vessel
was delivered in January 2005. The LLC has classified this as an operating
lease. The Italia Vessel is owned by ICON Containership III, LLC, a wholly-owned
subsidiary of the LLC.
(6) Notes Payable - Non-Recourse
Notes payable non-recourse is comprised solely of the non-recourse debt
incurred in connection with the acquisition of the ZIM Vessels in June 2004.
This non-recourse debt accrues interest at the London Inter Bank Offer Rate
("LIBOR") plus 1.50% per annum (which was 4.60% per annum at December 31, 2004).
The notes mature in July 2009. Simultaneously with the acquisition, the LLC
entered into two interest rate swap contracts with Fortis Bank in which the
variable interest rate on the non-recourse debt was swapped for a fixed interest
rate. The interest rate swap contracts have a fixed interest rate of 5.36% per
annum. The lender has a security interest in the Vessels and an assignment of
the rental payments under the lease with ZIM. The balance of the notes payable
non-recourse debt at December 31, 2004 is $47,795,602.
The LLC accounts for its interest on the swap contracts in accordance with
Statement of Financial Accounting Standards No. 133, as amended and recorded a
liability and accumulated other comprehensive loss at December 31, 2004 of
$303,619.
The aggregate maturities of notes payable - non recourse consist of the
following at December 31, 2004:
Year Ending
December 31,
2005 $ 9,378,324
2006 9,893,538
2007 10,437,056
2008 11,010,432
2009 7,076,252
--------------
$ 47,795,602
===============
Page 39
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(7) Line of Credit
On May 30, 2002 certain affiliates of the LLC, specifically; ICON Cash Flow
Partners L.P. Seven; ICON Income Fund Eight A L.P., ICON Income Fund Eight B
L.P. and ICON Income Fund Nine, LLC, (collectively, the "Initial Funds"),
entered into a $17,500,000 line of credit agreement with Comerica Bank. The
Initial Funds accrue interest, on all outstanding balances, at an interest rate
equal to the Comerica Bank base interest rate plus 1% (together, 6.25% at
December 31, 2004). Under the terms of the line of credit agreement, the Initial
Funds may borrow money from Comerica Bank with all borrowings to be jointly and
severally collateralized by (i) cash and (ii) the present values of certain
rents receivable and equipment owned by the Initial Funds. Effective August 5,
2004, the line of credit agreement was amended to add the LLC as a borrower. On
December 6, 2004, the Loan and Security Agreement with Comerica Bank was
extended to December 30, 2005.
In connection with the line of credit agreement, the Initial Funds
previously entered into a Contribution Agreement dated as of May 30, 2002, as
amended (the "Contribution Agreement"). Pursuant to the Contribution Agreement,
the Initial Funds agreed to restrictions on the amount and the terms of their
respective borrowings under the Loan Agreement in order to minimize the unlikely
risk that a Fund would not be able to repay its allocable portion of the
outstanding revolving loan obligation at any time, including restrictions on any
Fund borrowing in excess of the lesser of (a) an amount each Fund could
reasonably expect to repay in one year out of its projected free cash flow, or
(b) the greater of (i) the Borrowing Base (as defined in the line of credit
agreement) as applied to such Fund, and (ii) 50% of the net worth of such Fund.
The Contribution Agreement provides that, in the event a Fund pays an amount
under the agreement in excess of its allocable share of the obligation under the
agreement whether by reason of an Event of Default or otherwise, the other Funds
will promptly make a contribution payment to such Fund in such amount that the
aggregate amount paid by each Fund reflects its allocable share of the aggregate
obligations under the agreement. The Initial Funds' obligations to each other
under the Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. In order to facilitate the LLC's addition to
the Contribution Agreement, the Funds entered into a Second Amended and Restated
Contribution Agreement effective as of August 5, 2004. The Second Amended and
Restated Contribution Agreement contains substantially identical terms and
limitations as did the original Contribution Agreement.
Effective March 8, 2005, the Initial Funds and the LLC entered into a
Seventh Amendment to the Loan and Security Agreement with Comerica Bank. This
Agreement releases ICON Cash Flow Partners L.P. Seven from all of its
obligations under the Loan and Security Agreement dated as of May 30, 2002. As
such, ICON Cash Flow Partners L.P. Seven is no longer a party to the $17,500,000
line of credit.
Aggregate borrowings by all funds under the line of credit agreement
amounted to $10,272,992 at December 31, 2004. The LLC currently has no
outstanding borrowings under this line of credit.
(8) Income Taxes (Unaudited)
The LLC is taxed as a partnership for Federal and state income tax
purposes. No provision for income taxes has been recorded since the liability
for such taxes is that of each of the individual members rather than the LLC.
The LLC's income tax returns are subject to examination by the Federal and state
taxing authorities, and changes, if any could adjust the individual income tax
of the members.
Page 40
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(8) Income Taxes (Unaudited) - continued
At December 31, 2004 and 2003, the members' equity included in the
consolidated financial statements totaled $86,604,433 and $20,165,289,
respectively. The members' capital for Federal income tax purposes at December
31, 2004 and 2003 totaled $104,505,233 and $23,669,595 (unaudited),
respectively. The difference arises primarily from sales and offering expense
reported as a reduction in the additional members capital accounts for financial
reporting purposes but not for Federal income tax reporting purposes and
differences in depreciation and amortization between financial reporting
purposes and Federal income tax purposes.
The following table reconciles net loss for financial statement reporting
purposes to the net income for Federal income tax purposes as follows:
Period From
August 22, 2003
(Commencement
Of Operations)
Year Ended Through
December 31, December 31,
2004 2003
----------------- -----------------
Net loss per consolidated financial statements $ (3,183,857) $ (133,271)
Differences due to:
Depreciation and amortization 2,134,797 293,421
Deferred rental income 880,328 -
Gain (loss) on sale of equipment 10,317 -
Other 620,965 -
----------------- -----------------
Net income for Federal income tax purposes $ 462,550 $ 160,150
================= =================
(9) Transactions with Related Parties
The LLC has entered into certain agreements with the Manager and ICON
Securities Corp., a subsidiary of the Manager, whereby the LLC pays certain fees
and reimbursements to those parties.
In accordance with the terms of these agreements, the LLC pays the Manager
(i) management fees ranging from 1% to 7% based on a percentage of the rentals
received either directly by the LLC or through joint ventures (ii) prepaid
service fees of 6.5% based upon the gross proceeds from the sale of shares to
additional members and (iii) organization and offering expenses from the gross
proceeds of such sales, as defined in the agreement. In addition, the Manager is
reimbursed for administrative expenses incurred in connection with the LLC's
operations.
ICON Securities Corp., an affiliate of the Manager, receives or is entitled
to receive, a 2% underwriting fee from the gross proceeds from sales of all
shares to the additional members.
The total compensation which the Manager and ICON Securities Corp. may
earn, not including management fees and administrative expense reimbursements,
is limited to 12% of gross offering proceeds up to the first $37,500,000 raised,
11% of gross offering proceeds from $37,500,001 to $75,000,000 and 10% of gross
offering proceeds from $75,000,001 to $150,000,000.
Page 41
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(9) Transactions with Related Parties - continued
Fees and other expenses paid or accrued by the LLC to the Manager or its
affiliates for the year ended December 31, 2004 and for the period from August
22, 2003 (commencement of operations) to December 31, 2003, were as follows:
2004 2003
------------- -------------
Prepaid service fees (1) $ 5,537,523 $ 1,545,981
Organization and offering expenses (2) 1,927,201 832,451
Underwriting commissions (2) 1,703,853 475,687
Management fees (3) 644,184 18,391
Administrative expense reimbursements (3) 1,216,345 7,357
------------- -------------
$ 11,029,106 $ 2,879,867
============= =============
(1) Capitalized and amortized to operations over the estimated
offering period in accordance with the LLC's accounting policies.
(2) Charged directly to members' equity.
(3) Charged directly to operations.
The LLC had a net payable of $129,831 due to the Manager and affiliates at
December 31, 2004 of which $117,888 was owed the Manager for administrative
expense reimbursements. The LLC had a net receivable of $574,725 due from
affiliates at December 31, 2004 of which $571,949 is due from Fund Nine in
connection with the December 2004 purchase of equipment, of which Fund Nine
acquired a portion, and was repaid during January 2005.
(10) Fair Value of Financial Instruments
The recorded amounts of the LLC's cash and cash equivalents and escrow
deposits at December 31, 2004 and 2003 approximate fair value based upon the
short term maturity of these instruments. The fair value of the LLC's
non-recourse debt is estimated using discounted cash flow analyses, based upon
the LLC's incremental borrowing rate for similar types of arrangements. The
estimated fair value of the LLC's non-recourse notes payable at December 31,
2004 is approximately $36,104,000. The fair value of the interest rate swap
contracts are estimated by management based upon independent valuations. Swap
contracts are recorded on the balance sheet at fair value at December 31, 2004.
(11) Concentration Risks
For the year ended December 31, 2004, the LLC had four leases that
accounted for 98% of total revenue and for the period from August 22, 2003
(commencement of operations) to December 31, 2003 the LLC had one lease that
accounted for 100% of total revenue.
The LLC's cash and cash equivalents are held principally at one financial
institution and at times may exceed insured limits. The LLC has placed these
funds in a high quality institution in order to minimize the risk.
Page 42
ICON Income Fund Ten, LLC
(A Delaware Liability Company)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(12) Other Comprehensive Loss
For the year ended December 31, 2004 and for the period from August 22,
2003 (commencement of operations) through December 31, 2003, other comprehensive
income (loss) consists of the following:
Period From
August 22, 2003
(Commencement
of Operations)
Year Ended Through
December 31, 2004 December 31, 2003
----------------- -----------------
Net loss $ (3,183,857) $ (133,271)
Other Comprehensive income (loss):
Change in valuation of interest rate
swap contracts during the period. (303,619) -
---------------- --------------
Comprehensive income (loss) $ (3,487,476) $ (133,271)
=============== ================
(13) Selected Quarterly Financial Data (Unaudited)
The following table is a summary of selected financial data, by quarter,
for the years ended December 31, 2004 and for the period from August 22, 2003
(commencement of operations) to December 31, 2003:
Quarters Ended in 2004
-------------------------------------------------
March 31, June 30, September 30, December 31,
-------- -------- ------------ -----------
Revenue $ 275,871 $ 2,527,180 $ 3,739,687 $ 3,777,668
============ ============ ============ ===============
Net loss allocable to additional members $ (460,056) $ (651,069) $ (999,697) $ (1,041,196)
============ ============ ============ ==============
Net loss per weighted average
additional members share $ (14.79) $ (13.49) $ (14.21) $ (9.02)
============ ============= ============ ==============
Quarters Ended in 2003
-------------------------------------------------
March 31, June 30, September 30, December 31,
-------- ------- ------------ ----------
Revenue $ - $ - $ 94,786 $ 275,898
========= ============ ============= ===============
Net loss allocable to additional members $ - $ - $ (4,342) $ (127,596)
========= ============ ============= ===============
Net loss per weighted average
additional members share $ - $ - $ (0.60) $ (9.51)
========= ============ ============= ==============
Page 43
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the year ended December 31, 2004, we had no disagreements with our
accountants on any matters of accounting or financial reporting.
Item 9a. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., our Manager, including the
Principal Executive Officer and the Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report pursuant to the
Securities Exchange Act of 1934. Based upon the evaluation, the Principal
Executive Officer and the Principal Financial Officer concluded that our
disclosure controls and procedures were effective.
There were no significant changes in our internal control over financial
reporting during our fourth fiscal quarter that have materially affected, or are
likely to materially affect, our internal control over financial reporting.
Item 9b. Other Information
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant's Manager
Our Manager, ICON Capital Corp., a Connecticut corporation, was formed in
1985. The Manager's principal offices are located at 100 Fifth Avenue, 10th
Floor, New York, New York 10011, and the telephone number is (212) 418-4700. The
officers of the Manager have extensive experience with transactions involving
the acquisition, leasing, financing and disposition of equipment, including
acquiring and disposing of equipment subject to leases and full financing
transactions.
The Manager is engaged in a broad range of equipment leasing and financing
activities. Through its sales representatives and through various broker
relationships throughout the United States, the Manager offers a broad range of
equipment leasing services.
The Manager performs certain functions relating to the management of our
equipment. Such services include the collection of lease payments from the
lessees of the equipment, re-leasing services in connection with equipment which
is off-lease, inspections of the equipment, liaison with and general supervision
of lessees to assure that the equipment is being properly operated and
maintained, monitoring performance by the lessees of their obligations under the
leases and the payment of operating expenses.
Our officers and directors are:
Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Paul B. Weiss President and Director
Thomas W. Martin Executive Vice President, Chief Financial Officer
and Director
Michael A. Reisner Senior Vice President and General Counsel
Sean E. Hoel Senior Vice President
Page 44
Beaufort J. B. Clarke, 58, has been our Chairman, Chief Executive Officer
and Director since August of 1996. He was our President from August of 1996
until December 31, 1998. Prior to his present positions, Mr. Clarke was founder,
President and Chief Executive Officer of Griffin Equity Partners, Inc. (a
purchaser of equipment leasing portfolios) from October 1993 through August
1996. Prior to that, Mr. Clarke was President of Gemini Financial Holdings, Inc.
(an equipment leasing company) from June 1990 through September 1993.
Previously, Mr. Clarke was a Vice President of AT&T Systems Leasing. Mr. Clarke
formerly was an attorney with Shearman and Sterling. Mr. Clarke received a B.A.
degree from the George Washington University and a J.D. degree from the
University of South Carolina. Mr. Clarke has been in the equipment leasing
business, as a business person and lawyer, since 1979.
Paul B. Weiss, 44, has been our President and Director since January 1,
1999. Mr. Weiss was our Director and Executive Vice President responsible for
lease acquisitions from November of 1996 until December 31, 1998. Mr. Weiss
served as Executive Vice President and co-founder of Griffin Equity Partners,
Inc. from October of 1993 through November of 1996. Prior to that, Mr. Weiss was
Senior Vice President of Gemini Financial Holdings, Inc. from 1991 to 1993 and
Vice President of Pegasus Capital Corporation (an equipment leasing company)
from 1988 through 1991. Mr. Weiss received a B.A. in Economics from Connecticut
College. Mr. Weiss has been in the equipment leasing business since 1988.
Thomas W. Martin, 51, has been our Executive Vice President, Chief
Financial Officer and Director (and Director, President and Chief Financial
Officer of the dealer-manager as well) since August of 1996. Mr. Martin was the
Executive Vice President, Chief Financial Officer and a co-founder of Griffin
Equity Partners, Inc. from October 1993 to August 1996. Prior to that, Mr.
Martin was Senior Vice President of Gemini Financial Holdings, Inc. from April
1992 to October 1993 and he held the position of Vice President at Chancellor
Corporation (an equipment leasing company) for 7 years. Mr. Martin received a
B.S. degree from the University of New Hampshire. Mr. Martin has been in the
equipment leasing business since 1983.
Michael A. Reisner, Esq., 34, has been our Senior Vice President and
General Counsel since January 2004. Mr. Reisner was our Vice President and
Associate General Counsel from March 2001 until December 2003. Previously, from
1996 to 2001, Mr. Reisner was an attorney with Brodsky Altman & McMahon, LLP in
New York, concentrating on commercial transactions. Mr. Reisner received a J.D.
from New York Law School and a B.A. from the University of Vermont.
Sean E. Hoel, 35, has been our Senior Vice President since June 1999. Mr.
Hoel is responsible for the acquisition of equipment subject to lease. Mr. Hoel
has a Masters Degree in Finance from Seattle University, preceded by Law School
at the University of Oslo, a B.A. in Finance at the University of Wyoming, as
well as three years of military service as a naval officer.
Code of Ethics
The Manager, on our behalf, has adopted a code of ethics for its Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer. The
Code of Ethics is available free of charge by requesting it in writing from our
Manager. The Manager's address is 100 Fifth Avenue, 10th Floor, New York, New
York 10011.
Item 11. Executive Compensation
We have no directors or officers. The Manager and its affiliates were paid
or accrued the following compensation and reimbursement for costs and expenses
for the year ended December 31, 2004 and the period from August 22, 2003
(commencement of operations) through December 31, 2003.
Page 45
Entity Capacity Compensation 2004 2003
- ---------------------- ---------- --------------------- ------------- -------------
ICON Capital Corp. Manager Prepaid service fees $ 5,537,523 $ 1,545,981
============= =============
ICON Capital Corp. Manager Organization and
offering expenses $ 1,927,201 $ 832,451
============= =============
ICON Capital Corp. Manager Underwriting fees $ 1,703,853 $ 475,687
============= =============
ICON Capital Corp. Manager Management fees $ 644,184 $ 18,391
============= =============
ICON Capital Corp. Manager Administrative fees $ 1,216,345 $ 7,357
============= =============
The Manager also has a 1% interest in our profits and distributions. We
paid distributions to the Manager of $47,159 and $2,759, respectively, for the
year ended December 31, 2004 and for the period from August 22, 2003
(commencement of operations) through December 31, 2003. Additionally, the
Managers interest in our net loss was $31,839 and $1,333, respectively, for the
year ended December 31, 2004 and for the period from August 22, 2003
(commencement of operations) through December 31, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) We are a limited liability company and therefore do not have voting
shares of stock. No person of record owns, or is known by us to own
beneficially, more than 5% of any class of our securities.
(b) As of March 18, 2005, Directors and Officers of the Manager do not own
any of our equity securities.
(c) The Manager owns our equity securities, as follows; a Manager Interest
which represents initially a 1% and potentially a 10% interest in our
income, gain and losses. The Manager owns 100% of the Manager
Interest.
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of our related party transactions. See Notes 3
and 9 to our consolidated financial statements for a discussion of our related
party activity and investments in joint ventures.
Item 14. Principal Accountant Fees and Services
During the year ended December 31, 2004 and the period from August 22, 2003
(commencement of operations) to December 31, 2003 our auditors provided audit
services relating to our annual report on Form 10-K and our quarterly reports on
Form 10-Q. Additionally, our auditors provided other services in the form of tax
compliance work. Their fees are shown in the table below:
2004 2003
------------- -------------
Audit fees $ 65,369 $ 27,000
Audit related fees 1,375 -
Tax fees (for compliance) 13,800 -
------------- -------------
$ 80,544 $ 27,000
============= =============
Page 46
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedules - None. Schedules not listed above have
been omitted because they are not applicable or the information required to
be set forth therein is included in the financial statements or notes
thereto.
3. Exhibits - :
(i) Amended and Restated Operating Agreement of ICON Income Fund Ten, LLC
(incorporated by reference to Exhibit A to post-effective Amendment No. 2
to Form S-1 Registration Statement filed with the Securities and Exchange
Commission dated June 2, 2003).
(ii) Certificate of Limited Liability Company (incorporated herein by
reference to Exhibit 4.3 to pre-effective Amendment No. 2 to Form S-1
Registration Statement filed with the Securities and Exchange Commission
dated February 28, 2003).
(iii) Loan and Security Agreement dated May 30, 2002 as amended.
(iv) Assignment Agreement dated December 31, 2004 with Imaging Financial
Services, Inc., an affiliate of G.E. Capital Corp., for the purchase of 101
Noritsu QSS 3011 digital mini-labs subject to a lease with the Rite Aid
Corporation (incorporated by reference to Current Report on Form 8-K, dated
January 6, 2005).
(v) Assignment Agreement dated December 30, 2005 with The CIT
Group/Equipment Financing, Inc. for the purchase of Mitel Networks 3340
Global Branch Office Solution Phone Systems subject to lease with CompUSA,
Inc., (incorporated by reference to Current Report on Form 8-K, dated
January 6, 2005).
(vi) On December 31, 2004, Jeremiah Silkowski, resigned from his position
of Senior Vice President of ICON Capital Corp., the LLC's Manager, so that
he may pursue other opportunities (incorporated by reference to Current
Report on Form 8-K, dated January 6, 2005).
10.1 Sixth Amendment to the Loan & Security Agreement dated May 30, 2002 as
amended.
31.1 Rule 13a-14(a)/15d-14(a) certifications.
31.2 Rule 13a-14(a)/15d-14(a) certifications.
32.1 Certification of Chairman and Chief Executive Officer pursuant to
18 U.S.C. (Section)1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Executive Vice President and Principal Financial
and Accounting Officer pursuant to 18 U.S.C. (Section)1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Page 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the LLC has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ICON Income Fund Ten, LLC File No. 333-103503 (Registrant) by its Manager, ICON
Capital Corp.
Date: April 14, 2005 /s/ Beaufort J.B. Clarke
---------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated. ICON Capital Corp. sole Manager of
the Registrant
Date: April 14, 2005 /s/ Beaufort J.B. Clarke
-----------------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: April 14, 2005 /s/ Paul B. Weiss
-----------------------------------------------
Paul B. Weiss
President and Director
Date: April 14, 2005 /s/ Thomas W. Martin
-----------------------------------------------
Thomas W. Martin
Executive Vice President and Director
(Principal Financial and Accounting Officer)
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrant which have not registered securities pursuant to
Section 12 of the Act. No annual report or proxy material has been sent to
security holders. An annual report will be sent to the members and a copy will
be forwarded to the Commission.
Page 48
Exhibit 31.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
I, Beaufort J.B. Clarke, certify that:
1. I have reviewed this annual report on Form 10-K of ICON Income Fund Ten, LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this annual report based on such evaluation; and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the board of directors of the Corporate Manager (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially affect
the LLC's ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Dated: April 14, 2005
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Page 49
Exhibit 31.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
I, Thomas W. Martin, certify that:
1. I have reviewed this annual report on Form 10-K of ICON Income Fund Ten, LLC;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this annual report based on such evaluation; and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the board of directors of the Corporate Manager (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially affect
the LLC's ability to record, process, summarize and report financial
information and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Dated: April 14, 2005
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Page 50
Exhibit 32.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Beaufort J.B. Clarke, Chairman
and Chief Executive Officer of ICON Capital Corp, the Manager of LLC in
connection with the Annual Report of ICON Income Fund Ten, LLC (the "LLC") on
Form 10-K for the year ended December 31, 2004, as filed with the Securities and
Exchange Commission on the date hereof (the "Annual Report") certify, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge and belief:
(1) the Annual Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of the LLC.
Dated: April 14, 2005
/s/ Beaufort J.B. Clarke
------------------------------------------------------
Beaufort J.B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Exhibit 32.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Thomas W. Martin, Executive Vice
President (Principal Financial and Accounting Officer) of ICON Capital Corp, the
Manager of LLC in connection with the Annual Report of ICON Income Fund Ten, LLC
(the "LLC") on Form 10-K for the year ended December 31, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Annual Report")
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge and belief:
(1) the Annual Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and (2) the
information contained in the Annual Report fairly presents, in all material
respects, the financial condition and results of operations of the LLC.
Dated: April 14, 2005
/s/ Thomas W. Martin
-------------------------------------------------------
Thomas W. Martin
Executive Vice President (Principal
Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Page 51
SIXTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is
made as of November 29, 2004 by and between ICON Cash Flow Partners L.P. Seven,
a Delaware limited partnership ("Borrower 1"), ICON Income Fund Eight A L.P., a
Delaware limited partnership ("Borrower 2"), ICON Income Fund Eight B L.P., a
Delaware limited partnership ("Borrower 3"), ICON Income Fund Nine, LLC, a
Delaware limited liability company ("Borrower 4"), and ICON Income Fund Ten,
LLC, a Delaware limited liability company ("Borrower 5" and together with
Borrower 1, Borrower 2, Borrower 3 and Borrower 4, "Borrower" or "Borrowers"),
on the one hand, and Comerica Bank, successor by merger to Comerica
Bank-California ("Lender"), on the other hand, with respect to the Loan and
Security Agreement, dated as of May 30, 2002, entered into by Borrower 1,
Borrower 2, Borrower 3 and Comerica Bank-California; the First Amendment to Loan
and Security Agreement, dated as of December 12, 2002, entered into by Borrower
1, Borrower 2, Borrower 3, Borrower 4 and Comerica Bank-California; the Second
Amendment to Loan and Security Agreement, dated as of April 9, 2003, entered
into by Borrower 1, Borrower 2, Borrower 3, Borrower 4 and Comerica
Bank-California; the letter agreement dated May 31, 2003 entered into by
Borrower 1, Borrower 2, Borrower 3, Borrower 4 and Comerica Bank-California; the
Third Amendment to Loan and Security Agreement, dated as of July 31, 2003,
entered into by Borrower 1, Borrower 2, Borrower 3, Borrower 4 and Comerica
Bank; the Fourth Amendment to Loan and Security Agreement, dated as of November
3, 2003, entered into by Borrower 1, Borrower 2, Borrower 3, Borrower 4 and
Comerica Bank; and the Fifth Amendment to Loan and Security Agreement, dated as
of July 29, 2004, entered into by Borrower 1, Borrower 2, Borrower 3, Borrower
4, Borrower 5 and Comerica Bank (as amended and modified through but excluding
the date hereof, the "Agreement")."
RECITALS
WHEREAS, Borrower 1, Borrower 2, Borrower 3, Borrower 4, Borrower 5 and
Lender entered into the Agreement;
WHEREAS, the Revolving Loan Maturity Date is currently December 31, 2004;
WHEREAS, Borrowers have requested that Lender amend the Agreement to extend
the Revolving Loan Maturity Date to December 30, 2005; and
WHEREAS, Lender is willing to agree to Borrowers' request, on the terms and
conditions set forth below;
NOW, THEREFORE, IT IS AGREED THAT:
1. Definitions. Unless otherwise indicated, words and terms which are defined in
the Agreement shall have the same meaning where used herein.
2. Amendments.
a. The definition of "Revolving Loan Maturity Date" in the Agreement is
amended to read as follows:
Revolving Loan Maturity Date - December 30, 2005.
b. A new Section 5.5.7 is added to the Agreement, to read as follows:
5.5.7 Schedule of Non-Recourse Debt and Related Assets. Within 30 days
after the close of each fiscal year of Borrowers, a schedule (in form
satisfactory to Lender) showing each Borrower's non-recourse debt
(including the name of each creditor, the amount of the outstanding
principal balance owed to such creditor, the payment schedule and maturity
date for such non-recourse debt and a statement of whether such Borrower is
or is not in default with respect to such non-recourse debt), along with a
description of the assets that secure such non-recourse debt and the value
of such assets (determined in accordance with GAAP).
3. Continued Validity of Agreement. Except as amended by this Amendment, the
Agreement and all security agreements, guaranties, and other documents executed
by Borrower with or in favor of Lender (collectively referred to as "Loan
Documents"), shall continue in full force and effect as originally constituted
and are ratified and affirmed by the parties hereto. Each reference in the
Agreement or in the other Loan Documents to the Agreement shall mean the
Agreement as amended hereby unless the context otherwise requires. This
Amendment and the Agreement shall be read as one document. Without limiting the
generality of the foregoing, nothing in this Amendment entitles Borrower to
receive advances of any funds, or extends the maturity date for repayment,
beyond that expressly set forth in the Agreement.
4. Compliance with Loan Documents. Each Borrower represents and warrants to
Lender as follows: as of the effective date of this Amendment, each Borrower has
complied, and is in compliance, with all of the terms, covenants and conditions
of the Loan Agreement and the other Loan Documents applicable to it. As of the
effective date of this Amendment, there exists no Event of Default under the
Loan Agreement or any of the other Loan Documents or an event which would
constitute an Event of Default upon the lapse of time or upon the giving of
notice and the lapse of time specified therein. The representations and
warranties of each Borrower in the Loan Agreement and the other Loan Documents
are true and with the same effect as though such representations and warranties
had been made by such Borrower as of the date hereof. Each Borrower will
continue to be in compliance with all of the terms, covenants, and conditions of
the Loan Agreement and the other Loan Documents, and all representations and
warranties will continue to be true, upon this Amendment becoming effective.
5. Authorization. Each party hereto represents to the other that the individual
executing this Amendment on its behalf is the duly appointed signatory of such
party and that such individual is authorized to execute this Amendment by or on
behalf of such party and to take all action required by the terms of this
Amendment.
6. When Amendment is Effective. This Amendment shall be deemed binding and
effective if all of the following conditions are satisfied within seven days
after the date of this Amendment (or such longer time as the Bank in its sole
discretion agrees), and, in such event, at the time the last of the conditions
is satisfied:
(a) This Amendment is executed by Borrower 1, Borrower 2, Borrower 3,
Borrower 4, Borrower 5, and Lender, and Lender has received the fully
executed Amendment;
(b) Lender shall have received certified copies of all action taken by
Borrowers to authorize the execution, delivery and performance of the Loan
Documents, and identifying the persons authorized to sign Loan Documents on
behalf of each Borrower;
(c) Lender shall have received good standing certificates from the
appropriate secretary of state of the state in which each Borrower and its
general partner or manager, as the case may be, are organized;
(d) Lender shall have received UCC searches for each Borrower that are
satisfactory to Lender;
7. Captions. Section headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Amendment.
8. No Novation. This Amendment is not intended to be, and shall not be construed
to create, a novation or accord and satisfaction, and, except as otherwise
provided herein, the Agreement shall remain in full force and effect.
9. Severability. Each provision of this Amendment shall be severable from every
other provision of this Amendment for the purpose of determining the legal
enforceability of any specific provision.
10. Entire Agreement. This Amendment constitutes the entire agreement by and
between Borrower and Banks with respect to the subject matter hereof and
supersedes all prior and contemporaneous negotiations, communications,
discussions and agreements concerning such subject matter.
11. Counterparts. This Amendment may be executed in any number of counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
[Signatures on following page]
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first set forth above.
ICON CASH FLOW PARTNERS L.P. ICON INCOME FUND NINE, LLC,
SEVEN, a Delaware Limited Partnership a Delaware Limited Liability Company
By ICON Capital Corp., its general partner By: ICON Capital Corp., its manager
By:___________________________ By:__________________________
Thomas W. Martin Thomas W. Martin
Executive Vice President Executive Vice President
ICON INCOME FUND EIGHT A L.P., ICON INCOME FUND TEN, LLC,
a Delaware Limited Partnership A Delaware Limited Liability Company
By ICON Capital Corp., its general partner By: ICON Capital Corp., its manager
By:_____________________________ By: _________________________
Thomas W. Martin Thomas W. Martin
Executive Vice President Executive Vice President
ICON INCOME FUND EIGHT B L.P., COMERICA BANK
a Delaware Limited Partnership;;
By ICON Capital Corp., its general partner
By:______________________________ By: __________________________
Thomas W. Martin Daniel Backer
Executive Vice President Assistant Vice President-
Western Division