UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended June 30, 2004
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from _______________________ to ___________________
Commission File Number 000-50654
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ICON Income Fund Ten, LLC
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-2193184
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
100 Fifth Avenue, 10th floor, New York, New York 10011-1505
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(Address of principal executive offices) (Zip Code)
(212) 418-4700
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Registrant's telephone number, including area code
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Balance Sheets
(unaudited)
June 30, December 31,
2004 2003
---- ----
Assets
Cash and cash equivalents $ 14,577,705 $ 15,908,041
Investments in operating leases
Equipment at cost 101,484,721 2,880,000
Accumulated depreciation (2,491,387) (219,423)
------------- ---------------
98,993,334 2,660,577
-------------- ---------------
Escrow deposits 976,000 -
Equipment held for sale or lease, net 541,196 665,321
Prepaid service fees, net 3,007,554 1,417,995
Due from Manager and affiliates, net - 38
Other assets 91,957 -
-------------- -----------------
Total assets $ 118,187,746 $ 20,651,972
============== ================
Liabilities and Members' Equity
-------------------------------
Notes payable - non-recourse $ 67,562,822 $ -
Security deposits and other liabilities 468,943 233,524
Deferred income 2,079,350 -
Refunds payable 20,000 203,000
Due to Manager and affiliates, net 127,114 50,159
Minority interest in consolidated joint ventures 2,369,483 -
-------------- ----------------
Total liabilities 72,627,712 486,683
-------------- ----------------
Commitments and Contingencies
Members' equity
Manager (one share outstanding, $1,000 per share original issue price) (30,444) (3,092)
Additional members (56,089.235 and 23,784.330 shares outstanding,
$1,000 per share original issue price) 45,590,478 20,168,381
-------------- ---------------
Total members' equity 45,560,034 20,165,289
-------------- ---------------
Total liabilities and members' equity $ 118,187,746 $ 20,651,972
============== ================
See accompanying notes to condensed consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statement of Operations
(unaudited)
For the Three Months For the Six Months
Ended June 30, 2004 Ended June 30, 2003
------------------- -------------------
Revenues
Rental income $ 2,324,368 $ 2,600,239
Net gain on sales of equipment 18,893 18,893
-------------- ---------------
Total revenues 2,343,261 2,619,132
-------------- ---------------
Expenses
Depreciation expense 2,148,406 2,353,982
Amortization of prepaid service fees 307,910 510,260
Interest expense 197,873 197,873
Management fees - Manager 144,728 267,694
Administrative expense reimbursements - Manager 340,777 531,351
General and administrative 28,039 47,147
Minority interest income in
consolidated joint ventures (35,509) (35,509)
-------------- ----------------
Total expenses 3,132,224 3,872,798
-------------- ----------------
Net loss $ (788,963) $ (1,253,666)
============== ================
Net loss allocable to:
Managing member $ (7,890) $ (12,537)
Additional members (781,073) (1,241,129)
-------------- ----------------
$ (788,963) $ (1,253,666)
============== ===============
Weighted average number of additional member
shares outstanding 47,337 39,223
============== ================
Net loss per weighted average additional
member shares $ (16.50) $ (31.64)
============== =================
See accompanying notes to condensed consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statement of Changes in Members' Equity
For the Six Months Ended June 30, 2004
(unaudited)
Additional Members' Distributions
Return of Investment Additional Managing
Capital Income Members Member Total
------- ------ ------- ------ -----
(Per weighted average share)
Balance at January 1, 2004 $ 20,168,381 $ (3,092) $ 20,165,289
Proceeds from issuance of additional
member shares (32,304.905 shares) 32,304,905 - 32,304,905
Sales and offering expenses (4,175,270) - (4,175,270)
Cash distributions to members $ 37.39 $ - (1,466,409) (14,815) (1,481,224)
Net loss (1,241,129) (12,537) (1,253,666)
--------------- ------------ --------------
Balance at June 30, 2004 $ 45,590,478 $ (30,444) $ 45,560,034
=============== ============ ==============
See accompanying notes to condensed consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statement of Cash Flows
For The Six Months Ended June 30, 2004
(unaudited)
Cash flows from operating activities:
Net loss $ (1,253,666)
--------------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Rental income paid directly to lenders by lessees (1,588,728)
Interest expense on non-recourse financing paid directly
to lenders by lessees 197,873
Depreciation expense 2,353,982
Amortization of prepaid service fees 510,260
Net (gain) on sales of equipment (18,893)
Minority interest in consolidated joint ventures (35,509)
Changes in operating assets and liabilities:
Other assets (91,957)
Security deposits and other liabilities 235,419
Due to Manager and affiliates, net 76,993
---------------
Total adjustments 1,639,440
--------------
Net cash provided by operating activities 385,774
--------------
Cash flows from investing activities:
Investment in equipment (28,547,694)
Services fees paid (2,099,819)
Proceeds from sales of equipment 61,000
--------------
Net cash used in investing activities (30,586,513)
--------------
Cash flows from financing activities:
Issuance of additional membership shares, net
of sales and offering expenses paid 28,129,635
Cash distributions to members (1,481,224)
Minority interest contribution in joint venture, net 2,404,992
Refunds payable (183,000)
-------------
Net cash provided by financing activities 28,870,403
------------
Net decrease in cash and cash equivalents (1,330,336)
Cash and cash equivalents at beginning of period 15,908,041
--------------
Cash and cash equivalents at end of period $ 14,577,705
==============
(continued on next page)
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Condensed Consolidated Statement of Cash Flows (Continued)
For The Six Months Ended June 30, 2004
(unaudited)
Supplemental Disclosures of Cash Flow Information
- --------------------------------------------------
For the period ended June 30, 2004, non-cash activities included the following:
Non-cash portion of equipment purchased $ 70,057,027
Non-recourse notes assumed in purchase price (70,057,027)
----------------
$ -
================
Other liabilities assumed $ 12,500
=================
Rental income on operating lease receivables
paid directly to lender by lessee $ 1,588,728
Deferred income on operating lease receivables paid
directly to lenders by lessees, net 1,103,350
Principal and interest on non-recourse debt paid directly
to lenders by lessees (2,692,078)
-----------------
$ -
=================
Interest expense on non-recourse financing accrued
or paid directly to lenders by lessees $ 197,873
=================
See accompanying notes to condensed consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements
June 30, 2004
(unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of ICON Income Fund Ten,
LLC (the "LLC") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") and, in the opinion of
management, include all adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of results for the periods shown.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
SEC rules and regulations. Management believes that the disclosures made are
adequate to make the information presented not misleading. The results for the
interim period are not necessarily indicative of the results for the full year.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes included in the LLC's 2003 Annual Report
Form 10-K.
2. Organization
The LLC was formed on January 2, 2003 as a Delaware limited liability
company. The initial capitalization of the LLC was $1,000 by the Managing
Member. The LLC is offering membership interests on a "best efforts" basis with
the intention of raising up to $150,000,000 of capital. The LLC had its initial
closing on August 22, 2003 when it admitted members holding 5,065.736 additional
member shares, representing $5,065,736 in capital contributions. As of June 30,
2004 the LLC had admitted additional members holding 51,023.499 additional
member shares, representing $51,023,499 in capital contributions, bringing the
total capital contributions and additional member shares to $56,089,235 and
56,089.235, respectively.
The Manager of the LLC, ICON Capital Corp., 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.
3. Related Party Transactions
The LLC has entered into certain agreements with ICON Securities Corp. and
ICON Capital Corp. whereby the LLC pays certain fees and reimbursements to those
parties.
The LLC is a joint venture partner in ICON GeicJV, a joint venture formed
for the purpose of purchasing information technology equipment on lease to
Government Employees Insurance Company ("GEICO"). The LLC currently has a 74%
interest in ICON GeicJV.
The LLC is also a joint venture member of ICON Aircraft 46837, LLC, a
limited liability company which was formed for the sole purpose of purchasing
the beneficial interest in a DC-10-30 aircraft on lease to Federal Express
Corporation ("FedEx"). The LLC currently has a 71.4% interest in ICON Aircraft
46837, LLC.
Fees and expenses paid or accrued by the LLC to the Manager or its
affiliates for the six months ended June 30, 2004 are as follows:
Prepaid service fees $ 2,099,819 Capitalized
Organization and offering expenses 944,779 Charged to members' equity
Underwriting commissions 646,098 Charged to members' equity
Management fees 267,694 Charged to operations
Administrative expense reimbursements 531,351 Charged to operations
------------
Total $ 4,489,741
============
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements - Continued
Included in the balance sheet item Due to Manager and affiliates is a net
payable of $25,604 due to ICON Income Fund Eight A L.P. ("Fund Eight A") and
$78,500 due to ICON Income Fund Nine, LLC ("Fund Nine") for investments in joint
ventures. (See Note 4 for additional information relating to these joint
ventures).
4. Consolidated Joint Ventures
ICON Aircraft 46837, LLC
------------------------
In March 2004, the LLC and an affiliate, Fund Eight A, formed a joint
venture, ICON Aircraft 46837, LLC ("ICON Aircraft 46837"), for the purpose of
acquiring and managing a McDonnell Douglas DC-10-30F aircraft on lease to FedEx
through March 2007. The LLC and Fund Eight A have substantially identical
investment objectives and participate on the same terms and conditions. The LLC
has a right of first refusal to purchase the equipment, on a pro-rata basis, if
the affiliate desires to sell its interest in the equipment. The joint venture
is majority owned and consolidated with the LLC.
The purchase price of the aircraft was $21,489,374, which was funded with
cash of $3,566,226, the assumption of other liabilities of $12,500 and
non-recourse debt of $17,672,027. The non-recourse debt has an interest rate of
4% 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 fees
of $36,050 were also paid and capitalized as part of the cost of the aircraft.
Subsequent to closing, an additional $202,571 in bank fees and legal expenses
were paid and capitalized as part of the cost of the aircraft.
The LLC and Fund Eight A acquired interests of 71.4% and 28.6%,
respectively, in ICON Aircraft 46837. Fund Eight A has an option to purchase an
additional interest in ICON Aircraft 46837, which expires on September 30, 2004.
If Fund Eight A exercises this option, its ownership interest would increase to
90% and, as a result, the LLC would have a 10% interest in ICON Aircraft 46837.
The exercise price of the option is $2,130,604.
The LLC's condensed consolidated financial statements include 100% of the
assets, liabilities, revenues and expenses of ICON Aircraft 46837. Fund Eight
A's investment in ICON Aircraft 46837 is reflected as minority interest in
consolidated joint ventures on the condensed consolidated balance sheet.
ICON GeicJV
-----------
In March 2004, the LLC and an affiliate, Fund Nine, formed a joint venture
Partnership, ICON GeicJV, for the purpose of acquiring and managing certain
information technology equipment on lease to GEICO through March 2007. The LLC
and Fund Nine acquired interests of 74% and 26%, respectively, in ICON GeicJV.
The LLC and Fund Nine have substantially identical investment objectives and
participate on the same terms and conditions. The LLC has a right of first
refusal to purchase the equipment, on a pro-rata basis, if the affiliate desires
to sell its interest in the equipment. The joint venture is majority owned and
consolidated with the LLC.
The purchase price of the equipment was $5,852,197, which was funded
entirely with cash. The LLC paid $4,330,626 to fund its pro-rata share of the
purchase price.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Condensed Consolidated Financial Statements - Continued
5. Investments in Operating Leases
During June 2004, the LLC acquired two (2) shipping container vessels from
ZIM Israel Navigation Co., Ltd. ("ZIM"). The LLC simultaneously entered into a
bareboat charter agreement with ZIM for the use of the vessels. The bareboat
charter agreement is for a five-year period, starting June 24, 2004, with two
one-year extensions.
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. The
non-recourse debt has an interest rate of 5.36% and matures in July 2009. The
lenders have a security interest in the vessels and an assignment of the rental
payments under the lease with ZIM. Bank fees, legal fees and other expenses of
$563,150 were also paid and capitalized as part of the acquisition cost of the
vessels.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
Item 2. Manager's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited financial statements and notes included
in the LLC's annual report on Form 10-K dated December 31, 2003. 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. The LLC
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions. Any such forward-looking statements are subject
to risks and uncertainties and the LLC's 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; changes in capital spending by customers in the cargo
delivery industry; changing customer demands for vessel and aircraft; acts of
terrorism; unsettled political conditions, war, civil unrest and governmental
actions, especially in higher risk countries of operations, such as Israel;
foreign currency fluctuations; and environmental and labor laws. The LLC's
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 the LLC's 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 the LLC's current
level of expenses;
o the financial condition of lessees; and
o lessee defaults.
a. Overview
The LLC is an equipment leasing business formed on January 2, 2003 and
which began active operations on August 22, 2003. The LLC primarily engages in
the business of acquiring equipment subject to leases and, to a lesser degree,
acquiring ownership rights to items of leased equipment at lease expiration.
Some of the LLC's 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 the LLC's 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 by the LLC.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
We expect that the LLC will invest most of the net proceeds of this
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 the LLC's initial
investments to the extent that cash is not needed for LLC's expenses, reserves
and distributions to investors. The investment in additional equipment in this
manner is called "reinvestment." We anticipate the LLC will purchase equipment
from time to time until five years from the date we complete the current
offering of membership. That time frame is called the "reinvestment period",
which we may extend at our discretion for an additional three years. After the
"reinvestment period", the LLC will then sell its assets in the ordinary course
of business during a time frame called the "liquidation period". If we believe
it would benefit investors to reinvest the LLC's cash flow in equipment during
the liquidation period, the LLC 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, 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.
The LLC's current equipment portfolio, which is held directly by the LLC or
through joint venture investments with affiliates, consists of:
o Boeing 767 aircraft rotables and accessories, of which approximately 80% is
on lease to Flugfelagid Atlanta hf, d/b/a Air Atlanta Icelandic ("Air
Atlanta") with an expiration date of November 30, 2004. The remaining 20%
was on lease with Air Atlanta, but is now being held for sale or lease and
has a net book value of $541,196. The equipment was originally purchased
for $3,600,000.
o Two (2) 3,300 TEU container vessels, on bareboat charter lease to ZIM
Israel Navigation Co. Ltd. ("ZIM"). The expiration of the bareboat charter
is June 23, 2009. The purchase price for the vessels was $70,700,000
comprised of (i) approximately $18,400,000 in cash, and (ii) approximately
$52,300,000 of non-recourse debt.
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 GEICO. The expiration of the lease
is March 31, 2007. The LLC's share of the purchase price was $4,330,626 in
cash.
o A 71.4% interest in a 1979 McDonnell Douglas DC-10-30F aircraft on lease to
Federal Express Corporation ("FedEx") with an expiration of March 2007. The
LLC's contribution to the purchase price of the aircraft was $2,656,237 in
cash and $12, 678,517 in non-recourse debt.
Substantially all of our recurring operating cash flows are generated from
the operations of the single-investor leases in the LLC's 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 investors and are paid monthly (up until the liquidation
period). We anticipate increases in cash available for distributions to
investors from the acquisition of more single-investor transactions.
From January 1, 2004 through June 30, 2004, the LLC raised approximately
$32,300,000 through the issuance of approximately 32,300 units. As of June 30,
2004, approximately 94,000 units remain available for sale pursuant to the LLC's
offering.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
Industry Factors
Our results continue to be impacted by a number of factors influencing the
equipment leasing industry.
General Economic Conditions
The U.S. economy appears to be recovering, and the leasing industry's
outlook for the foreseeable future is encouraging. Many experts foresee an
increase in capital spending by corporations through 2007 which should increase
the pool of available secondary market leases, and to that end, the LLC is
seeing 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.
Further Deterioration of the Air Travel Industry.
The aircraft leasing industry is currently on the downside of a business
cycle and this has resulted in depressed sales prices for assets such as the
LLC's aircraft interests. It does not appear that the industry will recover
significantly in the very near future, although the LLC is optimistic that
within two to three years, there will be a full recovery. However, a further
weakening of the industry could cause the proceeds realized from the future sale
of the LLC's aircraft and its rotables to be even less than suggested by recent
appraisals.
b. Results of Operations for the Three Months Ended June 30, 2004
The LLC commenced active operations on August 22, 2003; therefore, a
comparison to the three months ended June 30, 2003 is not discussed.
Revenues
Revenues for the three months ended June 30, 2004 were $2,343,261 comprised
of rental income of $2,324,368 and net gain on sale of equipment of $18,893.
Rental income reflects the increase in operating lease activities. The gain on
sale of equipment resulted from sale of equipment that was off-lease.
Expenses of the LLC
Expenses for the three months ended June 30, 2004 were $3,132,224,
comprising primarily of depreciation and amortization expense of $2,456,316,
interest expense of $197,873, management fees - Manager of $144,728,
administrative expense reimbursements - Manager of $340,777, general and
administrative expenses of $28,039, and minority interest income of $35,509.
Our largest expense is depreciation. It is directly related to the
acquisition of operating lease assets. Our continued acquisition of operating
lease assets will lead to further increases in depreciation expense and other
operating expenses.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
Net Income/Loss of the LLC
Net loss for the three months ended June 30, 2004 was $788,963. The net
loss per weighted average additional member shares was $16.50.
c. Results of Operations for the Six Months Ended June 30, 2004
The LLC commenced active operations on August 22, 2003; therefore, a
comparison to the six months ended June 30, 2003 is not discussed.
Revenues
Revenues for the six months ended June 30, 2004 were $2,619,132 comprised
of rental income of $2,600,239 and net gain on sales of equipment of $18,893.
Rental income reflects the increase in operating lease activities.
Expenses of the LLC
Expenses for the six months ended June 30, 2004 were $3,872,798 comprised
primarily of depreciation and amortization expense of $2,864,242, interest
expense of $197,873, management fees - Manager of $267,694, administrative
expense reimbursements - Manager of $531,351, general and administrative
expenses of $47,147, and offset by minority interest income of $35,509. These
expenses reflect an increase in the level of the LLC's activities, as the LLC
engaged in additional leasing activities.
Our largest expense is depreciation. It is directly related to the
acquisition of operating lease assets. Our continued acquisition of operating
lease assets will lead to further increases in depreciation expense and other
operating expenses.
Net Income/Loss of the LLC
Net loss for the six months ended June 30, 2004 was $1,253,666. The net
loss per weighted average additional member shares was $31.64.
d. Liquidity and Capital Resources
Cash Requirements
The LLC has sufficient funds necessary to maintain current operations and
to continue to invest in business essential assets subject to lease. The LLC is
currently focused on increasing cash flow through acquisition of more "income"
leases.
Sources of Cash
Operations
For the six months ended June 30, 2004, the LLC's primary source of
liquidity was from financing activities; specifically from the sale of
additional members shares. Proceeds from the issuance of additional members
shares, net of sales and offering expenses, were $28,129,635. These funds, as
well as funds held in reserve by the LLC, were used primarily in investing
activities for the investment in equipment. Equipment subject to operating
leases was purchased for $28,547,694. The LLC is expected to continue acquiring
equipment subject to lease, and also make other types of related investments.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
Financings and Recourse Borrowings
Certain affiliates of the LLC--ICON Income Fund Nine, LLC; ICON Income Fund
Eight A L.P.; ICON Income Fund Eight B L.P.; and ICON Cash Flow Partners L.P.
Seven (collectively, the "Initial Funds") -- are 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 was amended to add the LLC as a borrower
(the LLC, together with the Initial Funds, the "Funds") effective August 5,
2004. The expiration of the Loan Agreement is December 31, 2004.
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 the addition of the
LLC 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 Contribution Agreement.
Aggregate borrowings by all funds under the line of credit agreement
amounted to $8,615,439 on June 30, 2004.
Distributions
The LLC made cash distributions to members of $1,481,224 during the quarter
ended June 30, 2004. Such distributions are reflected as a return of capital, as
the LLC recorded a loss for the quarter.
Capital Resources
The LLC is an investment vehicle formed for the purpose of acquiring and
owning equipment leases and the business essential equipment subject thereto. As
of June 30, 2004, the LLC was holding net offering proceeds of approximately
$14,577,705 available for such investments. At this time, the Manager is unaware
of any specific need requiring capital resources to be funded by the LLC.
Uncertainties
As of June 30, 2004, except as noted above in the Overview section and
listed below in the Risk Factors section, and to the best of our knowledge,
there were no known trends or demands, commitments, events or uncertainties
which we believe are likely to have a material effect on liquidity. As cash is
realized from the continued offering, operations, or borrowings, the LLC will
continue to invest in additional leasing transactions, while retaining
sufficient cash to meet its reserve requirements and recurring obligations.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
June 30, 2004
e. Inflation and Interest Rates
The potential effects of inflation on the LLC are difficult to predict. If
the general economy experiences significant rates of inflation, however, it
could affect the LLC in a number of ways. The cost of equipment acquisitions
could increase with inflation and revenues from existing leases would not
generally increase with inflation, as the LLC does not currently have or expect
to have rent escalation clauses tied to inflation in its leases. Nevertheless,
the anticipated proceeds from residual values to be realized upon the sale or
re-lease of equipment upon lease terminations (and thus the overall cash flow
generated from the LLC's 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 the LLC 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 3. Qualitative and Quantitative Disclosures About Market Risk
The LLC is exposed to certain market risks, including changes in interest
rates and the demand for equipment (and the related residuals) owned by the LLC
and its investors.
The LLC manages its interest rate risk by obtaining fixed rate debt either
directly or through its joint ventures. The fixed rate debt service obligations
are matched with fixed rate lease receivable streams generated by the leases.
The LLC attempts to manage its exposure to equipment and residual risk by
monitoring the market and maximizing remarketing proceeds received through
re-lease or sale of equipment.
Item 4. Controls and Procedures
The LLC carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., the Manager of the LLC,
including the Chief Executive Officer and the Principal Financial and Accounting
Officer, of the effectiveness of the design and operation of the LLC's
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 Chief Executive Officer and the Principal Financial and
Accounting Officer concluded that the LLC's disclosure controls and procedures
were effective.
There were no significant changes in the LLC's internal control over
financial reporting during the LLC's second quarter that have materially
affected, or are likely to materially affect, the LLC's internal control over
financial reporting.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
- --------------------------
The LLC, from time-to-time, in the ordinary course of business, commences
legal actions when necessary to protect or enforce the rights of the LLC. We are
not a defendant party to any pending litigation and are not aware of any pending
or threatened litigation against the LLC.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
10.1 Loan and Security Agreement dated May 30, 2002 as amended.
32.1 Certification of Chairman and Chief Executive Officer.
32.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer.
33.1 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.
33.2 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.
(b) Report on Form 8-K
The LLC filed a Current Report on Form 8-K, dated July 13, 2004, which
furnished a narrative on the recently completed ZIM acquisition. As well, it
announces that the LLC filed a Supplement No. 2 to its Prospectus in order to
disclose acquisitions and to provide clarifications related to fees charged by
the Manager.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICON Income Fund Ten, LLC (Registrant)
By its Manager,
ICON Capital Corp.
August 16, 2004 /s/ Thomas W. Martin
--------------------- --------------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
dated May 30, 2002
between
ICON CASH FLOW PARTNERS L.P. SEVEN
ICON INCOME FUND EIGHT A L.P.
ICON INCOME FUND EIGHT B L.P.
and
COMERICA BANK-CALIFORNIA
TABLE OF CONTENTS
Page
1. AMOUNT AND TERMS OF CREDIT..............................................................................49
1.1 Revolving Line of Credit Commitment.................................................................49
1.1.1 Revolving Line of Credit.................................................................49
1.1.2 Revolving Loan Account; Use of Proceeds..................................................49
1.1.3 Requests for Revolving Loans/Approval by Lender..........................................50
1.1.4 Revolving Loan Interest..................................................................50
1.2 Interest Rates......................................................................................50
1.2.1 Default Rate.............................................................................50
1.2.2 Computation of Interest..................................................................50
1.2.3 Maximum Interest Rate....................................................................50
1.3 Loan Fees...........................................................................................50
1.3.1 Facility Fee.............................................................................51
1.3.2 Documentation Fee, Costs and Expenses....................................................51
1.4 Late Charges........................................................................................51
1.5 Repayment...........................................................................................51
1.5.1 Payment on Revolving Loan Maturity Date..................................................51
1.5.2 Optional Prepayment......................................................................51
1.5.3 Repayment Procedure......................................................................51
1.6 Borrowing and Prepayment Notices....................................................................51
1.7 Note................................................................................................52
1.8 Payments on Non-Business Day........................................................................52
1.9 Collection of Payments..............................................................................52
1.9.1 Automatic Payments.......................................................................52
1.9.2 Other Payments...........................................................................52
1.10 Receipt of Payments by Lender......................................................................52
1.11 Extension of Time for Advances and Repayment.................... 6
2. CREATION OF SECURITY INTEREST...........................................................................53
2.1 Grant of Security Interest..........................................................................53
2.2 Authorization to File Financing Statements..........................................................53
2.3 Chattel Paper.......................................................................................54
2.4 Negotiable Collateral...............................................................................54
2.5 Investment Property.................................................................................54
2.6 Delivery of Additional Documentation Required.......................................................54
2.7 Right to Inspect....................................................................................55
2.8 Bailees and Other Third Parties in Possession.......................................................55
2.9 Control Agreements..................................................................................55
2.10 Ownership of Collateral..............10
3. CONDITIONS PRECEDENT....................................................................................55
3.1 Conditions Precedent to Initial Loan................................................................55
3.1.1 Note.....................................................................................55
3.1.2 Financing Statements and Perfection of Security Interest.................................55
3.1.3 Search Results...........................................................................55
3.1.4 Due Diligence............................................................................55
3.1.5 Insurance................................................................................55
3.1.6 Organizational Documents.................................................................56
3.1.7 Authorizations...........................................................................56
3.1.8 Good Standing............................................................................56
3.1.9 Executed Agreement.......................................................................56
3.1.10 Certificates of Title...................................................................56
3.1.11 Collateral Access Agreements............................................................56
3.1.12 Control Agreements......................................................................56
3.1.13 Payment of Borrower 1 and Borrower 3 Indebtedness.......................................56
3.1.14 Payment of All Fees and Expenses........................................................56
3.1.15 Opinion of Counsel......................................................................56
3.1.16 Contribution Agreement..................................................................11
3.1.17 Material Adverse Change................................................................56
3.1.18 Additional Documents....................................................................56
3.2 Conditions Precedent to All Loans...................................................................56
3.2.1 Borrowing Request........................................................................56
3.2.2 Representations and Warranties...........................................................56
3.2.3 Defaults.................................................................................57
3.2.4 Additional Documents.....................................................................57
4. REPRESENTATIONS AND WARRANTIES OF BORROWER..............................................................57
4.1 Existence and Rights................................................................................57
4.2 Agreement Authorized................................................................................57
4.3 No Conflict.........................................................................................57
4.4 Litigation..........................................................................................57
4.5 Financial Condition.................................................................................57
4.6 Title to Assets.....................................................................................58
4.7 Name; State of Incorporation; Location of Chief Executive Office....................................58
4.8 General Partner.....................................................................................58
4.9 Subsidiaries........................................................................................58
4.10 Tax Status.........................................................................................58
4.11 Trademarks, Trade Names, Copyrights, Patents.......................................................58
4.12 Regulatory Compliance..............................................................................58
4.13 ERISA..............................................................................................58
4.14 Solvency, Payment of Debts.........................................................................58
4.15 Full Disclosure....................................................................................59
4.16 Enforceability; Priority of Security Interest......................................................59
4.17 Enforceability of Collateral.......................................................................59
4.18 Other Financing Statements.........................................................................59
4.19 Environmental Representations......................................................................59
4.19.1 Existing Conditions.....................................................................59
4.19.2 Existing Orders........................................................................60
4.19.3 Permits.................................................................................60
4.19.4 Leases and Loan Contracts Subject to Revolving Loans....................................60
4.20 Inventory Records..................................................................................60
4.21 Commissions Due to Brokers.........................................................................60
4.22 Benefit to All Borrowers..............18
4.23 Consultation with Counsel.............18
5. AFFIRMATIVE COVENANTS OF BORROWER.......................................................................60
5.1 Rights and Facilities...............................................................................60
5.2 Use of Proceeds.....................................................................................61
5.3 Insurance...........................................................................................61
5.4 Taxes and Other Liabilities.........................................................................61
5.5 Records and Reports.................................................................................61
5.5.1 Quarterly Financial Statement............................................................61
5.5.2 Annual Financial Statement...............................................................61
5.5.3 Borrowing Base/Eligible Borrowing Base Contract Aging Report.............................18
5.5.4 Audit Reports............................................................................61
5.5.5 Compliance Certificate...................................................................62
5.5.6 Other Information........................................................................62
5.6 ERISA...............................................................................................62
5.7 Laws 62
5.8 Compliance with GAAP................................................................................62
5.9 Maintenance of Collateral...........................................................................62
5.10 Location of Inventory and Equipment................................................................62
5.11 Disposition of Proceeds of Collateral..............................................................62
5.12 Operating Accounts.................................................................................63
5.13 Notices............................................................................................63
5.14 Audits.............................................................................................63
5.15 Assignment of Accounts, Leases and Loan Contracts..................................................63
5.16 Collection of Accounts, Leases and Loan Contracts, Inventory Proceeds..............................63
5.17 Environmental Covenants............................................................................63
5.18 Contribution Agreement.............................................................................64
6. NEGATIVE COVENANTS OF BORROWER..........................................................................64
6.1 Type of Business; Management; Change of Control.....................................................64
6.2 Change of Name......................................................................................64
6.3 Change of State of Formation........................................................................64
6.4 Outside Indebtedness................................................................................64
6.5 Liens and Encumbrances..............................................................................64
6.6 Transactions Involving Collateral...................................................................64
6.7 Loans, Investments; Secondary Liabilities...........................................................65
6.8 Acquisition or Sale of Business; Merger or Consolidation............................................65
6.9 Distributions.......................................................................................65
6.10 Transactions with Subsidiaries and Affiliates......................................................65
6.11 Pension Plans......................................................................................65
6.12 No Further Negative Pledges........................................................................65
7. FINANCIAL COVENANTS.....................................................................................65
7.1 Aggregate Tangible Net Worth........................................................................65
7.2 Individual Borrower Tangible Net Worth..............................................................65
7.3 Debt to Tangible Net Worth..........................................................................65
7.4 Profitability.......................................................................................26
7.5 Other Collateral....................................................................................65
8. EVENTS OF DEFAULT.......................................................................................66
8.1 Failure to Pay......................................................................................66
8.2 Breach of Representations and Warranties, Affirmative, Negative or Financial Covenants..............66
8.3 Breach of Other Covenants...........................................................................66
8.4 Breach of Warranty..................................................................................66
8.5 Breach Under Any Other Loan Document................................................................66
8.6 Default Under Agreements with Other Persons.........................................................66
8.7 Judgments...........................................................................................66
8.8 Ownership...........................................................................................66
8.9 ERISA Compliance....................................................................................66
8.10 Insolvency; Receiver or Trustee....................................................................66
8.11 Bankruptcy.........................................................................................67
8.12 Security Interest..................................................................................67
8.13 Cessation of Business..............................................................................67
8.14 Material Adverse Change............................................................................67
8.15 Attachments........................................................................................67
8.16 Other Defaults.....................................................................................67
9. LENDER'S RIGHTS AND REMEDIES UPON EVENT OF DEFAULT......................................................67
9.1 Rights and Remedies.................................................................................67
9.2 Power of Attorney...................................................................................68
9.3. Payment of Expenses by Lender......................................................................69
9.4 No Obligation to Pursue Others......................................................................69
9.5 Compliance with Other Laws..........................................................................69
9.6 Warranties..........................................................................................69
9.7 Sales on Credit.....................................................................................69
9.8 No Marshaling.......................................................................................69
9.9 Government Consents.................................................................................69
9.10 Lender's Liability for Collateral..................................................................69
9.11 Waiver of Defaults.................................................................................70
9.12 Remedies Cumulative................................................................................70
9.13 Demand; Protest....................................................................................70
10. MISCELLANEOUS PROVISIONS................................................................................70
10.1 Failure or Indulgence Not Waiver...................................................................70
10.2 Amendments and Waivers.............................................................................70
10.3 Construction; Interpretation.......................................................................70
10.4 Cumulative Effect; Conflict of Terms...............................................................71
10.5 Counterparts; Entire Agreement.....................................................................71
10.6 Lender's Expenses and Attorney's Fees..............................................................71
10.7 Taxes and Fees.....................................................................................71
10.8 Successors and Assigns; Participations; Disclosure.................................................71
10.9 Applicable Law.....................................................................................71
10.10 Notices...........................................................................................72
10.11 Further Action....................................................................................72
10.12 Severability......................................................................................72
10.13 Reliance on and Survival of Various Provisions....................................................72
10.14 Effective Upon Execution..........................................................................72
10.15 Confidentiality...................................................................................72
10.16 Time of the Essence...............................................................................73
10.17 Joint and Several Liability......................................................................33
10.18 Waiver of Jury Trial..............................................................................73
APPENDIX A......................................................................................................A-1
GENERAL DEFINITIONS....................................................................................A-1
SCHEDULE 1......................................................................................................B-1
LEASES, LOAN CONTRACTS AND RELATED PROPERTY............................................................B-1
Exhibit 1.......................................................................................................B-4
Borrower's Report......................................................................................B-4
Exhibit 2.......................................................................................................B-6
Promissory Note........................................................................................B-6
Exhibit 3.......................................................................................................B-8
Compliance Certificate.................................................................................B-8
Exhibit 4......................................................................................................B-13
Borrowing Base/Eligible Borrowing Base Contract Aging Report...................................................B-13
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement is made and entered into as of May 30, 2002, 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"), on the one hand, and Comerica Bank-California, a California
banking corporation ("Lender"), on the other hand. Borrower 1, Borrower 2,
Borrower 3 and all other Persons who are or hereafter (with Lender's consent)
become borrowers under this Agreement are jointly and severally, individually
and collectively, referred to herein as "Borrower." Except as otherwise defined
herein, initially capitalized terms used in this Agreement have the meanings
assigned to them in Appendix A attached hereto.
Subject to the terms and conditions hereof, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender shall make the Loans to Borrower as set forth below.
In consideration of the mutual covenants and conditions hereof, the parties
agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1......Revolving Line of Credit Commitment.
1.1.1 Revolving Line of Credit. Subject to the terms and conditions of this
Agreement, from time to time from the Closing Date to 4:00 p.m., California
time, on the Business Day immediately prior to the Revolving Loan Maturity Date,
Lender agrees, upon Borrower's request in accordance with this Agreement, to
make advances (each a "Revolving Loan," and collectively, the "Revolving Loans")
to Borrower in an aggregate amount outstanding not to exceed at any one time the
lesser of: (x) the Borrowing Base or (y) the Maximum Revolving Amount.
If at any time or for any reason, the outstanding principal amount of the
Revolving Loans issued by Lender pursuant to this Agreement and outstanding
shall exceed the lesser of: (x) the Borrowing Base or (y) the Maximum Revolving
Amount, Borrower shall pay to Lender, in cash, the amount of such excess within
5 days of the date such excess occurs. Borrower shall not request any Revolving
Loan from Lender which, if made, issued or allowed, would exceed the limits set
forth in this Section 1.1.1.
Any commitment of Lender, pursuant to the terms of this Agreement, to make
Revolving Loans shall expire at 4:00 p.m., California time, on the Business Day
prior to the Revolving Loan Maturity Date, subject to Lender's right to renew
said commitment in its sole and absolute discretion at Borrower's request. Any
such renewal of said commitment shall not be binding upon Lender unless it is in
writing and signed by an officer of Lender. Provided that no Event of Default
has occurred and is continuing, all or any portion of the Revolving Loans
advanced by Lender which are repaid by Borrower shall be available for
reborrowing in accordance with the terms hereof.
1.1.2 Revolving Loan Account; Use of Proceeds. The amount and date of each
Revolving Loan made by Lender to Borrower hereunder, the amount from time to
time outstanding, the applicable interest rate in respect of each Loan, the
amount and date of any repayment hereunder, and the amount allocable to each
Borrower based on Loans to that Borrower and repayments by that Borrower shall
be noted on Lender's books and records ("Revolving Loan Account"), which shall
be presumptive evidence thereof, absent manifest error; provided, however, that
any failure by Lender to make any such notation, or any error in any such
notation, shall not relieve Borrower of its obligations to pay to Lender all
amounts owing to Lender under or pursuant to this Agreement and each of the
other Loan Documents, in each case, when due in accordance with the terms hereof
or thereof. Borrower shall not use the proceeds of Revolving Loans for any
purpose other than (a) payment of the balance owing to Lender on loans made by
Lender to Borrower 1 and Borrower 3 existing on the date hereof; (b) payment of
the balance owing to Pullman Bank (not to exceed $2,600,000) on a line of credit
by Pullman Bank to Borrower 2 (provided that Pullman Bank prior to or
concurrently therewith terminates the line of credit and its security interest
in property of Borrower 2 and delivers to Lender the original lease documents it
obtained as collateral to secure such line of credit); (c) payment of Borrower's
periodic cash flow needs, including modifications and upgrades to equipment in
the process of being sold or released, reduction of non-recourse borrowings,
making scheduled distributions to limited partners, acquiring equipment subject
to lease or similar transactions intended for the investment account of
Borrower, and for general working capital needs of Borrower.
1.1.3 Requests for Revolving Loans/Approval by Lender. Requests for
Revolving Loans hereunder shall be in writing duly executed by each Borrower, on
a Borrower's Report in the form attached hereto as Exhibit 1, and shall contain
a certification: (a) demonstrating on a pro forma basis Borrower's compliance
with Section 1.1.1 and Section 1.1.2 after taking into account the proposed
borrowing and the proposed payment terms of the Eligible Borrowing Base
Contracts or Eligible Residual Values proposed to be financed by the borrowing,
(b) describing in detail satisfactory to Lender the Eligible Borrowing Base
Contracts, Eligible Residual Values, and related equipment based on which such
Revolving Loan has been requested, (c) certifying that the applicable contracts
are Eligible Borrowing Base Contracts, (d) certifying that Borrower is in
compliance with, and will continue to be in compliance with upon the making of
the Revolving Loan, the terms and conditions of the Agreement, and (e) providing
such additional information as is requested in the Borrower's Report. Borrower
shall also state in writing to which Borrower the Revolving Loan is being made.
Notwithstanding any other provision contained herein or in any of the Loan
Documents, Lender is under no obligation to make a Revolving Loan with respect
to any lease or loan contract in which Borrower is not the lessor or lender, as
the case may be. If Lender decides, in its sole and absolute discretion, to make
such a Revolving Loan, it shall be on such terms and conditions as are
acceptable to Lender.
1.1.4 Revolving Loan Interest. Borrower further promises to pay to Lender,
from the date of the advance of the initial Revolving Loan until all Obligations
are repaid in full and Lender has no further obligation to make Revolving Loans,
on or before the last day of each month, interest on the unpaid balance of the
Revolving Loans at a fluctuating rate of interest equal to the Base Rate plus
1.0% per annum, which rate shall vary concurrently with any change in the Base
Rate.
1.2......Interest Rates.
1.2.1 Default Rate. Notwithstanding anything to the contrary set forth
herein, upon the occurrence and during the continuation of an Event of Default,
all Obligations shall bear interest at a rate equal to 3.00% per year in excess
of the rate applicable immediately prior to the occurrence of the Event of
Default, and such rate of interest shall fluctuate thereafter from time to time
at the same time and in the same amount as any fluctuation in the rate
applicable immediately prior to such occurrence. Such default interest shall be
payable on demand.
1.2.2 Computation of Interest. All computations of interest shall be
calculated on the basis of a year of three hundred sixty (360) days for the
actual days elapsed. In the event that the Base Rate announced is, from time to
time, changed, adjustment in the rate of interest payable hereunder shall be
made as of 12:01a.m. (California time) on the effective date of the change in
the Base Rate. Interest shall accrue from the Closing Date to the date of
repayment of the Loans in accordance with the provisions of this Agreement;
provided, however, if a Loan is repaid on the same day on which it is made, then
one (1) day's interest shall be paid on that Loan. Any and all interest not paid
when due shall, at Lender's option, thereafter be deemed to be a Revolving Loan
made under Section 1.1.1 and shall bear interest thereafter as provided for in
Subsection 1.1.4.
1.2.3 Maximum Interest Rate. In no event shall the interest rate and other
charges hereunder exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto. In the event that such a court determines that Lender has received
interest and other charges hereunder in excess of the highest rate applicable
hereto, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations, other than interest, in the
inverse order of maturity, and the provisions hereof shall be deemed amended to
provide for the highest permissible rate. If there are no Obligations
outstanding, Lender shall refund to Borrower such excess.
1.3......Loan Fees. In addition to any other amounts due or to become due
under this Agreement concurrent with the execution hereof, Borrower shall pay to
Lender, the following fees:
1.3.1 Facility Fee. A Facility Fee in the amount of $75,000.00 per year,
payable in arrears in installments of $18,750.00 per quarter, with the first
installment in the amount of $18,750.00 to be paid on June 30, 2002, and with
subsequent installments to be paid on the last day of each three-month period
thereafter (September 30, 2002, December 31, 2002, etc.) through the Revolving
Loan Maturity Date of, if an extension of time beyond the Revolving Loan
Maturity Date for advances and repayment is provided pursuant to Section 1.11,
through the end of the extension period.
1.3.2 Documentation Fee, Costs and Expenses. In addition to any other
amounts due, or to become due, concurrently with the execution hereof, a
documentation fee in the amount of $500.00 and all other costs and expenses
(including attorney's fees) incurred by Lender in the negotiation and
preparation of this Agreement and the other Loan Documents, incurred in the
perfection of any security interest granted to Lender by Borrower, or incurred
by Lender in the negotiation and preparation of any modification or restatement
of, or amendment to, this Agreement or any of the other Loan Documents.
1.4......Late Charges. If any installment payment, interest payment,
principal payment or principal balance due under any of the Loans is delinquent
10 or more days, in addition to and not in substitution of Lender's other rights
and remedies with respect to such late payment, Borrower agrees to pay Lender a
late charge in the amount of 5% of the payment so due and unpaid, in addition to
the payment. All payments, at Lender's sole discretion, shall be applied first
to any late charges owing, then to interest and the remainder, if any, to
principal.
1.5......Repayment.
1.5.1 Payment on Revolving Loan Maturity Date. Borrower promises to pay to
Lender the entire outstanding unpaid principal balance of the Loans, together
with all accrued unpaid interest thereon and unpaid fees, costs, expenses, and
charges owing to Lender pursuant to the Loan Documents, on the earlier of the
date otherwise due under this Agreement or the Revolving Loan Maturity Date.
1.5.2 Optional Prepayment. Borrower may, at its option, prepay the Loans,
in whole or in part, at any time and from time to time without penalty or
premium.
1.5.3 Repayment Procedure. All repayments of Loans (including prepayments
and payments of interest and late charges with respect to Loans) shall be made
to Lender in immediately available funds. In the case of any repayment, Borrower
shall designate to Lender the identity of the Borrower to whom the repayment is
to be allocated and the amount(s) being repaid. If Borrower fails to make such a
designation, Lender may apply the repayment in any manner it deems appropriate.
1.6......Borrowing and Prepayment Notices. Borrower shall give Lender prior
written notice of each request for the making of a Revolving Loan (each, a
"Borrowing Notice") or the prepayment of a Revolving Loan (each, a "Prepayment
Notice") as follows:
1.6.1 Each Borrowing Notice and Prepayment Notice shall be effective only
if actually received by Lender at the address set forth in Section 10.10 of this
Agreement not later than 11:00 a.m., Pacific time, on the date of the proposed
borrowing or prepayment, as the case may be.
1.6.2 Each such Borrowing Notice or Prepayment Notice shall specify (i) the
amount (subject to the limitations set forth in this Agreement) to be borrowed
or prepaid, as the case may be, (ii) the identity of the Borrower who is
obtaining the Revolving Loan or who is to be credited with the prepayment, as
the case may be, and (iii) the date of the borrowing or prepayment, as the case
may be. Any such date shall be a Business Day.
1.6.3 Lender shall not incur any liability to Borrower in acting upon any
telephonic notice which Lender believes in good faith to have been given by a
Responsible Officer of Borrower, or for otherwise acting in good faith under
this Section 1.6, and in making any Loans pursuant to telephonic notice.
1.6.4 Lender may, in its sole and absolute discretion, either require all
Borrowers to join in any request for a Loan or in any other action under the
Loan Documents, or act on the basis of a request or action of any one or more
Borrower.
1.6.5 So long as all of the conditions for a borrowing of a Revolving Loan
set forth herein have been satisfied, Lender shall make the proceeds of such
Loan available to Borrower on the applicable borrowing date by transferring same
day funds, equal to the amount of such Loan, in accordance with written
disbursement instructions given by Borrower to Lender, in form and substance
satisfactory to Lender and otherwise consistent with Section 1.1.
1.7......Note. Borrower will execute and deliver to Lender a promissory
note substantially in the form of Exhibit 2, with appropriate insertions as to
payee, date and principal amount (each, as amended, supplemented, replaced or
otherwise modified from time to time, the "Note"), payable to the order of
Lender and in a principal amount equal to the Maximum Revolving Amount. The Note
shall (x) be dated the Closing Date, (y) be payable as provided herein and (z)
provide for the payment of interest in accordance with the terms of this
Agreement.
1.8......Payments on Non-Business Day. Whenever any payment to Lender under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
1.9......Collection of Payments. All sums payable by Borrower to Lender
under or pursuant to this Agreement or any other Loan Document, whether
principal, interest, or otherwise, shall be paid, when due, directly to Lender
at the office of Lender identified in Section 10.10, in immediately available
United States funds, and without setoff, deduction or counterclaim. Borrower
hereby authorizes Lender to collect all principal, interest, late charges, fees,
costs, or expenses due under this Agreement or the other Loan Documents, as
follows:
1.9.1 Automatic Payments. Borrower authorizes Lender to automatically
deduct from deposit account number 1891551895 maintained by Borrower 1 with
Lender the portion of the amount of principal, interest and late charges due
allocable to Borrower 1 (which allocation shall be based on Loans to Borrower 1
and payments by Borrower 1). Borrower authorizes Lender to automatically deduct
from deposit account number 1892184233 maintained by Borrower 2 with Lender the
portion of the amount of principal, interest and late charges due allocable to
Borrower 2 (which allocation shall be based on Loans to Borrower 2 and payments
by Borrower 2). Borrower authorizes Lender to automatically deduct from deposit
account number 1891552869 maintained by Borrower 3 with Lender the portion of
the amount of principal, interest and late charges due allocable to Borrower 3
(which allocation shall be based on Loans to Borrower 3 and payments by Borrower
3). Lender may automatically deduct from any account maintained by any Borrower
with Lender any other amounts owed by any Borrower to Lender and, if there are
insufficient funds in any of the above-referenced accounts to satisfy the amount
owed to Lender, Lender may automatically deduct the deficiency from any account
maintained by any Borrower with Lender or an Affiliate of Lender.
Should there be insufficient funds in any such account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower; provided, however, that Lender shall not be obligated to
advance funds to cover any such payment. In addition, Borrower authorizes
Lender, at its sole option, without prior notice to Borrower, to advance a
Revolving Loan for any payment due or past due hereunder, including principal,
interest or late charges owing of the Loans, and to pay the proceeds of such
Revolving Loan to Lender for application toward such due or past due payment.
1.9.2 Other Payments. Any such amounts not collected in accordance with the
foregoing instructions may be paid in cash or deducted from loan proceeds;
provided, however, that Lender shall not be obligated to advance funds to cover
payment of any such amount.
1.10.....Receipt of Payments by Lender. Any payment by Borrower of any of
the Obligations made by mail will be deemed tendered and received by Lender only
upon actual receipt thereof by Lender at the address designated for such
payment, whether or not Lender has authorized payment by mail or in any other
manner, and such payment shall not be deemed to have been made in a timely
manner unless actually received by Lender on or before the date due for such
payment, time being of the essence. Borrower expressly assumes all risks of loss
or liability resulting from non-delivery or delay of delivery of any item of
payment transmitted by mail or in any other manner. Acceptance by Lender of any
payment in an amount less than the amount then due shall be deemed an acceptance
on account only, and any failure to pay the entire amount then due within the
grace period set forth in Section 8.1 of this Agreement shall constitute and
continue to be an Event of Default hereunder, and at any time thereafter, and
until the entire amount then due has been paid in full, Lender shall be entitled
to exercise any and all rights and remedies conferred upon and otherwise
available to Lender hereunder or under any of the other Loan Documents upon the
occurrence and during the continuance of any such Event of Default. Prior to the
occurrence of any Event of Default hereunder, Borrower shall have the right to
direct the application of any and all payments made to Lender by Borrower
hereunder to the respective Obligations. Borrower waives the right to direct
application of any and all payments received by Lender from and on behalf of
Borrower at any time or times after the occurrence and during the continuation
of any Event of Default hereunder. Borrower further agrees that after the
occurrence and during the continuation of any Event of Default hereunder, or
prior to the occurrence of any Event of Default hereunder if Borrower has failed
to direct such application, Lender shall have the continuing exclusive right to
apply and to reapply any and all payments received by Lender at any time or
times hereafter, whether as voluntary payments, proceeds from any Collateral,
offsets, or otherwise, against the Obligations in such order and in such manner
as Lender may, in its sole discretion, deem advisable, notwithstanding any entry
by Lender upon any of its books and records. Borrower hereby expressly agrees
that, to the extent that Lender receives any payment or benefit of or otherwise
upon any of the Obligations, and such payment or benefit, or any part thereof,
is subsequently invalidated, declared to be fraudulent or preferential, or set
aside, or required to be repaid to a trustee, receiver, or other party under any
provision of the Bankruptcy Code or under any other state or federal law, common
law, or equitable cause, then to the extent of such payment or benefit, the
Obligations, or part thereof, intended to be satisfied shall be revived and
continued in full force and effect as if such payment or benefit had not been
made by Borrower or received by Lender, and, further, any such repayment by
Lender shall be added to and be deemed to be part of the Obligations.
1.11 Extension of Time for Advances and Repayment.
1.11.1 If Lender fails to give Borrower written notice prior to six months
before the Revolving Loan Maturity Date of its intention not to extend the
Revolving Loan Maturity Date, then the date on which Lender's obligation to make
advances (subject to the terms and conditions of the Loan Documents) shall be
extended to the earlier of the following: (a) 4:00 p.m., California time, on the
Business Day immediately prior to the date that is 6 months after Lender
provides Borrower with written notice of its intention not to extend the
Revolving Loan Maturity Date; and (b) 4:00 p.m., California time, on the
Business Day immediately prior to the date that is 6 months after the Revolving
Loan Maturity Date.
1.11.2 If Lender fails to give Borrower written notice prior to six months
before the Revolving Loan Maturity Date of its intention not to extend the
Revolving Loan Maturity Date, then the date on which amounts are due and payable
by Borrower on the Revolving Loan Maturity Date shall be extended to the earlier
of the following: (a) 6 months after Lender provides Borrower with written
notice of its intention not to extend the Revolving Loan Maturity Date; and (b)
6 months after the Revolving Loan Maturity Date. Notwithstanding the foregoing,
regardless of whether Lender has provided such notice, Borrower remains
obligated to pay when otherwise due all amounts payable prior to the Revolving
Loan Maturity Date (including but not limited to interest payments and amounts
payable as the result of an acceleration of the loan in accordance with the
Agreement).
1.11.3 Regardless of whether Lender has provided the notice described in
Sections 1.11.1 or 1.11.2, Lender retains all of the rights and remedies
available to it if an Event of Default or Unmatured Event of Default occurs.
2. CREATION OF SECURITY INTEREST
2.1......Grant of Security Interest. Borrower hereby grants to Lender a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Lender's security interests in
the Collateral shall attach to all Collateral without further act on the part of
Lender or Borrower.
Borrower acknowledges that Lender may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. At any time until the full and
final payment of the Obligations and the termination of all obligations of
Lender hereunder, Lender may notify any Account debtor, Lessee or Debtor of
Lender's security interest, and verify with such Person information relating to
such Account, Lease, Loan Contract, Indirect Lease or Indirect Loan Contract.
Notwithstanding termination of this Agreement, the security interest of Lender
shall remain in effect for so long as any Obligations are outstanding or any
loan facility in favor of Lender is in place.
2.2......Authorization to File Financing Statements. Borrower hereby
irrevocably authorizes Lender at any time and from time to time to file in any
Uniform Commercial Code jurisdiction any initial financing statements and
amendments thereto that (a) indicate the Collateral (i) as to all assets of
Borrower or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the state or such jurisdiction, or (ii) as being of an equal
or lesser scope or with greater detail, and (b) contain any other information
required or authorized by part 5 of Article 9 of the Uniform Commercial Code of
the state to be included in such financing statement or amendment. Borrower
agrees to furnish any information needed or appropriate for the filing of such a
document within three Business Days after request therefore by Lender. Lender
shall endeavor to provide Borrower with a copy of any financing statements and
amendments filed by it, but incurs no liability to Borrower, and such financing
statements and amendments shall be effective, even if Lender fails to do so.
2.3......Chattel Paper. Borrower agrees to deliver to Lender the originals
of all Leases and Loan Contracts identified in Schedule 1 hereto, as well as any
other Leases and Loan Contracts based upon which Lender makes a Revolving Loan,
as well as (when Borrower was not the original lessor under such Lease or the
original lender under such Loan Contract) the originals of documents reflecting
the transfer of the lessor's interest in the Lease or lender's interest in the
Loan Contract, and the related equipment, to Borrower. Upon request of Lender,
Borrower will deliver to Lender any and all of the documents evidencing or
constituting the Collateral, and Borrower will note Lender's interest upon any
and all chattel paper if not delivered to Lender for possession by Lender.
2.4......Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
promptly upon the request of Lender, shall (a) endorse or assign such Negotiable
Collateral to Lender, (b) deliver physical possession of such Negotiable
Collateral to Lender, and (c) mark conspicuously all of its records pertaining
to such Negotiable Collateral with a legend, in form and substance satisfactory
to Lender (and in the case of Negotiable Collateral consisting of tangible
Chattel Paper, immediately mark all such Chattel Paper with a conspicuous legend
in form and substance satisfactory to Lender), indicating that the Negotiable
Collateral is subject to the security interest granted hereby.
2.5......Investment Property. If Borrower shall at any time hold or acquire
any certificated securities that constitutes Collateral, Borrower shall
forthwith endorse, assign and deliver the same to Lender, accompanied by such
instruments of transfer or assignment duly executed in blank as Lender may from
time to time specify. If any securities now or hereafter acquired by Borrower
are uncertificated and are issued to Borrower or its nominee directly by the
issuer thereof, Borrower shall promptly notify Lender thereof and, at Lender's
request and option, pursuant to an agreement in form and substance satisfactory
to Lender, either (a) cause the issuer to agree to comply with instructions from
Lender as to such securities, without further consent of Borrower or such
nominee, or (b) arrange for Lender to become the registered owner of such
securities. If any securities, whether certificated or uncertificated, or other
investment property now or hereafter acquired by Borrower are held by Borrower
or its nominee through a securities intermediary or commodity intermediary,
Borrower shall promptly notify Lender thereof and, at Lender's request and
option, pursuant to an agreement in form and substance satisfactory to Lender,
either (i) cause such securities intermediary or (as the case may be) commodity
intermediary to agree to comply with entitlement orders or other instruments
from Lender to such securities intermediary as to such securities or other
investment property, or (as the case may be) to apply any value distributed on
account of any commodity contract as directed by Lender to such commodities
intermediary, in each case without further consent of Borrower or its nominee,
or (ii) in the case of financial assets or other investment property held
through a securities intermediary, arrange for Lender to become the entitlement
holder with respect to such investment property, with Borrower being permitted,
only with consent of Lender, to exercise rights to withdraw or otherwise deal
with such investment property. Borrower shall also execute such additional
agreements or instruments, in form and substance satisfactory to Lender, with
respect to investment property, as Lender shall request.
2.6......Delivery of Additional Documentation Required. At any time at the
request of Lender, Borrower shall execute and deliver to Lender, all financing
statements, continuation financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title,
applications for title, affidavits, reports, notices, schedules of accounts,
letters of authority, powers of attorney, and other documents that Lender may
reasonably request, in form satisfactory to Lender, to perfect and continue
perfected Lender's security interests in the Collateral, in order to enable
Lender to enforce its rights and remedies under the Loan Documents, and in order
to fully consummate all of the transactions contemplated under the Loan
Documents. Borrower hereby appoints Lender as its irrevocable attorney-in-fact
for the purpose of executing any documents, or taking any other action,
necessary or appropriate to perfect, or continue the perfection of, the security
interest granted in this Agreement, with Lender being authorized to act in its
own name or in the name of Borrower. Lender shall endeavor to provide Borrower
with notice and a copy of any documents executed and other actions taken
pursuant to the appointment of Lender as its attorney-in-fact made in the
preceding sentence, but incurs no liability to Borrower, and the execution of
such documents and such actions shall be effective, even if Lender fails to do
so.
2.7......Right to Inspect. Lender (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, no less frequently than semi-annually
(or at any time and without notice required if an Event of Default has occurred
and is continuing), to inspect and audit Borrower's Books and to make copies
thereof and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, condition of, or any other matter
relating to, the Collateral. Borrower shall pay all reasonable expenses incurred
by Lender with respect to such inspection and audit.
2.8......Bailees and Other Third Parties in Possession. In the event that
any Collateral is in the possession of a third party, Borrower shall join with
Lender in notifying such third party of Lender's security interest and obtaining
an acknowledgment from such third party that it is holding such Collateral for
the benefit of Lender.
2.9......Control Agreements. Borrower shall cooperate with Lender in
obtaining a control agreement in form and substance satisfactory to Lender with
respect to all Deposit Accounts, electronic Chattel Paper, Investment Property,
Letter of Credit Rights, or other property that constitutes Collateral for which
a control agreement is a necessary or appropriate means of perfecting a security
interest.
2.10.....Ownership of Collateral. Borrower shall, upon request by Lender,
promptly inform Lender which Borrower owns each item of Collateral that has been
pledged to Lender and provide such documents as Lender may reasonably request to
support such a statement.
3. CONDITIONS PRECEDENT
3.1......Conditions Precedent to Initial Loan. Lender's obligation to make
the initial Loan is subject, in addition to any other conditions specified in
this Agreement, to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions:
3.1.1 Note. Lender shall have received an original, executed Note from
Borrower, pursuant to Section 1.7 of this Agreement, in the form of Exhibit 2
hereto, and duly completed.
3.1.2 Financing Statements and Perfection of Security Interest. Lender
shall have received original UCC financing statements, in each case in form and
substance satisfactory to Lender, covering the Collateral (and executed by
Borrower and any grantor of a security interest in Collateral if so requested by
Lender), and such UCC financing statements have been filed with the appropriate
official of the state where the Borrower and each grantor of a security interest
is located and/or any other state or county in which Lender has required the
filing of a UCC financing statement, describing all personal property which is
collateral for the Loan; and all other actions have been taken, and documents
provided to Lender, as are necessary or appropriate to perfect Lender's security
interest in the Collateral.
3.1.3 Search Results. Lender shall have received Uniform Commercial Code
and other public record searches with respect to Borrower and any grantor of a
security interest, in each case in form and substance satisfactory to Lender.
3.1.4 Due Diligence. Lender shall have completed its due diligence
requirements with respect to Borrower, including audits, financial and legal
survey, review of Borrower's formation and authorization documents.
3.1.5 Insurance. Borrower shall have delivered to Lender satisfactory
evidence of insurance coverage required by the Loan Documents, covering risks
and issued by companies satisfactory to Lender, in each case including, where
required by Lender, certified copies of the policies of insurance therefor,
together with endorsements thereto, and where required by Lender, with a
lender's loss payable endorsement form 438BFU or other form of lender's loss
payable endorsement satisfactory to Lender, in favor of Lender as additional
loss payee thereunder, in form, substance, amount and covering risks
satisfactory to Lender, and specifying that the insurer shall give Lender at
least 30 days prior written notice of the cancellation of any such policies of
insurance for any reason. This Section 3.1.5 does not require Borrower to have
Lender added as a loss payee or additional insured on insurance policies for
Revolving Loan Contracts.
3.1.6 Organizational Documents. Borrower and its general partner shall have
delivered to Lender certified copies of the certificates of limited partnership,
partnership agreements, articles of incorporation, bylaws or similar document of
Borrower and its general partner, in each case in form and substance
satisfactory to Lender.
3.1.7 Authorizations. Lender shall have received certified copies of all
action taken by Borrower to authorize the execution, delivery and performance of
the Loan Documents.
3.1.8 Good Standing. Lender shall have received good standing certificates
from the appropriate secretary of state of the state in which Borrower and its
general partner are organized and in each state in which Borrower is required to
be qualified to do business.
3.1.9 Executed Agreement. Lender shall have received an original of this
Agreement and all other Loan Documents to which Borrower is a party, duly
executed by Borrower.
3.1.10 Certificates of Title. Lender shall have received duly executed
certificates of title with respect to that portion of the Collateral that is
subject to certificates of title.
3.1.11 Collateral Access Agreements. Lender shall have received such
collateral access agreements from each lessor, warehouseman, bailee, and other
Person as Lender may require, in form and substance satisfactory to Lender.
3.1.12 Control Agreements. Lender shall have received such control
agreements from each Person as Lender may require, in form and substance
satisfactory to Lender.
3.1.13 Payment of Borrower 1 and Borrower 3 Indebtedness. All indebtedness
owed by Borrower 1 and Borrower 3 to Lender as of the date hereof and as of the
date of the initial Loan hereunder shall have been paid in full, either prior to
or concurrently with, the making of the initial Loan hereunder.
3.1.14 Payment of All Fees and Expenses. Lender shall have received payment
of all fees payable on the Closing Date in accordance with the provisions of
this Agreement, including but not limited to the Commitment Fee, together with
all Lender expenses owing on the Closing Date.
3.1.15 Opinion of Counsel. Lender shall have received an opinion letter
from Borrower's counsel, in form and substance satisfactory to Lender.
3.1.16 Contribution Agreement. The contribution agreement referred to in
Section 5.18 of this Agreement shall have been executed by each Borrower and a
copy thereof shall have been delivered to Lender.
3.1.17 Material Adverse Change. No event that has resulted or could result
in a Material Adverse Change shall have occurred, as determined by Lender in its
sole discretion.
3.1.18 Additional Documents. Lender shall have received all such other
agreements, instruments and documents as Lender may reasonably deem necessary or
desirable.
3.2......Conditions Precedent to All Loans. Lender's obligation to make
each Loan is subject, in addition to any other conditions specified in this
Agreement, to the fulfillment, to the satisfaction of Lender and its counsel, of
each of the following conditions:
3.2.1 Borrowing Request. With respect to each Loan or other extension of
credit hereunder, Lender shall have received a Borrower's Report, executed and
completed to Lender's satisfaction.
3.2.2 Representations and Warranties. Each of the representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all respects on and as of the date of such Loan or other
extension of credit, as though made on and as of such date (except to the extent
that such representations and warranties relate solely to an earlier date).
3.2.3 Defaults. No Event of Default or Unmatured Event of Default shall
occur, or shall have occurred and be continuing, on the date of such extension
of credit, nor shall either result from the making thereof.
3.2.4 Additional Documents. Lender shall have received such other documents
and information as Lender may reasonably deem necessary.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce Lender to enter into this Agreement and to make Loans,
Borrower makes the following representations and warranties to Lender which
shall be true, correct, and complete in all respects as of the Closing Date and
at, and as of, the date of the making of each Loan made thereafter (except to
the extent that such representations and warranties relate solely to an earlier
date):
4.1......Existence and Rights. Borrower 1 is a limited partnership, duly
organized and existing and in good standing under the laws of the state of
Delaware, which shall survive at least two years beyond the maturity of any
Loans hereunder. Borrower 2 is a limited partnership, duly organized and
existing and in good standing under the laws of the state of Delaware, which
shall survive at least two years beyond the maturity of any Loans hereunder.
Borrower 3 is a limited partnership, duly organized and existing and in good
standing under the laws of the state of Delaware, which shall survive at least
two years beyond the maturity of any Loans hereunder. Each Borrower is
authorized and in good standing in the state of its formation. Each Borrower has
the appropriate powers and adequate authority, rights, licenses and franchises
to own its property and to carry on its business as now conducted, and is duly
qualified, in good standing and has all licenses necessary in California and in
each state in which the character of the properties owned by it therein or the
conduct of its business makes such qualification or licenses necessary. Each
Borrower has the power and adequate authority to execute, deliver and perform
this Agreement and the other Loan Documents.
4.2......Agreement Authorized. The execution, delivery and performance of
this Agreement and the Loan Documents are duly authorized and do not require any
registration with, consent or approval of, or notice to, or other action with or
by, any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower 1's partnership agreement, Borrower 2's partnership
agreement, Borrower 3's partnership agreement, or similar document as the case
may be, and this Agreement and each of the other Loan Documents is a valid,
binding and legally enforceable obligation of each Borrower in accordance with
its terms, subject only to bankruptcy, insolvency or similar laws affecting
creditors' rights generally.
4.3......No Conflict. The execution, delivery and performance of this
Agreement and the Loan Documents are not in contravention of or in conflict
with, and do not result in a breach or constitute a default under any agreement,
contract, indenture, instrument or undertaking to which Borrower is a party or
by which it or any of its property may be bound or affected, and do not cause
any Lien, charge or other encumbrance to be created or imposed upon any such
property by reason thereof. Borrower is not in default under any agreement,
contract, indenture, instrument or undertaking to which Borrower is a party or
by which it may be bound, which default could result in a Material Adverse
Change.
4.4......Litigation. There is no litigation or other proceeding pending or
threatened against or affecting Borrower which if determined adversely to
Borrower or its interest could result in a Material Adverse Change, and Borrower
is not in default with respect to any order, writ, injunction, decree or demand
of any court or other governmental or regulatory authority.
4.5......Financial Condition. All financial statements, balance sheets and
profit and loss statements related to Borrower, that have been delivered by
Borrower to Lender fairly present in all material respects Borrower's financial
condition as of the date thereof and Borrower's results of operations, for the
period then ended. Said statements and all other statements and data submitted
in writing by Borrower to Lender in connection with this request for credit are
true and correct, and each said balance sheet and profit and loss statement
fairly presents the financial condition of Borrower as of the date thereof and
the results of the operations of Borrower for the period covered thereby,
consistently applied, and has been prepared in accordance with GAAP (subject to
year-end adjustments in the case of interim reports). Borrower has no knowledge
of any liabilities, contingent or otherwise, at such date not reflected in its
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts that are not reflected in said balance sheet or that have
resulted or could result in a Material Adverse Change. There has not been a
Material Adverse Change in the financial condition of Borrower since the date of
the most recent of such financial statements submitted to Lender on or about the
date of this Agreement.
4.6......Title to Assets. Borrower has the power and authority to transfer
and pledge its assets (including the Collateral), and Borrower has good and
indefeasible title to its assets (including the Collateral), free and clear of
any Liens or restrictions, except for Permitted Liens.