<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1 REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
ICON HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7359 04-3314510
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
</TABLE>
600 MAMARONECK AVENUE
HARRISON, NEW YORK 10528-1632
914/698-0600
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
BEAUFORT J. B. CLARKE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ICON HOLDINGS CORP.
600 MAMARONECK AVENUE
---------------------
HARRISON, NEW YORK 10528-1632
914/698-0600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
Of Agent for Service)
Copies To:
<TABLE>
<S> <C> <C>
ADOLFO R. GARCIA, ESQ. JOHN L. LEE, ESQ. MICHAEL T. EDSALL, ESQ.
DAVID A. CIFRINO, ESQ. SENIOR VICE PRESIDENT & GENERAL COUNSEL LANCE C. BALK, ESQ.
MCDERMOTT, WILL & EMERY ICON HOLDINGS CORP. KIRKLAND & ELLIS
75 STATE STREET 31 MILK STREET, SUITE 1111 655 FIFTEENTH STREET, N.W.
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109 WASHINGTON, D.C. 20005
617/345-5000 617/338-4292 202/879-5000
</TABLE>
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]__________________.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
check the following box. [X]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE(2) AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, $.01 PAR VALUE 14,375,000 $10.00 $143,750,000 $43,560.61
(TO BE SOLD BY THE COMPANY) SHARES(1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK, $.01 PAR VALUE 924,314 $10.00 $ 9,243,140 $ 2,800.95
(TO BE SOLD BY THE SELLING SECURITY SHARES
HOLDERS)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL...................................................................................................... $46,361.55
====================================================================================================================================
</TABLE>
(1) Includes 1,875,000 shares subject to an over-allotment option granted to
the Underwriters by the Registrant. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(a) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to
be used in connection with an offering by the Company of newly issued shares of
its Common Stock (the "Company Prospectus") and (ii) one to be used in
connection with the secondary sale from time to time of up to 924,314 shares of
Common Stock by Friedman, Billings, Ramsey & Co., Inc., the Representative of
the Underwriters, which shares the Representative may acquire upon exercise of
warrants to be granted by the Company to the Representative upon the
consummation of the Offering (the "Selling Security Holders' Prospectus"). The
Company Prospectus and the Selling Security Holders' Prospectus will be
identical in all respects except for the alternate pages for the Selling
Security Holders' Prospectus which are included herein after the final page of
the Company Prospectus and are labelled "Alternate Page for Selling Security
Holders' Prospectus." Final forms of each Prospectus will be filed with the
Securities and Exchange Commission under Rule 424(b).
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
PROSPECTUS
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
12,500,000 SHARES
ICON HOLDINGS CORP.
COMMON STOCK
__________
All of the shares of common stock, $.01 par value per share (the "Common
Stock"), being offered hereby (the "Offering") are being sold by ICON Holdings
Corp. (together with its subsidiaries, the "Company"). Prior to the Offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price per share will be
between $ and $ . See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on The Nasdaq National Market under
the symbol "ICOH."
__________
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
__________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------
Total (3) $ $ $
================================================================================
</TABLE>
(1) Does not reflect additional compensation payable by the Company in the form
of warrants entitling Friedman, Billings, Ramsey & Co., Inc., the
representative of the Underwriters (the "Representative"), to purchase up to
830,564 shares of Common Stock (924,314 shares if the Underwriters' over-
allotment option is exercised in full). The Company has agreed to indemnify
the Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $750,000.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date of this Prospectus, to purchase up to an aggregate of
1,875,000 additional shares of Common Stock at the price to public less
underwriting discounts and commissions for the purpose of covering over-
allotments, if any. If the Underwriters exercise such option in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See "Underwriting."
__________
The shares of Common Stock offered by this Prospectus are being offered by
the Underwriters, subject to prior sale, when, as and if accepted by the
Underwriters and subject to the Underwriters' right to reject orders, in whole
or in part, and to certain other conditions. It is expected that delivery of the
shares to the Underwriters will be made at the office of the Underwriters on or
about , 1997 against payment therefor in immediately available funds.
__________
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this Prospectus is , 1997
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and reference
is made to the Registration Statement, and the exhibits and schedules thereto,
for further information with respect to the Company and the Common Stock offered
hereby. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance, reference is made
to the exhibit for a more complete description of the matter involved, each such
statement being qualified in its entirety by such reference. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission maintained
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, registration statements and certain other filings made with
the Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and an opinion thereon expressed by its independent
auditors, and quarterly reports containing unaudited interim financial
information for the first three quarters of each year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Each
prospective investor should carefully consider the information set forth under
the heading "Risk Factors." Unless otherwise indicated herein, the information
in this Prospectus (i) gives effect to a 8,000-for-1 stock split in the form of
a dividend of the Company's Common Stock, effective as of the effectiveness of
the Offering (the "Stock Split"), (ii) gives effect to the redemption of
4,000,000 shares of Common Stock by the Company simultaneously with the
consummation of the Offering, (iii) gives effect to the redemption of 1,000
shares of Class B Common Stock simultaneously with consummation of the Offering
by the Company, (iv) gives effect to the conversion of $1,112,760 (as of
September 30, 1997) of indebtedness owed to a related party into 111,276 shares
of Common Stock at an assumed initial public offering price of $10.00 per share,
and (v) assumes no exercise of the Underwriters' over-allotment option. See
"Description of Capital Stock" and "Certain Transactions." The term "fiscal
year" as used herein refers to the fiscal year of the Company ending on March 31
of such year.
THE COMPANY
General
The Company is a specialty finance company engaged in equipment leasing and
financing. The Company intends to use the proceeds of the Offering primarily to
acquire, for its own benefit, "seasoned" large ticket leases through secondary
market transactions, which it will hold for investment. The Company historically
has made such acquisitions exclusively on behalf of limited partnerships (the
"ICON Partnerships") managed by its ICON Capital subsidiary. Since August 1996,
when current management assumed control, the Company has invested, or committed
to invest, more than $207 million (as measured by gross purchase price) on
behalf of the ICON Partnerships in transactions such as aircraft leased to
Airbus Industrie, US Airways, Continental Airlines, and Federal Express; marine
vessels leased to Occidental Petroleum and SEACOR-Smit; over-the-road-trailer
equipment leased to WalMart, drilling rig equipment leased to Rowan Companies;
and networking equipment leased to America Online and Mazda Motors of America.
The Company historically has made such acquisitions on behalf of the ICON
Partnerships primarily because it lacked the capital to do so for its own
benefit.
Historically, the Company has engaged primarily in acquiring and managing
for the benefit of the ICON Partnerships (i) "large ticket" leases (typically,
leases of equipment with an original equipment cost in excess of $10 million
such as aircraft and marine vessels), and (ii) to a lesser degree, "small
ticket" leases (typically, leases of equipment with an original equipment cost
less than $150,000 such as computers or store fixtures). From its inception in
1985 to September 30, 1997, ICON Capital has raised funds for seven ICON
Partnerships, the proceeds of which have been invested in more than $843 million
of equipment (based on gross purchase price) subject to lease. For the same
period, net, cumulative chargeoffs for credit loss and write down for residual
loss or impairment was 1.49% or $12.5 million on an aggregate gross purchase
price of $843.2 million. Following the acquisition of ICON Capital by the
Company in 1996, management elected to emphasize the acquisition of large ticket
equipment subject to lease, based on its belief that such a strategy would
present attractive profit opportunities and was well-suited to the experience of
its new management team.
Strategy
The Company's strategy is to accumulate a portfolio of seasoned large
ticket leases acquired in the secondary market seeking highest total returns
consistent with prudent risk management.
Pursue Residual Value Opportunities. Elements of this strategy are as
follows. The Company targets residual-value-based profit opportunities, which
arise from equipment that has a long useful life and low technological
obsolescence, or, to a lesser degree, equipment that is essential to the
operations of the user, and therefore, in the opinion of the Company, is
unlikely to be replaced or retired. The Company intends to focus on particular
types of equipment which have these characteristics and for which a substantial
pool of existing leases is believed to exist and which generally are believed to
provide the Company with attractive opportunities, including but not limited to
commercial aircraft, marine vessels, other transportation equipment and
telecommunications equipment.
Focus on Large Transactions Involving Creditworthy Lessees. A large
percentage of the Company's recent acquisitions on behalf of the ICON
Partnerships has consisted of the purchase of single, large items of equipment
subject to lease with a user which is often investment grade rated or (in the
case of closely held users) believed equivalent. Large ticket transactions of
this type are expected to represent a large percentage of the Company's future
investment activity. In such transactions, the Company acquires all rights,
title and interest to the equipment and an existing lease agreement.
Historically, such lease agreement would typically have already been in place
for up to approximately twelve years (though sometimes longer) and would have a
remaining lease term of two to seven years.
Maximize End-of-Lease Residual Value. The Company intends to pursue all
available alternatives in the maximization of its residual value positions,
which may include negotiations with lessees as to the possible purchase or
renewal of the lease upon expiry thereof, or the sale or re-lease of the
equipment to a third party. In many cases, the amount of such realization may
depend on the extent to which a leasing company may elect to take full advantage
of its rights under the lease. The Company has a staff of professionals engaged
in the review, analysis and negotiation of such end-of-lease provisions, with
the objective of maximizing return and mitigating risk by enforcing all material
aspects of the lease contract or negotiating other advantageous terms. From time
to time, the Company will elect to have equipment returned to it and bear the
risk that the redeployment of the equipment may take some time beyond the
Company's original expectations. At the same time, the Company's positioning of
itself as a capable manager of equipment that is willing to hold such off-lease
equipment to maximize return is believed to improve the Company's position in
end-of-lease negotiations and help insure that it has properly considered all
reasonable options for maximization of its total return.
Network of Contacts. The Company believes that its network of contacts and
referral sources enable it to identify leasing and finance opportunities. The
Company has an extensive referral network comprised of leasing companies,
leasing brokers, investment bankers, attorneys, lenders, and equipment
appraisers that refer transaction opportunities. The primary sellers of
equipment subject to lease to the Company are commercial banks and other
financial institutions, specialized lessors, manufacturing companies and
utilities. The Company also possesses extensive knowledge developed over many
years which enables the Company to strategically target known equipment lessors
and recognize when they may be receptive to the Company's offer to purchase and
may become sources of transaction opportunities.
Target Particular Sellers. The Company will target prospective lease and
financing transaction sellers that have certain characteristics, including but
not limited to the following: companies which are no longer making lease
investments, leasing companies which are publicly traded or which have a
publicly traded parent company (and may from time to time seek out accounting
gains to contribute to reported earnings), leasing companies which have an
inadequate capital base to expand their leasing operations, diversified
companies which could benefit from freeing up capital to utilize in their non-
leasing business, companies which desire to contain residual value risk from
leases held, and large equipment operators which may benefit from the sale and
leaseback of used equipment.
Capitalize on Lack of Efficiency in Secondary Market. No formal market
mechanism exists for secondary lease transactions, and the Company believes that
it is one of very few participants focusing on secondary market transactions. As
a result, the Company has found, and expects to continue to find, that a number
of its acquisitions are noncompetitive, which may enhance total return
prospects. In particular, because the Company is not burdened with the
institutional constraints of many leasing companies, banks or other balance-
sheet lenders, to avoid residual value exposure or to provide a tax deferral
mechanism for a parent company, it may be in a position to retain a competitive
advantage over such potential competition by outbidding any such interested
parties or accommodating other seller's objectives through creativity and
flexibility, if necessary.
Industry Overview
The size of the market for seasoned leases is primarily a function of the
number of leases completed in the past, adjusted downward for leases that have
expired or the number of leases that are not true leases. From 1987 through the
end of 1997, ELA estimates that greater than $1.0 trillion in equipment will
have been leased in the United States. In the Company's experience, at any time
after the inception of a new equipment lease, a lessor thereunder may consider
the sale of its ownership interest. In such a secondary market sale, all right,
title and interest in the equipment and the lease are conveyed to a purchaser
that will typically receive all of the proceeds therefrom after the purchase
date. Sellers of secondary market transactions are believed to have one or more
of the following objectives in seeking and consummating such a sale:
. Realization of book profit by selling at a premium to book value
because the fair market value of the equipment is above such book
value.
. Removal of the perception of a risk of return of equipment by a
user at lease expiry and a possible loss from the sale of
equipment at a discounted price to a dealer or at auction.
. Disposition of investments which are not associated with the seller's
core business.
. Removal of perceived credit risk from the seller's balance sheet.
. Repositioning of the seller's tax-motivated investment portfolio
resulting from a change in tax law, change in the seller's profit base
or outlook, or the seller becoming subject to alternative minimum tax.
. Freeing up capital for investment in core business activities (which
may include making new lease investments in the case of leasing
company sellers).
Management
The senior executives of the Company have extensive experience in equipment
lease financing and, the Company believes, a record of success in the
acquisition of seasoned leases in the secondary market. Beaufort J. B. Clarke,
the Chairman and Chief Executive Officer of the Company, has more than twenty
years of senior management experience in the leasing industry, including chief
executive at Griffin Equity Partners, Inc. and Gemini Financial Holdings, Inc.,
both equipment leasing companies engaged in the acquisition of seasoned leases
in the secondary market. He was a Vice President and one of the founders of
Encore International, Inc., prior to its becoming AT&T Systems Leasing. Paul B.
Weiss and Thomas W. Martin, the Executive Vice Presidents of the Company, have
approximately 10 and 15 years of experience in the industry, respectively. Each
worked with Mr. Clarke at Griffin Equity Partners and Gemini Financial Holdings,
in addition to other positions in the industry. These three individuals and the
four senior vice presidents of the Company together have more than 130 years of
combined experience in the equipment leasing industry.
3
<PAGE>
____________________
The Company is a Delaware corporation incorporated in May 1996 for the
purpose of acquiring ICON Capital Corp., a Connecticut corporation organized in
1985, and an affiliate thereof. The Company's principal executive offices are
located at 600 Mamaroneck Avenue, Harrison, New York 10528 and its telephone
number at such address is (914) 698-0600.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
the Company....................... 12,500,000 Shares
Common Stock to be outstanding
after the Offering................ 16,611,276 Shares (1)(2)(3)
Use of Proceeds.................... To acquire equipment subject to lease and
financing transactions, to redeem 4,000,000
shares of Common Stock for $7.2 million and
other consideration, to repay indebtedness
of approximately $4.8 million, and for
general corporate purposes, including, but
not limited to, working capital. See "Use
of Proceeds" and "Certain Transactions."
Proposed Nasdaq National
Market symbol..................... ICOH
</TABLE>
_______________
(1) Does not include: (i) 2,000,000 shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan, of which options to
purchase approximately 1,200,000 shares of Common Stock are expected to be
granted upon the consummation of the Offering at an exercise price per share
equal to the initial public offering price issuable under; (ii) 200,000
shares of Common Stock to be reserved for issuance under the Company's 1997
Non-Employee Directors' Stock Plan, of which options to purchase 30,000
shares of Common Stock are expected to be granted upon the consummation of
the Offering at an exercise price per share equal to the initial public
offering price; (iii) 498,338 shares of Common Stock issuable under
warrants to be granted to a related party upon the consummation of the
Offering at an exercise price per share equal to the initial public offering
price; and (iv) 830,564 shares of Common Stock subject to warrants to be
granted to the Representative of the Underwriters at an exercise price per
share equal to the initial public offering price. See "Executive
Compensation--1997 Stock Option Plan," "--1997 Non-Employee Directors Plan,"
"--Employment and Severance Agreements," "Certain Transactions" and
"Underwriting."
(2) Does not include 4,000,000 shares of Common Stock to be redeemed by the
Company simultaneously with the consummation of the Offering. See "Certain
Transactions."
(3) Includes 111,276 shares of Common Stock to be issued to a related party upon
conversion of $1,112,760 (as of September 30, 1997) of indebtedness at an
assumed initial public offering price of $10.00 per share.
RISK FACTORS
Certain statements contained herein expressing the beliefs and
expectations of the Company regarding its future results or performance are
forward-looking statements that involve a number of risks and uncertainties.
The Company's actual results could differ significantly from the results
discussed in such forward-looking statements. For a discussion of important
factors that could cause or contribute to such differences, see "Risk Factors"
beginning on page 8.
5
<PAGE>
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary consolidated and combined financial data should be read
in conjunction with the Consolidated and Combined Financial Statements and the
Notes thereto included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The audited
consolidated and combined financial data set forth below as of and for the
fiscal years ended March 31, 1997, 1996 and 1995 have been derived from the
consolidated and combined audited financial statements of the Company. The
consolidated and combined financial data as of and for the three and six months
ended September 30, 1997 and September 30, 1996 are unaudited, but have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, reflect all adjustments, which consist only of normal
recurring adjustments, necessary for the fair presentation of the financial
position and results of operations for these periods. Consolidated and combined
operating results for the six months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Three Months
Year Ended March 31, Ended September 30, Ended September 30,
--------------------------------- ----------------------- ----------------------
1995 1996 1997(1) 1996 1997(1) 1996 1997(1)
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Fees - managed
partnerships $ 8,437 $ 9,376 $12,180 $ 5,661 $ 5,315 $ 3,479 $ 3,084
Rental income from
operating lease 661 1,010 1,542 1,028 - 514 -
Interest income and other
income 37 59 120 23 204 15 28
------- ------- ------- ------- ------- ------- -------
Total revenues 9,135 10,445 13,842 6,712 5,519 4,008 3,112
------- ------- ------- ------- ------- ------- -------
Expenses:
Selling, general, and
administrative 7,190 8,495 8,208 3,962 4,421 1,938 2,215
Depreciation and
amortization 1,030 1,455 2,098 1,162 374 606 146
Interest expense 389 361 809 277 354 183 152
Amortization of goodwill - - 574 95 457 95 229
Other 225 - - - - - -
------- ------- ------- ------- ------- ------- -------
Total expenses 8,834 10,311 11,689 5,496 5,606 2,822 2,742
------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for
income taxes 301 134 2,153 1,216 (87) 1,186 370
Provision for
income taxes 138 75 1,128 605 99 605 191
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 163 $ 59 $ 1,025 $ 611 $ (186) $ 581 $ 179
======= ======= ======= ======= ======= ======= =======
Weighted average number of
Common Shares outstanding - - - - 17,940,178 - 17,940,178
Earnings per Common Share
Outstanding - - - - $ (0.01) - $ (0.01)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
(Actual) (As Adjusted)
March 31, September 30, September 30,
------------------------------------- ------------- -------------
1995 1996 1997(1) 1997 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets:
Cash $ 391 $ 185 $ 747 $ 157 $ 103,547
Receivables from
managed partnerships 1,915 2,023 1,324 1,360 1,360
Prepaid and other assets 552 790 580 1,104 1,104
Fixes assets and
leasehold improvements,
net 952 781 752 686 686
Goodwill, net - - 8,270 7,813 7,813
Investment in operating
lease, net 4,913 4,261 - - -
--------- --------- --------- --------- ---------
Total assets $ 8,723 $ 8,040 $ 11,673 $ 11,120 $ 114,510
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity:
Accounts payable and
accrued expenses $ 517 $ 872 $ 1,648 $ 1,203 $ 513
Subordinated notes
payable - - 2,399 2,213 -
Notes payable 5,332 4,308 3,538 3,402 600
Deferred income
taxes, net 410 484 1,533 1,632 1,632
Deferred management
fees - managed
partnerships 715 668 758 789 789
--------- --------- --------- --------- ---------
Total liabilities 6,974 6,332 9,876 9,239 3,534
--------- --------- --------- --------- ---------
Redeemable Stock - - - 270 -
Stockholders' equity 1,749 1,708 1,797 1,611 110,976
--------- --------- --------- --------- ---------
Total liabilities
and stockholders'
equity $ 8,723 $ 8,040 $ 11,673 $ 11,120 $ 114,510
========= ========= ========= ========= =========
</TABLE>
_______________
(1) The Company acquired ICON Capital and ICON Securities in a business
combination accounted for as a purchase in August 1996. See Note 2 to the
Notes to Consolidated and Combined Financial Statements as of March 31,
1997. As a result of such acquisition, the financial information for the
period after the acquisition is presented on a different cost basis than
that for the periods before the acquisition and, therefore, the amounts for
the year ended March 31, 1997 and the three and six months ended September
30, 1997 are not comparable to the other periods presented in this table.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information contained in this Prospectus,
in evaluating an investment in the shares of Common Stock offered hereby. The
risk factors set forth below and elsewhere in this Prospectus should be read as
accompanying "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend," "plans,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. The Company's actual results could
differ materially from those anticipated in such forward looking statements.
SIGNIFICANT UNALLOCATED USE OF NET PROCEEDS
The equipment subject to leases and financing transactions to be acquired or
entered into by the Company with the proceeds of the Offering have not been
determined as of the date of this Prospectus, and the Company's management will
have complete discretion in investing the proceeds of the Offering. Investors
in the Offering must therefore rely solely on the judgment and ability of the
Company's management with respect to the selection of lessees, the purchase of
equipment, the incurring of indebtedness, the negotiation of the terms of
purchases of equipment subject to leases and financing transactions, and other
aspects of the Company's business and affairs. There is no way of reliably
anticipating what types of equipment subject to leases and financing
transactions will be available on reasonable terms when the Company is ready to
invest its funds. In addition, the Company may seek growth through the
acquisition of other equipment leasing companies, although it has no current
acquisition candidates. If the Company does pursue such acquisitions, its
inability to, among other things, assimilate the operations, services, products
and personnel of acquired companies, or meet expected revenue and income levels
of such acquired companies, could have a material adverse effect on the Company.
The Company may vary its portfolio, may invest a substantial portion of the
proceeds of the Offering in types of equipment, financing transactions or
strategic business acquisitions other than those described below under the
caption "Business--Strategy" or may invest in the identified types of equipment
or financing transactions to a greater degree than currently anticipated. See
"Business."
The Company intends to invest the proceeds of the Offering in short-term,
readily marketable, interest bearing government treasury or equivalent
securities until the Company otherwise employs such proceeds in the acquisition
of equipment subject to lease or financing transactions. Although the Company
believes that it will be able to engage in a number of such transactions
expeditiously following the Offering, until such time as the Company does so,
the applicable portions of the proceeds of the Offering will be temporarily
invested in such interest bearing securities. See "Use of Proceeds."
RESIDUAL EQUIPMENT VALUE RISKS
The Company intends to utilize a major portion of the proceeds of the
Offering to accumulate a portfolio of equipment subject to lease. The Company
expects that in many transactions that it may pursue, only a portion of its
investment, if any, will be recovered from the contractual obligation of the
lessee to pay rent. As a result, the recovery of its investment and realization
of a return is expected to depend, at least in part and perhaps entirely, on
the Company's success in remarketing its equipment. Numerous factors, many of
which are beyond the control of the Company, may have an impact on the Company's
ability to remarket a particular asset in a satisfactory manner. Among the
factors are general market conditions and economic conditions such as the
strength or weakness of the economy, interest rates, and inflation; regulatory
changes affecting particular classes of assets; changes in the supply or cost of
particular assets, and technological developments; the condition of the
equipment and general conditions in the industry utilizing such assets.
Consequently, there can be no assurance that the Company's estimated residual
value for particular equipment purchased will be realized. The Company's
inability to remarket equipment on
8
<PAGE>
favorable terms (including with respect to its book value) could have a material
adverse effect on the Company.
RISKS ASSOCIATED WITH ACQUISITION OF SEASONED LEASES
The Company will focus on making acquisitions in the secondary market for
"seasoned" leases. Such transactions have more residual value exposure than
"primary" market deals for new equipment in which, typically, a greater
percentage of a lessor's investment is recovered from rental payments under the
lease. Although secondary market leases have the benefit of providing the
Company with (i) a historical payment performance record on the part of the
lessee and (ii) the opportunity to perform due diligence on the maintenance and
utilization of equipment subject to such leases, the acquisition of secondary
market leases typically requires that the Company accept all aspects of the
existing lease without the ability to modify its terms. The Company may seek
indemnification from the selling party for issues that the Company identifies in
reviewing a proposed transaction, such as incomplete documentation or damage to
equipment, or for risks that the Company is not, due to the "secondary" nature
of the transaction, able to fully investigate. The ability of the Company to
successfully profit from seasoned lease transactions depends on its capability
to analyze such underlying risks and adequately address such risks or, when
necessary, to avoid transactions where the risks presented are unacceptable. A
failure by the Company to properly evaluate the risks in any one or more
seasoned lease transactions could have a material adverse effect on the Company.
See "Business--Strategy."
DEPENDENCE ON CREDITWORTHINESS OF LESSEES
The failure of a lessee to make required rental payments would constitute an
event of default which, in a large ticket equipment lease, could have a material
adverse effect on the Company. In the case of a default with respect to a
leveraged lease, a lender thereto might choose to foreclose on the equipment and
dispose of it; or, in the case of a "single investor" lease (a lease not
structured as a leveraged lease), the Company could be required to foreclose on
the equipment in an effort to recover its investment. If the liquidation
proceeds from the sale of repossessed equipment are materially less than its
book value, the Company would realize a significant loss. If a lessee were to
seek protection under the federal Bankruptcy Code, then either the lessee, as
debtor-in possession, or the bankruptcy trustee, would have the option of
assuming, rejecting or, subject to certain conditions, assigning to a third
party any of the debtor's unexpired lease and financing transactions. If such a
lessee were to reject any of such equipment leases, such rejection could have
material adverse effect on the Company. See "Business--Selection of Lease
Investment Opportunities."
LACK OF EXPERIENCE REMARKETING CERTAIN EQUIPMENT TYPES
The Company will consider most equipment types (subject to lease) that meet
its investment policy and philosophy, including equipment types that the Company
has no actual experience in remarketing at lease expiry. In establishing a book
residual value expectation for equipment subject to lease that it acquires, the
Company will rely on information it gathers from many sources, including
estimates of future value from independent appraisers retained by the Company.
To the extent that such appraisals are materially incorrect because of market
forces, the failure of an appraiser to fully and completely evaluate the
equipment or a lack of credentials or experience necessary for the appraiser to
render a valuation opinion, the Company could face a partial or total loss of
its investment, which could have a material adverse effect on the Company. See
"Business--Selection of Lease Investment Opportunities."
9
<PAGE>
RISKS ASSOCIATED WITH USE OF LEVERAGE
The Company plans to make extensive use of borrowed funds on a recourse or
non-recourse basis. As long as the cost of such funds used to defray a portion
of the purchase price for equipment subject to lease is less than the risk
adjusted yield which the Company expects to achieve from such investment, the
expected profit opportunity from such investment would be enhanced by adding
leverage. To the extent borrowed funds are used to finance a portion of the
acquisition cost, the Company would experience increased sensitivity in the
percentage gain or loss on the equity portion of its investment. In the case
where the Company incurs recourse indebtedness, a loss could result in a claim
against the Company for the amount of any deficiency.
DEPENDENCE ON KEY MANAGEMENT
The Company's business operations are dependent in substantial part upon the
expertise of certain key employees. Loss of the services of such employees,
particularly Beaufort J. B. Clarke, the Chairman and Chief Executive Officer of
the Company, and Paul B. Weiss, Vice Chairman and Executive Vice President of
the Company, could have a material adverse effect on the Company's business.
The Company has entered into employment agreements with certain executives
including Messrs. Clarke and Weiss. See "Management" and "Executive
Compensation--Employment and Severance Agreements."
LIMITED TENURE OF CURRENT MANAGEMENT AT THE COMPANY
The Company was founded in May 1996 for the purpose of acquiring the
established business of ICON Capital Corp. ("ICON Capital"). Although a number
of the employees of ICON Capital prior to the acquisition continue to be
employed by the Company, the three top executives of the Company were members of
the acquisition group, have since made significant changes to the Company's
strategies and operations and may further alter and expand the Company's
business activities upon completion of the Offering. Although these executives
have substantial experience in the equipment leasing industry, investors in the
Offering have a limited history of the Company as operated under its current
management on which to base an evaluation of the Company and its prospects. See
"Business--Strategy" and "Management."
RISK OF CHANGES IN TAX LAWS OR ACCOUNTING PRINCIPLES
Any change to current tax laws or generally accepted accounting principles
that makes operating lease financing of new equipment or purchases or sales in
the secondary market of equipment subject to leases less attractive could have a
material adverse affect on the Company. Leasing industry activities can be
substantially affected by such considerations, and there is no way to reliably
anticipate which such changes are likely to occur or the effect of such changes
on the Company's markets or ability to adapt to such changes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The equipment leasing business is very competitive. In the market for large
ticket equipment lease transactions, the Company competes with larger, more
established companies, some of which may in the future determine that the
secondary market for seasoned lease transactions is a market to which they wish
to devote increased resources. Many of these companies may have a lower cost of
funds than the Company, access to capital markets and other funding sources that
may be unavailable to the Company, and extensive experience in identifying
attractive investment opportunities in the leasing industry. In
10
<PAGE>
addition, this potential for increased competition for seasoned leases could
hinder the Company's efforts to differentiate itself and to compete effectively.
In the small-ticket leasing sector, the Company competes for customers with a
number of national, regional and local finance companies, equipment
manufacturers that finance the sale or lease of their products themselves,
commercial lenders, and other traditional types of financial services companies.
Such competitors may have competitive advantages, and such competition may make
certain transactions less attractive to the Company and make securitizations
more difficult to accomplish. The failure of the Company to compete in the
markets in which it participates may have a material adverse effect on the
Company. See "Business--Competition."
POTENTIAL CONFLICTS WITH ICON PARTNERSHIPS
Due to ICON Capital's fiduciary and contractual obligations in its capacity
as general partner of public, income-oriented, limited partnerships (the "ICON
Partnerships"), which it has sponsored and managed since 1988, ICON Capital is
required to invest capital on behalf of the ICON Partnerships in a manner which
may compete with the Company's investment objectives and have the effect of
reducing the availability of suitable transactions for the Company and
increasing the time it will take to fully invest the proceeds of the Offering.
Under the agreements establishing the ICON Partnerships, ICON Capital has agreed
to refer investment opportunities to the partnerships until such time as all
initial capital contributions of the limited partners have been fully invested
or committed in certain investments (as defined) and specified reserves (as
defined), subject to limitations such as the ICON Partnerships' purchasing
capacities, equipment type, structure of lease or creditworthiness of the
transaction. See "Business--Current Businesses of the Company--ICON Capital
Corp." and "Business--Resolution of Potential Conflicts of Interest."
UNINSURED LOSSES
The Company's leases and financing transactions generally require lessees and
users to arrange, at their own expense, for comprehensive insurance (including
fire, liability and extended coverage) and to assume the risk of loss of the
equipment or the collateral securing the leases or financing transactions,
whether or not insured. When the lessee or user is not required to provide such
insurance, the Company will generally arrange for insurance at its own expense.
Generally, the Company is required to be named as an additional insured on
liability insurance policies carried by lessees, with the Company's lenders
normally required to be identified as the payee for loss and damage to the
equipment. The Company monitors compliance with the insurance provisions of the
leases. From time to time, however, certain types of catastrophic losses (e.g.,
losses due to war or earthquakes) are either uninsurable or prohibitively costly
to insure. Should an uninsured loss occur with respect to equipment or
collateral securing the leases and financing transactions, or should the Company
experience an uninsured loss or partially insured claim, or have a claim for
which third-party indemnification is not available, the Company could suffer a
total loss of its investment. Ownership of certain types of capital equipment,
such as aircraft or marine vessels, could also entail exposure to product
liability claims, in the event that the use of such equipment is alleged to have
resulted in bodily injury or property damage. To date, the Company has not
experienced any significant uninsured or insured claims and has not experienced
any product liability claims related to its equipment. See "Business--
Origination, Evaluation and Completion of Transactions."
INTERNATIONAL RISKS
The Company intends to increase its leasing and finance activities in
foreign markets generally, and in Europe in particular. Such transactions may
present greater risks to the Company because certain foreign laws, regulations
and judicial procedures may not be as protective of lessor rights as those which
apply in the United States. In addition, many foreign countries have currency
and exchange laws
11
<PAGE>
regulating the international transfer of currencies. When possible, the Company
will seek to minimize its currency and exchange risks by negotiating
transactions in U.S. dollars and denominate guarantees obtained to support
various lease agreements in U.S. dollars. In addition, political instability
abroad and changes in international policy may also present risks associated
with the possible expropriation of certain of the Company's leased equipment,
such as aircraft. Certain countries have no registration or other recording
system with which to locally establish the Company's or its lender's interest in
equipment, potentially making it more difficult for the Company to prove its
interest in collateral in the event that it needs to recover such property
located in such a country. See "Business--Strategy."
NO PRIOR MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price of the Common Stock will be determined by negotiation between the
Company and the Representative based on the factors described under
"Underwriting." The price at which the Common Stock will trade in the public
market after the Offering may be less than the initial public offering price.
See "Underwriting."
The market price of the Common Stock after the Offering could be subject to
significant fluctuations in response to activities of the Company's competitors,
variations in quarterly operating results, changes in general market conditions
and other events or factors. The volatility of the stock market, in general,
could adversely affect the market price of the Common Stock and the ability of
the Company to raise equity in the public markets.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly results of operations are susceptible to fluctuations
for a number of reasons, including, without limitation, any decline in expected
residual value realizations related to the equipment the Company leases, the
timing of specific transactions and other factors. Also, quarterly results with
respect to its small ticket leasing securitization activities may fluctuate due
to a number of factors, including, among others, the completion of a
securitization transaction in a particular calendar quarter (or the failure to
complete such a securitization transaction) and the interest rate on the
securities issued in connection with such securitization transactions,
variations in the volume of leases funded by the Company, differences between
the Company's cost of funds and the average implicit yield to the Company on its
leases prior to being securitized, the effectiveness of the Company's hedging
strategy, the degree to which the Company encounters competition in its markets
and general economic conditions. Quarterly operating results could also
fluctuate as a result of the sale by the Company of equipment in its lease
portfolio to the lessee or to a third party at the expiration of a lease term or
prior to such expiration. Such sales of equipment may have the effect of
increasing revenues and net income during the quarter in which the sale occurs,
and reducing revenues and net income otherwise expected in subsequent quarters.
In the event the Company's revenues or earnings for any quarter are less than
the level expected by securities analysts or the market in general, such a
shortfall could have an immediate and significant adverse impact on the market
price of the Common Stock. Any such adverse impact could be greater if any such
shortfall occurs near the time of any material decrease in any widely followed
stock index or in the market price of the stock of one or more public equipment
leasing and financing companies or major customers of the Company. Given the
possibility of such fluctuations, the Company believes that comparisons of the
results of its operations for one quarter should not be relied upon as an
indication of future performance. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
12
<PAGE>
INVESTMENT COMPANY ACT CONSIDERATIONS
The regulatory scope of the Investment Company Act of 1940 (the "Investment
Company Act") extends generally to companies engaged primarily in the business
of investing, reinvesting, owning, holding or trading securities. The
Investment Company Act also may apply to a company which does not intend to be
characterized as an investment company, but which, nevertheless, engages in
activities that bring it within the Investment Company Act's definition of an
investment company. The Company believes that its anticipated activities as
described in this Prospectus will not subject the Company to registration and
regulation under the Investment Company Act. The Company will avail itself of a
safe harbor rule that will exempt it from the Investment Company Act for a
period of one year, provided certain conditions are met. Thereafter, the
Company intends to remain exempt from investment company regulation either by
not engaging in investment company activities or by qualifying for the exemption
from investment company regulation available to any company that has no more
than 45 percent of its total assets invested in, and no more than 45 percent of
its income derived from, investment securities, as defined in the Investment
Company Act.
There can be no assurance that the Company will be able to avoid registration
and regulation as an investment company. In the event the Company is unable to
avail itself of an exemption or safe harbor from the Investment Company Act, the
Company may become subject to certain restrictions relating to the its
activities, as noted below. The Investment Company Act imposes substantive
requirements on registered investment companies, including limitations on
capital structure, restrictions on certain investments, prohibitions on
transactions with affiliates and compliance with reporting, record keeping,
voting, proxy disclosure and other rules and regulations. Registration as an
investment company, should it become necessary, could have a material adverse
effect on the Company.
ANTI-TAKEOVER PROVISIONS
Certain provisions of law, the Company's Certificate of Incorporation as
amended and restated upon consummation of the Offering (the "Restated Charter")
and its By-laws, could make more difficult the removal of incumbent officers and
directors and the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise. These provisions include authorization of the issuance of
up to 10,000,000 shares of Preferred Stock with such characteristics that may
render it more difficult or tend to discourage a merger, tender offer or proxy
contest. The By-laws also provide that, after the Offering, shareholder action
can be taken only at an annual or special meeting of its shareholders and may
not be taken by written consent. See "Description of Capital Stock--Certain
Provisions of Delaware Law and the Company's Certificate of Incorporation and
By-laws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,611,276 shares of
Common Stock outstanding. The 12,500,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless acquired by an
"affiliate" of the Company, as that term is defined in Rule 144 ("Rule 144")
promulgated under the Securities Act; shares held by affiliates will be subject
to resale limitations of Rule 144. All of the remaining outstanding shares of
Common Stock will be held by affiliates and available, subject to Rule 144
volume as well as other limitations, for resale beginning 180 days after the
date of this Prospectus. Also, the Representative will be granted warrants
exercisable for 830,564 shares (924,234 shares if the Underwriter's over-
allotment is exercised) of Common Stock at the initial public offering price,
which shares have been registered by separate prospectus under the Registration
Statement of which this
13
<PAGE>
Prospectus is a part, for resale from time to time after a 180-day period
following the consummation of the Offering. Sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could adversely
affect prevailing market price of the Common Stock and impair the Company's
ability to raise additional capital through the sale of equity securities. See
"Shares Eligible for Future Sale." Each of the Company, its existing
stockholders, and its executive officers and directors has generally agreed not
to offer, pledge, sell, contract to sell, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock during the period ending
180 days after the date of this Prospectus without the prior written consent of
Friedman, Billings, Ramsey & Co., Inc., as the Representative of the
Underwriters. See "Shares Eligible for Future Sale" and "Underwriting."
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock to date. The
payment of any dividends will be within the discretion of the Company's Board of
Directors. It is the present intention of the Board of Directors to retain all
earnings, if any, for use in the Company's business operations and, accordingly,
the Board of Directors does not anticipate declaring any dividends in the
foreseeable future. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the pro forma as adjusted net tangible book value of
their shares in the amount of $3.79 per share. If the Company issues additional
Common Stock in the future, including shares which may be issued pursuant to
earn-out arrangements, option grants and future acquisitions, purchasers of
Common Stock in the Offering may experience further dilution in the net tangible
book value per share of the Common Stock. See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and other
offering expenses, all of which are payable by the Company, are estimated to be
approximately $115.5 million (approximately $132.9 million if the Underwriters'
over-allotment option is exercised in full), assuming an initial public offering
price of $10.00 per share. The Company intends to use the net proceeds of the
Offering to acquire equipment subject to lease and financing transactions, to
redeem 4,000,000 shares of Common Stock for $7.2 million and other
consideration, to repay indebtedness (including a premium of approximately
$225,000) of approximately $3.4 million currently bearing interest at a fixed
annual rate of 11.5% and with a maturity of July 31, 2000 and indebtedness owed
to a related party of approximately $1.4 million currently bearing interest at a
fixed annual rate of 12.5% and due in 2001, and for general corporate purposes,
including, but not limited to, purchases of equipment subject to lease,
acquisitions of related businesses and working capital. See "Certain
Transactions". Other than the specified purposes set forth above, the Company's
management will have complete discretion to apply the proceeds of the Offering
towards general corporate purposes. The Company does not have any agreements or
understandings with respect to any acquisitions at the present time.
Pending use of the net proceeds as described above, the Company intends to
invest such proceeds in short-term readily marketable, interest-bearing
government treasury obligations and equivalent securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
and will depend upon, among other factors, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other considerations that the Board
of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at September 30, 1997 and (ii) the capitalization of the Company as adjusted to
give effect to the sale of 12,500,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $10.00 per share and the application
of the estimated net proceeds therefrom. See "Use of Proceeds." This
information should be read in conjunction with the Company's Consolidated and
Combined Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------
UNAUDITED
ACTUAL AS ADJUSTED
---------- -------------------
<S> <C> <C>
Due to stockholder (1)............................................ $ 140,000 $ -
Notes payable -- recourse (2)..................................... 3,402,249 600,000
Subordinated notes payable -- related party (3)(1)................ 2,213,399 -
Redeemable Stock (4).............................................. 269,576 -
Stockholder's equity:
Common Stock: $.01 par value per share; 50,000,000 shares
authorized; 1,000 shares outstanding, actual (5);
16,611,276 shares outstanding, as adjusted (6)............ 10 206,113
Preferred Stock: $.01 par value per share; 10,000,000 shares
authorized; no shares outstanding actual and as adjusted.. - -
Additional paid-in capital...................................... 133,990 116,462,753
Retained earnings............................................... 1,476,818 1,476,818
Less: Treasury shares (4) - (7,169,643)
---------- ------------
Total stockholder's equity................................ 1,610,818 110,976,041
========== ============
Total capitalization...................................... $7,636,042 $111,576,041
========== ============
</TABLE>
_______________
(1) Adjusted to give effect to the redemption of 4,000,000 shares of Common
Stock from a related party for $7,169,643 and repayment of a portion of the
subordinated notes payable (including accrued interest) of $1,290,357 and
payment to a stockholder of $140,000 and other consideration. See Note __
of the Notes to Consolidated and Combined Finance Statements of the Company
as of September 30, 1997 and "Certain Transactions."
(2) Adjusted to give effect to the repayment of $3,090,334 in indebtedness. See
"Use of Proceeds" and "Certain Transactions."
(3) As adjusted to effect the conversion of indebtedness (including accrued
interest) of $1,112,760 owed to a related party into 111,276 shares of
Common Stock at an assumed initial public offering price of $10.00 per
share. See "Certain Transactions."
(4) Adjusted to give effect to the redemption of shares of Class B Common Stock
for approximately $349,000. See "Use of Proceeds" and "Certain
Transactions."
(5) Does not give effect to the Stock Split of the Common Stock effective upon
the effectiveness of the Offering.
(6) Adjusted to give effect to the Stock Split.
16
<PAGE>
DILUTION
The deficit in net tangible book value of the Company at September 30, 1997
was ($6,202,349) or ($.37) per share of Common Stock. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(tangible assets less total liabilities) by the number of shares of Common Stock
outstanding. Adjusting for the sale by the Company of the 12,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$10.00 per share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the net tangible book value of the Company,
as adjusted, at September 30, 1997 would have been $87,740,767, or $6.21 per
share. This amount represents an immediate dilution to new investors of $3.79
per share and an immediate increase in as adjusted net tangible book value per
share to existing stockholders of $6.58 per share. The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $ 10.00
Net tangible book value per share at September 30, 1997...... ($0.37)
Increase in net tangible book value per share resulting from
the Offering................................................ $ 6.58
-------
Net tangible book value per share after the Offering........... $ 6.21
-------
Dilution to new investors...................................... $ 3.79
=======
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the increase
in net tangible book value per share attributable to the Offering, net tangible
book value per share after the Offering, and dilution to new investors would be
$6.86, $6.52 and $3.48, respectively.
The following table sets forth at September 30, 1997, after giving effect to
the sale of the Common Stock offered by the Company in the Offering: (i) the
number of shares of Common Stock purchased by existing stockholders from the
Company, the total consideration and the average price per share paid to the
Company for such shares; (ii) the number of shares of Common Stock purchased by
new investors in the Offering from the Company and the total consideration and
the price per share paid by them for such shares; and (iii) the percentage of
shares purchased from the Company by the existing stockholders and the new
investors and the percentages of consideration paid to the Company for such
shares by the existing stockholders and new investors.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
---------- -------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders (1).. 4,111,276 24.8% $ 1,179,760 0.9% $ 0.29
New Investors.............. 12,500,000 75.2 $125,000,000 99.1 10.00
---------- ----- ------------ -----
Total................... 16,611,276 100.0% $126,179,760 100.0%
</TABLE>
_____________
(1) Does not include: (i) 2,000,000 shares of Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan, of which options to
purchase approximately 1,200,000 shares of Common Stock are expected to be
granted upon the consummation of the Offering at an exercise price equal to
the initial public offering price per share; (ii) 200,000 shares of Common
Stock reserved for issuance under the Company's 1997 Non-Employee Directors'
Stock Plan, of which options to purchase 30,000 shares of Common Stock are
expected to be granted upon the consummation of the Offering at an exercise
price per share equal to the initial public offering price; (iii) 498,338
shares of Common Stock subject to warrants to be granted to a related party
upon the consummation of the Offering at an exercise price per share equal
to the initial public offering price; and (iv) 830,564 shares of Common
Stock subject to warrants to be granted to the Representative of the
Underwriters at an exercise price per share equal to the initial public
offering price. See "Management--1997 Stock Option Plan" "--Employment and
Severance Agreements," and "--1997 Non-Employee Directors' Stock Plan,"
"Certain Transactions" and "Underwriting."
17
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The tables on the following pages present (i) selected audited (to the
extent described below) and unaudited historical financial data of the Company
and its wholly owned subsidiaries, and (ii) selected unaudited pro forma
financial data after giving effect to the acquisition by the Company in August
1996 of ICON Capital and its affiliate, ICON Securities Corp. ("ICON
Securities"), as if such acquisitions had occurred at the beginning of the
fiscal year ended March 31, 1997.
The Company's historical data for the period from August 21, 1996 to March
31, 1997 is based on the audited historical financial statements of the Company.
The Company's historical data for the three- and six-month periods ended
September 30, 1997 and for the period from August 21, 1996 (formation of the
Company) to September 30, 1996 have been derived from the unaudited financial
statements of the Company appearing elsewhere herein, which financial statements
have been prepared on the same basis as the Company's audited financial
statements and, in the opinion of the Company, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein. The Company's results of operations for the
three- and six-month periods ended September 30, 1997 are not necessarily
indicative of results for the entire year ending March 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company."
The ICON Capital and ICON Securities historical data for each of the years
in the four-year period ended March 31, 1996 and for the period from April 1,
1996 to August 20, 1996 is based on the audited historical financial statements
of ICON Capital and ICON Securities. The ICON Capital and ICON Securities
historical data for the period from July 1, 1996 to August 20, 1996 have been
derived from the unaudited interim financial statements of ICON Capital and ICON
Securities, which financial statements have been prepared on the same basis as
ICON Capital's and ICON Securities' audited financial statements and, in the
opinion of the Company, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein.
The unaudited pro forma financial information presents the consolidated
results of operations of the Company as if the acquisitions of ICON Capital and
ICON Securities had occurred at the beginning of the fiscal year ended March 31,
1997, after giving effect to certain adjustments, including the amortization of
goodwill (i.e., costs in excess of net assets of businesses acquired), increased
interest expense from debt assumed to have been issued to fund the acquisition,
elimination of management fees paid to a former parent of ICON Securities, and
the income tax effects of the aforementioned. This pro forma financial
information does not necessarily reflect the results of operations as they would
have been if the Company, ICON Capital and ICON Securities had constituted a
single entity during such periods and is not necessarily indicative of results
which may be obtained in the future.
This data should be read in conjunction with the consolidated financial
statements of the Company and the combined financial statements of ICON Capital
and ICON Securities, and the related notes thereto, included elsewhere herein
and in conjunction with the unaudited pro forma financial information, including
the notes thereto, appearing elsewhere in this Prospectus. See "Pro Forma
Condensed Consolidated Financial Statements."
18
<PAGE>
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Six Months Three Months
Year Ended March 31, Ended September 30, Ended September 30,
----------------------------------------------------- ------------------- -------------------
1993 1994 1995 1996 1997(1) 1996 1997(1) 1996 1997(1)
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Fees - managed
partnerships $ 9,392 $ 8,588 $ 8,437 $ 9,376 $12,180 $ 5,661 $ 5,315 $ 3,479 $ 3,084
Rental income from
operating lease - 198 661 1,010 1,542 1,028 - 514 -
Interest income and other
income 150 48 37 59 120 23 204 15 28
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues 9,542 8,834 9,135 10,445 13,842 6,712 5,519 4,008 3,112
------- ------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Selling, general, and
administrative 8,439 7,399 7,190 8,495 8,208 3,962 4,421 1,938 2,215
Depreciation and
amortization 530 768 1,030 1,455 2,098 1,162 374 606 146
Interest expense 31 173 389 361 809 277 354 183 152
Amortization of goodwill - - - - 574 95 457 95 229
Other - 339 225 - - - - - -
------- ------- ------- ------- ------- ------- ------- ------- -------
Total expenses 9,000 8,679 8,834 10,311 11,689 5,496 5,606 2,822 2,742
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for
income taxes 542 155 301 134 2,153 1,216 (87) 1,186 370
Provision for
income taxes 141 43 138 75 1,128 605 99 605 191
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 401 $ 112 $ 163 $ 59 $ 1,025 $ 611 $ (186) $ 581 $ 179
======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average number
of Common Shares
outstanding - - - - - - 17,940,178 - 17,940,178
------- ------- ------- ------- ------- ------- ---------- ------- ----------
Earnings per
Common Shares
outstanding - - - - - - $ (0.01) - $ 0.01
------- ------- ------- ------- ------- ------- ---------- ------- ----------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
March 31, September 30
------------------------------------------------------------------- ------------
1993 1994 1995 1996 1997(1) 1997(1)
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Assets:
Cash $ 441 $ 557 $ 391 $ 185 $ 747 $ 157
Receivables from
managed partnerships 956 1,399 1,915 2,023 1,324 1,360
Prepaid and other assets 595 712 552 790 580 1,104
Fixes assets and
leasehold improvements,
net 1,182 1,144 952 781 752 686
Goodwill, net - - - - 8,270 7,813
Investment in operating
lease, net - 5,234 4,913 4,261 - -
------- ------- ------- ------- ------- -------
Total assets $ 3,174 $ 9,046 $ 8,723 $ 8,040 $11,673 $11,120
======= ======= ======= ======= ======= =======
Liabilities and Stockholders' Equity:
Accounts payable and
accrued expenses $ 576 $ 764 $ 517 $ 872 $ 1,648 $ 1,203
Subordinated notes
payable - - - - 2,399 2,213
Notes payable 1,028 6,004 5,332 4,308 3,538 3,402
Deferred income
taxes, net 96 274 410 484 1,533 1,632
Deferred management
fees - managed
partnerships - 418 715 668 758 789
------- ------- ------- ------- ------- -------
Total liabilities 1,700 7,460 6,974 6,332 9,876 9,239
------- ------- ------- ------- ------- -------
Redeemable Stock - - - - - 270
Stockholders' equity 1,474 1,586 1,749 1,708 1,797 1,611
------- ------- ------- ------- ------- -------
Total liabilities
and stockholders'
equity $ 3,174 $ 9,046 $ 8,723 $ 8,040 $11,673 $11,120
======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) As discussed in Note 2 of the Notes to the Consolidated and Combined
Financial Statements, ICON Capital and ICON Securities were acquired by the
Company on August 21, 1996 in a business combination accounted for as a
purchase. As a result of such acquisition, the financial information for
the period after the acquisition is presented on a different cost basis than
that for the periods before the acquisition and, therefore, the amounts for
the year ended March 31, 1997 and the three and six months ended September
30, 1997 are not comparable to the periods presented in this table.
20
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Total For the
for the Year Ended Pro Forma Year Ended
March 31, 1997(1) Adjustments March 31, 1997
----------------- ----------- --------------
<S> <C> <C> <C>
Revenues:
Fees-managed partnerships $12,180,238 $ -- $12,180,238
Rental income from investment in operating lease 1,541,647 -- 1,541,647
Interest income and other income 119,891 -- 119,891
----------- ----------- -----------
Total revenues 13,841,776 -- 13,841,776
----------- ----------- -----------
Expenses:
Selling, general and administrative 8,208,308 (298,503)(2) 7,909,805
Amortization of goodwill 574,500 339,754 (3) 914,254
Depreciation and amortization 2,097,354 -- 2,097,354
Interest expense 808,854 263,838 (4) 1,072,692
----------- ----------- -----------
Total expenses 11,689,016 305,089 11,994,105
----------- ----------- -----------
Income before provision for
income taxes 2,152,760 (305,089) 1,847,671
Provision for income taxes 1,127,788 13,866 1,141,654
----------- ----------- -----------
Net income $ 1,024,972 $ (318,955) $ 706,017
=========== =========== ===========
</TABLE>
(1) As discussed in Note 2 to the Notes to the Consolidated and Combined
Financial Statements as of March 31, 1997, ICON Capital and ICON Securities
were acquired by the Company on August 21, 1996 in a business combination
accounted for as a purchase. As a result of such acquisition, the financial
information for the period after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore,
the amounts in the total column for the year ended March 31, 1997 are not
comparable to the years ended March 31, 1996 and 1995.
(2) Adjustment relates to management fees paid by ICON Securities to its
former parent.
(3) Adjustment relates to amortization of goodwill.
(4) Adjustment relates to interest expense associated with notes payable
seller financing.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the financial condition and the results of
operations should be read in conjunction with Selected Consolidated and Combined
Financial and Operating Data, the Company's consolidated financial statements
and the notes thereto and other financial data included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
GENERAL
The Company's operating results following the Offering are anticipated to
be significantly different from its results prior to the Offering due to the
substantial increase in the Company's capital resources, which is expected to
result in changes in the nature of the Company's business. In addition, upon
completion of the Offering, the Company intends to use a substantial portion of
the proceeds to acquire large ticket seasoned leases in the secondary market
and, to a lesser extent, to originate and acquire small ticket leases which may
be securitized at a later time. The Company will also continue to engage in
equipment leasing and financing activities through the ICON Partnerships. As a
result, following the Offering, a substantial portion of the Company's revenues
are expected to be derived from leasing transactions, while a smaller portion
will be derived from fees from the ICON Partnerships.
Revenues from investments in seasoned large ticket leases will consist of
finance income from investments in direct finance and leveraged leases, rental
income from operating leases and gains, if any, from equipment sale proceeds
that exceed the carrying value of the residual. The Company may from time to
time assign all or a portion of its lease portfolio to a lender. Depending on
the use of leverage, the timing of the recognition of revenue and the receipt of
cash will vary. A portion of the unearned income from direct finance and
leveraged leases relates to the residual value that was estimated at inception
of the lease and has been accrued over the life of the lease; and, the ultimate
realization of that income is dependent upon the receipt of cash at lease
expiry. If during the term of a lease, the Company determines that the residual
value is impaired, then the Company will write it down to the then-estimated
realizable value.
Historically, revenue consists primarily of fees paid by the ICON
Partnerships and rental income from an operating lease. Fees from the ICON
Partnerships are earned for the acquisition, management and administration of
ICON Partnership lease portfolios, and the organization, offering and related
underwriting of each ICON Partnership. In addition, the Company receives
distributions from the ICON Partnerships for its one percent general partner
interest therein. Acquisition fees are earned based on the purchase price or
principal amount of each transaction entered into on behalf of the ICON
Partnerships. Management fees are earned for the active management of equipment
subject to lease and financing transactions for the ICON Partnerships. This fee
is based on a percentage of the gross rental payments for equipment leases held
thereby. Organization, offering and underwriting fees are based on investment
units sold during offering stage of the ICON Partnerships.
The Company was formed for the purpose of acquiring ICON Capital and ICON
Securities, which, although affiliates, were not part of the same consolidated
group at that time. Therefore, the historical financial statements have been
prepared on a combined basis through August 20, 1996, and on a consolidated
basis for the period from August 21, 1996 to September 30, 1997.
22
<PAGE>
PROSPECTIVE ACCOUNTING AND REVENUE RECOGNITION POLICIES
The manner in which the acquisition for large ticket seasoned leases and
the origination, acquisition and securitization of small ticket leases are
characterized and reported for accounting purposes has a significant impact upon
the Company's reported revenue, net income and the resulting financial measures.
The Company classifies its lease transactions, as required by Statement of
Financial Accounting Standards No. 13, Accounting for Leases ("SFAS No. 13") as:
(i) direct financing, (ii) leveraged leases, or (iii) operating leases. The
timing of recognition of revenues and expenses for each lease will vary
depending on the lease classification. Lease accounting methods significant to
the Company's business are discussed below.
Direct Financing. Direct financing leases transfer substantially all
benefits and risks of equipment ownership to the customer. A lease is a direct
financing lease if the creditworthiness of the customer and the collectibility
of lease payments are reasonably certain and it meets one of the following
criteria: (i) the lease transfers ownership of the equipment to the customer by
the end of the lease term, (ii) the lease contains a bargain purchase option,
(iii) the lease term at inception represents at least 75% of the estimated
economic life of the leased equipment, or (iv) the present value of the minimum
lease payments is at least equal to 90% of the fair market value of the leased
equipment at inception of the lease.
Direct finance leases are recorded as investment in direct finance leases
upon acceptance of the equipment by the customer. At the inception of the
lease, unearned lease income is recorded which represents the amount by which
the gross lease payments receivable plus the estimated unguaranteed residual
value of the equipment exceeds the equipment cost. Unearned lease income is
recognized, using the interest method, as lease revenue over the lease term.
Leveraged Leases. Net investment in leveraged leases consists of minimum
lease payments receivable, estimated unguaranteed residual values and the
initial direct costs related to the leases, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income from leveraged leases over the life of the lease at a
constant rate of return on the positive net investment.
Operating Leases. All leases that do not meet the criteria to be
classified as direct financing or leveraged leases are accounted for as
operating leases. Lease revenue is comprised of rentals which are accrued on a
straight-line basis over the lease term. The Company's cost of the leased
equipment is recorded on the balance sheet as investment in operating lease
equipment and is depreciated on a straight-line basis over the lease term to the
estimated residual value.
Residual Values. Residual values represent the Company's estimated value
of the equipment at the end of the initial lease term. The residual values for
direct financing and leveraged leases are recorded as investment in direct
financing and leveraged leases. The residual values for operating leases are
included as a component of the leased equipment's net book value. The estimated
residual values will vary, both in amount and as a percentage of the original
equipment cost, depending upon several factors, including the equipment type,
manufacturer's discount, market conditions, the term of the lease and other
factors.
The Company's policy with respect to impairment of estimated residual
values will be to review, on a quarterly basis, the carrying value of its
residuals on an individual asset basis to determine whether events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable and, therefore, an impairment loss should be recognized. The events
or changes in circumstances which generally indicate that the residual value of
an asset has been impaired are (i) the estimated fair value of the underlying
equipment is less than the Company's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset
23
<PAGE>
will be sufficient to satisfy the remaining obligation to the non-recourse
lender and the Company's residual position. Generally, in the latter
situation, the residual position relates to equipment subject to third party
non-recourse notes payable where the lessee remits their rental payments
directly to the lender and the Company does not recover its residual until the
non-recourse note obligation is repaid in full.
The Company will measure its impairment loss as the amount by which the
carrying amount of the residual value exceeded the estimated proceeds to be
received by the Company from remarketing of the equipment. Generally, quoted
market prices will be used as the basis for measuring whether an impairment loss
should be recognized.
The Company will seek to realize the estimated residual value at lease
termination through: (i) renewal or extension of the original lease, (ii) sale
of the equipment either to the lessee or in the secondary market; or (iii) lease
of the equipment to a new user. The difference between the proceeds of a sale
and the remaining estimated residual value will be recorded as a gain or loss in
lease revenues when title is transferred to the buyer.
Allowance for Losses. Management will evaluate the collectibility of its
leases based on the level of recourse provided, if any, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors. The Company will provide an allowance for credit losses for leases
which are considered impaired.
Initial Direct Costs. Initial direct costs related to the origination of
direct finance and leveraged leases are capitalized and recorded as part of the
investment in direct financing and leveraged leases and will be amortized over
the terms of the related leases using the interest method. Initial direct costs
related to the origination of operating leases are capitalized and amortized on
the straight-line method over the lease terms.
Small Ticket Warehousing and Securitization. The Company will sell the
small ticket leases it acquires or originates through securitization
transactions. In a securitization transaction, the Company sells and transfers
a pool of leases to a wholly-owned, special purpose subsidiary of the Company.
The special purpose subsidiary simultaneously sells and transfers an interest in
the leases to a trust, which issues beneficial interests in the leases in the
form of securities and sells such securities.
The Company will fund the initial acquisition and origination of leases
through warehouse facilities. Each such facility contemplates that the lease
receivables financed thereunder will be refinanced through the Company's
securitization program or other structured finance transactions. The Company
generally will retain the right to service the leases it sells through
securitization transactions, receive a fee for performing such services,and
retain any excess cash flows of the trust.
In June 1996, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities." ("SFAS No. 125") is
generally effective for transactions occurring after December 31, 1996. Among
other things, SFAS No. 125 requires that servicing assets and other retained
interests in transferred assets be measured by allocating the previous carrying
amount between the assets sold, if any, and retained interests, if any, based on
relative fair values at the date of transfer. Under SFAS No. 125, the Company
will record a servicing asset representing the excess of estimated fees to be
received over expenses to be incurred in servicing leases sold through the
Company's securitization program. The effect will be to decrease the cost basis
allocable to the senior and subordinated securities and the Trust Certificate
issued in connection with the Company's securitization transactions. The reduced
basis allocated to the senior and subordinated securities will result in greater
gains being recorded upon sale of the leases than was provided for under
accounting pronouncements applicable through December 31, 1996, as well as
reduce net servicing income generated from leases sold after December 31, 1996
as a result of the amortization of the servicing asset recorded upon the sale.
24
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1996
Total revenues decreased by $1,192,799 or 17.8% from $6,712,045 to
$5,519,246 from the six months ended September 30, 1996 to the six months ended
September 30, 1997. The decrease in revenues was primarily due to a decrease in
acquisition fees of $1,128,882, and the early termination of an operating lease
in December 1996, which reduced rental income from operating leases by
$1,027,764. The decrease in total revenues was partially offset by an increase
in management fees of $709,372, an increase in organization, offering,
distribution and underwriting fees of $73,575 and an increase in interest income
and other income of $180,900. The decrease in acquisition fees is attributable
to an unusually high volume of lease acquisitions during the six months ended
September 30, 1996 resulting from the deployment of available cash in the ICON
Partnerships. In general, the Company expects that investment activity on behalf
of the ICON Partnerships will be commensurate with equity raised. Management
fees increased due the increase in the average size of lease portfolios managed
by the Company. Organization, offering, distribution and underwriting fees
increased due to growth in the sale of interests in the ICON Partnerships. The
increase in interest and other income is primarily due to a discount received on
the early retirement of certain indebtedness.
Selling, general and administrative expenses increased by $459,316 or 11.6%
from $3,961,671 to $4,420,987, from the six months ended September 30, 1996 to
the six months ended September 30, 1997. The increase in selling, general and
administrative expenses was due primarily to an increase in travel and lodging
of $222,514, an increase in salaries and benefits of $90,656, and an increase in
rent and utilities of $33,231. Salaries and benefits have increased due to the
Company's recruitment of additional senior executives at an average salary that
is higher than in the comparable prior period. Travel and lodging increased due
to: (i) increased national business development travel with respect to new
transactions, and (ii) expenses incurred to increase the sale of interests in
the ICON Partnerships by recruiting new broker/dealers.
Depreciation and amortization decreased by $787,670 or 68.0% from
$1,167,770 to $374,100, from the six months ended September 30, 1996 to the six
months ended September 30, 1997. Depreciation and amortization includes the
amortization of the costs of organizing and offering the sale of interests in
the ICON Partnerships and the depreciation and amortization of fixed assets,
leasehold improvements, and equipment under an operating lease. This decrease
was primarily due to a decrease in depreciation of equipment under an operating
lease of $852,868 as a result of the early termination of the lease.
The amortization of goodwill increased by $361,783 or 379.5% from $95,344
to $457,127 from the six months ended September 30, 1996 to the six months ended
September 30, 1997. Goodwill (i.e., costs in excess of net assets of businesses
acquired) relates to the acquisition of ICON Capital and ICON Securities by the
Company on August 21, 1996. This increase is the result of slightly more than a
month of amortization in the six month period ended September 30, 1996 as
compared to six months amortization in the period ended September 30, 1997.
Interest expense increased from $277,000 to $353,908 or 27.8% from the six
months ended September 30, 1996 to the six months ended September 30, 1997. The
increase in interest expense is due primarily to a full six months of interest
on the debt associated with the acquisition of ICON Capital and ICON Securities,
offset by the decrease in interest on non-recourse financings of $174,897 as a
result of the early termination of the operating lease.
25
<PAGE>
Net income decreased $797,557 from net income of $611,294 for the six
months ended September 30, 1996 to a net loss of $186,263 for the six months
ended September 30, 1997. The decrease is primarily attributable to the
increased amortization of goodwill, an increase in interest expense and a
decrease in revenues.
YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996
The Company acquired $204,153,662 and $94,415,959 in equipment subject to
lease and financing transactions on behalf of the ICON Partnerships, and raised
$24,193,537 and $27,463,913 of ICON Partnership capital for fiscal 1997 and
1996, respectively. As of March 31, 1997 and 1996, the Company managed
equipment subject to lease on behalf of the ICON Partnerships with a net
investment of $258,784,493 and $230,550,843, respectively.
Total revenues increased by $3,397,285 or 32.5% from $10,444,491 to
$13,841,776, from fiscal 1996 to fiscal 1997. The increase in revenues was due
to an increase in acquisition fees of $2,444,401, an increase in rental income
from an operating lease of $531,891, an increase in management and
administrative fees of $295,330, and an increase in organization, offering,
distribution and underwriting fees of $64,711. The increase in acquisition
fees was caused by an increase in lease transactions entered into on behalf of
the ICON Partnerships. Rental income from an investment in an operating lease
increased due an acceleration of rental receivables upon early termination.
Management and administrative fees increased due to the increase in the average
size of lease portfolios managed by the Company on behalf of the ICON
Partnerships. Organization, offering, distribution and underwriting fees
increased due to an increase in equity raised for the ICON Partnerships.
Selling, general and administrative expenses decreased by $286,251 or 3.4 %
from $8,494,559 to $8,208,308, from fiscal 1996 to fiscal 1997. The decrease in
selling, general and administrative expenses was due primarily to a decrease in
salaries and benefits of $493,078, and a decrease in management fees paid by
ICON Securities to its former parent of $163,691. These decreases were
partially offset by an increase in travel and lodging of $187,893. Salaries and
benefits decreased due to a temporary reduction in the number of employees,
positions which have since been filled with new hires. Travel and lodging
increased due to: (i) temporary expenses resulting from employee travel to
Company headquarters prior to the opening of the Boston office, (ii) increased
national business development travel with respect to new transactions, and (iii)
expenses incurred to increase the sale of interests in ICON Partnerships by
recruiting new broker/dealers.
Depreciation and amortization, which includes the amortization of the costs
of organizing and offering the sale of ICON Partnership interests, depreciation
and amortization of fixed assets, leasehold improvements and equipment under
operating leases, increased $642,045 or 44.1% from $1,455,309 to $2,097,354 from
fiscal 1996 to fiscal 1997. This increase was primarily due to an acceleration
of depreciation of equipment under an operating lease.
The amortization of goodwill for fiscal 1997 relates to the costs in excess
of net assets acquired in connection with the August 20, 1996 acquisition of
ICON Capital and ICON Securities.
Interest expense increased by $447,782 or 124.0% from $361,072 to $808,854
from fiscal 1996 to fiscal 1997. The increase in interest expense is due
primarily to the interest expense on the debt associated with the acquisition of
ICON Capital and ICON Securities.
Net income increased $966,084 from net income of $58,888 for fiscal 1996 to
$1,024,972 for fiscal 1997. This increase is attributable to an overall
increase in revenues partially offset by an increase in the amortization of
goodwill and an increase of interest expense.
26
<PAGE>
YEAR ENDED MARCH 31, 1996 COMPARED TO YEAR ENDED MARCH 31, 1995
The Company acquired $94,415,959 and $117,941,656 in equipment subject to
lease and financing transactions on behalf of the ICON Partnerships, and raised
$27,463,913 and $ 18,216,586 of capital on behalf of the ICON Partnerships, for
fiscal 1996 and 1995, respectively. As of March 31, 1996 and 1995, the Company
managed equipment subject to lease on behalf of the ICON Partnerships with a net
investment of $230,550,843 and $197,122,087, respectively.
Total revenues increased by $1,309,350 or 14.3% from $9,135,141 to
$10,444,491, from fiscal 1995 to fiscal 1996. The increase in revenues was due
to an increase in management and administrative fees of $1,049,302, an increase
in organization, offering, distribution and underwriting fees of $607,172 and an
increase in rental income of $348,591. The increase in total revenues were
partially offset by a decrease in acquisition fees of $717,453. Management
increased due to the increase in the average size of lease portfolios managed by
the Company. Organization, offering, distribution and underwriting fees
increased due to an increase in the sale of interests in the ICON Partnerships.
Acquisition fees decreased due to a reduction in new lease transactions entered
into for the ICON Partnerships. Rental income increased from 1995 to 1996 due
to a lease restructuring and renewal in 1996.
Selling, general and administrative expenses increased by $1,305,139 or
18.1% from $7,189,420 to $8,494,559 from fiscal 1995 to fiscal 1996. The
increase in selling, general and administrative expenses was due primarily to an
increase in salaries and benefits of $466,681, an increase in management fees
paid by ICON Securities to its parent of $292,107 and an increase in travel and
lodging costs of $107,905. Salaries and benefits increased due to growth in the
number of employees from fiscal 1995 to fiscal 1996 and the effects of pay
increases over that period.
Depreciation and amortization, which includes the amortization of the costs
of organizing and offering the sale of interests in the ICON Partnerships,
depreciation and amortization of fixed assets, leasehold improvements and
equipment under operating leases, increased $424,864 or 41.2% from $1,030,445 to
$1,455,309 from fiscal 1995 to fiscal 1996. This increase was primarily due to
an increase of $100,409 in the amortization of the costs of organizing and
offering the sale of interests in ICON Partnerships and an increase in
depreciation of equipment under operating leases of $332,278 as a result of
acceleration of depreciation, partially offset by a decrease in the depreciation
of fixed assets and amortization of leasehold improvements of $7,823 due to a
decrease in the average amount of depreciable assets.
Interest expense decreased by $28,144 or 7.2% from $389,216 to $361,072
from fiscal 1995 to fiscal 1996. The decrease in interest expense is due
primarily to the reduction in debt outstanding.
Net income decreased $104,429 from net income of $163,317 for fiscal 1995
to $58,888 for fiscal 1996. This decrease was primarily due to an increase in
selling, general and administrative expenses and depreciation and amortization
partially offset by an increase in revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow is comprised of cash flow from operations,
investing and financing activities. Historically, the Company has financed its
operations primarily through fees earned from the management of the ICON
Partnerships.
Cash Flow From Operations. The Company generated cash flow from operating
activities of $49,304 and $3,154,543 during the six months ended September 30,
1997 and 1996, respectively. Cash flow from
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operating activities was higher than the net loss of $186,263 and the net income
of $611,294, for the six months ended September 30, 1997 and 1996, respectively,
primarily as a result of non-cash expenses such as depreciation and amortization
and other sources or uses of cash from operations. The Company generated cash
flow from operating activities of $4,721,305, $839,883 and $915,231 for fiscal
1997, 1996 and 1995, respectively. Cash flow from operating activities was
higher than net income of $1,024,978, $58,888 and $163,317 for fiscal 1997, 1996
and 1995, respectively, primarily as a result of non-cash expenses such as
depreciation and amortization and other sources or uses of cash from operations.
The significant increase in cash flows from operating activities for fiscal
1997, relative to net income for fiscal 1997, also resulted from the significant
increase in deferred taxes generated as a result of the higher earnings which
are payable in the future.
Cash Flow From Investing Activities. The Company used cash flow for investing
activities of $587,046 and $2,885,366 for the six months ended September 30,
1997 and 1996, respectively, and $3,335,843, $654,374 and $794,025 in fiscal
1997, 1996 and 1995, respectively. The Company's cash flow from investing
activities historically has been related to the acquisition of fixed assets for
the Company and the costs associated with the sale of interests in the ICON
Partnerships. For fiscal March 31, 1997 and the six months ended September 30,
1996, however, the Company acquired all the outstanding common stock of ICON
Capital and ICON Securities which included the use of $2,683,000 of the
Company's available cash.
Cash Flow From Financing Activities. The Company used cash flow for financing
activities of $52,413 and $262,097 for the six months ended September 30, 1997
and 1996, respectively, and $823,209, $391,407 and $287,908 in fiscal 1997, 1996
and 1995, respectively. Historically, the Company's cash used in financing
activities has been limited to principal payments on outstanding indebtedness
associated with the purchase of furniture and fixtures. For the year ended
March 31, 1997, cash flow from the Company's financing activities included
$134,000 in equity and $2,599,000 in subordinated indebtedness when the Company
was initially capitalized. These funds, along with seller financing, were used
to acquire the outstanding common stock of ICON Capital and ICON Securities on
August 20, 1996. In addition, in June 1997, the Company refinanced the
remaining portion of its notes payable to the seller with a $3,000,000 loan that
is to be repaid over 36 monthly installments of $99,177 with an interest rate of
11.5%. On August 21, 1997, ICON Capital entered into a one-year renewable
unsecured line of credit agreement. The maximum amount available under the line
of credit agreement is $600,000, all of which was outstanding as of September
30, 1997.
Future Liquidity. The Company's lease finance business will be capital
intensive and will require access to substantial short-term and long-term credit
to fund new equipment leases and financing. Immediately following the Offering,
the Company will have approximately $103.5 million in cash, which it intends to
deploy expeditiously to acquire equipment subject to lease, among other things.
The Company's uses of cash may also include payment of interest expense,
repayment of borrowings under future warehouse facilities, operating and
administrative expenses, income taxes and capital expenditures. In addition,
the Company currently is negotiating a securitization warehouse line, which, if
and when obtained, would provide additional capital for use in small ticket
lease and financing acquisitions. The Company believes that the net proceeds
from the Offering, along with non-recourse asset-backed financing and cash from
operations, will be sufficient to fund its operations and lease acquisitions
through 1998.
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THE COMPANY
The Company is a Delaware corporation incorporated in May 1996 for the
purpose of acquiring ICON Capital Corp., a Connecticut corporation established
in 1985 and ICON Securities Corp., a New York corporation formed in 1982, which
is a National Association of Securities Dealers ("NASD") registered broker-
dealer. Following the acquisition of ICON Capital in August 1996, the Company
established a new wholly-owned Delaware subsidiary, ICON Funding Corp. ("ICON
Funding"), to expand the group's origination and funding of equipment finance
leases and loans and to develop a securitization capability. In connection with
the Offering, the Company formed in November 1997 a new wholly owned subsidiary,
ICON Leasing Corp. ("ICON Leasing"), to be the vehicle to acquire and hold for
investment "seasoned" large ticket leases in the secondary market. Upon
completion of the Offering, the Company will be engaged in no business other
than serving as the parent holding company for ICON Leasing, ICON Capital, ICON
Funding and ICON Securities and other non-material subsidiaries.
The Company's principal executive offices are located at 600 Mamaroneck
Avenue, Harrison, New York 10528-1632 and its telephone number at such address
is (914) 698-0600.
Set forth below is an organizational chart illustrating the relationship
between the Company and each of its material operating subsidiaries and the
principal activities of each such subsidiary.
ICON HOLDINGS
CORP.
- --------------------------------------------------------------------
| | | |
ICON ICON ICON ICON
Leasing Funding Capital Securities
Corp. Corp. Corp. Corp.
Acquisition of "Small Ticket" General Partner NASD Broker-
"Large Ticket" Leasing of ICON Dealer Managing
Equipment and Partnerships Sale of Interest
Subject Securitizations Engaged in in ICON
to Lease Equipment Partnerships
Leasing
Transactions
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BUSINESS
The Company is a specialty finance company engaged in equipment leasing and
financing. The Company intends to use the proceeds of the Offering primarily to
acquire, for its own benefit, "seasoned" large ticket leases through secondary
market transactions, which it will hold for investment. The Company
historically has made such acquisitions exclusively on behalf of limited
partnerships (the "ICON Partnerships") managed by ICON Capital. Since August
1996, when current management assumed control, the Company has invested, or
committed to invest, more than $207 million (as measured by gross purchase
price) on behalf of the ICON Partnerships in transactions such as aircraft
leased to Airbus Industrie, US Airways, Continental Airlines, and Federal
Express; marine vessels leased to Occidental Petroleum and SEACOR-Smit; tractor-
trailer equipment leased to WalMart, drilling rig equipment leased to Rowan
Companies; and networking equipment leased to America Online and Mazda Motors of
America. The Company historically has made such acquisitions on behalf of the
ICON Partnerships primarily because it lacked the capital to do so for its own
benefit.
Historically, the Company has engaged primarily in acquiring and managing
for the benefit of the ICON Partnerships (i) "large ticket" leases (typically,
leases of equipment with an original equipment cost in excess of $10 million
such as aircraft and marine vessels), and (ii) to a lesser degree, "small
ticket" leases (typically, leases of equipment with an original equipment cost
less than $150,000 such as computers or store fixtures). From its inception in
1985 to September 30, 1997, ICON Capital has raised funds for seven ICON
Partnerships, the proceeds of which have been invested in more than $843 million
of equipment (based on gross purchase price) subject to lease. Following the
acquisition of ICON Capital by the Company in 1996, management elected to
emphasize the acquisition of large ticket equipment subject to lease, based on
its belief that such a strategy would present attractive profit opportunities
and was well-suited to the experience of its new management team.
The Company believes that its network of contacts and referral sources
enable it to identify leasing and finance opportunities. The Company has an
extensive referral network comprised of leasing companies, leasing brokers,
investment bankers, attorneys, lenders, and equipment appraisers that refer
transaction opportunities. The primary sellers of equipment subject to lease to
the Company are commercial banks and other financial institutions, specialized
lessors, manufacturing companies and utilities. The Company also possesses
extensive knowledge developed over many years which enables the Company to
strategically target known equipment lessors and recognize when they may be
receptive to the Company's offer to purchase and may become sources of
transaction opportunities.
The senior executives of the Company have extensive experience in equipment
lease financing and, the Company believes, a record of success in the
acquisition of seasoned leases in the secondary market. Beaufort J. B. Clarke,
the Chairman and Chief Executive Officer of the Company, has more than twenty
years of senior management experience in the leasing industry, including chief
executive and other senior positions at Griffin Equity Partners, Inc. and Gemini
Financial Holdings, Inc., both equipment leasing companies engaged in the
acquisition of seasoned leases in the secondary market. He was a Vice President
and one of the founders of Encore International, Inc., prior to its becoming
AT&T Systems Leasing. Paul B. Weiss and Thomas W. Martin, the Executive Vice
Presidents of the Company, have approximately 10 and 15 years of experience in
the industry, respectively. Each worked with Mr. Clarke at Griffin Equity
Partners and Gemini Financial Holdings, in addition to other positions in the
industry. These three individuals and the four senior vice presidents of the
Company together have more than 130 years of combined experience in the
equipment leasing industry. See "Management."
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INDUSTRY OVERVIEW
Leasing provides an equipment user with an alternative to purchasing the
equipment it needs, usually in a manner which has favorable effects on its cash
flow and balance sheet. Leasing, particularly through operating leases (leases
wherein some or all of the lessor's return of its investment depends on the
realization of end-of-lease residual value), also provides a lessee with greater
flexibility than ownership in the event it outgrows the equipment or, due to
strategic shifts in business orientation, decides not to keep it in the future.
The Equipment Leasing Association of America ("ELA") estimates that in the U.S.,
approximately $168 billion of the estimated $563 billion spent on productive
capital assets in 1996 was financed by means of leasing and that 80% of all U.S.
businesses use leasing or financing to acquire equipment.
The size of the market for seasoned leases is primarily a function of the
number of leases completed in the past, adjusted downward for leases that have
expired or the number of leases that are not true leases. From 1987 through the
end of 1997, ELA estimates that greater than $1.4 trillion in equipment will
have been leased in the United States. In the Company's experience, at any time
after the inception of a new equipment lease, a lessor thereunder may consider
the sale of its ownership interest. In such a secondary market sale, all right,
title and interest in the equipment and the lease are conveyed to a purchaser
that will typically receive all of the proceeds therefrom after the purchase
date. Sellers of secondary market transactions are believed to have one or more
of the following objectives in seeking and consummating such a sale:
. Realization of book profit by selling at a premium to book value
because the fair market value of the equipment is above such book
value.
. Removal of the perception of a risk of return of equipment by a
user at lease expiry and a possible loss from the sale of
equipment at a discounted price to a dealer or at auction.
. Disposition of investments which are not associated with the seller's
core business.
. Removal of perceived credit risk from the seller's balance sheet.
. Repositioning of the seller's tax-motivated investment portfolio
resulting from a change in tax law, change in the seller's profit base
or outlook, or the seller becoming subject to alternative minimum tax.
. Freeing up capital for investment in core business activities (which
may include making new lease investments in the case of leasing
company sellers).
The Company believes that currently there are relatively few participants
in the secondary market for large ticket leases for a number of reasons; and,
consequently, above-average returns are potentially available for knowledgeable
purchasers investing in such transactions. Secondary market lease transactions
may fail to meet many leasing companies' primary objectives. Most large
equipment leasing companies are affiliated with parent companies that have tax
deferral objectives and are adverse to taking substantial equipment residual
exposure. Many new equipment leases are highly structured and have a very long
effective term to maximize the economic benefit of tax deferral and minimize
residual value risk. In particular, most new equipment leases will allow the
initial lessor to recover some or all of its investment from contractual rent
payments to be received under the lease. The Company believes that most large
ticket secondary market transactions are completed in the final one-third of the
term of an equipment lease
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when the fair value of the equipment subject to lease is more likely to exceed
the seller's book value. When acquired at a relatively late stage in the lease
term, these items of equipment subject to lease transactions have less tax
deferral attributes (due to the short term) and more residual value exposure
(because only a small amount of the secondary market purchaser's investment will
be repaid from the remaining contractual rents) than new large ticket leasing
deals. In general, in the opinion of the Company, secondary market lease
acquisitions are not attractive to leasing companies with the objectives
described above.
Secondary market lease transactions may require the purchaser to accept
certain key terms and conditions which it can avoid or limit in a new lease
transaction customized to its needs. New equipment leasing transactions can be
individually selected, priced, and documented in a manner that precisely matches
the objectives of a leasing company, objectives which may include yield
requirements, creditworthiness considerations, equipment preferences, industry
preferences, appetite for residual value risk, and documentation needs. The
acquisition of secondary market leases conversely requires that the purchaser
accept all aspects of the existing lease agreement and underlying equipment
which is the subject of the sale, and to conduct extensive due diligence into
the current state of affairs of the transaction and the user. In such cases, the
user has little or no obligation to cooperate with such an investigation and the
prospective purchaser may be frustrated in its efforts to complete such
investigation, while in a new lease transaction, full cooperation would be a
condition to funding. Further, certain restrictions on the transfer of the
equipment may exist and certain important documents underlying the transaction
may be missing or made obsolete by external changes, and certain of the
equipment underlying the transaction may have been damaged. In the opinion of
the Company, many such risks can be mitigated through due diligence and
structuring, but many leasing companies find secondary market transactions
unsuitable for their objectives or perceive such transactions to be unduly
risky, particularly in the case of leasing companies associated with commercial
banks and other typically conservative institutions.
Another area of the equipment leasing industry in which the Company
competes is the small ticket sector, which is undergoing rapid growth, in part
due to: (i) the consolidation of the banking industry, which has eliminated many
of the smaller community banks that traditionally provided equipment financing
for small to mid-size businesses, forcing these businesses to seek alternative
financing rather than deal with the approval process of large commercial banks;
(ii) stricter lending requirements of commercial banks; (iii) a trend toward
instant approvals at the point of sale made possible by improved technology; and
(iv) the adoption of accounting pronouncements concerning the accounting
treatment of transactions with captive finance company subsidiaries, which has
caused a number of manufacturers to eliminate their finance companies, resulting
in an increased demand for independent financing.
In addition to domestic opportunities for large ticket and small ticket
leasing outlined above, the Company believes that it will have significant
leasing opportunities in Europe in general and the United Kingdom in particular.
In the U.K., recent accounting and regulatory changes have, in the opinion of
the Company, made leasing of equipment a more attractive option relative to
purchasing than it had been before such changes. To the extent that such
international leasing transactions on equipment can be structured to mitigate or
remove certain risks, such as currency exchange, equipment lien recordation and
local laws, the Company believes that the leasing industry in Europe holds
considerable opportunity.
STRATEGY
The Company's strategy is to accumulate a portfolio of seasoned large
ticket leases acquired in the secondary market, targeting highest total returns
consistent with prudent risk management.
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The Company believes that it has a reputation as a knowledgeable purchaser
on behalf of the ICON Partnerships with investment capital on hand and
demonstrated ability to meet the objectives of transaction partners. The
Company believes that these attributes and its execution of the following
strategy will enable it to compete successfully for attractive large ticket,
secondary market lease purchase opportunities and, to a lesser degree, small
ticket leasing and financing.
Target Particular Sellers. The Company will target prospective transaction
sellers that have certain characteristics, including but not limited to the
following: companies which are no longer making lease investments, leasing
companies which are publicly traded or which have a publicly traded parent
company (and may from time to time seek out accounting gains to contribute to
reported earnings), leasing companies which have an inadequate capital base to
expand their leasing operations, diversified companies which could benefit from
freeing up capital to utilize in their non-leasing business, companies which
desire to contain residual value risk from leases held, and large equipment
operators which may benefit from the sale and leaseback of used equipment.
Capitalize on Lack of Efficiency and Depth in Secondary Market. No formal
market mechanism exists for secondary lease transactions and the Company
believes that it is one of very few participants focusing on secondary market
transactions. As a result, the Company has found, and expects to continue to
find, that a number of its acquisitions are noncompetitive, which may enhance
total return prospects. In particular, because the Company is not burdened with
the institutional constraints of many leasing companies, banks or other balance-
sheet lenders, to avoid residual value exposure or to provide a tax deferral
mechanism for a parent company, it may be in a position to retain a competitive
advantage over such potential competition by outbidding any such interested
parties or accommodating other seller's objectives through creativity and
flexibility, if necessary.
Accommodate Objectives of Secondary Market Sellers. The Company has used a
number of structures and techniques which, while not proprietary, have proven or
may prove useful in accommodating Seller's objectives. See "Industry Overview".
For example, in addition to its interest in acquiring equipment subject to
lease, the Company has from time to time on behalf of the ICON Partnerships
entered into residual option transactions. In these transactions, a lessor
keeps the equipment subject to lease and receives a payment in exchange for the
right to receive some or all of the residual value in a lease. Under this
structure, the acquiring party does not receive all rights, title and interest
to the lease, but, upon exercise of the option, may receive substantial returns
for being willing to leave title with the lessor. For certain lessors, a
residual option may avoid adverse tax or accounting consequences from a sale,
but may create income equal to the consideration paid for the option.
To a lesser degree, the Company can profit from offering residual
guaranties, under which it guarantees a future equipment value to a lessor in
exchange for a cash payment and/or residual sharing. In the case of purchasing
residual options and offering residual value guaranties, the Company's
willingness and ability to enter into such transactions is believed to be an
important competitive advantage, although the potential profit associated with
these transactions is deferred until the sale of the equipment at lease expiry.
Pursue Residual Value Opportunities in Equipment with Certain
Characteristics. The Company targets residual-value-based profit opportunities,
which arise from equipment that has a long useful life and low technological
obsolescence, or, to a lesser degree, equipment that is essential to the
operations of the user, and therefore, in the opinion of the Company, is
unlikely to be replaced or retired. The Company intends to focus on particular
types of equipment which have these characteristics and for which a substantial
pool of existing leases is believed to exist and which generally are believed to
provide the
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Company with attractive opportunities, including but not limited to commercial
aircraft, marine vessels, other transportation equipment and telecommunications
equipment.
Focus on Large Transactions Involving Creditworthy Lessees. A large
percentage of the Company's recent acquisitions on behalf of the ICON
Partnerships has consisted of the purchase of single, large items of equipment
subject to lease with a user which is often investment grade rated or (in the
case of closely held users) believed equivalent. Large ticket transactions of
this type are expected to represent a large percentage of the Company's future
investment activity. In such transactions, the Company acquires all rights,
title and interest to the equipment and an existing lease agreement.
Historically, such lease agreement would typically have already been in place
for up to approximately twelve years (though sometimes longer) and would have a
remaining lease term of two to seven years. Many such transactions were
originally structured as "leveraged leases" in which the original lessor
incurred non-recourse indebtedness to defray at least 50% of the cost of the
equipment. In the typical leveraged lease, all or substantially all, of the
rental payment received from the lessee is applied to the amortization of a non-
recourse loan. At the end of the lease, the loan typically has been repaid in
full and the lessor is entitled to proceeds from the sale of the equipment or
from the extension or renewal of the existing lease or the lease of the
equipment to a new user.
Renegotiate Acquired Leases to Enhance Value. In general, the Company will
hold its lease investments until maturity, unless various factors enable the
Company to achieve what it believes would be a superior result from disposing of
the asset early. In some cases, the ability to dispose of a lease investment
early may be limited by the lack of an established secondary market for the
lease. Senior management and the Company have had success in working with
lessees to restructure leases to achieve greater profitability, while achieving
other objectives of the lessee such as lowering periodic payments in exchange
for a longer lease term (which could benefit the Company to the extent that the
present value of the revised payment schedule is greater than the original
payment schedule). The restructuring of lease contracts can result in lease
transactions which are saleable to conventional leasing companies, as such
restructuring may have increased the length of the term, raised the value of the
tax deferral, lowered the residual value risk, or removed any other non-standard
provisions in the lease contract.
Maximize End-of-Lease Residual Value. The Company intends to pursue all
available alternatives in the maximization of its residual value positions,
which may include negotiations with lessees as to the possible purchase or
renewal of the lease upon expiry thereof, or the sale or re-lease of the
equipment to a third party. In many cases, the amount of such realization may
depend on the extent to which a leasing company may elect to take full advantage
of its rights under the lease. The Company has a staff of professionals engaged
in the review, analysis and negotiation of such end-of-lease provisions, with
the objective of maximizing return and mitigating risk by enforcing all material
aspects of the lease contract or negotiating other advantageous terms. From
time to time, the Company will elect to have equipment returned to it and bear
the risk that the redeployment of the equipment may take some time beyond the
Company's original expectations. At the same time, the Company's positioning of
itself as a capable manager of equipment that is willing to hold such off-lease
equipment to maximize return is believed to improve the Company's position in
end-of-lease negotiations and help insure that it has properly considered all
reasonable options for maximization of its total return.
Pursue Small Ticket Leasing and Financing Opportunities. The Company
intends to expand the small ticket leasing and financing activity by increasing
volume under the existing referral network, adding sales and marketing people to
expand its referral network, placing additional emphasis on originating new
lease opportunities from vendors in vendor programs or bulk purchasers, and
purchasing, when strategically advantageous to the Company, principals or
brokers dealing in this market sector.
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The Company believes that the structure of its proposed facilities and its
securitization programs will provide it with access to capital on terms similar
to those of its larger, more established competitors. The Company believes that
its experienced management team and sales force, its servicing capability and
its significant broker and vendor base allow the Company to aggressively compete
with larger, more established companies on the basis of service and
responsiveness.
Expand into European and other Foreign Markets. The Company will pursue
primary and secondary acquisition opportunities of equipment subject to lease in
Europe. In the opinion of the Company, many such markets have less competition
for attractive equipment leasing transactions. In any such jurisdictions where
local laws protect the interests of U.S. lessors, particularly with respect to
the recordation of its legal ownership and remedies and protections available to
it in the event of a payment default on the part of the lessee, the Company
believes it can enter into leases profitably. Furthermore, the Company will
mitigate or eliminate currency risk in most foreign transactions by denominating
leases in U.S. dollars.
Strategic Acquisitions. The Company, through its knowledge of transaction
sellers and through its referral network, from time to time becomes aware of the
opportunities to acquire companies which operate in the large ticket or small
ticket leasing business. These companies may have portfolios of equipment
subject to lease that they own or relationships which result in additional
volume of leasing or financing opportunities. To the extent that such
acquisitions can be completed at reasonable cost to the Company and can
immediately or over time add to the Company's portfolio of lease investments,
the Company intends to aggressively pursue such targets. Additionally, the
Company believes its existing operations have substantial additional capacity
which can be used to reduce certain operations of companies targeted for
acquisition. The attractiveness of completing strategic acquisitions may be
enhanced by the ability of the Company to capitalize on any economies of scale.
SELECTION OF LEASE ACQUISITION OPPORTUNITIES
The Company has identified certain criteria that it has applied to ICON
Capital's activities on behalf of the ICON Partnerships and its other
businesses. These standards will also be applied to transactions engaged in by
ICON Leasing following the Offering. The criteria listed below represent
generally the Company's current guidelines for acquisition and investment
decisions. These guidelines are subject to continuing review and evaluation
and to exceptions in appropriate circumstances.
Total Return. The Company has expected each transaction undertaken on
behalf of the partnership funds to achieve an internal rate of return of more
than 20% per annum, compounded monthly, and expects those transactions entered
into upon the Offering to have a high probability of achieving comparable rates
of return. Such return may require the realization of equipment residual value
equal to that amount which the Company believes properly reflects the likely
fair market value of the equipment. In evaluating the residual value prospects
for a transaction, the Company consults nationally known appraisers and
determines the level of residual value which the Company believes would be
available in most orderly liquidation scenarios under normal market conditions.
To the extent that the residual value expected by the Company under this
approach appears likely to enable the total return on invested cash of at least
20% per annum compounded monthly, a prospective transaction is given further
consideration.
Long Economic Useful Life Equipment; Transportability of Equipment and
Efficiency of Used Equipment Markets. In most transactions, the Company will
seek out leasing opportunities where the remaining lease term is greater than
two years and, on expiry of the lease, at least one-third of the economic useful
life of the equipment remains, based on the equipment age or utilization
history. The
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Company believes that the avoidance of transactions in which the underlying
equipment may become technologically obsolete or otherwise of limited utility
(perhaps from excessive wear and tear) enables the Company to seek out a number
of disposition alternatives at lease expiry. For example, if management
believes market conditions are adverse when equipment becomes available for sale
after lease expiry, equipment with significant remaining life can be stored,
refurbished or leased on short or long term leases until market conditions
become more favorable.
The Company generally enters into leasing transactions on equipment types
which can be reasonably moved to other locations within the United States and,
to a lesser degree, abroad. In the opinion of management, the transportability
of such equipment broadens the base of prospective buyers or lessees in the
event equipment is returned at lease expiry. To the extent that equipment is
not practicably transported, for example in the case of fixed-plant equipment,
the Company would consider the investment if the equipment is deemed to be
essential to the operations of the lessee and, either impossible to replace, or
only replaceable at a significantly higher cost than its fair market value.
Creditworthiness. The creditworthiness of a lessee is an important
consideration for the Company from several perspectives. Lessees with financial
wherewithal are, in the opinion of the Company, more likely to be able to afford
to comply with the maintenance and return condition provisions of the lease
contract. A failure to comply with these provisions may cause the Company to
have exposure to costs associated with repair and redelivery of equipment, which
costs otherwise may have been the responsibility of the lessee. Additionally,
many large companies, in the opinion of management, routinely maintain equipment
to a standard superior to that in the lease contract for a variety of corporate
reasons such as image, safety, and acknowledgement that the lessee may elect to
purchase the equipment at lease expiry. Finally, in any lease transaction in
general and in transactions structured as leveraged leases (i.e., in which a
lender is entitled to receive some or all of the lease payments and has received
a pledge of the title to an asset as collateral) in particular, a payment
default on the part of the lessee could result in repossession and liquidation
of the equipment at a price which does not enable the lessor to achieve its
return.
ORIGINATION, EVALUATION AND COMPLETION OF TRANSACTIONS
The Company conducts its acquisitions through an experienced staff of
equipment leasing professionals. Described below are the stages of a typical
transaction:
Origination Process. The Company employs a team of professionals
responsible on a full-time basis for identifying opportunities to acquire
equipment subject to lease in the secondary markets and, to a lesser degree,
identify lease opportunities for new or used equipment. The Company operates
out of three facilities located in Harrison, New York; San Francisco,
California; and Boston, Massachusetts and in addition, operates out of a London
office under a trading agreement with a U.K.-based lease origination sales
force. Upon completion of the offering, the Company intends to add an
additional origination experienced leasing professional to this group.
The Company has established an extensive referral network comprised of
leasing companies, leasing brokers, investment bankers, attorneys, lenders, and
equipment appraisers that refer transaction opportunities. The Company also
takes advantage of opportunities to advertise in trade press and related
periodicals, and to conduct targeted mail, telemarketing, and fax campaigns to
keep prospective sellers and intermediaries aware of the Company's interests and
capabilities. The Company is represented at major equipment leasing conventions
and trade shows held each year, and several officers of the Company are active
in the Equipment Leasing Association, the United Association of Equipment
Lessors and the Eastern Association of Equipment Lessors, all well-recognized
trade associations.
36
<PAGE>
As of September 30, 1997, the Company employed a sales force of twelve
employees. These employees are responsible for implementing marketing plans and
coordinating marketing activities with the Company's lease sources, both with
respect to the acquisition of large ticket equipment subject to lease (three
employees) and small ticket equipment leasing (nine employees) as well as
providing customer service and participating in industry conventions and trade
shows on behalf of the Company.
Review and Analysis. The Company conducts a preliminary review and
analysis of each proposed lease transaction. Based on preliminary information
available about the transaction, various appraisal firms are consulted for
general feedback as to possible residual value ranges and economic outcomes are
forecast. On this basis, a non-binding letter of intent to purchase the
equipment subject to lease may be issued subject to, among other things, a
comprehensive due diligence review into the equipment, creditworthiness of the
lessee, and the lease contract; the completion of a purchase agreement
acceptable to the Company; and approval of the Investment Committee of the
Company. Upon acceptance of the letter of intent by the selling transaction
party, the Company's due diligence typically begins. The Company selects an
appraiser or appraisers which, based on their initial comments on the subject
equipment as well as the Company's experience with the appraiser, seem most
knowledgeable about the equipment and have a national reputation. Such
appraisers will provide a detailed appraisal report to the Company, supplying
estimates of the current value as well as estimates of residual value at lease
expiry. Such a report may include an on-site inspection if the parties believe
that such inspection could provide insight into the future value of the
equipment. Simultaneously, the Company's in-house Credit Department assembles
all relevant financial statements, rating agency reports, and related
information which will enable it to make a determination as to the
creditworthiness of the lessee. Lessees which are regarded as investment grade
by both Moody's Investor Service and Standard & Poor's Rating Group are
generally subject to a less intensive independent review. During this process,
the Company's Legal Department, which consists of two full time attorneys (or
outside counsel engaged for the specific transaction), will review all lease and
related documents to determine if there are any material deficiencies which (i)
may have an adverse effect on the transaction's ultimate outcome and, as such,
require the reconsideration of the bid price in the letter of intent or the
withdrawal of the offer; or (ii) should be cured before completion of the
transaction. A comprehensive investment write-up including the findings of the
appraiser(s) and the Legal Department, as well as a summary and recommendation
by the Company's transaction professional, copies of the lease and related
documents, the financial statements of the lessee, the Credit Department
analysis, and any other attachments deemed appropriate, is then circulated to
the Company's Investment Committee for approval.
Lease Documentation Review. The Company evaluates each lease agreement and
related transaction documents for completeness and to confirm that the lease
provides suitable protection from contingencies which may otherwise affect the
total return prospects. The leases entered into or acquired by the Company in
most cases obligate the lessee to pay all rents and payments, bear the risk of
loss of the leased equipment, pay applicable taxes, indemnify the lessor against
claims arising from lessee's negligent acts and maintain the equipment, and
often contain a provision prohibiting the assignment or sublease of the leased
equipment. Other common lease provisions require the lessee to maintain both
casualty insurance and liability insurance (naming the Company as an additional
insured) in an amount consistent with industry standards, and to indemnify the
Company against any loss or liability incurred by or asserted against it arising
out of such lease, or any performance thereunder, or related to the equipment
subject thereto and to insure the equipment, the Company and any other party
with an interest in the equipment from the normal risks of owning and operating
the equipment. Additionally, such leases commonly provide rights and remedies
to the lessor on the occurrence of an event of default, which could include non-
payment of rent, breach of certain material covenants, or the bankruptcy or
insolvency of the Lessee.
37
<PAGE>
Purchase Documentation. Simultaneously with the commencement of its due
diligence processes, the Company commences the negotiation of a purchase
agreement with the selling party. Such agreement describes all of the terms and
conditions of the proposed transaction, and in most transactions includes
comprehensive representations, warranties and indemnification provisions. The
Company typically requires the seller to represent and warrant, among other
things, that it has and can convey good and marketable title to the equipment;
that the lease is enforceable in accordance with its terms and is in full force
and effect; that no default has occurred; that the equipment has not, to its
knowledge, suffered a casualty, and is being maintained in accordance with the
lease; and that no other condition exists that would have a material adverse
effect on the Company's ability to achieve its economic expectations other than
as a result of credit loss or equipment residual value shortfalls. From time to
time, the Company may limit the representations and warranties it seeks if, in
its judgment, adequate confirmation of certain attributes of the lease or the
equipment can be gained from other sources. In any event, the Company will
require the selling party to indemnify it with respect to losses in the event of
a breach of any such representation and warranty. Indemnification for loss may
be limited to the Company's actual damages or provide for a return of all of the
Company's investment at an agreed rate of return.
Investment Committee. The Investment Committee is currently comprised of
four executive officers, Messrs. Clarke, Weiss, Martin, and Kohlmeyer. The
Committee may, by unanimous vote and, subject to the general supervision of the
Company's Board of Directors, commit the Company to prospective transactions.
38
<PAGE>
RECENT TRANSACTIONS
The following chart sets forth selected secondary market seasoned
lease transactions completed by the Company since August 1996 on behalf of the
ICON Partnerships. The Company believes these transactions are illustrative of
those that the Company expects to engage in after the Offering.
<TABLE>
<CAPTION>
GROSS CASH
LESSEE EQUIPMENT DESCRIPTION PURCHASE PRICE INVESTMENT
- ------ ---------------------------------- -------------- -----------
<S> <C> <C> <C>
Federal Express One DC10-30 freighter aircraft $ 40,973,585 $ 6,000,000
Airbus Industrie One Airbus A300-200B4 aircraft 19,595,956 1,409,839
America Online Telecommunication equipment 18,311,382 1,317,021
SEACOR-Smit Three offshore supply vessels 17,100,000 4,275,000
Continental Airlines Three 737-300 aircraft 14,339,799 1,237,500
Rowan Company Offshore drilling rig 12,325,000 12,325,000
Continental Airlines One DC10-30 commercial aircraft 12,109,759 2,800,000
Occidental Petroleum Two anchor handling vessels 9,283,364 3,430,000
Texas Utilities Computer networking equipment 9,177,567 1,745,550
US Airways Two de Havilland DHC-8-102 aircraft 6,819,250 3,619,250
WalMart 770 over-the-road trailers 4,554,815 2,803,175
-----------------------------
Total $164,590,477 $40,962,335
----- -----------------------------
</TABLE>
39
<PAGE>
CURRENT BUSINESSES OF THE COMPANY
ICON CAPITAL CORP.
ICON Capital is the sole general partner of each of the seven ICON
Partnerships, for which it performs all services relating to the management of
the ICON Partnerships. Since 1989, ICON Capital has sponsored seven ICON
Partnerships. Currently, ICON Capital is raising equity through the sale of
interests in ICON Cash Flow Partners L.P. Seven ("ICON Seven"). The prior ICON
Partnerships are closed to new investors, but ICON Capital continues to manage
these portfolios of equipment subject to lease and financing transactions. As
of September 30, 1997, ICON Seven had raised a total of $47 million in equity
from a total of 2,149 investors and had purchased equipment subject to lease
with an aggregate purchase price of approximately $170 million (including
indebtedness incurred or assumed).
As the sole general partner of the ICON Partnerships, ICON Capital has
complete investment discretion over the proceeds of limited partnership unit
sales. Proceeds of unit sales are invested in equipment subject to lease to
achieve a partnership's stated investment objectives, which are expected to
provide cash flow from lease rentals or residual value realizations that: (i)
will fund fixed monthly distributions to limited partners through the fifth
anniversary of the partnerships' final closing, and (ii) will thereafter be
distributed to the limited partners on a pro rata basis. Upon the acquisition
of ICON Capital in August 1996, the Company changed the investment approach of
the ICON Partnerships in a manner that was consistent with the Partnership
Agreements and, in the opinion of management, would provide superior total
return prospects to the limited partnerships without meaningful added risk.
Under this new investment approach, the ICON Partnerships have been pursuing
investments in large ticket seasoned lease transactions.
From May 1988 through September 30, 1997, net cumulative charge offs for
credit loss and writedown for residual loss or impairement was 1.49% or $12.5
million on aggregate gross purchase price of $843.2 million.
ICON Capital expects to be selling interests in ICON Seven until November
1998 through a nationwide network of broker/dealers. The Company anticipates
that it will form a new equipment leasing limited partnership fund after ICON
Seven in 1998. ICON Securities, a wholly owned subsidiary of the Company, is a
NASD-registered broker/dealer that serves as dealer/manager of the ICON
Partnerships and in that capacity receives an underwriting fee equal to 2.0% of
gross offering proceeds.
Substantially all of the revenues of ICON Capital are derived from
acquisition fees and management fees payable by the ICON Partnerships. These
fees are paid to ICON Capital as a percentage of units sold, with different
percentages attributable to the different capacities in which ICON Capital
services the partnership funds. Since the management fees are payable as a
percentage of rental payments received by the Partnerships, they represent a
source of revenue for ICON Capital for the respective lives of the ICON
Partnerships, currently estimated to be seven to ten years from the initial
closing.
Most of the Company's historical revenues have been derived from the fees
its subsidiaries earn from the organization and management of the ICON
Partnerships. Fees earned by ICON Capital are governed by the Statement of
Policy regarding Equipment Programs adopted by the North American Securities
Administrators Association, Inc. ("NASAA Guidelines"). The NASAA Guidelines are
the de facto standard imposed by many Blue Sky administrators in determining
whether
40
<PAGE>
to approve the sale of interests in equipment leasing investment programs in
their states. The fees outlined below (payable to ICON Capital as general
partner unless otherwise noted) are those of ICON Seven, whose limited
partnership interests are currently being offered and sold to the public.
Because of the NASAA Guidelines it is anticipated that the aggregate fees
generated from any future ICON Partnership will be substantially similar to the
aggregate of those set forth below:
<TABLE>
<CAPTION>
<S> <C>
Underwriting Fees (payable to ICON Securities as
dealer/manager) ............................... 2.0% of gross offering proceeds
Organizational and Offering Expense
Reimbursement.................................. 3.5% of gross offering proceeds
Equipment Acquisition Fee......................... 3.0% of equipment cost
Management Fees................................... 5.0% of gross rentals from operating
leases or 2.0% of gross rentals from
full payout leases
Reimbursement of Administrative Fees.............. up to 2.0% of gross revenues
</TABLE>
In addition to the fees set forth above there are other fees payable from
cash to be distributed to the limited partners of ICON Seven, which vary
depending on ICON Seven's performance. These fees require the payment to ICON
Capital of 1.0% of distributable cash prior to "Payout" and 10.0% thereafter.
Payout occurs when ICON Seven's limited partners have received the return of
their initial investment plus an 8.0% cumulative return. A 3.0% subordinated
remarketing fee on equipment sales is also payable after Payout. The aggregate
amount of fees of management fees and reimbursement of administrative expenses
contractually owed to the Company upon receipt by the ICON Partnerships of
existing gross receivables from the seven ICON Partnerships at its fiscal year
ended December 31, 1996 was approximately $10.3 million.
The Company's servicing responsibilities with respect to each lease it may
acquire and with respect to the ICON Partnership leases vary, depending on the
nature of the transaction size and the circumstances under which the lease was
acquired or originated. Services to be provided by ICON Capital may include
billing, processing payments, paying taxes and insurance and performing
collection and remarketing functions. In addition, on behalf of its limited
partners, the Company prepares investor reports, makes regulatory filings, and
oversees investor relations matters.
ICON FUNDING CORP.
ICON Funding is a wholly owned subsidiary of the Company engaged primarily
in the small ticket lease acquisition and origination business. The Company
intends to increase small ticket lease volume by (i) adding sales and marketing
personnel to expand its referral network, (ii) placing additional emphasis on
vendor programs or bulk purchases, and (iii) when strategically advantageous to
the Company, acquiring brokers operating in this market sector. To date, the
leases and loans that have been acquired and originated by ICON Funding have
been on behalf of the ICON Partnerships and subsequently funded through
securitization.
On September 19, 1997, ICON Receivables 1997-A, a bankruptcy remote entity
set up by ICON Funding for the benefit of the ICON Partnerships ("1997-A"),
securitized a pool of 1,421 leases and loans with an aggregate remaining
contract balance of approximately $59.4 million. 1997-A issued three tranches
of Class A Notes with a weighted average coupon of 6.59%. These bonds were
41
<PAGE>
offered by Prudential Securities, Inc. and were rated investment grade by both
Duff & Phelps Credit Rating Co. and Fitch Investors Service, L.P. Following the
closing, the ICON Partnerships established a second warehouse facility, ICON
Receivables 1997-B ("1997-B"), structurally identical to 1997-A. This second
facility is currently acquiring lease transactions with a view towards their
securitization once a sufficient number of such transactions have been acquired.
As currently contemplated, the Company intends to conduct future small ticket
leasing and lending acquisitions and origination for its own account. The
amount of any future business will be a function of the volume of small ticket
transaction opportunities and the availability of financing on terms acceptable
to the Company.
RESOLUTION OF POTENTIAL CONFLICTS OF INTEREST
Due to ICON Capital's fiduciary and contractual obligations in its capacity
as general partner of the ICON Partnerships, the Company's ICON Capital
subsidiary is required to invest capital on behalf of the ICON Partnerships in a
manner which may compete with the Company's investment objectives and have the
effect of reducing the availability of suitable transactions for the Company.
Under the Partnership Agreements, ICON Capital has agreed with the limited
partners to refer investment opportunities to the ICON Partnerships until such
time as all initial capital contributions have been fully invested subject to
limitations such as the partnership's maximum purchasing capacities, equipment
type, structure of lease or creditworthiness of the transaction. The Company
believes that this conflict of interest may be mitigated by the following: (i)
lack of meaningful capital in the ICON Partnerships relative to the Company
after the Offering and (ii) the differing investment objectives with respect to
certain transactions among the Company and the ICON Partnerships. The conflict
in determining and allocating investment capital between the Company and the
ICON Partnerships will be resolved by the Investment Committee and subject to
review by the Audit Committee.
The Company's Investment Committee will evaluate the suitability of all
prospective lease acquisitions and financing transactions for investment by an
ICON Partnership before it makes a decision about the suitability of the
opportunity for the Company's own portfolio. In general, the following criteria
will be applied and, in the event that some or all of these criteria are not
satisfied, the prospective transaction is expected to be considered for the
Company's own portfolio only if:
. The required cash investment is greater than the cash available for
investment by an ICON Partnership;
. The amount of leverage is above levels deemed acceptable for an ICON
Partnership;
. The equipment type is not appropriate to an ICON Partnership's
objectives which include, among others, the avoidance of
concentration of exposure to any one class of equipment;
. The lessee credit quality does not satisfy an ICON Partnership's
objective of maintaining a high quality portfolio with low credit
losses while avoiding a concentration of exposure to any individual
lessee or borrower;
. The term remaining exceeds the liquidation period guidelines
established in the Partnership Agreements;
. The available cash flow (or lack thereof) is not commensurate with an
ICON Partnership's need to make certain distributions during the
Reinvestment Period (as defined);
. The transaction structure, particularly with respect to the end of
lease options governing the equipment, does not provide an ICON
Partnership with the residual value opportunity commensurate with the
total return requirements of such ICON Partnership; or
. The transaction does not comply with the terms and conditions of the
Partnership Agreements.
The Audit Committee of the Board of Directors will from time to time review the
procedures described above in an effort to ensure that, in general, transactions
have been considered for the Partnerships prior to being considered by the
Company.
COMPETITION
The Company competes in the equipment financing market with a number of
national, regional and local finance companies. In addition, the Company's
competitors in equipment leasing and finance in general include equipment
manufacturers that finance the sale or lease of their products and other
financial services companies, such as commercial banks and savings and loan
associations, all of which provide financing for the purchase of equipment.
The Company's competitors in the secondary market for large ticket lease
acquisitions include many larger, more established companies, such as GE
Capital, GATX Capital, The CIT Group, Finova and First Union, that may have
access to capital markets and to other funding sources, as well as the personnel
and marketing resources, which may only be available to the Company to a far
lesser degree. Many of the Company's competitors have substantially greater
financial, marketing and operational resources and longer operating histories
than the Company.
With respect to small ticket leasing and financing, the Company faces
intense competition from a significant number of leasing companies and lenders.
In general, the cost of such financing to the equipment user is believed to be
the largest consideration in the decision as to which financing source to use.
A significant number of the Company's competitors benefit from a cost of money
below ICON Funding's cost. However, the Company believes that the structure of
its warehouse facilities and its securitization program provide it with access
to capital on terms similar to those of its larger, more established
competitors. The Company believes that its experienced management team and sales
force, its technology and servicing capacity and its significant broker and
vendor base allows
42
<PAGE>
the Company to aggressively compete with larger, more established companies on
the basis of service and responsiveness.
FACILITIES
The Company's corporate headquarters and operations center are located in
leased space at 600 Mamaroneck Avenue, Harrison, New York. The Company also
leases office space for its other offices in Boston, Massachusetts; San
Francisco, California and New York, New York. As of March 31, 1997, the monthly
rent under the Company's New York office lease was approximately $35,000. The
Company rents approximately 24,000 square feet at that location through November
2004. The other office space leases are each for a term less than 17 months and
have rents of less than $5,790 per month.
EMPLOYEES
As of September 30, 1997, the Company had 70 full-time employees, of whom 3
were engaged in executive management; 29 were engaged in finance and
administration; 19 in marketing; 9 in collections and remarketing; 6 in credit
evaluation; and 4 in legal. The Company's management believes that its
relationship with its employees is good. No employees of the Company are
members of a collective bargaining unit.
LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are parties to various
claims, lawsuits and administrative proceedings arising in the ordinary course
of business. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect such matters to have a material adverse
effect on the financial condition or results of operations of the Company.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers, directors and designated future directors of the Company and
their ages as of September 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Beaufort J. B. Clarke 51 Chairman of the Board, President and
Chief Executive Officer
Paul B. Weiss 36 Vice Chairman of the Board and Executive Vice
President; President of ICON Leasing
Thomas W. Martin 42 Executive Vice President and Director
Gary N. Silverhardt 37 Chief Financial Officer and Treasurer
John L. Lee 53 Senior Vice President, General Counsel and Secretary
Robert W. Kohlmeyer, Jr. 36 Senior Vice President
Allen V. Hirsch 43 Senior Vice President
Adolfo R. Garcia (1) 48 Future Director
________________ (1) __ Future Director
</TABLE>
_________________
(1) To be a member of Audit Committee.
Each individual named as a Future Director in the foregoing table has
agreed to be elected as a Director of the Company effective upon the completion
of the Offering and has consented to be named as such herein.
BEAUFORT J. B. CLARKE has been President and Chief Executive Officer, and a
director of the Company since August 1996 and Chairman of the Board of Directors
since October 1997. Prior to his current position, Mr. Clarke was Chairman of
the Board, Chief Executive Officer and President of Griffin Equity Partners,
Inc., a purchaser of equipment leasing portfolios which he co-founded in October
1993 and served with until August 1996. From May 1991 to September 1993, Mr.
Clarke was President of Gemini Financial Holdings, Inc., a purchaser of
equipment leasing portfolios. Prior to that time, Mr. Clarke was a Vice
President and one of the founders of Encore International, Inc., an equipment
leasing company which became, after Mr. Clarke resigned, AT&T Systems Leasing.
From 1981 to 1987, Mr. Clarke was a senior executive with several other
equipment leasing companies, including Charter Financial Company, Finalco, Inc.,
and CMI Corporation. Mr. Clarke was an attorney with the law firm of Shearman &
Sterling in New York City.
PAUL B. WEISS has been Executive Vice President of the Company since
November 1996 and Vice Chairman of the Board of Directors since October 1997.
He was appointed President of ICON Leasing upon its formation in November 1997.
He has served since November 1996 as Executive Vice President, where he is
engaged in the acquisition of large-ticket equipment lease transactions from the
secondary
44
<PAGE>
market. Mr. Weiss served as Executive Vice President and a director and was co-
founder of Griffin Equity Partners, Inc. (an equipment leasing company) from
October 1993 through October 1996. Prior to that time, Mr. Weiss was Senior
Vice President of Gemini Financial Holdings, Inc. (an equipment leasing company)
from 1991 to 1993 and Vice President of Pegasus Capital Corporation (an
equipment leasing company) from 1989 through 1991.
THOMAS W. MARTIN has been Executive Vice President and a director of the
Company since August 1996, and served as Secretary of the Company from August
1996 until October 1997. Mr. Martin has served since August 1996 as Executive
Vice President and Secretary of ICON Capital. He has been responsible for lease
originations for ICON Funding since October 1997 he has served as President.
Prior to his present position, Mr. Martin was the Executive Vice President and
Chief Financial Officer of Griffin Equity Partners, Inc. (an equipment leasing
company) from October 1993 to August 1996. Prior to that time, Mr. Martin was
Senior Vice President of Gemini Financial Holdings, Inc. (an equipment leasing
company) from April 1992 to October 1993. Earlier, he held the position of Vice
President at Chancellor Corporation (an equipment leasing company) for seven
years.
GARY N. SILVERHARDT was appointed Senior Vice President of the Company in
August 1997 and has been Chief Financial Officer and Treasurer of the Company
since August 1996. He has been with ICON Capital since 1989 and served as Vice
President and Controller of that company from 1989 until its acquisition by the
Company in August 1996. From 1985 to 1989, he was with Coopers & Lybrand, most
recently as an Audit Supervisor.
JOHN L. LEE was appointed Senior Vice President and General Counsel of the
Company in April 1997. He was appointed Secretary of the Company in October
1997. Since 1992, Mr. Lee had been a partner at the Boston law firm of Peabody
& Brown with a practice focusing on commercial aircraft and vessel leasing and
financing transactions. Prior to joining Peabody & Brown, Mr. Lee served as
General Counsel of American Finance Group, an equipment leasing company, and was
earlier an associate with the law firm of Shearman & Sterling in New York City.
ROBERT W. KOHLMEYER, JR. was appointed Senior Vice President of Operations
of the Company and ICON Capital in August 1997. He previously served as Vice
President of Operations of ICON Capital since August 1996. From March 1993 to
August 1996, Mr. Kohlmeyer was President of Corporate Capital Services. From
January 1995 to February 1995, Mr. Kohlmeyer held the title of Vice President
with Gemini Financial Holdings, Inc. (an equipment leasing company). Prior to
that, Mr. Kohlmeyer held a position as Credit/Risk Manager at Intelogic Trace,
Inc.
ALLEN V. HIRSCH was appointed Senior Vice President of the Company in
December 1996. He has also served since December 1996 as the Senior Vice
President of ICON Capital and the President and Chief Executive Officer of ICON
Securities. Previously, Mr. Hirsch spent 16 years with PLM Financial Services
and Affiliates, most recently as President of PLM Securities Corp. He also
served as the Vice Chairman of the Board of PLM International (an equipment
leasing company) from May 1989 through June 1996.
ADOLFO R. GARCIA has agreed to serve on the Board of Directors commencing
upon consummation of the Offering. He is the president of Adolfo R. Garcia,
P.C., a Massachusetts-based professional corporation which is a partner of
McDermott, Will & Emery, an international law firm with offices in Boston and
several other U.S. cities and foreign countries. Mr. Garcia, who has practiced
out of the firm's Boston office since April 1982, has headed the corporate,
corporate finance, securities and
45
<PAGE>
international law practice in the firm's Boston office and since 1993 has been a
member of the firm's management committee.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors intends to appoint Messrs. Garcia and
___________ to the Audit Committee upon consummation of the Offering. The
responsibilities of the Audit Committee will include making recommendations to
the Board of Directors as to the independent public accountants to be selected
to conduct the annual audit of the books and records of the Company, reviewing
the proposed scope of such audit and approving the audit fees to be paid,
reviewing accounting and financial controls of the Company with the independent
public accountants and the Company's financial and accounting staff and
reviewing and approving transactions between the Company and its directors,
officers and affiliates.
The Board of Directors does not have a Compensation Committee or a
Nominating Committee.
DIRECTOR COMPENSATION
No compensation has ever been paid to any of the directors of the Company
for service in such capacity. Non-employee directors shall be eligible to
receive reasonable compensation for their service in this capacity as well as
grants of non-qualified stock options under the 1997 Non-Employee Directors
Stock Plan.
1997 NON-EMPLOYEE DIRECTORS' PLAN
The Company's 1997 Non-Employee Directors Plan (the "Director Plan") was
adopted by the Company in October 1997 and will become effective upon the
closing of the Offering. Under the terms of the Director Plan, options to
purchase 15,000 shares of Common Stock (the "Initial Options") will be granted
to each person who becomes a non-employee director after the effectiveness of
the Offering, effective as of the date of election to the Board of Directors.
The Initial Options will vest in equal annual installments over three years
after the date of grant. In addition each non-employee director will receive
10,000 shares ("Annual Options") on the date of each annual meeting of the
Company's stockholders held after the closing of the Offering. The Annual
Options will vest on the first anniversary of the date of grant. Both Initial
Options and Annual Options will be exercisable at the fair market value of the
Common Stock on the date of grant. A total of 100,000 shares of Common Stock
may be issued upon the exercise of stock options granted under the Director
Plan. Unless sooner terminated pursuant to its terms, the Director Option Plan
will terminate in October 2007.
46
<PAGE>
EXECUTIVE COMPENSATION
The following tables sets forth all compensation awarded to, earned by or
paid for services rendered to the Company, or its subsidiaries in all capacities
for the fiscal year ended March 31, 1997 by the Company's current President and
Chief Executive Officer, the former President and Chief Executive Officer of
ICON Capital, and the two other executive officers of the Company (collectively,
the "Named Executive Officers") who earned greater than $100,000 in salary and
bonus for services rendered to the Company and its subsidiaries in such fiscal
year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ---------------------
NAME AND POSITION YEAR SALARY ($) BONUS ($)
- ----------------- ------ ---------- ---------
<S> <C> <C> <C>
Beaufort J. B. Clarke (1)............... 1997 $160,740 $ --
President and Chief Executive
Officer
Gary N. Silverhardt..................... 1997 168,600 40,000
Chief Financial Officer
Paul B. Weiss (1)....................... 1997 109,376 --
Executive Vice President
Peter D. Beekman (2).................... 1997 96,595 8,561
Former President and Chief Executive
Officer of ICON Capital
</TABLE>
_________________
(1) Messrs. Clarke and Weiss commenced service with the Company in August 1996
and November 1996, respectively.
(2) Mr. Beekman resigned as President of ICON Capital in August 1996 upon the
acquisition of ICON Capital by the Company.
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Stock Option Plan") was
adopted in October 1997 and will become effective upon the closing of the
Offering. The 1997 Stock Option Plan, as amended, provides for the grant of
stock options to employees, officers and directors of, and consultants or
advisors to, the Company and its subsidiaries. Under the 1997 Stock Option
Plan, the Company may grant options qualified as "incentive stock options" under
U.S. federal tax law or non-qualified stock options. Incentive stock options
may only be granted to employees of the Company or its parents or subsidiaries.
A total of 2,000,000 shares of Common Stock may be granted under the 1997 Stock
Option Plan. Unless terminated earlier pursuant to its terms, the 1997 Stock
Option Plan will terminate in October 2007.
Upon the effective date of the Registration Statement of which this
Prospectus forms a part, the Company intends to grant certain stock options
under the 1997 Stock Option Plan to Messrs. Clarke, Weiss, Martin and certain
other officers, a total of approximately 1,200,000 shares an exercise price
equal to the initial public offering price per share. Such options to be
granted are expected to vest 33-1/3% each
47
<PAGE>
on the first three anniversaries of the date of grant and are expected to expire
on the tenth anniversary of the date of grant.
401(K) PLAN
Effective in September 1996, the Company adopted a 401(k) Profit Retirement
Plan and Trust (the "Plan") for the exclusive benefit of its eligible employees
and their beneficiaries. The 401(k) Plan is intended to qualify under Sections
401(a) and 401(k) of the Internal Revenue Code of 1986 (the "Code"). All
employees who have at least one year of full-time service with the Company and
have attained the age of 18 are eligible to participate in the 401(k) Plan.
Pursuant to the Plan, and subject to the Code's requirements, a participant may
elect to contribute a percentage of compensation each year to the 401(k) Plan.
The Company currently contributes an amount equal to 100% of the amount
contributed by a participant. The 401(k) Plan also allows the Company to make
additional contributions by means of an annual discretionary contribution. The
existence and amount of any such discretionary contribution is determined by the
Board of Directors and is allocated among those participants who elect salary
reduction. Discretionary contributions are subject to certain contingencies as
set forth in the 401(k) plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee. No executive officer
of the Company has served as a director or a member of the compensation
committee (or other committee serving an equivalent function) of any other
entity, whose executive officers served as a director of the Company. Mr.
Clarke, Chief Executive Officer and President of the Company, with the approval
of the Board of Directors, has determined executive officer compensation.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Clarke, Mr. Weiss and the Company are each parties to separate
employment agreements for a five-year term expiring in December 2002. The
agreements provide that Mr. Clarke and Mr. Weiss are entitled to receive an
annual base salary of $275,000 and $250,000 respectively, subject to annual
increases of 7.5%, and are eligible to receive an annual incentive bonus based
upon certain performance objectives established by the Board (the "Bonus Plan").
Under the Bonus Plan, the Company anticipates that there will be a pool whereby
a portion of the pre-tax income of the Company will be distributed to Messrs.
Clarke, Weiss, Martin and certain other executives. Messrs. Clarke and Weiss
each shall be entitled to receive at between 25.0% and 33.0% of the total pool
at the end of such year, with the remainder being distributed to the remaining
Executive Vice President and Senior Vice Presidents of the Company, such
distribution amounts being determined and recommended by Mr. Clarke and approved
by the Board of Directors. The amount of the distribution will be calculated
based on a reference rate multiplied by pre-tax income that will be equal to
9.5% for calendar years 1998 and 1999 and 9.0% for the years 2000, 2001 and 2002
if the Company achieves 85% or more of its projected financial results. If
performance targets set by the Board of Directors are not achieved, this rate is
adjusted downward.
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<PAGE>
Mr. Clarke's and Mr. Weiss' employment agreements also provide that they
will each be granted options under the 1997 Stock Option Plan to acquire 1.75%
of the shares of the outstanding Common Stock upon consummation of the Offering
at the initial public offering price, subject to ratable annual vesting over
three (3) years.
Each of Messrs. Clarke's and Weiss' employment agreements include a non-
competition covenant pursuant to which he shall be prohibited from competing
with the Company during the term of the agreement and for three years following
its termination. In consideration of such covenant, if either Mr. Clarke's or
Mr. Weiss' employment is terminated by the Company without cause following a
"change of control" (as defined in the agreement), Messrs. Clarke or Weiss, as
the case may be, will receive the following severance payments and further
benefits: (i) $500,000 if such termination occurs in the third year or later of
the agreement and the Company has achieved its earnings objectives in the first
two years; (ii) full payment of accrued, unpaid salary, bonus and benefit
payments; (iii) a sum equal to three years of his highest annual base pay to
date; (iv) a sum equal to three times his highest to date annual bonus earned;
(v) full immediate vesting of any issued but unvested stock options; (vi) three
years of continuation of participation in the Company's benefits (to the extent
not received by Messrs. Clarke or Weiss, as the case may be, in another
position), including health, disability and life insurance, qualified and non-
qualified retirement and pension plans, if any, or the then current value of the
same in cash if the terms of such plans preclude such continued participation;
and (vii) such additional sums as are necessary for Messrs. Clarke or Weiss, as
the case may be, to meet any additional federal taxes due to the payment of the
severance pay and other benefits having been contingent upon a change in
control. If Messrs. Clarke's or Weiss' employment is terminated by the Company
without cause in the absence of such a change of control, Messrs. Clarke or
Weiss, as the case may be, will be entitled to all of the foregoing severance
payments and other benefits, other than additional sums required for the payment
of federal taxes in the event of a change in control transaction. If either of
Messrs. Clarke or Weiss were to resign following a reduction in his
responsibilities or pay or change in location, his agreement deems such a
termination as having been effected by the Company.
At the expiration of the term of their employment agreement, Messrs. Clarke
or Weiss, as the case may be, will receive the following severance payments and
benefits: (i) full payment of any accrued, unpaid salary, bonus and benefit
payments; (ii) a sum equal to eighteen months of his highest to date annual base
pay; (iii) a sum equal to one and one-half of his highest to date annual bonus
earned; and (iv) eighteen months of continuation of participation in the
Company's benefits (to the extent not received by Messrs. Clarke and Weiss in
another position), including health, disability and life insurance, qualified
and non-qualified retirement and pension plans or, if any, the then current
value of the same in cash if the terms of such plans preclude such continued
participation. If Messrs. Clarke or Weiss were to be terminated for cause (as
defined in the agreement), Messrs. Clarke or Weiss, as the case may be, would be
entitled only to full payment of any accrued, unpaid salary, bonus and benefit
payments and retention of any fully vested stock options and similarly vested
benefits. Pursuant to the agreement, throughout the term of his employment, Mr.
Clarke will serve as Chief Executive Officer of the Company and Mr. Weiss will
serve as Executive Vice President of the Company.
The Company is party to an employment agreement with its Chief Financial
Officer, Gary N. Silverhardt, for a term expiring in August 1998 with an
automatic renewal term of six months unless the Company terminates earlier for
cause or the employee gives advance notice of termination. Pursuant to the
agreement, Mr. Silverhardt is entitled to receive an annual salary of not less
than $170,000 in addition to annual bonus payments in accordance with the
Company's Bonus Plan. In addition, if the agreement is terminated without cause
by the Company, the Company is obligated to pay Mr. Silverhardt a termination
fee equal to the amount of annual salary unpaid from the date of termination to
the date of expiration of the initial employment term, or the amount of equal to
six months' base salary, whichever is greater, plus any deferred compensation,
plus any accrued but unpaid bonus and any vacation pay.
PRIOR LITIGATION INVOLVING CURRENT MANAGEMENT
Three senior executives of the Company, Messrs. Clarke, Martin and Weiss,
were involved in litigation with Gemini Group, Inc. and affiliates, which
commenced in late 1993 and
49
<PAGE>
was settled in October 1996. The litigation involved the termination of the
employment relationship of Messrs. Clarke, Martin and Weiss, including claims
against the former employer for monies owed to Messrs. Clarke, Martin and Weiss,
and certain competitive matters. All litigation relating to or involving Gemini
Group and its affiliates was settled in October 1996, with all entities and
parties waiving and releasing any and all claims arising out of or in connection
with the subject matter of the litigations.
LIMITATION OF LIABILITY AND INDEMNIFICATION.
Indemnification Agreements. Prior to the completion of the Offering, the
Company will enter into separate but identical indemnification agreements (the
"Indemnification Agreements") with each director and executive officer of the
Company and expects to enter into Indemnification Agreements with persons who
become directors or executive officers in the future. The Indemnification
Agreements shall provide that the Company will indemnify the director or officer
(the "Indemnitee") against any expenses or liabilities incurred by the
Indemnitee in connection with any proceeding in which such Indemnitee may be
involved as a party or otherwise, by reason of the fact that such Indemnitee is
or was a director or officer of the Company or by reason of any action taken by
or omitted to be taken by such Indemnitee while acting as an officer or director
of the Company, provided that such indemnity shall only apply if (i) the
Indemnitee was acting in good faith and in a manner the Indemnitee reasonably
believed to be in the best interests of the Company and, with respect to any
criminal action, had no reasonable cause to believe the Indemnitee's conduct was
unlawful, (ii) the claim was not made to recover profits made by such Indemnitee
in violation of Section 16(b) of the Securities Exchange Act of 1934, as
amended, or any successor statute, (iii) the claim was not initiated by the
Indemnitee, (iv) the claim was not covered by applicable insurance, or (v) the
claim was not for an act or omission of a director of the Company from which a
director may not be relieved of liability under Section 102(b)(7) of the DGCL.
Each Indemnitee will undertake to repay the Company for any costs or expenses
paid by the Company if it shall ultimately be determined that such Indemnitee is
not entitled to indemnification under the Indemnification Agreements.
Provisions of Certificate of Incorporation. As allowed by the DGCL, the
Company's Certificate of Incorporation provides for the limitation of the
liability of the directors of the Company for monetary damages to the fullest
extent permissible under Delaware law. See "Described Capital Stock -- Certain
Provisions of Delaware Law and the Company's Certificate of Incorporation. The
Company's by-laws also permit the Company to indemnify its officers and
directors to the fullest extent permitted by law.
Directors and Officers Insurance. The Company has obtained directors and
officers liability and company reimbursement insurance pursuant to which the
insurer will pay, on behalf of directors and officers of the Company, certain
losses (as defined) incurred as a result of specified wrongful acts by such
persons, for which they are not indemnified by the Company. In addition, the
insurer will reimburse the Company for certain losses incurred as a result of
the Company's indemnification of an officer or director in connection with such
a wrongful act. The policy provides that the insurer's aggregate liability to
the Company with respect to a single policy year shall not exceed $10,000,000
million and is subject to customary exclusions.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 20, 1996, Warrenton and Summit Asset Holdings LLC ("Summit") each
purchased 50 percent of the Common Stock of the Company for consideration of
$67,000. Simultaneously, each of Warrenton and Summit entered into certain loan
agreements with the Company evidenced by notes payable to Summit in the amount
of $1,133,000 and to Warrenton in the amount of $1,433,000. On August 20, 1996,
the Company acquired all of the outstanding stock of ICON Capital and ICON
Securities for $9,332,680.
Upon consummation of the Offering, the remaining indebtedness evidenced by
the Warrenton note will be converted to 111,276 shares of Common Stock at the
initial public offering price. In October 1997, Summit agreed to have its shares
of the Common Stock of the Company redeemed by the Company for consideration of
$7.2 million pursuant to the terms of a Stock Redemption Agreement between the
Company and Summit. In addition the Company agreed to repay its $1.4 million in
indebtedness owed to Summit. Also, the Company agreed to enter into a five-year
Trading Agreement with Summit under which Summit grants the Company a right of
first refusal to purchase all equipment lease transactions from $500,000 to $15
million dollars which Summit originates in the United Kingdom and which meet the
credit quality and residual risk parameters established by the Company's
investment committee as they may be revised from time to time. As consideration
for this right of first refusal the Company will not source U.K. lease
transactions other than from Summit, unless such lease transactions are already
in the portfolio of a third party, whether in the U.K. or in other countries in
the European community. In addition, the Company agreed to grant Summit warrants
exercisable for 498,338 shares of Common Stock at a price per share equal to the
initial public offering price upon consummation of the Offering.
TKO Financial Corporation provided a $3.0 million secured term loan to the
Company in June 1997, which was made to retire certain acquisition financing. As
partial consideration for such loan facility, TKO was issued 1,000 shares of the
Company's Class B Common Stock. Pursuant to an agreement with the Company, the
Company will redeem the 1,000 shares of the Company's Class B Common Stock. The
Company intends to repay all sums due to TKO under the term loan facility upon
completion of the Offering, including a prepayment premium in the approximate
amount of $225,000.
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<PAGE>
PRINCIPAL STOCKHOLDERS AND
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information as of September 30, 1997, as
adjusted to reflect the sale of the Common Stock offered hereby, with respect to
the beneficial ownership of Common Stock of each person known by the Company to
be the beneficial owner of more than 5% of the outstanding Common Stock, each
director, designated future director and executive officer of the Company, and
all designated future directors, current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OWNED COMMON STOCK OWNED
-------------------------- ---------------------
BEFORE AFTER BEFORE AFTER
OFFERING OFFERING OFFERING OFFERING
------------ -------- --------- --------
<S> <C> <C> <C> <C>
Warrenton Capital Partners L.L.C................. 4,000,000 4,111,276(3) 50.0% 24.8%
200 East Washington Street
Middleburg, Virginia 20117
Summit Asset Holding L.L.C....................... 4,000,000(1) 498,338(4) 50.0 2.9
c/o Roy & Stevens
Sears Crescent Building
100 City Hall Plaza
Boston, MA 02108
Beaufort J. B. Clarke,........................... 4,000,000(2) 4,111,276(2)(3) 50.0 24.8
Chairman of the Board, President and Chief
Executive Officer
Paul B. Weiss,................................... 4,000,000(2) 4,111,276(2)(3) 50.0 24.8
Vice Chairman of the Board
and Executive Vice President
Thomas W. Martin,................................ 4,000,000(2) 4,111,276(2)(3) 50.0 24.8
Executive Vice President and Director
Gary N. Silverhardt,............................. - - - -
Chief Financial Officer
Adolfo R. Garcia,................................ - - - -
Future Director
All directors, designated future................. 4,000,000(2) 4,111,276(2)(3) 50.0 24.8
directors and executive officers
as a group (11 persons)
</TABLE>
__________
(1) Such shares will be redeemed upon consummation of the Offering. See
"Certain Transactions."
(2) Consists of shares held by Warrenton, as to which entity each of Messrs.
Clarke, Weiss and Martin hold a greater-than-10 percent beneficial
ownership interest. Each of Messrs. Clarke, Weiss and Martin disclaim
beneficial ownership of such shares to the extent such deemed beneficial
ownership exceeds their respective pro rata beneficial ownership of
Warrenton.
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<PAGE>
(3) Includes 111,276 shares subject to warrants to be granted upon
consummation of the Offering. See "Certain Transactions."
(4) Consists of shares issuable upon exercise of a warrant to be granted
upon consummation of the Offering. See "Certain Transactions."
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company upon completion of the Offering
will consist of 50,000,000 shares of Common Stock, par value $.01 per share and
10,000,000 shares of Preferred Stock, $.01 par value per share. The Common
Stock, prior to completion of the Offering, consists of Class A voting shares
and Class B non-voting shares. Other than voting rights, the Class A and Class B
shares are identical. The Company and the holder of the 1,000 shares of the
Class B Common Stock which are outstanding as of the date of this Prospectus
have entered into an agreement whereby such shares shall be redeemed by the
Company upon consummation of the Offering for $349,000 and other consideration
(see "Certain Transactions"). The Restated Charter will remove the Class A and
Class B designations. Unless indicated otherwise, when used with respect to
periods of time prior to the completion of the Offering, the term "Common Stock"
in this Prospectus refers exclusively to the Class A Common Stock. Upon
completion of the Offering, the Company will have outstanding 16,611,276 shares
of Common Stock 17,486,270 if the Underwriters' over-allotment option is
exercised in full. The following summary description of the capital stock of
the Company does not purport to be complete and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Company's
Restated Charter to be filed with the Delaware Secretary of State upon
consummation of the Offering and its by-laws, copies of which have been filed as
exhibits to the registration statement of which this Prospectus forms a part,
and to the applicable provisions of the General Corporation Law of the State of
Delaware (the "DGCL").
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available. See
"Dividend Policy". In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in the
distribution of all assets remaining after payment of liabilities, subject to
the rights of any holders of Preferred Stock of the Company. The holders of
Common Stock have no preemptive rights to subscribe for additional shares of the
Company and no right to convert their Common Stock into any other securities.
In addition, there are no redemption or sinking fund provisions applicable to
the Common Stock. All of the outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby will be, fully paid and nonassessable.
DESCRIPTION OF PREFERRED STOCK
The Restated Charter authorizes the Board of Directors, subject to any
limitations prescribed by law and without further stockholder approval, to issue
from time to time up to 10,000,000 shares of $.01 par value preferred stock of
the Company (the "Preferred Stock") in one or more series. Each such series of
Preferred Stock shall have such number of shares, designations, preferences,
voting powers, qualifications or special or relative rights or privileges as
shall be determined by the Board of Directors in its sole discretion, which may
include, among others, dividend rights, voting rights, redemption and sinking
fund provisions, liquidation preferences, conversion rights and preemptive
rights.
The stockholders of the Company have granted the Board of Directors
authority to issue the Preferred Stock and to determine its rights and
preferences in order to eliminate delays associated with a stockholder vote on
specific issuances. The rights of the holders of Common Stock will be subject
to the rights of holders of any Preferred Stock issued in the future. The
issuance of Preferred Stock, while
54
<PAGE>
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company. The Company
currently has no plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
The Company's Restated Charter provides that no director of the Company
will be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability: (i) for any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for any wilful or negligent payment of an
unlawful dividend, stock purchase or redemption; or (iv) for any transaction
from which the director derived an improper personal benefit.
Certain provisions of Delaware law and the Company's Restated Charter and
by-laws could make more difficult the acquisition of the Company by means of a
tender offer, proxy contest or otherwise, and the removal of incumbent officers
and directors.
The provisions of the Restated Charter and by-laws described herein would
make more difficult or discourage a proxy contest or the assumption of control
by a holder of a substantial block of the Company's Common Stock or the removal
of the incumbent Board, and thus could have the effect of perpetuating the
incumbent management. At the same time, the provisions would help ensure that
the Board, if confronted by a surprise proposal from a third party who has
recently acquired a block of the Company's voting stock, will have sufficient
time to review the proposal and appropriate alternatives to the proposal and to
seek a premium price for the stockholders. These provisions are thus intended
to encourage persons seeking to acquire control of the Company to initiate such
an acquisition through arms-length negotiations with the Company's management
and Board of Directors. The provisions are permitted under Delaware law and are
consistent with the rules of the Nasdaq National Market.
The following discussion is a general summary of material provisions of the
Company's Restated Charter and by-laws, as currently in effect, and certain
other regulatory provisions, which may be deemed to have an "anti-takeover"
effect. The following description of certain of these provisions is necessarily
general and, with respect to provisions contained in the Company's Restated
Charter and by-laws, as currently in effect, reference should be made in each
case to the document in question, each of which is part of the Registration
Statement filed with the Commission. See "Available Information."
Directors. Certain provisions of the Restated Charter and by-laws will
impede changes in majority control of the Board of Directors. The Restated
Charter will provide that the Board of Directors of the Company are to be
divided into three classes, with directors in each class elected for three-year
staggered terms except for the initial directors. This classification of the
Board of Directors could make it more difficult for a third party to acquire
control of the Company, because it would require more than one annual meeting of
stockholders to elect a majority of the directors. The Company's By-laws provide
that any vacancy occurring in the Board of Directors, including a vacancy
created by an increase in the number of directors, shall be filled for the
remainder of the unexpired term by a majority vote of the directors then in
office. The number of directors constituting the Board will initially be seven.
Restrictions on Call of Special Meetings. The By-laws provide that a
special meeting of stockholders may be called only by the Board of Directors,
the Chairman of the Board, the President, or
55
<PAGE>
an Executive Vice President, and for the transaction of any proper business.
Holders of Common Stock, in their capacity as stockholders, are not authorized
to call a special meeting.
Absence of Cumulative Voting. The Restated Charter does not provide for
cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Restated Charter authorizes
10,000,000 shares of Preferred Stock. The Company is authorized to issue
Preferred Stock from time to time in one or more series subject to applicable
provisions of law, and the Board of Directors is authorized to fix the
designations, powers, preferences and rights of such shares, including voting
rights and conversion rights. In the event of a proposed merger, tender offer
or other attempt to gain control of the Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of Preferred Stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of Preferred Stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any Preferred Stock, and does not intend to issue any Preferred Stock except on
terms which the Board deems to be in the best interests of the Company and its
stockholders.
Amendment to Certificate of Incorporation and By-Laws. Amendments to the
Company's Certificate of Incorporation requires the approval by a majority vote
of the Company's Board of Directors and also by a majority vote of the
outstanding shares of the Company's stock entitled to vote thereon. The by-laws
may be amended by a majority vote of the Board of Directors or the affirmative
vote of a majority of the outstanding shares of the Company's stock entitled to
vote thereon.
Delaware Anti-Takeover Statute. Generally, Section 203 of the DGCL
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of the outstanding voting stock of a Delaware corporation, such as the
Company) from engaging in a "business combination" with such corporation for
three years following the date that the person became an interested stockholder.
The takeover can be completed, however, if (i) the buyer, while acquiring the
15% interest, acquires at least 85% of the Company's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the Company (excluding shares held by the bidder). Section
203 could make it more difficult for a third party to acquire control of the
Company, but does not apply to Delaware corporations which do not have a class
of voting stock listed on a national exchange, authorized for quotation on an
inter-dealer quotation system of a registered national securities association or
held of record by more than 2,000 stockholders. The Company may exempt itself
from the requirements of the DGCL by adopting an amendment to its Certificate of
Incorporation or By-laws electing not to be governed by this provision. At the
present time, the Board of Directors does not intend to propose any such
amendment.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is State Street Bank
and Trust Company.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,611,276 shares of
Common Stock outstanding. The 12,500,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, unless acquired by an "affiliate" of the Company, as that term
is defined in Rule 144; shares held by affiliates will be subject to resale
limitations of Rule 144 described below. All of the remaining outstanding shares
of Common Stock held by affiliates and, subject to the volume and other
limitations of Rule 144, will be available for resale at various dates beginning
180 days after the date of this Prospectus, upon expiration of applicable lock-
up agreements described below and subject to compliance with Rule 144 as the
holding provisions of Rule 144 are satisfied. Also, the Representative has been
granted warrants exercisable for 830,564 shares (924,314 if the Underwriter's
over-allotment is exercised) of Common Stock at the initial public offering,
which shares have been registered by separate prospectus under the Registration
Statement of which this Prospectus is a part for resale from time to time after
(by agreement with the Company) a 180-day period following the consummation of
the Offering. Further, upon consummation of the Offering, 2,000,000 shares will
be reserved for issuance pursuant to provisions of the Company's 1997 Long Term
Stock Option Plan and 200,000 shares of Common Stock will be reserved for
issuance pursuant to provisions of the 1997 Non-Employee Directors Stock Plan.
The Company intends to file a registration statement on Form S-8 as soon as
practicable after the consummation of the Offering with respect to the shares of
Common Stock issuable under such plans.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons who
are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the outstanding
shares of Common Stock (approximately 166,112 shares) immediately after
completion of the Offering; or (ii) the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements relating to the manner and
notice of sale and the availability of current public information about the
Company.
Each of the Company and its existing stockholder, executive officers and
directors has generally agreed not to offer, pledge, sell, contract to sell, or
otherwise transfer or dispose, directly or indirectly, of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock during the period ending 180 days after the date of this Prospectus
without the prior consent of Friedman, Billings, Ramsey & Co., Inc.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the completion of the Offering.
Sales of substantial amounts of Common Stock in the public market following the
Offering, or the perception that such sales may occur, could adversely affect
the market price of the Common Stock or the ability of the Company to raise
capital through sales of its equity securities.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the underwriters named
below (the "Underwriters") and each of the Underwriters, for whom Friedman,
Billings, Ramsey & Co., Inc., is acting as Representative, has severally agreed
to purchase, the number of shares of Common Stock offered hereby set forth below
opposite its name:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. ..........................
----------
Total............................................................ 12,500,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to purchase all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters propose initially to offer the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such offering price less a
concession not to exceed $ per share of Common Stock. The Underwriters may
allow and such dealers may reallow a concession not to exceed $ per share of
Common Stock to certain other dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms may
be changed by the Underwriters.
The Company has granted to the Underwriters an over-allotment option (the
"Over-Allotment Option"), which is an option exercisable during a 30-day period
after the date hereof to purchase, at the initial offering price less
underwriting discounts and commissions, up to an additional 1,875,000 shares of
Common Stock for the sole purpose of covering over-allotments, if any. To the
extent that the Underwriters exercise the Over-Allotment Option, each
Underwriter will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment.
The Company has agreed to issue on the date of this Prospectus to the
Representative and/or its designees warrants (the "Underwriters Warrants") to
purchase up to 830,564 shares of Common Stock (924,314 shares if the Over-
Allotment Option is exercised), representing 5% of the shares of Common Stock
outstanding after completion of the Offering, at a purchase price equal to the
initial public offering price per
58
<PAGE>
share. The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for 180 days following the date of this Prospectus, except to
officers, directors, and shareholders of the Representative, The Underwriters'
Warrants are immediately exercisable and have a term of five years from the date
of this Prospectus (the "Warrant Exercise Term"). The Company has also
registered the shares of Common Stock underlying the Underwriters' Warrants.
During the Warrant Exercise Term, the Representative is given the opportunity to
profit from a rise in market price of the shares of Common Stock. To the extent
that the Underwriters' Warrants are exercised, dilution to the interests of the
holders of the Common Stock will occur. In addition, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected because the holders of the Underwriters' Warrants can be expected to
exercise them at a time when the Company likely would be able to obtain any
needed capital on terms more favorable to the Company than those provided in the
Underwriters' Warrants.
The Company has agreed to indemnify the several Underwriters against
certain civil liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been determined by
negotiation between the Company and the Representative of the Underwriters.
Among the factors considered in making such determination were the history of,
and the prospects for, other consolidators generally, an assessment of
management, the Company's prospects for future earnings, the general conditions
of the economy and the securities market and the prices of offerings by similar
issuers. There can, however, be no assurance that the price at which the shares
of Common Stock will sell in the public market after the Offering will not be
lower than the price at which they are sold by the Underwriters.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of the shares offered hereby to any accounts over which
they exercise discretionary authority.
Until the distribution of the Common Stock is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for or purchase the Common Stock. As an exception to these
rules, the Representative is permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representative may
reduce that short position by purchasing shares of Common Stock in the open
market. The Representative may also elect to reduce any short position by
exercising all or part of the Over-Allotment Option described above.
The Representative may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representative purchases
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, it may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold that
Common Stock as part of the Offering.
In general, purchases of securities for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
59
<PAGE>
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representative will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each of the Company and its existing stockholder, executive officers and
directors has generally agreed not to offer, pledge, sell, contract to sell, or
otherwise transfer or dispose, directly or indirectly, of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock during the period ending 180 days after the date of this Prospectus
without the prior consent of the Representative.
From time to time, each of the Underwriters and their respective affiliates
may provide investment banking services to the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by McDermott, Will & Emery, Boston, Massachusetts. Certain
legal matters will be passed upon for the Underwriters by Kirkland & Ellis,
Washington, D.C.
EXPERTS
The consolidated balance sheet of the Company as of March 31, 1997 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the period from August 21, 1996 (formation of the Company) to
March 31, 1997, and the combined balance sheet of ICON Capital and ICON
Securities as of March 31, 1996 and the related combined statements of income,
changes in stockholders' equity and cash flows for the period from April 1, 1996
to August 20, 1996 and for the years ended March 31, 1996 and 1995 have been
included herein and in the registration statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
AUDITED FINANCIAL STATEMENTS ----
- ----------------------------
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheet as of March 31, 1997 (Successor) and Combined F-3
Balance Sheet as of March 31, 1996 (Predecessor)
Consolidated Statement of Income for the period August 21, 1996 through F-4
March 31, 1997 (Successor) and Combined Statements of Income for the period
April 1, 1996 through August 20, 1996 and the years ended March 31, 1996
and 1995 (Predecessor)
Consolidated Statement of Changes in Stockholders' Equity for the period F-5
August 21, 1996 through March 31, 1997 (Successor) and Combined Statements
of Changes in Stockholders' Equity for the period April 1, 1996 through
August 20, 1996 and the years ended March 31, 1996 and 1995 (Predecessor)
Consolidated Statement of Cash Flows for the period August 21, 1996 through F-6
March 31, 1997 (Successor) and Combined Statements of Cash Flows for the
period April 1, 1996 through August 20, 1996 and the years ended March 31,
1996 and 1995 (Predecessor)
Notes to Consolidated and Combined Financial Statements F-8
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------
Consolidated Balance Sheets as of September 30, 1997 and March 31, 1997 F-18
Consolidated Statements of Income for the six months ended September 30, F-19
1997 and for the period August 21, 1996 through September 30, 1996
(Successor) and Combined Statement of Income for the period April 1, 1996
to August 20, 1996 (Predecessor)
Consolidated Statements of Income for the three months ended September 30, F-20
1997 and for the period August 21, 1996 through September 30, 1996
(Successor) and Combined Statement of Income for the period July 1, 1996 to
August 20, 1996 (Predecessor)
Consolidated Statements of Changes in Stockholders' Equity for the six F-21
months ended September 30, 1997 and for the period August 21, 1996 through
September 30, 1996 (Successor) and Combined Statement of Changes in
Stockholders' Equity for the period April 1, 1996 to August 20, 1996
(Predecessor)
Consolidated Statements of Cash Flows for the six months ended September F-22
30, 1997 and for the period August 21, 1996 through September 30, 1996
(Successor) and Combined Statement of Cash Flows for the period April 1,
1996 to August 20, 1996 (Predecessor)
Notes to Interim Consolidated and Combined Financial Statements F-24
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
ICON Holdings Corp.:
We have audited the accompanying consolidated balance sheet of ICON Holdings
Corp. ("Holdings") (Successor) as of March 31, 1997 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
period from August 21, 1996 (formation of the Company) to March 31, 1997. We
have also audited the accompanying combined balance sheet of ICON Capital Corp.
("Capital") and ICON Securities Corp. ("Securities") (collectively, Predecessor)
as of March 31, 1996 and the related combined statements of income, changes in
stockholders' equity and cash flows for the period from April 1, 1996 to August
20, 1996 and for the years ended March 31, 1996 and 1995. These consolidated and
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
and combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to
above present fairly, in all material respects, the financial position of
Holdings (Successor) as of March 31, 1997 and Capital and Securities
(collectively, Predecessor) as of March 31, 1996, and the results of their
operations and their cash flows for the periods April 1, 1996 to August 20, 1996
(Predecessor) and August 21, 1996 to March 31, 1997 (Successor), and for the
years ended March 31, 1996 and March 31, 1995 (Predecessor), in conformity
with generally accepted accounting principles.
As discussed in note 2 to the financial statements, Capital and Securities were
acquired by Holdings (a newly formed corporation) in a business combination
accounted for as a purchase. As a result of the acquisition, the financial
information for the period after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
KPMG Peat Marwick LLP
October 17, 1997
New York, New York
F-2
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
BALANCE SHEETS
March 31,
<TABLE>
<CAPTION>
(Successor) (Predecessor)
Consolidated Combined Capital
Holdings and Securities
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash $ 747,123 $ 184,870
Receivables from related parties - managed partnerships 1,323,502 2,023,380
Prepaid and other assets 200,098 150,749
Deferred charges 379,717 302,886
Receivables from affiliates - 336,806
Fixed assets and leasehold improvements, at cost, less accumulated
depreciation and amortization of $1,533,265 and $1,246,975 752,472 781,058
Goodwill, less accumulated amortization of $574,500 and $0 8,270,294 -
Investment in equipment under an operating lease, at cost,
less accumulated depreciation of $0 and $1,079,939 - 4,260,497
-------------- --------------
Total assets $ 11,673,206 $ 8,040,246
============== ==============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,214,366 $ 871,770
Due to stockholder 432,742 -
Subordinated notes payable - related party 2,399,336 -
Notes payable - seller financing 3,342,196 -
Notes payable - recourse 196,105 46,185
Notes payable - non-recourse - 4,262,185
Deferred income taxes, net 1,532,928 483,944
Deferred management fees - managed partnerships 758,452 667,824
-------------- --------------
Total liabilities 9,876,125 6,331,908
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock: $.01 par value; 1,000 shares authorized,
issued and outstanding at March 31, 1997. No par value;
$10 stated value; 3,200 shares authorized, 1,600 shares
issued and outstanding at March 31, 1996 10 15,100
Additional paid-in capital 133,990 739,300
Retained earnings 1,663,081 953,938
-------------- --------------
1,797,081 1,708,338
-------------- --------------
Total liabilities and stockholders' equity $ 11,673,206 $ 8,040,246
============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Predecessor) (Successor) (Predecessor) (Predecessor)
----------- ----------- ----------- -----------
Combined Combined Combined
Capital and Consolidated Capital and Capital and
Securities Holdings Total Securities Securities
4/1/96 8/21/96 for the for the for the
to to Year Ended Year Ended Year Ended
8/20/96 3/31/97 3/31/97 (1) 3/31/96 3/31/95
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Fees - managed partnerships $ 2,985,092 $ 9,195,146 $ 12,180,238 $ 9,375,796 $ 8,436,772
Rental income from investment in
operating lease 799,372 742,275 1,541,647 1,009,756 661,165
Interest income and other income 21,102 98,789 119,891 58,939 37,204
----------- ------------ ------------ ----------- -------------
Total revenues 3,805,566 10,036,210 13,841,776 10,444,491 9,135,141
----------- ------------ ------------ ----------- -------------
Expenses:
Selling, general and
administrative 3,399,180 4,809,128 8,208,308 8,494,559 7,189,420
Amortization of deferred charges 118,190 366,389 484,579 473,484 373,075
Amortization of goodwill - 574,500 574,500 - -
Depreciation and amortization 121,368 197,632 319,000 329,121 336,944
Depreciation - equipment under
operating lease 660,160 633,615 1,293,775 652,704 320,426
Interest expense - non-recourse
financings 139,212 108,660 247,872 333,728 329,030
Interest expense - recourse
financings 5,565 555,417 560,982 27,344 60,186
Write off of related party notes
receivable - - - - 225,000
----------- ------------ ------------ ----------- -------------
Total expenses 4,443,675 7,245,341 11,689,016 10,310,940 8,834,081
----------- ------------ ------------ ----------- -------------
Income (loss) before provision for
income taxes (638,109) 2,790,869 2,152,760 133,551 301,060
Provision for income taxes - 1,127,788 1,127,788 74,663 137,743
----------- ------------ ------------ ----------- -------------
Net income (loss) $ (638,109) $ 1,663,081 $ 1,024,972 $ 58,888 $ 163,317
=========== ============ ============ =========== =============
</TABLE>
(1) - As discussed in note 2 of the accompanying notes to the consolidated and
combined financial statements, Capital and Securities were acquired by ICON
Holdings Corp. (a newly formed corporation) on August 21, 1996, in a business
combination accounted for as a purchase. As a result of the acquisition, the
financial information for the period after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, the amounts in the total column for the year ended March 31, 1997 are
not comparable to the years ended March 31, 1996 and 1995.
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Note Total
---------------------- Additional Receivable Stock-
Shares Par Paid-in Retained from holders'
Outstanding Value Capital Earnings Stockholder Equity
----------- ----- ---------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Combined Capital and Securities (Predecessor)
- ---------------------------------------------
Balance at March 31, 1994 1,600 $ 15,100 $ 1,439,300 $ 831,733 $ (700,000) $ 1,586,133
Net income - - - 163,317 - 163,317
-------- ---------- ------------- ----------- ------------ -------------
Balance at March 31, 1995 1,600 15,100 1,439,300 995,050 (700,000) 1,749,450
Cancellation of note receivable
from stockholder - - (700,000) - 700,000 -
Dividends - - - (100,000) - (100,000)
Net income - - - 58,888 - 58,888
--------- ---------- ------------- ----------- ------------ -------------
Balance at March 31, 1996 1,600 15,100 739,300 953,938 - 1,708,338
Net loss - - - (638,109) - (638,109)
--------- ---------- ------------- ----------- ------------ -------------
Balance at August 20, 1996 1,600 $ 15,100 $ 739,300 $ 315,829 $ - $ 1,070,229
========= ========== ============= =========== ============ =============
Consolidated Holdings (Successor)
- --------------------------------
August 21, 1996 (date of
acquisition of Capital
and Securities) - $ - $ - $ - $ - $ -
Capitalization of Holdings 1,000 10 133,990 - - 134,000
Net income - - - 1,663,081 - 1,663,081
--------- ---------- ------------- ----------- ------------ -------------
Balance at March 31, 1997 1,000 $ 10 $ 133,990 $ 1,663,081 $ - $ 1,797,081
========= ========== ============= =========== ============ =============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Predecessor) (Successor) (Predecessor) (Predecessor)
------------- ----------- ------------- -------------
Combined Combined Combined
Capital and Consolidated Capital and Capital and
Securities Holdings Total Securities Securities
4/1/96 8/21/96 for the for the for the
to to Year Ended Year Ended Year Ended
8/20/96 3/31/97 3/31/97 (1) 3/31/96 3/31/95
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (638,109) $ 1,663,081 $ 1,024,972 $ 58,888 $ 163,317
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 781,528 831,247 1,612,775 981,825 657,370
Amortization of goodwill -- 574,500 574,500 -- --
Amortization of deferred charges 118,190 366,389 484,579 473,484 373,075
Interest expense paid directly to
lender by lessee 139,212 108,660 247,872 333,728 329,030
Rental income paid directly to
lender by lessee (799,372) (742,275) (1,541,647) (1,009,756) (661,165)
Principal payments on litigation
settlement -- -- -- (55,847) (50,545)
Write-off of related party notes
receivable -- -- -- -- 225,000
Deferred income taxes -- 1,048,984 1,048,984 74,103 135,420
Changes in operating assets and liabilities:
Receivables from managed partnerships,
net of deferred 1,364,974 (574,468) 790,506 (156,672) (218,239)
Prepaid and other assets 38,680 317,181 355,861 41,827 262,465
Receivables from affiliates (68,404) 130,242 61,838 (273,294) (291,489)
Accounts payable and accrued
expenses (158,491) 219,556 61,065 371,597 (9,008)
----------- ----------- ----------- ----------- -----------
Total adjustments 1,416,317 2,280,016 3,696,333 780,995 751,914
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities 778,208 3,943,097 4,721,305 839,883 915,231
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (9,962) (81,471) (91,433) (157,694) (145,766)
Increase in deferred charges (153,479) (407,931) (561,410) (495,680) (423,259)
Investment in Partnership -- -- -- (1,000) --
Loan to related party -- -- -- -- (225,000)
Acquisition of Capital and
Securities -- (2,683,000) (2,683,000) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (163,441) (3,172,402) (3,335,843) (654,374) (794,025)
----------- ----------- ----------- ----------- -----------
</TABLE>
F-6
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS-(Continued)
<TABLE>
<CAPTION>
(Predecessor) (Successor) (Predecessor) (Predecessor)
----------- ----------- ----------- -----------
Combined Combined Combined
Capital and Consolidated Capital and Capital and
Securities Holdings Total Securities Securities
4/1/96 8/21/96 for the for the for the
to to Year Ended Year Ended Year Ended
8/20/96 3/31/97 3/31/97 (1) 3/31/96 3/31/95
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities:
Holdings capital contributions -- 134,000 134,000 -- --
Proceeds from subordinated
notes payable -- 2,599,000 2,599,000 -- --
Principal payments on subordinated
notes payable -- (199,664) (199,664) -- --
Seller notes retired -- (2,949,680) (2,949,680) -- --
Principal payments on seller notes -- (357,804) (357,804) -- --
Dividend paid to parent -- -- -- (100,000) --
Principal payments on notes
payable - recourse financings (45,417) (3,644) (49,061) (291,407) (287,908)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities (45,417) (777,792) (823,209) (391,407) (287,908)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 569,350 (7,097) 562,253 (205,898) (166,702)
Cash, beginning of period 184,870 754,220 184,870 390,768 557,470
----------- ----------- ----------- ----------- -----------
Cash, end of period $ 754,220 $ 747,123 $ 747,123 $ 184,870 $ 390,768
=========== =========== =========== =========== ===========
</TABLE>
(1) - As discussed in note 2 of the accompanying notes to the consolidated and
combined financial statements, Capital and Securities were acquired by the
Company on August 21, 1996 in a business combination accounted for as a
purchase. As a result of the acquisition, the financial information for the
period after the acquisition is presented on a different cost basis than that
for the periods before the acquisition and, therefore, the amounts in the total
column for the year ended March 31, 1997 are not comparable to the years ended
March 31, 1996 and 1995.
See accompanying notes to consolidated and combined financial statements.
F-7
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements
March 31, 1997
(1) Organization
ICON Holdings Corp. ("Holdings") was formed on May 1, 1996 as a Delaware
corporation. Holdings is a joint venture fifty-percent owned by Summit
Asset Holding L.L.C. ("Summit"), a subsidiary of a diversified financial
and business services group based in the United Kingdom and fifty-percent
owned by Warrenton Capital Partners L.L.C. ("Warrenton"). Warrenton was
formed by two of the founders of Griffin Equity Partners, Inc., a U.S.
company engaged in the acquisition of leases and lease portfolios. On
August 21, 1996, Holdings acquired all of the outstanding stock of ICON
Capital Corp. ("Capital"), as well as all of the outstanding stock of ICON
Securities Corp. ("Securities"), an affiliate of Capital. Holdings has five
wholly-owned subsidiaries; Capital, Securities, ICON Financial Corp., ICON
Receivables Management Corp. and ICON Funding Corp., and one sixty-percent
owned subsidiary, MGC Griffin Capital Corp., (collectively, the "Company").
The primary activity of the Company is the development, marketing,
underwriting and management of publicly registered equipment leasing
limited partnerships. The Company is also engaged in the business of
originating and securitizing contract receivables and providing consulting
services to unrelated parties in connection with the acquisition and
administration of lease transactions. Capital is the general partner and
manager of ICON Cash Flow Partners, L.P., Series A ("ICON Cash Flow A"),
ICON Cash Flow Partners, L.P., Series B ("ICON Cash Flow B"), ICON Cash
Flow Partners, L.P., Series C ("ICON Cash Flow C"), ICON Cash Flow
Partners, L.P., Series D ("ICON Cash Flow D"), ICON Cash Flow Partners,
L.P., Series E ("ICON Cash Flow E"), ICON Cash Flow Partners L.P. Six
("ICON Cash Flow Six") and ICON Cash Flow Partners L.P. Seven ("ICON Cash
Flow Seven") (collectively, the "Partnerships"), which are publicly
registered equipment leasing limited partnerships. The Partnerships were
formed for the purpose of acquiring equipment and leasing such equipment to
third parties. The Company's investments in the Partnerships of $7,000 are
carried at cost and are included in prepaid and other assets.
Capital earns fees from the Partnerships on the sale of Partnership units
during their respective offering periods. Additionally, Capital earns
acquisition and management fees and shares in Partnership cash
distributions. ICON Cash Flow Seven began offering its units to suitable
investors on November 9, 1995. The offering period for ICON Cash Flow Seven
will end thirty-six months after the Partnership began offering such units,
November 8, 1998.
Securities is a registered broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Securities has earned fees from the
underwriting and sale of ICON Cash Flow Seven units since its inception and
will continue to earn fees through the end of its proposed offering on
November 8, 1998.
F-8
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
The following table identifies pertinent offering information relating to
the Partnerships:
<TABLE>
<CAPTION>
Date Operations Date Ceased Gross Proceeds
Began Offering Units Raised
--------------- -------------- --------------
<S> <C> <C> <C>
ICON Cash Flow A May 6, 1988 February 1, 1989 $ 2,504,500
ICON Cash Flow B September 22, 1989 November 15, 1990 20,000,000
ICON Cash Flow C January 3, 1991 June 21, 1991 20,000,000
ICON Cash Flow D September 13, 1991 June 5, 1992 40,000,000
ICON Cash Flow E June 6, 1992 July 31, 1993 61,041,151
ICON Cash Flow Six March 31, 1994 November 8, 1995 38,385,712
ICON Cash Flow Seven January 19, 1996 (a) 48,297,094 (a)
----------------
$ 230,228,457
================
</TABLE>
(a) Anticipated closing on November 8, 1998 with gross proceeds raised
through October 15, 1997 of $48,297,094.
(2) Acquisition
-----------
On August 21, 1996, Holdings acquired all of the outstanding stock of
Capital and Securities for $9,332,680. The purchase price consisted of
$2,683,000 in cash and $6,649,680 in seller financing, of which $2,949,680
of the seller financing was paid off at closing.
The acquisition has been accounted for as a purchase. The purchase price
and expenses associated with the acquisition exceeded the fair values
allocated to the assets acquired and the liabilities assumed as of the date
of acquisition. The excess of the purchase price ($8,284,406) and related
expenses ($560,388) over the estimated fair values of the net assets
acquired has been recorded as goodwill and is being amortized on a straight
line basis over ten and five year periods, respectively.
The following unaudited pro forma financial information presents the
consolidated results of operations of Holdings as if the acquisition of
Capital and Securities had occurred at the beginning of the fiscal year
ended March 31, 1997, after giving effect to certain adjustments, including
the amortization of goodwill (i.e. costs in excess of net assets of
businesses acquired), increased interest expense from debt assumed to have
been issued to fund the acquisition, elimination of management fees paid to
Securities' former parent and the income tax effects of the afore
mentioned. This pro forma financial information does not necessarily
reflect the results of operations as they would have been if Holdings,
Capital and Securities had constituted a single entity during such periods
and is not necessarily indicative of results which may be obtained in the
future.
<TABLE>
<CAPTION>
Pro Forma for the
Year Ended
March 31, 1997
----------------------
thousands of dollars
(unaudited)
<S> <C>
Statement of Income:
Revenue:
Fees - managed partnerships $ 12,180
Rental income from investment in operating lease 1,542
Interest income and other 120
---------
Total revenues 13,842
=========
</TABLE>
F-9
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
<TABLE>
<CAPTION>
Pro Forma for the
Year Ended
March 31, 1997
--------------
<S> <C>
Expenses:
Selling, general, and administrative 7,910
Amortization of deferred charges 484
Amortization of goodwill 914
Depreciation and amortization 319
Depreciation - equipment under operating lease 1,294
Interest expense - recourse financings 825
Interest expense - non-recourse financings 248
---------
Total expenses 11,994
---------
Income before provision for income taxes 1,848
Provision for income taxes 1,142
---------
Net income $ 706
=========
</TABLE>
(3) Significant Accounting Policies
(a) Basis of Accounting and Presentation
------------------------------------
The Company's consolidated and combined financial statements have been
prepared on the historical cost basis of accounting using the accrual
basis. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(b) Consolidation and Combination
-----------------------------
The consolidated financial statements include the accounts of the
Company and all majority owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
The combined financial statements include the accounts of Capital and
Securities. All significant inter-company accounts and transactions
have been eliminated.
F-10
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
(c) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosures about Fair Value of Financial Instruments" requires
disclosures about the fair value of financial instruments. The fair
values of the Company's financial instruments (cash, receivables and
notes payable) approximate the carrying values at March 31, 1997 and
1996.
(d) Revenue and Cost Recognition
----------------------------
The Company earns fees from the Partnerships for the underwriting,
sale, organization and offering of each Partnership and for the
acquisition, management and administration of their lease portfolios.
Underwriting, sale, organization and offering fees are earned based on
investment units sold and are recognized at each closing. Acquisition
fees are earned based on the purchase price paid or the principal
amount of each transaction entered into. Management and administrative
fees are earned for actively managing the leasing, re-leasing,
financing and refinancing of Partnership equipment and financing
transactions and for the administration of the Partnerships. Management
and administrative fees are earned based primarily on gross rental
payments.
At March 31, 1997 and 1996 the Company had accounts receivable due from
the Partnerships of $1,323,502 and $2,023,380, respectively. Included
in these amounts are receivables of $758,452 and $667,824 due from ICON
Cash Flow A, ICON Cash Flow B and ICON Cash Flow C relating to
management fees which have been earned, but deferred since September 1,
1993, as discussed below.
Under the Partnership agreements, the Company is entitled to management
fees from the Partnerships. Management fees are subordinate to the
preferred cash distributions to limited partners, on a cumulative
basis, during the period of reinvestment. Effective September 1, 1993,
ICON Cash Flow A, ICON Cash Flow B, and ICON Cash Flow C decreased the
monthly distribution rate to limited partners from the cash
distribution rates stated in their prospectuses. Currently such
distribution rates are at an annual rate of 9%. As a result of the
decreased distribution rate, all management fees payable to the Company
related to these entities have been deferred until the limited partners
of ICON Cash Flow A, ICON Cash Flow B and ICON Cash Flow C have
received their stated cash distribution rate of return on a cumulative
basis. Management fees deferred for the period September 1, 1993 to
March 31, 1997 totaled $758,452 and were comprised of $36,263 for ICON
Cash Flow A, $127,000 for ICON Cash Flow B and $595,189 for ICON Cash
Flow C. Such amounts are included in receivables due from managed
income funds as well as in deferred management fees on the March 31,
1997 consolidated balance sheet.
F-11
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
(e) Goodwill
--------
Goodwill, representing the excess of the purchase price and related
expenses over the estimated fair value of net assets acquired, is being
amortized on a straight-line basis over ten and five year periods,
respectively. For the period August 21, 1996 to March 31, 1997,
amortization expense totaled $574,500.
(f) Deferred Charges
----------------
Under the terms of the Partnerships' agreements, the Company is
entitled to be reimbursed for the costs of organizing and offering the
units of the Partnerships from the gross proceeds raised, subject to
certain limitations, based on the number of investment units sold. The
unamortized balance of these costs is included on the consolidated and
combined balance sheets as deferred charges and is being amortized over
the offering period.
(g) Fixed Assets and Leasehold Improvements
---------------------------------------
Fixed assets, which consist primarily of computer equipment, software
and furniture and fixtures, are recorded at cost and are being
depreciated over three to five years using the straight-line method.
Leasehold improvements are also recorded at cost and are being
amortized over the estimated useful lives of the improvements, or the
term of the lease, if shorter, using the straight-line method.
(h) Investment in Equipment Under Operating Lease
---------------------------------------------
The Company's investment in equipment under operating lease is recorded
at cost and is being depreciated to estimated salvage value. Both lease
rentals and depreciation are recognized on the straight-line basis over
the lease term. The Company, on a non-recourse basis, financed the
purchase of the equipment with a financial institution. Interest on the
related non-recourse financing is calculated under the interest method.
The excess of rental income over depreciation and related interest
expense represents the net amount earned on this type of transaction.
(i) Income Taxes
------------
The Company accounts for its income taxes following the liability
method as provided for in SFAS No. 109, "Accounting for Income Taxes."
Capital files stand alone Federal and state income tax returns for the
period April 1, 1996 to August 20, 1996. Securities files, for the
period ended April 1, 1996 to August 20, 1996, consolidated Federal and
state income tax returns with its former parent, Soundview Leasing
Corp. For the period August 21, 1996 to March 31, 1997, Holdings and
its subsidiaries will file a consolidated Federal tax return and
combined state tax return.
(4) Stockholders' Equity
--------------------
Holdings was capitalized on August 21, 1996 with an initial capital
contribution of $134,000, consisting of a $67,000 contribution from Summit
and a $67,000 contribution from Warrenton.
F-12
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
(5) Related Party Transactions
--------------------------
The Company earns fees from the Partnerships for the underwriting, sale,
organization and offering of each Partnership and for the acquisition,
management and administration of their lease portfolios. Receivables from
managed income funds primarily relate to such fees earned from the
Partnerships.
For the period August 21, 1996 to March 31, 1997, the Company accrued
$217,655 and $175,000 in acquisition and management fees to Summit,
respectively. As of March 31, 1997, the Company had payables of $432,742 to
Summit related to acquisition fees, management fees and expense
reimbursements.
In 1996, pursuant to a proxy solicitation, the limited partners in ICON
Cash Flow B agreed to the following amendments to their Partnership
Agreement: (1) extend the Reinvestment Period for a maximum of four
additional years, and (2) eliminate ICON Cash Flow B's obligation to pay
the Company $228,906 of the $355,906 in deferred management fees which were
outstanding as of November 15, 1995, the original end of the Reinvestment
Period. The elimination of these fees reduced receivables from related
parties - managed partnerships and deferred management fees - managed
partnerships by the same amount. In addition, the remaining $127,000 in
deferred management fees, when paid to the Company, would be returned to
ICON Cash Flow B in the form of an additional capital contribution.
In February and March 1995, the Company lent $75,000 and $100,000,
respectively, to ICON Cash Flow Series A. Principal on the loans was to be
repaid only after the extended Reinvestment Period expired, and after the
limited partners had received at least a 6% total return on their capital.
Since recoverability of these notes was questionable, such notes were
written off by the Company in fiscal 1995.
Effective January 31, 1995, ICON Cash Flow Series A, by consent of its
limited partners, amended its Partnership Agreement. The amendments: (1)
extend the Reinvestment Period of ICON Cash Flow Series A to January 1997,
(2) allow the company to lend funds to ICON Cash Flow Series A for a term
in excess of twelve months for amounts up to an aggregate of $250,000 and
(3) decrease management fees to a flat rate of 1% of rentals for all
investments under management.
In January and October 1994, the Company contributed $75,000 and $50,000,
respectively, in additional capital to ICON Cash Flow A. Since management
fees from ICON Cash Flow A are currently being deferred (see Note 3) and
the recoverability of the additional capital contributions is questionable,
such contributions were written off by the Company. Profits, losses and
cash distributions will not be affected by the additional capital
contributions and will continue to be allocated in the same manner as
stated in the ICON Cash Flow A prospectus.
(6) Prepaid and Other Assets
------------------------
Included in prepaid and other assets are unamortized insurance costs, the
Company's investment in the Partnerships and sublease receivables.
F-13
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(7) Income Taxes
------------
The provision for income taxes for Holdings (Successor) for the period
August 21, 1996 to March 31, 1997, and combined Capital and Securities
(Predecessor) for the years ended March 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
(Successor) (Predecessor) (Predecessor)
--------- ----------- -----------
Consolidated Combined Capital Combined Capital
Holdings and Securities and Securities
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ - $ - $ -
State 78,804 560 2,323
------------- ------------- ------------
78,804 560 2,323
------------- ------------- ------------
Deferred:
Federal 963,231 46,078 80,344
State 85,753 28,025 55,076
------------- ------------- ------------
1,048,984 74,103 135,420
------------- ------------- ------------
$ 1,127,788 $ 74,663 $ 137,743
============= ============= ============
</TABLE>
There was no provision for income taxes for Capital and Securities for the
period April 1, 1996 to August 20, 1996.
Deferred income taxes at March 31, 1997 and 1996 are primarily the result
of temporary differences relating to net operating loss carryforwards,
the carrying value of fixed assets, equipment under an operating lease, the
investments in the Partnerships and deferred charges. The deferred tax
assets and liabilities at March 31, consisted of the following:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
Consolidated Combined Capital
Holdings and Securities
1997 1996
---- ----
<S> <C> <C>
Deferred Tax Assets:
Federal $ 58,066 $ 611,179
State 59,995 9,010
------------- ------------
118,061 620,189
------------- ------------
Deferred Tax Liabilities:
Federal 1,389,403 979,287
State 261,586 124,846
------------- ------------
1,650,989 1,104,133
------------- ------------
$ 1,532,928 $ 483,944
============= ============
</TABLE>
At March 31, 1997 the Company had $230,777 in net operating loss carry-
forwards. A valuation allowance for deferred tax assets has not been
recorded since management believes that the deferred tax assets will be
utilized in future periods. Taxes payable of $78,804 and $560 were
included in accounts payable and accrued expenses on the respective
consolidated and combined balance sheets.
F-14
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
The following table reconciles income taxes computed at the Federal
statutory rate to the Company's effective tax rate for Holdings (Successor)
for the period August 21, 1996 to March 31, 1997 and combined Capital and
Securities (Predecessor) for the years ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
(Successor) (Predecessor) (Predecessor)
--------- ----------- -----------
Consolidated Combined Capital Combined Capital
Holdings and Securities and Securities
1997 1996 1995
---- ---- ----
Tax Rate Tax Rate Tax Rate
--- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C> <C>
Federal statutory taxes $ 948,895 34.00% $ 45,407 34.00% $ 102,360 34.00%
State income taxes, net of Federal
tax benefit 108,609 3.89 18,866 14.13 37,883 12.58
Amortization of goodwill 171,514 6.14 - - - -
Meals and entertainment exclusion 21,978 .79 11,490 8.60 11,744 3.90
Other (123,208) (4.41) (3,149) (2.36) (10,384) (3.45)
Adjustment to prior year Federal
income tax - - 12,773 9.57 - -
Effect of graduated rates - - (10,724) (8.03) (3,860) (1.28)
------------ ----- ---------- ----- ---------- -----
$ 1,127,788 40.41% $ 74,663 55.91% $ 137,743 45.75%
============ ===== ========== ===== ========== =====
</TABLE>
(8) Notes Payable
-------------
Notes payable at March 31, consisted of the following:
<TABLE>
<CAPTION>
(Successor) (Predecessor)
Consolidated Combined Capital
Holdings and Securities
1997 1996
---- ----
<S> <C> <C>
Subordinated Notes Payable
--------------------------
Installment note due Warrenton, interest at 12.5%, principal
and interest due in monthly installments of $40,284
through September 1999 $ 1,033,336 $ -
Term note due Warrenton, interest at 12.5%,
principal and interest due August 2001 233,000 -
Term note due Summit, interest at 12.5%,
principal and interest due August 2001 1,133,000 -
------------ ------------
$ 2,399,336 $ -
============ ============
Notes Payable - Seller Financing
--------------------------------
Installment note due Peter D. Beekman, interest at
16.705%, principal and interest due in monthly
installments of $111,358 through August 1999 $ 2,642,196 $ -
Term note due Peter D. Beekman, interest
at 12%, interest due monthly 700,000 -
------------ ------------
$ 3,342,196 $ -
============ ============
</TABLE>
Note Payable - Capital Lease
----------------------------
<TABLE>
<S> <C> <C>
Various obligations under capital leases, payable
in monthly installments through March 2002 $ 196,105 $ 46,185
============ ============
</TABLE>
On June 24, 1997, the Company refinanced the notes payable-seller financing
with proceeds received from a $3,000,000 term loan. The loan is with TKO
Finance Corp. ("TKO"), bears interest at 11.5% and is payable in thirty-six
equal monthly installments of $99,177 commencing August 1, 1997.
In connection with the TKO loan, the Company issued 1,000 shares of Class B
non-voting common stock and entered into a Put and Call Agreement. The Put
portion of the Agreement grants TKO the right to require the Company to
purchase 200 shares, 350 shares and the remaining 450 shares of the Class B
common stock at $432.22 per share in April 2000, 2001 and 2002,
respectively. The Call portion of the Agreement grants the Company the
right to require TKO to sell 200 shares, 350 shares and the remaining 450
shares of the Class B common stock at $480.07 per share in February.
F-15
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
2000, 2001 and 2002, respectively. In the event the Company registers any
of its stock or other securities under the Securities Act of 1933, TKO will
have the right to convert its shares of the Class B common stock into
shares of the stock to be issued. The Class B common stock was recorded at
fair value at date of issue. The fair value will be increased by periodic
accretions so that the carrying amount will equal the Call amount at each
respective Call date.
(9) Investment in Equipment Under Operating Lease
---------------------------------------------
On December 12, 1993, the Company invested $5,340,436 in manufacturing
equipment which was subsequently leased to a third party user for a two
year period commencing on January 1, 1994. Rentals were payable monthly in
advance. Simultaneous with the purchase of the equipment, the Company, on a
non-recourse basis, obtained $5,393,840 in financing from a financial
institution, of which $5,340,436 was paid directly to the equipment vendor
to satisfy the cost of the equipment. The excess of the proceeds from the
financing over the cost of the equipment, $53,404, was paid directly to the
Company and earned over the two year period of the lease. All rental
payments by the lessee were paid directly to the financial institution. The
original non-recourse financing bore interest at a rate of 6.6%, and was
paid in 24 monthly installments of $55,097 through December 1995, with a
final payment of $4,699,584 in January 1996.
Effective January 1, 1996, the lessee renewed the lease and the bank
extended the term of the collateralized non-recourse note. The terms of the
renewal required monthly rentals of $171,294, payable by the lessee in
advance, for two years. Such rental payments continued to be paid directly
to the financial institution to reduce the loan, with interest now
calculated at 8.95%. The lease was terminated in 1997 resulting in a gain
of $1,694 being recognized on disposition.
(10) Commitments and Contingencies
-----------------------------
The Company has operating leases for office space through the year 2004.
Rent expense for the period April 1, 1996 to August 20, 1996 (Predecessor),
August 21, 1996 to March 31, 1996 (Successor) and the years ended March 31,
1996 and 1995 amounted to $129,000, $231,000, $319,000 and $308,000, net of
sublease income of $70,000, $101,000, $165,000 and $160,000, respectively.
The future minimum rental commitments under non-cancelable operating leases
are due as follows (sublease rental income is all from short term leases):
<TABLE>
<CAPTION>
Fiscal Year Ending
March 31, Amount
-------- ------
<S> <C>
1998 $ 520,683
1999 669,176
2000 503,688
2001 490,817
2002 504,840
Thereafter 1,345,822
------------
$ 4,035,026
============
</TABLE>
(11) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
For the period April 1, 1996 to August 20, 1996 (Predecessor), August 21,
1996 to March 31, 1997 (Successor) and the years ended March 31, 1996 and
1995, the Company paid $5,565, $555,417, $27,344 and $60,186 in interest
on recourse financings, respectively.
F-16
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
Certain equipment, which the Company was carrying as investment in
equipment under operating lease, was paid for directly by a financing
institution. In connection with this transaction, the lessee's monthly
installments were remitted directly to the financing institution to service
the Company's non-recourse note payable, which was incurred when the
financing institution paid for the equipment on behalf of the Company. For
the period April 1, 1996 to August 20, 1996 (Predecessor), August 21, 1996
to March 31, 1996 (Successor) and the years ended March 31, 1996 and 1995,
such payments aggregated $799,372, $742,275, $1,009,756 and $661,165, which
was comprised of $660,160, $633,615, $676,028 and $332,393 of principal and
$139,212, $108,660, $333,728 and $328,772 of interest. The equipment under
the operating lease was sold to the lessee in 1997 and a gain of $1,694
was recognized on disposition.
On August 21, 1996, Holdings acquired all of the outstanding stock of
Capital and Securities for $9,332,680. The purchase price consisted of
$2,683,000 in cash and $6,649,680 in seller financing, of which $2,949,680
of the seller financing was paid off at closing.
F-17
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
ASSETS
<S> <C> <C>
Cash $ 156,968 $ 747,123
Receivables from related parties - managed partnerships 1,359,899 1,323,502
Prepaid and other assets 445,026 200,098
Deferred charges 658,642 379,717
Fixed assets and leasehold improvements, at cost, less accumulated
depreciation and amortization of $1,716,531 and $1,533,265 686,493 752,472
Goodwill less accumulated amortization of $1,031,627 and $574,500 7,813,167 8,270,294
-------------- --------------
Total assets $ 11,120,195 $ 11,673,206
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 1,063,290 $ 1,214,366
Due to stockholder 140,000 432,742
Subordinated notes payable - related party 2,213,399 2,399,336
Notes payable - seller financing - 3,342,196
Notes payable - recourse 3,402,249 196,105
Deferred income taxes, net 1,632,316 1,532,928
Deferred management fees-managed partnerships 788,547 758,452
-------------- --------------
Total liabilities 9,239,801 9,876,125
-------------- --------------
Redeemable stock 269,576 -
Commitments and contingencies
Stockholders' equity:
Common stock: $.01 par value; 1,000 shares
authorized, issued and outstanding 10 10
Additional paid-in capital 133,990 133,990
Retained earnings 1,476,818 1,663,081
-------------- --------------
1,610,818 1,797,081
-------------- --------------
Total liabilities and stockholders' equity $ 11,120,195 $ 11,673,206
============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-18
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Successor) (Predecessor) (Successor)
----------- ------------- -----------
Consolidated Combined
Holdings Capital and Consolidated Total
for the Securities Holdings for the
Six Months 4/1/96 8/21/96 Six Months
Ended to to Ended
9/30/97 8/20/96 9/30/96 9/30/96 (1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Fees - managed partnerships $ 5,315,363 $ 2,985,092 $ 2,676,206 $ 5,661,298
Rental income from investment in
operating lease -- 799,372 228,392 1,027,764
Interest income and other income 203,883 21,102 1,881 22,983
----------- ----------- ----------- -----------
Total revenues 5,519,246 3,805,566 2,906,479 6,712,045
----------- ----------- ----------- -----------
Expenses:
Selling, general and administrative 4,420,987 3,399,180 562,491 3,961,671
Amortization of deferred charges 189,143 118,190 30,933 149,123
Amortization of goodwill 457,127 -- 95,344 95,344
Depreciation and amortization 184,957 121,368 38,411 159,779
Depreciation - equipment under operating lease -- 660,160 192,708 852,868
Interest expense - recourse financings 353,908 5,565 96,538 102,103
Interest expense - non-recourse financings -- 139,212 35,685 174,897
----------- ----------- ----------- -----------
Total expenses 5,606,122 4,443,675 1,052,110 5,495,785
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes (86,876) (638,109) 1,854,369 1,216,260
Provision for income taxes 99,387 -- 604,966 604,966
----------- ----------- ----------- -----------
Net income (loss) $ (186,263) $ (638,109) $ 1,249,403 $ 611,294
=========== =========== =========== ===========
</TABLE>
(1) - As discussed in note 2 to the audited consolidated and combined financial
statements, Capital and Securities were acquired by the Company on August 21,
1996, in a business combination accounted for as a purchase. As a result of the
acquisition, the financial information for the period after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, the amounts in the total column for the six months
ended September 30, 1996 are not comparable to the six months ended September
30, 1997.
See accompanying notes to consolidated and combined financial statements.
F-19
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Successor) (Predecessor) (Successor)
----------- ------------- -----------
Consolidated Combined
Holdings Capital and Consolidated Total
for the Securities Holdings for the
Three Months 7/1/96 8/21/96 Three Months
Ended to to Ended
9/30/97 8/20/96 9/30/96 9/30/96 (1)
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Fees - managed partnerships $ 3,083,590 $ 802,745 $ 2,676,206 $ 3,478,951
Rental income from investment in - 285,490 228,392 513,882
operating lease
Interest income and other income 28,104 13,232 1,881 15,113
--------------- -------------- -------------- -------------
Total revenues 3,111,694 1,101,467 2,906,479 4,007,946
--------------- -------------- -------------- -------------
Expenses:
Selling, general and
administrative 2,215,360 1,375,304 562,491 1,937,795
Amortization of deferred charges 52,505 61,340 30,933 92,273
Amortization of goodwill 228,564 - 95,344 95,344
Depreciation and amortization 93,378 43,737 38,411 82,148
Depreciation - equipment under
operating lease - 238,478 192,708 431,186
Interest expense - recourse financings 152,307 4,178 96,538 100,716
Interest expense - non-recourse
financings - 47,011 35,685 82,696
--------------- -------------- -------------- -------------
Total expenses 2,742,114 1,770,048 1,052,110 2,822,158
--------------- -------------- -------------- -------------
Income (loss) before provision for
income taxes 369,580 (668,581) 1,854,369 1,185,788
Provision for income taxes 190,544 - 604,966 604,966
--------------- -------------- -------------- -------------
Net income (loss) $ 179,036 $ (668,581) $ 1,249,403 $ 580,822
=============== ============== ============== =============
</TABLE>
(1) - As discussed in note 2 to the audited consolidated and combined financial
statements, Capital and Securities were acquired by the Company on August 21,
1996, in a business combination accounted for as a purchase. As a result of the
acquisition, the financial information for the period after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, the amounts in the total column for the three months
ended September 30, 1996 are not comparable to the three months ended September
30, 1997.
See accompanying notes to consolidated and combined financial statements.
F-20
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Total
------------------------- Additional Stock-
Shares Par Paid-in Retained holders'
Outstanding Value Capital Earnings Equity
---------- ---------- ------------ ------------ ------------
Combined Capital and Securities (Predecessor)
- ---------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996 1,600 $ 15,100 $ 739,300 $ 953,938 $ 1,708,338
Net loss - - - (638,109) (638,109)
---------- ---------- ------------ ------------ ------------
Balance at August 20, 1996 1,600 $ 15,100 $ 739,300 $ 315,829 $ 1,070,229
========== ========== ============ =========== ===========
<CAPTION>
Consolidated Holdings (Successor)
- --------------------------------------------
<S> <C> <C> <C> <C> <C>
August 21, 1996 (date of acquisition
of Capital and Securities) - $ - $ - $ - $ -
Capitalization of Holdings 1,000 10 133,990 134,000
Net income - - - 1,249,403 1,249,403
---------- ---------- ------------ ------------ ------------
Balance at September 30, 1996 1,000 10 133,990 1,249,403 1,383,403
Net income - - - 413,678 413,678
---------- ---------- ------------ ------------ ------------
Balance at March 31, 1997 1,000 10 133,990 1,663,081 1,797,081
Net loss - - - (186,263) (186,263)
--------- ---------- ------------ ------------ ------------
Balance at September 30, 1997 1,000 $ 10 $ 133,990 $ 1,476,818 $ 1,610,818
========== ========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-21
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Successor) (Predecessor) (Successor)
----------- ------------- -----------
Consolidated Combined
Holdings Capital and Consolidated Total
for the Securities Holdings for the
Six Months 4/1/96 8/21/96 Six Months
Ended to to Ended
9/30/97 8/20/96 9/30/96 9/30/96 (1)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (186,263) $ (638,109) $ 1,249,403 $ 611,294
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 184,957 781,528 231,119 1,012,647
Amortization of goodwill 457,127 - 95,344 95,344
Amortization of deferred charges 189,143 118,190 30,933 149,123
Interest expense paid directly to
lender by lessee - 139,212 35,685 174,897
Rental income paid directly to
lender by lessee - (799,372) (228,392) (1,027,764)
Deferred income taxes 99,388 - 604,275 604,275
Changes in operating assets and liabilities:
Receivables from managed partnerships,
net of deferred management fees (6,302) 1,364,974 (49,470) 1,315,504
Prepaid and other assets (244,928) 38,680 (22,911) 15,769
Receivable from affiliates - (68,404) 412,113 343,709
Accounts payable and accrued
expenses (151,076) (158,491) 18,236 (140,255)
Due to stockholder (292,742) - - -
-------------- -------------- -------------- -------------
Total adjustments 235,567 1,416,317 1,126,932 2,543,249
-------------- -------------- -------------- -------------
Net cash provided by operating
activities 49,304 778,208 2,376,335 3,154,543
-------------- -------------- -------------- -------------
Cash flows from investing activities:
Purchase of fixed assets (118,978) (9,962) (10,238) (20,200)
Increase in deferred charges (468,068) (153,479) (28,687) (182,166)
Acquisition of Capital and
Securities - - (2,683,000) (2,683,000)
-------------- -------------- -------------- -------------
Net cash used in investing activities (587,046) (163,441) (2,721,925) (2,885,366)
-------------- -------------- -------------- -------------
</TABLE>
(continued)
F-22
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS-(Continued)
<TABLE>
<CAPTION>
(Unaudited)
(Successor) (Predecessor) (Successor)
----------- ------------- -----------
Consolidated Combined
Holdings Capital and Consolidated Total
for the Securities Holdings for the
Six Months 4/1/96 8/21/96 Six Months
Ended to to Ended
9/30/97 8/20/96 9/30/96 9/30/96 (1)
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Initial capital contribution - - 134,000 134,000
Proceeds from subordinated notes
payable - - 2,599,000 2,599,000
Principal payments on subordinated
notes payable (185,937) - - -
Seller notes retired - - (2,949,680) (2,949,680)
Principal payments on seller notes (3,342,196) - - -
Proceeds from recourse financings
and issuance of Class B common stock 3,630,328 - - -
Principal payments on notes payable -
recourse financings (154,608) (45,417) - (45,417)
-------------- -------------- -------------- -------------
Net cash used in financing activities (52,413) (45,417) (216,680) (262,097)
-------------- -------------- -------------- -------------
Net increase (decrease) in cash (590,155) 569,350 (562,270) 7,080
Cash, beginning of period 747,123 184,870 754,220 184,870
-------------- -------------- -------------- -------------
Cash, end of period $ 156,968 $ 754,220 $ 191,950 $ 191,950
============== ============== ============== =============
</TABLE>
(1) - As discussed in note 2 to the audited consolidated and combined financial
statements, Capital and Securities were acquired by the Company on August 21,
1996, in a business combination accounted for as a purchase. As a result of the
acquisition, the financial information for the period after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, the amounts in the total column for the six months
ended September 30, 1996 are not comparable to the six months ended September
30, 1997.
See accompanying notes to consolidated and combined financial statements.
F-23
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements
September 30, 1997
(unaudited)
(1) Basis of Accounting and Presentation
------------------------------------
The consolidated and combined financial statements of ICON Holdings
Corp., and its wholly owned subsidiaries (the "Company") are unaudited
and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim period. Certain information and footnote disclosures
normally included in consolidated and combined financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Management believes that the
disclosures made are adequate to prevent the information from being
misleading. The consolidated and combined financial statements should
be read in conjunction with the Company's March 31, 1997 and 1996
audited consolidated and combined financial statements. The results of
operations for the three and six months ended September 30, 1997 are
not necessarily indicative of the results of operations for the entire
fiscal year ending March 31, 1998.
(2) Subordinated Notes Payable and Notes Payable
--------------------------------------------
On June 24, 1997 the Company refinanced the notes payable-seller
financing with proceeds received from a $3,000,000 term loan. The loan
is with TKO Finance Corp. ("TKO"), bears interest at 11.5% and is
payable in thirty-six equal monthly installments of $99,177 commencing
August 1, 1997.
On August 21, 1997, ICON Capital Corp. ("Capital"), a wholly owned
subsidiary of the Company, entered into a one-year renewable unsecured
discretionary line of credit agreement (the "Facility"). The maximum
amount available under the Facility is $600,000, and interest is
payable at prime (8.5% at September 30, 1997) plus 1%. The Facility
requires that Capital, among other things, meet certain objectives with
respect to financial ratios. At September 30, 1997, Capital was in
compliance with the covenants required by the Facility. As of September
30, 1997, $600,000 was available and outstanding.
F-24
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
Notes payable at September 30, 1997 and March 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
---- ----
<S> <C> <C>
Subordinated Notes Payable
--------------------------
Installment note due Warrenton, interest at 12.5%, principal
and interest due in monthly installments of $40,284
through September 1999 $ 847,399 $ 1,033,336
Term note due Warrenton, interest at 12.5%,
principal and interest due August 2001 233,000 233,000
Term note due Summit, interest at 12.5%,
principal and interest due August 2001 1,133,000 1,133,000
-------------- --------------
$ 2,213,399 $ 2,399,336
============== ==============
Notes Payable - Seller Financing
--------------------------------
Installment not due Peter D. Beekman, interest at
16.705%, principal and interest due in monthly
installments of $111,358 $ - $ 2,642,196
Term note due Peter D. Beekman, interest
at 12%, interest due monthly - $ 700,000
-------------- -------------
$ $ 3,342,196
============== ==============
Notes Payable - Recourse
------------------------
Installment note, interest at 11.5%, principal
and interest due in monthly installments of
$99,177 through July 2000 $ 2,595,758 $ -
One year renewable line of credit, interest at
Prime plus 1% 600,000 -
Various obligations under capital leases, payable in
in monthly installments through March 2002 206,491 196,105
-------------- --------------
$ 3,402,249 $ 196,105
============== ==============
</TABLE>
F-25
<PAGE>
ICON HOLDINGS CORP.
AND SUBSIDIARIES
Notes to Consolidated and Combined Financial Statements - Continued
(3) Redeemable Stock
----------------
In connection with the TKO loan, the Company issued 1,000 shares of Class
B non-voting common stock and entered into a Put and Call Agreement. The
Put portion of the Agreement grants TKO the right to require the Company
to purchase 200 shares, 350 shares and the remaining 450 shares of the
Class B common stock for $432.22 per share in April 2000, 2001 and 2002,
respectively. The Call portion of the Agreement grants the Company the
right to require TKO to sell 200 shares, 350 shares and the remaining 450
shares of the Class B common stock for $480.07 per share in February
2000, 2001 and 2002, respectively. In the event that the Company
registers any of its stock or other securities under the Securities Act
of 1933, TKO will have the right to convert its shares of the Class B
common stock into shares of the stock to be issued. The Class B common
stock was recorded at fair value at the date of issue. The fair value
will be increased by periodic accretions so that the carrying amount will
equal the Call amount at each respective Call date.
F-26
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
_________________
SUMMARY TABLE OF CONTENTS
PAGE
----
Additional Information.................................. 2
Prospectus Summary...................................... 3
Risk Factors............................................ 8
Use of Proceeds......................................... 15
Dividend Policy......................................... 15
Capitalization.......................................... 16
Dilution................................................ 17
Selected Historical and Pro forma Financial Data........ 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 22
Business................................................ 30
Management.............................................. 44
Certain Relationships and Related Transactions.......... 51
Principal Stockholders and Beneficial Ownership of
Management............................................ 51
Description of Capital Stock............................ 54
Shares Eligible for Future Sale......................... 57
Underwriting............................................ 58
Legal Matters........................................... 60
Experts................................................. 60
Index to Financial Statements........................... F-1
_________________
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
12,500,000 SHARES
ICON HOLDINGS CORP.
COMMON STOCK
_________________
PROSPECTUS
_________________
FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.
______________, 1997
==============================================================================
<PAGE>
********************************************************************************
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
********************************************************************************
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
SUBJECT TO COMPLETION, DATED _________ ___, 1997
PROSPECTUS
924,314 SHARES
ICON HOLDINGS CORP.
COMMON STOCK
This Prospectus relates to the resale of up to 924,314 shares of Common stock
of ICON Holdings Corp. (together with its subsidiaries, the "Company") held by
Friedman, Billings, Ramsey & Co., Inc. (the "Representative").
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
The Representative and its agents, donates, distributes, pledges and other
successors in interest (collectively, the "Selling Security Holders") may offer
and sell the remainder of the shares from time to time in one or more
transactions on The Nasdaq Stock Market, or otherwise, at market prices then
prevailing or in negotiated transactions. The shares may also be sold pursuant
to option, hedging or other transactions with broker-dealers. The shares may
also be offered in one or more underwritten offerings, although no such
arrangements have been made. The underwriters in an underwritten offering, if
any, and the terms and conditions of any such offering will be described in a
supplement to this Prospectus. See "Selling Security Holders" and "Plan of
Distribution."
On _______________, 1997, the Company completed an initial public offering
(the "Offering") of 12,500,000 shares of Common Stock through the
"Representative" as the representative of several underwriters. The Company
will not receive any of the proceeds from the sale of the shares by the Selling
Security Holders. See "Use of Proceeds". The Common Stock of the Company is
traded on the National Market of The Nasdaq Stock Market (the "Nasdaq National
Market") under the symbol "ICOH". On _______________, 1997, the last reported
sale price of Common Stock on the Nasdaq National Market was $______________ per
share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ______________, 1997.
<PAGE>
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
THE OFFERING
The 924,314 shares of Common Stock offered by the Selling Security Holders
are identical to the 12,500,000 shares of Common Stock offered and sold by the
Company in its underwritten initial public offering (the "Offering") by separate
prospectus. Upon completion of the Offering, 16,611,276 shares of Common Stock
were outstanding. Such number of shares does not include (i) 4,000,000 shares of
Common Stock to be redeemed by the Company simultaneously with the consummation
of the Offering; (ii) 2,000,000 shares of Common Stock reserved for issuance
under the Company's 1997 Stock Option Plan, of which options to purchase
apaproximately 1,200,000 shares of Common Stock were granted upon the
consummation of the Offering at an exercise price equal to the initial public
offering price per share; (iii) 200,000 shares of Common Stock reserved for
issuance under the Company's 1997 Non-Employee Directors' Stock Plan, of which
options to purchase 30,000 shares of Common Stock were granted upon the
consummation of the Offering at an exercise price equal to the initial public
offering price per share; (iv) 498,338 shares of Common Stock issuable under
warrants granted to a related party upon consummation of the Offering at an
exercise price per share equal to the initial public offering price; and (v)
830,564 shares of Common Stock issuable under warrants granted to the
Representative of the Underwriters at an exercise price per share equal to the
initial public offering price. See "Executive Compensation--1997 Stock Option
Plan," "1997 Non-Employee Directors Plan," "Certain Transactions" and
"Underwriting."
A-2
<PAGE>
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
USE OF PROCEEDS
The Company will receive no proceeds from the sale of Common Stock by the
Selling Security Holders. The net proceeds to the Company from the sale of the
shares of Common Stock in the Offering, after deducting estimated underwriting
discounts and other offering expenses, all of which are payable by the Company,
are estimated to be approximately $115.5 million (approximately $132.9 million
if the Over-Allotment Option is exercised in full), assuming an initial public
offering price of $10.00 per share. The Company intends to use the net proceeds
of the Offering to acquire equipment subject to lease and financing
transactions, to redeem 4,000,000 shares of Common Stock for $7.2 million and
other consideration (see "Certain Transactions"), to repay indebtedness
(including a premium of approximately $225,000) of approximately $3.4 million
indebtedness bearing interest at a fixed annual rate of 11.5% and maturing on
July 31, 2000, and for general corporate purposes, including, but not limited
to, purchases of equipment subject to lease, acquisitions of related businesses
or joint ventures, and working capital. See "Certain Transactions"
Other than the specified purposes set forth above, the Company's management
will have complete discretion to apply the proceeds of the Offering towards
general corporate purposes. The Company does not have any agreements or
understandings with respect to any acquisitions at the present time.
Pending use of the net proceeds as described above, the Company intends to
invest the net proceeds in short-term readily marketable, interest-bearing
government treasury obligations and equivalent securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
and will depend upon, among other factors, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other considerations that the Board
of Directors deems relevant.
A-3
<PAGE>
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
PLAN OF DISTRIBUTION
The Selling Security Holders and their agents, donates, distributes, pledges
and other successors in interest may, from time to time, offer for sale and sell
or distribute the shares to be offered by them hereby (a) in transactions
executed on the Nasdaq National Market, or any securities exchange on which the
shares may be traded, through registered broker-dealers (who may act as
principals, pledges or agents) pursuant to unsolicited orders or offers to buy,
(b) in negotiated transactions, or (c) through other means. The shares may be
sold from time to time in one or more transactions at market prices prevailing
at the time of sale or a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the Selling Security Holders or by agreement
between the Selling Security Holders and their underwriters, dealers, brokers or
agents. The shares may also be offered in one or more underwritten offerings.
The underwriters in an underwritten offering, if any, and the terms and
conditions of any such offering will be described in a supplement to this
Prospectus.
In connection with distribution of the shares, the Selling Security Holders
may enter into hedging or other option transactions with broker-dealers in
connection with which, among other things, such broker-dealers may engage in
short sales of the shares pursuant to this Prospectus in the course of hedging
the positions they may assume with one or more of the Selling Security Holders.
The Selling Security Holders may also sell shares short pursuant to this
Prospectus and deliver the shares to close out such short positions. The
Selling Security Holders may also enter into option or other transactions with
broker-dealers which may result in the delivery of shares to such broker-dealers
who may sell such shares pursuant to this Prospectus. The Selling Security
Holders may also pledge the shares to a broker-dealer and upon default the
broker-dealer may effect the sales of the pledged shares pursuant to this
Prospectus.
The distribution of the shares by the Selling Security Holders is not subject
to any underwriting agreement. Any underwriters, dealers, brokers or agents
participating in the distribution of the shares may receive compensation in the
form of underwriting discounts, concessions, commissions or fees from the
Selling Security Holders and/or purchasers of shares, for whom they may act.
Such discounts, concessions, commissions or fees will not exceed those customary
for the type of transactions involved. In addition, the Selling Security
Holders and any such underwriters, dealers, brokers or agents that participate
in the distribution of shares may be deemed to be underwriters under the
Securities Act, and any profits on the sale of shares by them and any discounts,
commissions or concessions received by any of such persons may be deemed to be
underwriting discounts and commissions under the Securities Act. Those who act
as underwriter, broker, dealer or agent in connection with the sale of the
shares will be selected by the Selling Security Holders and may have other
business relationships with the Company and its subsidiaries or affiliates in
the ordinary course of business.
The aggregate proceeds to the Selling Security Holders from the sale of the
shares offered by the Selling Security Holders hereby will be the purchase price
of such shares less any broker's commissions.
In order to comply with the securities laws of certain states, if applicable,
the shares will be sold in such jurisdiction only through registered or licensed
brokers or dealers. In addition, in certain states the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration of qualification requirement is available
and is complied with.
The Selling Security Holders and any broker-dealer, agent or underwriter that
participates with the Selling Security Holders in the distribution of the shares
may be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
A-4
<PAGE>
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares offered hereby may not simultaneously
engage in market making activities with respect to the shares for a period of
two business days prior to the commencement of such distribution. In addition,
and without limiting the foregoing, the Selling Security Holders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7,
which provisions may limit the timing of sales of the shares by the Selling
Security Holders.
There is no assurance that the Selling Security Holders will sell any or all
of the shares described herein and may transfer, devise or gift such securities
by other means not described herein. The Company is permitted to suspend the
use of this Prospectus in connection with sales of the shares by holders during
certain periods of time under certain circumstances relating to pending
corporate developments and public filings with the Commission and similar
events. Expenses of preparing and filing the Registration Statement and any and
all amendments thereto will be borne by the Company.
A-5
<PAGE>
ALTERNATIVE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
SELLING SECURITY HOLDERS
Set forth below, is the number of shares of Common Stock beneficially owned
by the Representative as of December, 1997, the number of shares of Common
Stock offered pursuant to this Prospectus and the number of shares to be owned
after completion of the Offering (assuming the sale of all of the shares offered
hereby).
<TABLE>
<CAPTION>
Numbered Shares to
Total Number of Number of Shares to be Owned After the
Name & Address Shares Owned (1) be Offered or Sold Offering
- ------------------------------ ---------------- ------------------- ------------------
<S> <C> <C> <C>
Friedman, Billings, Ramsey & 924,314 924,314 0
Co., Inc.
</TABLE>
__________
(1) Consists of shares issuable under a warrant granted to the Representative
upon the closing of the Offering.
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also covers
12,500,000 shares of Common Stock offered by the Company made pursuant to a
separate prospectus.
A-6
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
_________________
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................. 2
Prospectus Summary...................................... 3
Risk Factors............................................ 8
Use of Proceeds......................................... 15
Dividend Policy......................................... 15
Capitalization.......................................... 16
Dilution................................................ 17
Selected Historical and Pro forma Financial Data........ 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 22
Business................................................ 30
Management.............................................. 44
Certain Relationships and Related Transactions.......... 51
Selling Security Holder................................. 51
Description of Capital Stock............................ 54
Shares Eligible for Future Sale......................... 57
Plan of Distribution.................................... 58
Legal Matters........................................... 60
Experts................................................. 66
Index to Financial Statements........................... F-1
</TABLE>
================================================================================
================================================================================
924,314 SHARES
ICON HOLDINGS CORP.
COMMON STOCK
_________________
PROSPECTUS
_________________
______________, 1997
================================================================================
A-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses expected to be incurred in connection with issuance and
distribution of securities being registered. All such fees and expenses shall
be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee.. $46,361
NASD Fee............................................. 15,799
Blue Sky Fees........................................ *
Nasdaq National Market Listing Fee................... *
Printing and Engraving Expenses...................... *
Accounting Fees and Expenses......................... *
Legal Fees and Expenses.............................. *
Directors and Officers Insurance..................... *
Transfer Agent Fees and Expenses..................... *
Miscellaneous........................................ *
-----------
Total $ 750,000
</TABLE>
*To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article 10 of the
registrant's Certificate of Incorporation provides that the personal liability
of directors of the registrant is eliminated as provided by extent permitted by
Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article XI of the registrant's By-laws provides that the registrant will
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of the
registrant, or is or was serving at the request of the registrant as a director,
officer, employee or agent of another entity, against certain liabilities, costs
and expenses. Article XI further permits the registrant to maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another entity, against any liability
asserted against such person and incurred
II-1
<PAGE>
by such person in any such capacity or arising out of his status as such,
whether or not the registrant would have the power to indemnify such person
against such liability under the DGCL.
The Registrant has obtained directors and officers liability and company
reimbursement insurance pursuant to which insurer will pay, on behalf of
directors and officers of the Registrant, certain losses (as defined) incurred
as a result of specified wrongful acts by such persons, for which they are not
indemnified by the Registrant. In addition, the insurer will reimburse the
Registrant for certain losses incurred as a result of the Registrant's
indemnification of an officer or director in connection with such a wrongful
act. The policy provides that the insurer's aggregate liability to the
Registrant with respect to a single policy year shall not exceed $10,000,000
million and is subject to customary exclusions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to exemptions from registration for transactions by an issuer not
involving a public offering as afforded by Section 4(2) of the Securities Act,
the Registrant (i) in August 1996 issued 500 shares of its Common Stock, par
value $.01 per share, to each of Warrenton Capital Partners L.L.C., a Delaware
limited liability company, and Summit Asset Holding L.L.C., a Delaware limited
liability company, for consideration of $67,000 in each case; and (ii) in July
1997 issued 500 shares of Class B Common Stock, $.01 par value per share, to TKO
Finance Corporation in partial consideration of the extension of a $3,000,000
secured term loan facility by such lender.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) The following exhibits are or will be filed as part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
<C> <S>
*1.01 Draft Form of Underwriting Agreement.
*3.01 Certificate of Incorporation of the Registrant, as amended.
*3.02 Form of Amended and Restated Certificate of Incorporation to be adopted by the
Registrant.
*3.03 Amended and Restated By-Laws of the Registrant.
*5.01 Opinion of McDermott, Will & Emery as to the legality of the securities being registered.
*10.01 The Registrant's 1997 Stock Option Plan.
*10.02 The Registrant's 1997 Non-Employee Directors' Stock Option Plan.
*10.03 Employment Agreement between the Registrant and Beaufort J. B. Clarke, as amended.
*10.04 Employment Agreement between the Registrant and Paul B. Weiss, as amended.
*10.05 Employment Agreement between the Registrant and Thomas W. Martin, as amended.
*10.06 Employment Agreement between the Registrant and John L. Lee.
*10.07 Employment Agreement between the Registrant and Gary N. Silverhardt.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
*10.08 Employment Agreement between the Registrant and Allen V. Hirsch.
*10.09 Indemnification Agreement between the Registrant and Beaufort J. B. Clarke.
*10.10 Indemnification Agreement between the Registrant and Paul B. Weiss.
*10.11 Indemnification Agreement between the Registrant and Thomas W. Martin.
*10.12 Indemnification Agreement between the Registrant and Adolfo R. Garcia.
*10.13 Draft Form of Warrant Agreement between the Registrant and the Representative of the
Underwriters.
*10.14 Stock Redemption Agreement between the Registrant and Summit Asset Holding L.L.C.
11.01 Computation of Earnings Per Share.
*21.01 Subsidiaries of the Registrant.
23.01 Consent of KPMG Peat Marwick LLP.
*23.02 Consent of McDermott, Will & Emery.
24.01 Power of Attorney (included on signature page of this registration statement).
27.01 Financial Data Schedule.
</TABLE>
____________
* To be filed by amendment
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X, or
the information that would otherwise be included in such schedules is contained
in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
II-3
<PAGE>
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(f) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(i) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Harrison,
New York, on October 24, 1997.
ICON Holdings Corp.
By: /s/ Beaufort J. B. Clarke
_______________________________
Beaufort J. B. Clarke
Chief Executive Officer and President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints Beaufort J. B. Clarke, Gary N. Silverhardt and John L.
Lee his true and lawful attorneys-in-fact, with full powers, each acting alone,
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any Registration Statement
relating to this offering to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/ Beaufort J. B. Clarke Chief Executive Officer, October 24, 1997
_________________________ President (principal executive
Beaufort J. B. Clarke officer), and Director
/s/ Gary N. Silverhardt Chief Financial Officer October 24, 1997
_________________________ and Treasurer (principal
Gary N. Silverhardt financial and accounting officer)
/s/ Thomas W. Martin Executive Vice President October 24, 1997
_________________________ and Director
Thomas W. Martin
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
<C> <S>
*1.01 Draft Form of Underwriting Agreement
*3.01 Certificate of Incorporation of the Registrant, as amended
*3.02 Form of Amended and Restated Certificate of Incorporation to be adopted by the
Registrant
*3.03 Amended and Restated By-Laws of the Registrant
*5.01 Opinion of McDermott, Will & Emery as to the legality of the securities being registered.
*10.01 The Registrant's 1997 Stock Option Plan.
*10.02 The Registrant's 1997 Non-Employee Directors' Stock Option Plan
*10.03 Employment Agreement between the Registrant and Beaufort J. B. Clarke, as amended.
*10.04 Employment Agreement between the Registrant and Paul B. Weiss, as amended.
*10.05 Employment Agreement between the Registrant and Thomas W. Martin, as amended.
*10.06 Employment Agreement between the Registrant and John L. Lee.
*10.07 Employment Agreement between the Registrant and Gary N. Silverhardt.
*10.08 Employment Agreement between the Registrant and Allen V. Hirsch.
*10.09 Indemnification Agreement between the Registrant and Beaufort J. B. Clarke.
*10.10 Indemnification Agreement between the Registrant and Paul B. Weiss.
*10.11 Indemnification Agreement between the Registrant and Thomas W. Martin.
*10.12 Indemnification Agreement between the Registrant and Adolfo R. Garcia.
*10.13 Draft Form of Warrant Agreement between the Registrant and the Representative of the
Underwriters.
*10.14 Stock Redemption Agreement between the Registrant and Summit Asset
Holding L.L.C.
11.01 Computation of Earnings Per Share
*21.01 Subsidiaries of the Registrant
23.01 Consent of KPMG Peat Marwick LLP
*23.02 Consent of McDermott, Will & Emery
24.01 Power of Attorney (included on signature page of this registration statement).
27.01 Financial Data Schedule.
</TABLE>
____________
* To be filed by amendment
<PAGE>
EXHIBIT 11.1
STATEMENT RE: EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the Six For the Three
Months ended Months ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $ (186,263) $ 179,036
-------------- ------------
Net loss per share amount $ (0.01) $ 0.01
-------------- ------------
Calculation of weighted average shares outstanding:
Weighted average common stock outstanding 1,000 1,000
Adjustments:
Effects of common stock dividend to shareholders 7,999,000 7,999,000
Issuance of stock from the initial public offering 12,500,000 12,500,000
Redemption of shares from related party (4,000,000) (4,000,000)
Conversion to common shares from indebtedness
to related party 111,276 111,276
Stock options granted at the initial public offering 1,328,902 1,328,902
-------------- -----------
Weighted average common stock outstanding, as adjusted 17,940,178 17,940,178
-------------- ===========
</TABLE>
<PAGE>
Exhibit 23.01
-------------
The Board of Directors
ICON Holdings Corporation
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
New York, New York
October 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED AND COMBINED FINANCIAL STATEMENT OF THE COMPANY AND THE NOTE
THERETO INCLUDED WITH THE COMPANY'S FORM S-1 REGISTRATION STATEMENT.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 MAR-31-1997 MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1997 APR-01-1996 APR-01-1996 APR-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996 MAR-31-1997 MAR-31-1996
<CASH> 156,968 747,123 747,123 184,870
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,359,899 1,323,502 1,323,502 2,360,186
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0<F1> 0<F1> 0<F2> 0<F2>
<PP&E> 2,403,024 2,285,737 2,285,737 7,368,469
<DEPRECIATION> (1,716,531) (1,533,265) (1,533,265) (2,326,914)
<TOTAL-ASSETS> 11,120,195 11,673,206 11,673,206 8,040,246
<CURRENT-LIABILITIES> 0<F1> 0<F1> 0<F2> 0<F2>
<BONDS> 7,247,964 5,937,637 5,937,637 4,308,370
0 0 0 0
0 0 0 0
<COMMON> 134,000 134,000 134,000 754,400
<OTHER-SE> 1,476,818 1,663,081 1,663,081 953,938
<TOTAL-LIABILITY-AND-EQUITY> 11,120,195 11,673,206 11,673,206 8,040,246
<SALES> 5,519,246 6,712,045 13,841,776 10,444,491
<TOTAL-REVENUES> 5,519,246 6,712,045 13,841,776 10,444,491
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 353,908 277,000 808,854 361,072
<INCOME-PRETAX> (86,876) 1,216,260 2,152,760 133,551
<INCOME-TAX> 99,387 604,294 1,127,788 74,663
<INCOME-CONTINUING> 0 0 1,024,972 58,888
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (186,263) 611,294 1,024,972 58,888
<EPS-PRIMARY> 0 0 0 0
<EPS-DILUTED> 0 0 0 0
<FN>
<F1>NON-CLASSIFIED BALANCE SHEET
<F2>THE COMPANY HAS AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
