<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998
REGISTRATION NO. 333-52091
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
AMERICAN FINANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6159 94-3226128
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.
JURISDICTION CLASSIFICATION CODE NUMBER) EMPLOYER
OF INCORPORATION OR IDENTIFICATION
ORGANIZATION) NO.)
24 SCHOOL STREET
BOSTON, MASSACHUSETTS 02108
(617) 557-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DONALD R. DUGAN, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN FINANCE GROUP, INC.
24 SCHOOL STREET
BOSTON, MASSACHUSETTS 02108
(617) 557-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
THEODORE J. KOZLOFF, ESQ. LEWIS J. GEFFEN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP MINTZ, LEVIN, COHN, FERRIS, GLOVSKY
FOUR EMBARCADERO CENTER, SUITE 3800 AND POPEO, P.C.
SAN FRANCISCO, CALIFORNIA 94111 ONE FINANCIAL CENTER
(415) 984-6400 BOSTON MASSACHUSETTS 02111
(415) 984-2698 (FAX) (617) 542-6000
(617) 542-2241 (FAX)
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 registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 2,472,500
$0.01 per share....... shares $15.00 $37,087,500 $10,941
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 322,500 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a) under the Securities Act of 1933, as
amended. Fee previously paid in connection with original filing on May 7,
1998.
--------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THE SECURITIES DESCRIBED HEREIN 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1998
PROSPECTUS
2,150,000 SHARES
[LOGO]
AMERICAN FINANCE GROUP, INC.
COMMON STOCK
-----------
Of the 2,150,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), of American Finance Group, Inc. (together with its
subsidiaries, the "Company") offered hereby (the "Offering"), 1,570,000 shares
are being offered by the Company and 580,000 shares are being offered by the
Selling Stockholder. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares of Common Stock in the
Offering by the Selling Stockholder.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $13.00 and $15.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. The Company has applied for quotation of the Common Stock on
the Nasdaq National Market under the symbol "AFGC."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION 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 PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
- -----------------------------------------------------------------------------
Total(3).......... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, estimated to be $900,000, payable by the
Company.
(3) The Company and the Selling Stockholder have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
322,500 additional shares of Common Stock at the Price to Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholder will be $ , $ , $ , and $ , respectively. See
"Underwriting."
-----------
The shares of Common Stock to be distributed to the public are offered by the
Underwriters, subject to prior sale, when, as and if issued to and accepted by
the Underwriters and subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel, or modify such offer and to reject orders in whole
or in part. It is expected that the Common Stock will be delivered in book
entry form through the facilities of The Depository Trust Company in New York,
New York on or about , 1998.
-----------
LEGG MASON WOOD WALKER
INCORPORATED ING BARING FURMAN SELZ LLC
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[MAP OF U.S. SHOWING THE COMPANY'S REGIONAL OFFICES AND PORTFOLIO DATA,
INCLUDING GROWTH IN OWNED PORTFOLIO AND GROWTH IN OWNED AND SERVICED
PORTFOLIO]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING EFFECTING SYNDICATE COVERING TRANSACTIONS, INITIATING BIDS OR
EFFECTING PURCHASES ON THE NASDAQ NATIONAL MARKET FOR THE PURPOSE OF
PREVENTING OR RETARDING A DECLINE IN THE MARKET PRICE OF THE COMMON STOCK, OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
----------------
Trademarks of certain companies other than the Company used in this
Prospectus are the property of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Prospective purchasers of shares of Common Stock offered hereby
should carefully consider the factors set forth under "Risk Factors." Unless
otherwise specified, the information in this Prospectus assumes that the
underwriters do not exercise the over-allotment option described herein under
"Underwriting." Unless otherwise indicated, the information in this Prospectus
gives effect to (i) the 4,200-for-1 stock split effected by the filing of the
Company's Amended and Restated Certificate of Incorporation with the Delaware
Secretary of State on August 27, 1998 and (ii) the Company's Amended and
Restated Bylaws, to be made effective upon completion of the Offering. As used
in this Prospectus, unless the context indicates otherwise, the terms "AFG" and
the "Company" refer to American Finance Group, Inc. and its subsidiaries.
THE COMPANY
The Company is a commercial finance company engaged in the leasing and
secured financing of a variety of equipment for investment-grade "Fortune 1000"
companies and creditworthy middle-market companies. The Company's principal
businesses include (i) the direct origination through its sales force of (a)
equipment leases and (b) secured loans, hybrid leases and other specialized
financings ("structured finance products"), (ii) the management and servicing
of equipment leases and structured finance products retained by the Company or
sold to institutional leasing investment programs ("institutional programs"),
(iii) the sale and acquisition of equipment leases and structured finance
products to and from third parties ("syndication") and (iv) the sale and re-
marketing of equipment as it comes off lease. The Company's sales force markets
its equipment leases and structured finance products nationally through sales
offices located in the Boston, Houston, Chicago, Atlanta and San Francisco
metropolitan areas and in Charlottesville, Virginia. Since entering its current
line of business in January 1996, the Company has originated over $500 million
of equipment leases and structured finance products covering over 62,000 items
of equipment.
The Company's leases and structured finance products encompass a broad
spectrum of equipment classes, including manufacturing and materials handling
equipment, computer and telecommunications equipment, point of sale equipment,
construction and mining equipment, over-the-road trucks and office equipment.
The Company seeks to maintain a diversified asset portfolio in order to
minimize its credit and residual exposure to any single lessee, industry or
equipment category. As of June 30, 1998, no single industry accounted for more
than 22%, and no single lessee accounted for more than 13%, of the Company's
portfolio of leases on a net book value basis. No single customer accounted for
more than 10% of the Company's revenue in the six-month period ended June 30,
1998.
The Company's ten largest lessees by cumulative dollar volume of leases and
finance receivables (based on original equipment cost) owned or serviced
through June 30, 1998 were Chrysler Corporation, Ultramar Diamond Shamrock
Corp., Atmel Corporation, Owens Corning, Fina Oil and Chemical Company,
Marathon Oil Company, Merck & Co., Inc., ConAgra, Inc., Inland Paperboard and
Packaging, Inc. and Wal-Mart Stores, Inc. At June 30, 1998, based primarily on
published credit ratings by Moody's Investor Services, Inc. and
Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies,
the dollar-weighted average credit rating of the Company's lessees was the
equivalent of a Moody's Investor Services, Inc. rating of Baa2, an investment-
grade rating.
The Company has master leases in place with approximately 400 potential
customers, approximately 110 of which are currently doing business with the
Company. Master leases are commonly employed in the equipment leasing industry
and establish the general terms and conditions under which a finance company
and its customers will subsequently enter into lease and financing schedules
relating to particular items of equipment. Master leases
3
<PAGE>
are frequently the subject of extensive negotiations between the Company and
prospective customers. Once in place, however, a master lease usually
simplifies a prospective lessee's internal approval process relating to any
particular lease or financing schedule and can serve as both starting point and
framework for lease and financing arrangements between any of such lessee's
operational divisions and the Company. As such, a master lease permits the
Company to offer a prospective customer streamlined solutions for its equipment
leasing and financing needs on an enterprise-wide basis.
The Company initially finances the origination and acquisition of its
equipment leases and structured finance products through a traditional
warehouse credit facility. The Company either retains the equipment leases and
structured finance products financed in a long-term nonrecourse facility, sells
them to institutional programs or syndicates them to unaffiliated third
parties. Of the equipment leases and structured finance products originated or
acquired by the Company, the percentage of retained leases has increased from
45% in 1996 to 55% in 1997 and 74% in the first six months of 1998. Equipment
leases and structured finance products retained or serviced by the Company
increased 290% to $397.1 million as of June 30, 1998 from $101.8 million as of
January 1996. Increased market penetration and an expanding range of financing
offerings have led to continued growth in the Company's business. As of June
30, 1998, the Company had awards for future business amounting to approximately
$99.7 million. On average, the Company has experienced that over 90% of its
awarded business ultimately is funded.
The Company's revenue for the first six months of 1998 grew to $12.4 million
from $10.0 million for the same period of 1997, representing an increase of
24%. The Company's revenue for 1997 grew to $20.7 million from $9.5 million for
1996, representing an increase of 117%. The Company's net income for the first
six months of 1998 was $1.0 million as compared to $0.8 million for the same
period in 1997. The Company's net income for 1997 was $2.1 million as compared
to a net loss of $0.8 million in 1996 incurred as a result of existing overhead
expenses exceeding revenue from a then limited portfolio of leases and
structured finance products. The Company earns direct finance lease or
operating lease income on leases originated and retained by the Company. The
Company derives an operating profit from the positive difference between the
yield received on leases and secured loans owned by the Company and the
associated cost of funds. The financing of these leases is accomplished through
the Company's securitization facility, which requires the Company to retain an
equity interest in a majority of these leases. The Company does not recognize a
gain on sale of assets financed through its securitization facility, retaining
the leases and debt on its balance sheet ("on balance sheet securitization").
The Company, however, does recognize a gain on sale of assets in the case of
leases and associated equipment sold without a retained equity interest (and
without recourse to the Company) to institutional programs or syndicated to
unaffiliated third parties. The gain on sale represents the cash received from
sales of the leases and associated equipment above the Company's book value of
such assets.
The equipment leasing and financing industry in the United States is a large
and growing source of financing for capital expenditures by businesses. The
Equipment Leasing Association (the "ELA") estimates that 80% of U.S. companies
lease all or a portion of their equipment. The ELA projects that $183 billion
of the $593 billion expected to be invested in equipment in 1998 will be
financed by means of leasing. According to the ELA, from 1996 to 1997 equipment
placed on lease grew by approximately $10 billion to an estimated $180 billion,
and investment in equipment placed on lease in 1996 represents an increase of
approximately 100% from comparable 1986 data. The Company believes that leasing
allows businesses to acquire capital equipment more efficiently, receive
favorable tax and accounting treatment, and avoid or mitigate the perceived
risks of equipment ownership, including obsolescence.
Key elements of the Company's business strategy include:
. Capitalize on Master Lease Relationships. The Company intends to expand
its business significantly through internal growth, particularly by
increasing the number of master leases under which it actively services
customers.
4
<PAGE>
. Expand Middle-Market Business Line. The Company intends to expand its
targeted business market to include additional creditworthy middle-
market companies (that is, companies whose revenues range from $75
million to $1 billion annually), focusing on transactions ranging in
size from $100,000 to $2,000,000.
. Continue to Access Capital at Lower Costs. The Company intends to
continue to increase its access to low-cost capital from both public and
private sources by utilizing traditional credit facilities and on
balance sheet securitizations.
. Expand Offering of Structured Finance Products. The Company intends to
expand its underwriting of structured finance products to increase its
market share, manage its residual exposure and allow the Company to
manage a larger portfolio at lower incremental operating costs.
. Expand Syndication Business. The Company intends to expand its
underwriting of transactions for syndication by offering a broader
variety of structured finance products.
. Explore and Develop Related Business Opportunities. The Company intends
to develop strategic alliances and pursue acquisitions that will provide
management expertise, specific equipment knowledge, information systems
and origination capabilities that complement the Company's existing
business in an effort to provide the Company's customers the best
services and product mix possible. The Company also intends to explore
opportunities to expand its currently limited operations in markets
outside of the United States and Canada.
. Utilize Technology and Infrastructure. The Company intends to improve
continually its information and customer servicing systems in order to
enhance its operational efficiency and offer differentiated services.
The Company was incorporated on February 9, 1995 in Delaware as a wholly
owned subsidiary of PLM International, Inc., a Delaware corporation
incorporated in 1987 ("PLMI" or the "Selling Stockholder"). With the exception
of its subsidiary AFG's activities in the industrial and commercial equipment
sector, PLMI's operations focus on the leasing and management of transportation
equipment, including aircraft and aircraft engines, marine vessels, railcars,
trailers and marine containers. PLMI operates and manages, directly and through
various subsidiaries, a portfolio of transportation, industrial and commercial
equipment and related assets with a combined original acquisition cost of
approximately $1.2 billion at December 31, 1997. Upon completion of the
Offering, PLMI will own approximately 62.7% of the outstanding shares of Common
Stock, its President and Chief Executive Officer will serve as chairman of the
Company's Board of Directors, and its Chief Financial Officer will serve as a
director of the Company. In addition, PLMI will have certain rights, privileges
and obligations with respect to the Company under the Intercompany Relationship
Agreement being entered into by the Company and PLMI in connection with the
Offering.
The Company's principal executive office is located at 24 School Street,
Boston, Massachusetts 02108, and its telephone number at that address is (617)
557-9300.
5
<PAGE>
THE OFFERING
Common Stock offered by the 1,570,000 shares
Company.............................
Common Stock offered by the Selling 580,000 shares
Stockholder.........................
Common Stock to be outstanding after
the Offering........................ 5,770,000 shares (1)
Use of proceeds......................
For working capital and other general
corporate purposes, including repayment
of any outstanding indebtedness to PLMI
and a portion of amounts outstanding
under the Company's secured bank
warehouse credit facility. See "Use of
Proceeds."
Proposed Nasdaq National Market AFGC
symbol..............................
- --------
(1) Based on 4,200,000 shares of Common Stock outstanding as of June 30, 1998,
after giving effect to the 4,200-for-1 stock split effected on August 27,
1998, plus 1,570,000 shares of Common Stock to be sold by the Company in
the Offering. Excludes 865,500 shares of Common Stock reserved for issuance
under the Company's 1998 Management Stock Compensation Plan, 544,682 of
which will be subject to options to be issued upon completion of the
Offering, and 100,000 shares of Common Stock reserved for issuance under
the Company's Directors' 1998 Nonqualified Stock Option Plan, 50,000 of
which will be subject to options to be issued upon completion of the
Offering.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX
ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- --------------------
1996 1997 1997 1998
------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Finance lease......................... $ 1,763 $ 7,027 $ 3,245 $ 5,708
Operating lease ...................... 5,020 8,634 4,562 4,193
Financing income...................... 92 546 291 336
Management fees....................... 485 729 326 407
Revenue from sale of leases and
related assets....................... 2,188 3,737 1,605 1,776
------- -------- ------- --------
Total revenues....................... 9,548 20,673 10,029 12,420
Expenses:
Operations support.................... 3,509 3,947 1,921 2,021
Depreciation and amortization......... 4,292 6,622 3,569 3,633
General and administrative............ 1,178 1,263 632 596
------- -------- ------- --------
Total costs and expenses............. 8,979 11,832 6,122 6,250
------- -------- ------- --------
Operating income....................... 569 8,841 3,907 6,170
Interest expense....................... (2,019) (5,800) (2,804) (4,780)
Interest income........................ 176 324 151 232
Other expenses......................... (19) -- -- --
------- -------- ------- --------
Income (loss) before income taxes...... (1,293) 3,365 1,254 1,622
Provision for (benefit from) income
taxes................................. (457) 1,259 469 605
------- -------- ------- --------
Net income (loss)...................... $ (836) $ 2,106 $ 785 $ 1,017
======= ======== ======= ========
Basic and diluted earnings (loss) per
weighted-average share of Common Stock
outstanding (1)....................... $ (0.20) $ 0.50 $ 0.19 $ 0.24
======= ======== ======= ========
PRO FORMA DATA: (2)
Historical net loss.................... $ (836)
Pro forma adjustments to reflect net
income from subsidiary of Parent
earned on behalf of the Company...... 838
-------
Pro forma net income................. $ 2
=======
Pro forma basic and diluted earnings
per weighted-average share of Common
Stock outstanding (1)................ $ 0.00
=======
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in direct finance
leases................................ $52,964 $112,465 $158,785
Net investment in operating leases..... 31,134 23,745 20,458
Loans receivable....................... 5,718 5,861 22,634
Total assets........................... 99,321 151,466 214,312
Short term debt........................ 26,886 23,040 44,803
Advance from PLMI...................... -- 6,478 --
Nonrecourse debt....................... 45,392 81,302 123,491
Total liabilities...................... 81,448 131,487 186,127
Stockholder's equity................... 17,873 19,979 28,185
</TABLE>
- --------
(1) Earnings per share reflect the 4,200-for-1 stock split effected on August
27, 1998. Weighted average shares outstanding used in the basic and diluted
earnings per share calculation were 4,200,000 for the years ended December
31, 1996 and 1997 and for the six months ended June 30, 1997 and 1998.
(2) Pro forma data give effect to income earned on equipment purchased by
another subsidiary of PLMI. The Company arranged for the purchase of this
equipment, incurred all related origination costs and serviced the related
receivables. See Note 13 to the consolidated financial statements included
elsewhere in this Prospectus.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective purchasers in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby.
RESIDUAL REALIZATION RISKS
The Company retains a residual interest in the assets related to a majority
of its leases. Because of the Company's short operating history, only limited
performance data are available with respect to the Company's residual
realizations. The residual interest represents the projected fair market value
of the underlying equipment at the end of the lease term. For direct finance
leases, the present value of residual interests is reflected on the Company's
balance sheet as a component of investment in direct finance leases. For
operating leases, the equipment is recorded on the Company's balance sheet,
and the net book value of the equipment reflects the Company's underlying
investment. The Company's results of operations depend in part upon its
ability to realize these residual values. Realization of residual values
depends on several factors, most of which are outside the Company's control,
including (i) general market conditions at the time of expiration of the
lease, (ii) the cost of comparable new equipment, (iii) the extent, if any, to
which the equipment has become technologically or economically obsolete during
its contracted lease term, (iv) any unusual or excessive wear and tear on the
equipment not covered in the contracted return conditions and (v) the effects
of any additional or amended government regulations. The Company's recorded
residual values are based in part on historical lease renewals and lessee
purchases of equipment at the end of the lease term, which results are subject
to variation in the future. If upon the expiration of a lease the Company
sells the underlying equipment and the amount realized is less than the
recorded value of the residual interest in such equipment, the Company
recognizes a loss reflecting the difference. Any failure by the Company to
realize the aggregate value represented by residual interests subsequent to
the expiration of the relevant leases could have a material adverse effect on
the Company's business, financial condition and results of operation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Leasing and Financing Activity--Underwriting."
DEPENDENCE ON SECURITIZATION TRANSACTIONS
The Company has financed a significant portion of its lease and finance
receivables through the issuance of securities backed by such receivables in
securitized transactions. In a securitization, the Company transfers a pool of
leases and finance receivables to a wholly owned, special purpose subsidiary
of the Company. The special purpose subsidiary immediately transfers its
interest in the leases and finance receivables to a master trust that issues
beneficial interests in the leases in the form of senior securities sold in
private placements. Although the Company has not elected to do so to date, it
may cause the master trust to issue in the future additional securities
subordinated to these senior securities. The Company currently intends to
securitize substantially all of the lease and finance receivables that it
originates and acquires in the future, other than receivables sold by the
Company to institutional programs and unaffiliated third-parties.
The Company is dependent on securitizations for refinancing lease and
finance receivables outstanding under its revolving warehouse credit facility
(the "Warehouse Credit Facility"). Several factors affect the Company's
ability to complete a securitization, including (i) conditions in the
securities market generally, (ii) conditions in the asset-backed securities
market, (iii) the credit quality of underlying lease and finance receivables
in the Company's portfolio, (iv) compliance of its portfolio with the
eligibility criteria established in connection with the securitizations, (v)
the ability of the Company to adequately service its portfolio and (vi) the
absence of any material downgrading or withdrawal of ratings given to
securities previously issued in the Company's securitizations. Any impairment
of access to the securitization market for the Company's leases and finance
receivables or any adverse change in the terms of such securitizations could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
8
<PAGE>
DEPENDENCE ON EXTERNAL FINANCING
The Company initially finances substantially all of the lease and finance
receivables it originates or acquires through the Warehouse Credit Facility.
The Warehouse Credit Facility is available to fund equipment leases and
structured finance products that satisfy eligibility criteria for (i)
inclusion in the Company's securitizations, (ii) sale to institutional
programs or (iii) syndication to unaffiliated third parties. Borrowings under
the facility are repaid with proceeds generated by securitizations, sales to
institutional programs and syndication activity. Any adverse impact on the
Company's ability to complete securitizations or sales to institutional
programs or to operate the syndication business successfully could have a
material adverse effect on the Company's ability to obtain or maintain
warehouse credit facilities and the amounts available to the Company under
such facilities. The Company's servicing agreements with institutional
programs are subject to termination at any time, and the termination of such
agreements could have a material adverse effect on the Company's business,
financial condition and results of operation. Any failure by the Company to
comply with the terms of or renew the Warehouse Credit Facility, obtain
additional warehouse credit facilities or other financings with pricing,
advance rates and other terms and conditions consistent with its existing
facility or maintain its current institutional programs could have a material
adverse effect on the Company's business, financial condition and results of
operation. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Business--
Leasing and Financing Activity--Servicing and Administration."
NEED FOR ADDITIONAL CAPITAL
The Company initially finances substantially all of the lease and finance
receivables it originates or acquires through the Warehouse Credit Facility.
The failure of the Company to obtain an increase of the commitment under, or
to renew, the Warehouse Credit Facility or to obtain additional warehouse loan
facilities on terms acceptable to the Company could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, if the terms of the Company's warehouse facilities or
the structure of its securitizations are not appropriate in light of future
market conditions, the Company may require other sources of capital to fund
its operations. The Company also may require additional capital to finance the
exploration and development of related business opportunities in the future.
No assurance can be given that such additional capital will be available on
terms acceptable to the Company, if at all. The failure of the Company to
obtain additional capital when, as and if needed could have a material adverse
effect on the Company's business, financial condition and results of
operations.
INTEREST RATE RISKS
The Company's profitability is determined in large part by the difference
between the Company's cost of funds and the revenue generated by the Company
from its leasing and finance activities. Equipment leases underwritten by the
Company are generally non-cancellable obligations and require payments to be
made by the obligor for specified terms at fixed rates based on interest rates
prevailing in the market at the time the equipment lease is financed in the
Warehouse Credit Facility. Prior to selling or securitizing its leases, the
Company generally funds the leases under the Warehouse Credit Facility or from
working capital. In the event the Company is unable to sell or securitize its
leases with fixed rates within a reasonable period of time after acquisition
under the Warehouse Credit Facility, the Company's operating margins could be
adversely effected by increases in interest rates. Moreover, increases in
interest rates to the Company, which cause the Company to raise the implicit
rates charged to its customers in turn, could result in a reduction in demand
for the Company's lease financing. The Company currently is required to hedge
against the risk of interest rate increases for those leases designated for
its revolving securitization facility (the "Securitization Facility"), but the
Company generally does not enter into hedges for leases designated for sale to
institutional programs or for syndication. Such hedging activities may limit
the Company's ability to participate in the benefits of any decrease in
interest rates with respect to the hedged portfolio of leases. In addition,
there can be no assurance that the Company's hedging activities will
adequately insulate the Company from related risks in all interest rate
environments or that an interest rate swap market will continue to be
available to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
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<PAGE>
DEFAULT RISKS
The failure of the Company's lessees to comply with the terms of their
leases results in the inability of the related lease and finance receivables
to qualify to serve as collateral under the Warehouse Credit Facility and any
securitization program, and a significant volume of such failures would have a
material adverse effect on the Company's liquidity. Additionally,
delinquencies and defaults experienced in excess of levels estimated by
management in determining the Company's allowance for credit losses and in
valuing the Company's right to receive excess cash flows under its
securitization program could have a material adverse effect on the Company's
ability to obtain financing and effect securitization transactions which, in
turn, could have a material adverse effect on the Company's business,
financial condition and results of operations. As the Company seeks to expand
its presence in the middle market (consisting of companies whose revenues
range from $75 million to $1 billion annually), the risk of default on the
Company's lease and finance receivables will increase, and there can be no
assurance that the actual rate of such defaults experienced by the Company
will not increase. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
UNCERTAIN ABILITY TO SUSTAIN INCREASING VOLUMES OF RECEIVABLES
The Company's ability to sustain continued growth is dependent on its
capacity to attract, evaluate, finance and service increasing volumes of lease
and finance receivables of suitable yield and credit quality. Accomplishing
this on a cost-effective basis is largely a function of the Company's ability
to (i) market its products effectively, (ii) manage the credit evaluation
process in a manner that assures adequate portfolio quality, (iii) provide
competent, attentive and efficient lease servicing, (iv) maintain access to
institutional financing sources for its products with an acceptable cost of
funds and (v) obtain access to new sources of such institutional financing.
Any failure by the Company to market its products effectively, maintain its
portfolio quality, service its leases or obtain institutional financing at
reasonable rates would have a material adverse effect on the Company's
business financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," "Business--Lease Portfolio" and "Business--
Leasing and Financing Activity."
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES
The Company was incorporated and commenced business in 1995 and therefore
has a limited operating history upon which to evaluate its performance. The
Company incurred net losses of $0.8 million in each of 1995 and 1996. While
the Company was profitable in 1997, there can be no assurance that the
Company's operations will remain profitable on a consistent basis in future
years, if at all. The Company's profitability is dependent on its ability to
secure financing necessary to operate its business. While the Company has been
successful to date in securing such financing, there can be no assurance that
the Company's limited operating history will not adversely affect its ability
to secure such financing in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE UPON KEY PERSONNEL
The Company depends to a significant degree upon the experience, abilities,
leadership and continued efforts of members of its senior management,
including Donald R. Dugan, Jr., President and Chief Executive Officer, Gary M.
Abrams, Senior Vice President, Chief Financial Officer and Treasurer, Jeffrey
F. Zerrer, Senior Vice President, Marketing, Christopher J. Condon, Vice
President, Asset Management, and Carol A. Larkin, Vice President, Operations.
The Company has not entered into employment agreements with any of its
employees other than Mr. Abrams, nor does it maintain key man life insurance
on any of its employees. The loss of the services of one or more of the key
members of the Company's senior management could have a material adverse
effect on the Company's business, financial condition and results of
operations. The future success of the Company also depends upon its ability to
identify, attract and retain additional skilled management personnel necessary
to support anticipated future growth. See "Management."
10
<PAGE>
CONTROL OF THE COMPANY BY MAJORITY STOCKHOLDER; CONFLICTS OF INTEREST.
The Company is currently a wholly owned subsidiary of PLMI. Upon completion
of the Offering, approximately 62.7% (approximately 58.8% if the Underwriters'
over-allotment option is exercised in full) of the outstanding shares of
Common Stock will be owned by PLMI. In addition, PLMI's President and Chief
Executive Officer will serve as chairman of the Company's Board of Directors,
and PLMI's Chief Financial Officer will serve as a director of the Company.
This concentration of ownership effectively will give PLMI voting control over
all matters requiring approval of the Company's stockholders, including, among
other things, the election or removal of members of the Board of Directors of
the Company (through which PLMI will be able to control the direction and
future operations of the Company), decisions regarding the issuance of
additional shares of Common Stock and other securities and decisions regarding
the dissolution, merger or sale of all or substantially all of the assets of
the Company. Moreover, the Amended and Restated Certificate of Incorporation
of the Company (the "Charter") requires the affirmative vote of at least 80%
of the entire Board of Directors, or of the holders of at least a majority in
voting power of the shares of capital stock of the Company entitled to vote in
an election of directors, to adopt, amend, alter or repeal the bylaws of the
Company, effectively giving PLMI the ability (as long as it continues to be
the majority stockholder of the Company) to control changes to the Company's
bylaws. In the foregoing situations or otherwise, various conflicts of
interest between the Company and PLMI may arise, and there can be no assurance
that any such conflict of interest will be resolved in favor of the Company.
Conflicts of interest between the Company and PLMI may also arise in a number
of areas relating to their past, ongoing or future relationship, including the
nature, quality and pricing of services rendered by PLMI to the Company under
the Intercompany Relationship Agreement being entered into by the Company and
PLMI in connection with the Offering (the "Intercompany Agreement"), potential
competitive business activities, opportunities or prospects, sales or
distributions by PLMI of any portion of its ownership interest in the Company,
and PLMI's ability to control the management and affairs of the Company. There
can be no assurance that PLMI and the Company will be able to resolve any such
conflict or that, if resolved, the Company would not have received a more
favorable resolution if it were dealing with an unaffiliated third party.
Future transactions by the Company involving the issuance of Common Stock
could reduce PLMI's proportionate ownership of the Common Stock. As long as
PLMI continues to be the majority stockholder of the Company, however, third
parties will not be able to obtain control of the Company through purchases of
Common Stock on the open market. Notwithstanding a reduction in PLMI's
proportionate ownership of the Common Stock to less than 50%, the Intercompany
Agreement provides, among other things, that until members of the PLMI
Affiliated Group (as defined below) cease to control at least 35% of the
combined voting power of the outstanding Common Stock or no longer own at
least 35% of the outstanding Common Stock, the prior written consent of PLMI
will be required for: (i) any consolidation or merger of the Company or any of
its subsidiaries with any person (other than certain transactions involving
wholly owned subsidiaries); (ii) any sale, lease, exchange or other
disposition by the Company or any of its subsidiaries (other than transactions
to which the Company and its wholly owned subsidiaries are the only parties),
directly or indirectly, of all or substantially all of the assets of the
Company or any of its subsidiaries; (iii) any alteration, amendment or repeal
of the Charter or Bylaws (as defined below); (iv) any issuance by the Company
or any subsidiary of the Company of any equity securities or equity derivative
securities (except (a) up to 965,500 options to purchase shares of Common
Stock pursuant to employee and director stock option, profit sharing and other
benefit plans of the Company and its subsidiaries and the issuance of the
shares of Common Stock underlying such options, (b) the issuance of shares of
capital stock of a wholly owned subsidiary of the Company to the Company or
another wholly owned subsidiary of the Company and (c) in the Offering); (v)
the election or appointment of persons to, or the filling of a vacancy in, the
offices of president or chief executive officer of the Company; and (vi) the
dissolution, liquidation or winding up of the Company. In addition, the
Amended and Restated By-Laws of the Company (the "Bylaws") provide that as
long as the PLMI Affiliated Group maintains such 35% interest in the Common
Stock, the Board of Directors of the Company will nominate two persons
designated by PLMI for election to the Board of Directors at each annual
meeting and at any special meeting of stockholders called for the purpose of
electing directors. So long as PLMI owns a significant number of the
outstanding shares of Common Stock, PLMI will be able to exert influence over
many decisions affecting the Company. See "Certain Transactions," "Principal
and Selling Stockholders" and "Description of Capital Stock."
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<PAGE>
DEPENDENCE ON MAJORITY STOCKHOLDER
Following completion of the Offering, the Company will be dependent to a
significant degree on PLMI for certain essential administrative, legal and
other operational services to be provided to the Company under the
Intercompany Agreement for a period of three years at a base annual cost of
$500,000. Any failure by PLMI to provide such services in accordance with the
terms of the Intercompany Agreement could have a material adverse effect on
the Company's business, financial condition and results of operations. There
is a risk that PLMI will not fully perform its obligations under the
Intercompany Agreement and that the services to be provided by PLMI to the
Company thereunder will not be provided in a manner or on terms as favorable
to the Company as could be obtained from unaffiliated third parties. In
addition, PLMI currently is a guarantor of the Company's obligations under the
Warehouse Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" and "Certain Transactions."
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences significant fluctuations in quarterly operating
results on account of a number of factors, including, among others, variations
in the volume of leases funded by the Company, the number and size of
transactions originated for third parties generating gains on sales, ultimate
realization of residual values at lease termination, required write-downs of
residual interests, 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, the interest rate
on securities issued in connection with securitization transactions by the
Company, and general economic conditions. As a result of these fluctuations,
results for any one quarter should not be relied upon as being indicative of
performance in future quarters. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The business of equipment leasing and secured financing is highly
competitive. The Company competes for customers with a number of
international, national and regional finance and leasing companies and banks.
In addition, the Company's competitors include equipment manufacturers that
finance the sale or lease of their products themselves. Many of the Company's
competitors and potential competitors have greater financial, marketing and
operational resources than the Company. The Company's competitors, some of
which are larger and more established than the Company, may have a lower cost
of funds than the Company and access to capital markets and to other funding
sources that may not be available to the Company. See "Business--Competition."
RISKS INHERENT IN FOREIGN OPERATIONS AND INVESTMENTS
If the Company's intended exploration of markets outside of the United
States leads to expansion of its currently limited operations in such markets
(whether by acquisitions or direct sales of its equipment leases and
structured finance products in such markets), the Company will be exposed to
more substantial risks inherent in foreign operations and investments,
including loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks, and
risks of increases in taxes and governmental royalties and fees. In addition,
the Company will be exposed to risks of change in foreign and domestic laws
and policies that govern operations of foreign-based companies. In the event
of such an expansion of the Company's operations, the Company will not be able
to insure itself against all of such risks. The Company currently does not
have insurance with respect to such risks.
GENERAL ECONOMIC RISKS
The Company's business could be affected by general economic conditions in
the United States and abroad, and any sustained period of economic slowdown or
recession could have a material adverse effect on the Company's business,
financial condition and results of operations. The risks to which the
Company's business is subject may become more acute during an economic
slowdown or recession as the ability of lessees to make
12
<PAGE>
lease payments or honor guarantees may be impaired, resulting in increased
credit losses to the Company. In addition to reducing or eliminating spreads
and potentially requiring a write-down of the Company's lease and finance
receivables, increased credit losses may impair the Company's access to the
securitization and bank financing markets. Reduced levels of demand for
equipment in a slowdown or recession also may result in reduced lease
originations by the Company.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Charter and the Bylaws contain certain provisions that may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable, including provisions (i) authorizing the issuance of "blank check"
preferred stock, (ii) limiting the persons who may call special stockholders'
meetings, (iii) establishing advance notice requirements for nominations for
election to the Board of Directors or for proposing matters that can be acted
upon at stockholders' meetings and (iv) requiring the affirmative vote of at
least 80% of the entire Board of Directors, or of the holders of at least a
majority in voting power of the shares of capital stock of the Company
entitled to vote in an election of directors, to adopt, amend, alter or repeal
the Bylaws. The Intercompany Agreement contains provisions that among other
things, prevent the Company, without the prior written consent of PLMI, from
entering into certain types of transactions, including mergers and a sale of
substantially all of the assets of the Company, and from amending the Charter
or Bylaws so long as PLMI controls at least 35% of the combined voting power
of the outstanding Common Stock or 35% of the issued and outstanding shares of
Common Stock. In addition, certain provisions of Delaware law may have the
effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals. See "Certain Transactions" and
"Description of Capital Stock--Delaware Law and Certain Charter Provisions."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market after
the Offering could affect adversely the market price of the Common Stock. Upon
completion of the Offering, the Company will have 5,770,000 shares of Common
Stock outstanding. The shares of Common Stock offered hereby will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), except for shares sold by persons
deemed to be "affiliates" of the Company or acting as "underwriters," as those
terms are defined in the Securities Act. Upon completion of the Offering,
approximately 62.7% (approximately 58.8% if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock will be
owned by PLMI. Following the expiration of the lock-up period described below,
these shares of Common Stock will be freely tradeable subject to the
restrictions on resale imposed upon "affiliates" by Rule 144 under the
Securities Act. The Company, its officers and directors and the Selling
Stockholder have agreed not to offer, sell or grant any option for the sale
of, or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exercisable for, shares of Common Stock for a period of
180 days commencing on the date of this Prospectus without the prior written
consent of Legg Mason Wood Walker, Incorporated, other than the issuance of
options to purchase Common Stock or shares of Common Stock issuable upon the
exercise thereof in connection with the Company's stock option plans, provided
that such options will not vest and such shares will not be transferable prior
to the end of the 180-day period. Pursuant to the Intercompany Agreement, PLMI
and certain of its subsidiaries have certain registration rights with respect
to the shares of Common Stock held by them. See "Management--Stock Incentive
Plans," "Certain Transactions," "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriting."
RISK OF CHANGES IN ACCOUNTING PRINCIPLES OR TAX LAWS
While a sizeable portion of the Company's lease portfolio is accounted for
by the Company as direct finance leases, the leases are often classified as
operating leases by the lessees owing to independent judgments made about
economic useful lives and discount rates as well as third-party guarantees of
residual values obtained by the Company. Lessees generally consider operating
lease treatment to be favorable owing to the off-balance sheet accounting for
operating leases. For tax purposes, the majority of the Company's leases are
treated as true leases,
13
<PAGE>
which generate considerable depreciation allowances that provide the Company
with substantial tax benefits on an ongoing basis. In recent years, there have
been proposals and related activity to revise United States tax regulations
applicable to international leasing transactions and to conform accounting
principles relating to leasing transactions to an international standard. Any
changes to current tax laws or accounting principles that make operating lease
financing less attractive could adversely affect the Company's business,
financial condition and results of operations.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active market for the Common Stock will
develop upon completion of the Offering or, if developed, that such a market
will be sustained. The initial public offering price of the Common Stock will
be determined through negotiations among the Company, PLMI and the
representatives of the Underwriters and may bear no relationship to the market
price of the Common Stock after the Offering. For information relating to the
factors to be considered in determining the initial public offering price, see
"Underwriting." Prices for the Common Stock after the Offering may be
influenced by a number of factors, including the liquidity of the market for
the Common Stock, investor perceptions of the Company and the equipment
financing industry in general, and general economic and other conditions.
Sales of substantial amounts of Common Stock in the public market subsequent
to the Offering could adversely affect the market price of the Common Stock.
In addition, the trading price of the Common Stock could be subject to wide
fluctuations in response to variations in financial estimates by securities
analysts and other events or facts. See "Shares Eligible for Future Sale" and
"Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock offered hereby is
substantially higher than the book value per share of the outstanding Common
Stock. Accordingly, investors purchasing Common Stock in the Offering will
experience immediate and substantial dilution in net tangible book value per
share of $6.27 (assuming an initial public offering price of $14.00 per share
and after deducting estimated underwriting discounts and commissions payable
by the Company). See "Dilution."
ABSENCE OF DIVIDENDS
Following the Offering, the Company intends to retain earnings to finance
the growth and development of its business. Additionally, provisions in the
Warehouse Credit Facility contain certain restrictions on the Company's
ability to pay dividends on the Common Stock. Accordingly, the Company does
not anticipate paying cash dividends on the Common Stock in the foreseeable
future. See "Dividend Policy."
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or
achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the Company's dependence on securitization transactions, external
financing, key personnel and its majority stockholder; the Company's need for
additional capital; interest rate, residual realization and default risks;
uncertainty concerning the Company's ability to sustain increasing volumes of
receivables, its limited operating history and history of operating losses;
competition; the risk of changes in accounting principles or tax laws
affecting the Company; and other factors referred to in this Prospectus.
Certain of these factors are discussed in more detail elsewhere in this
Prospectus, including, without limitation, in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Given these uncertainties, prospective purchasers are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to announce publicly the result of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
THE COMPANY
The Company was incorporated on February 9, 1995 in Delaware as a wholly
owned subsidiary of PLMI. PLMI, incorporated in 1987, is a diversified
equipment leasing company operating and managing, directly and through various
subsidiaries, a portfolio of transportation, industrial and commercial
equipment and related assets with a combined original acquisition cost of
approximately $1.2 billion at December 31, 1997. With the exception of its
subsidiary AFG's activities in the industrial and commercial equipment sector,
PLMI's operations focus on the leasing and management of transportation
equipment, including aircraft and aircraft engines, marine vessels, railcars,
trailers and marine containers, which together accounted for approximately 87%
of its combined portfolio as of December 31, 1997.
In January 1995, PLMI entered into an agreement with an entity presently
named Equis Financial Group, a Massachusetts general partnership and manager
of publicly owned limited partnerships engaged in the equipment leasing
business ("Equis"). During 1995, the Company provided management services,
including certain accounting, investor and asset management services, for
certain of the Equis investor programs, for which the Company earned
management fees and other revenues. During the period the Company provided
such services to Equis, Equis's business consisted of approximately 55
employees, including Messrs. Dugan and Zerrer, managing 30 public limited
partnerships with approximately 50,000 limited partnership investors and
aggregate assets in excess of $700 million (based on original acquisition
cost).
In December 1995, the agreement with Equis was modified to terminate the
management of the Equis investor programs following a determination by PLMI
that the business of providing management services did not meet either the
profitability expectations or strategic growth objectives it held for the
Company. Under the modified agreement, the Company hired certain of Equis's
lease origination and servicing employees and acquired from Equis certain
customer lists, master lease agreements and the rights to originate and
service equipment leases sold to an institutional program. Additionally, the
modified agreement provided for the Company to purchase certain software,
computers and furniture from Equis. The Company began 1996 with an owned
portfolio on a net book value basis of $17.7 million in leases and associated
equipment and 19 employees. As of June 30, 1998, the owned portfolio of leases
and structured finance products was $201.9 million and the Company had 25
employees. Except for the delivery of certain tax information by the Company
to Equis, the Company has no ongoing affiliation with Equis.
15
<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
expenses of the Offering (all of which are payable by the Company), are
estimated to be approximately $19,541,000 at an assumed initial public
offering price of $14.00 per share (approximately $22,608,000 if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any of the proceeds from the sale of shares of Common Stock in the
Offering by the Selling Stockholder. See "Principal and Selling Stockholders."
The Company intends to use a portion of the net proceeds of the Offering to
repay any indebtedness owed to PLMI and the remainder of the net proceeds to
originate new leases and structured finance products. In the event any of the
net proceeds of the Offering are not immediately used by the Company to
purchase leases or structured finance products, the Company will use such
proceeds to repay a portion of its short term debt outstanding under the
Warehouse Credit Facility, which totaled $44.8 million at June 30, 1998.
Following the Offering, borrowings under the Warehouse Credit Facility will
bear interest, at the option of the Company, at a floating rate equal to 30-
day LIBOR plus 1.25% or at the prime rate. Pending such uses, the proceeds of
the Offering will be invested in short-term, investment grade interest-bearing
securities. The Company may require additional financing in the future to
finance continuing growth. No assurance can be given that such financing will
be available on terms favorable to the Company, if at all.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain all of its future earnings, if
any, to finance the growth and development of its business and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Additionally, provisions in the Warehouse Credit Facility contain
certain restrictions on the Company's ability to pay dividends on the Common
Stock. Any change in the Company's dividend policy in the future will be made
at the discretion of the Company's Board of Directors in light of the
financial condition, capital requirements, earnings and prospects of the
Company and other factors that the Board of Directors may deem relevant at
such time. See "Risk Factors--Control of the Company by Majority Stockholder;
Conflicts of Interest, --Absence of Dividends" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth the debt and equity capitalization of the
Company as of June 30, 1998 and as adjusted on a pro forma basis to give
effect to the sale of 1,570,000 shares of Common Stock, at an assumed initial
public offering price of $14.00 per share, by the Company in the Offering and
the application of the net proceeds of such sale (in thousands of dollars,
except per share data):
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
<S> <C> <C>
Warehouse Credit Facility................................. $ 44,803 $ 25,262
Nonrecourse debt.......................................... 123,491 123,491
-------- --------
Total debt (1)........................................ 168,294 148,753
-------- --------
Stockholders' equity:
Common stock ($0.01 par value; 4,200,000 shares
authorized, issued and outstanding, actual; 30,000,000
shares authorized, 5,770,000 issued and outstanding as
of June 30, 1998, as adjusted) (2)..................... 42 58
Retained earnings....................................... 1,493 1,493
Paid-in capital, in excess of par....................... 26,650 46,175
-------- --------
Total stockholders' equity............................ 28,185 47,726
-------- --------
Total capitalization...................................... $196,479 $196,479
======== ========
</TABLE>
- --------
(1) For information concerning the Company's debt, see Notes 6 and 7 to the
consolidated financial statements included elsewhere in this Prospectus.
(2) Based on 4,200,000 shares of Common Stock outstanding as of June 30, 1998,
after giving effect to the 4,200-for-1 stock split effected on August 27,
1998, plus 1,570,000 shares of Common Stock to be sold by the Company in
the Offering. Excludes 865,500 shares of Common Stock reserved for
issuance under the Company's 1998 Management Stock Compensation Plan,
544,682 of which will be subject to options to be issued upon completion
of the Offering, and 100,000 shares of Common Stock reserved for issuance
under the Company's Directors' 1998 Nonqualified Stock Option Plan, 50,000
of which will be subject to options to be issued upon completion of the
Offering. See "Management--Stock Incentive Plans."
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<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1998 was
approximately $25.1 million or $5.97 per share of Common Stock outstanding at
such time. Net tangible book value per share represents the amount of the
Company's stockholders' equity, less intangible assets, divided by the total
number of shares of Common Stock outstanding at such time, as adjusted to give
effect to the 4,200-for-1 stock split effected on August 27, 1998.
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock offered
hereby immediately after completion of the Offering. After giving effect to
the sale of the Common Stock at an estimated initial public offering price of
$14.00 per share (the mid-point of the price range set forth on the cover page
of this Prospectus) and after deduction of the underwriting discounts and
commissions and estimated expenses of the Offering, the adjusted pro forma net
tangible book value, as of June 30, 1998, would have been approximately $44.6
million or $7.73 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.76 per share to existing
stockholders and an immediate dilution of $6.27 per share to new investors
purchasing the Common Stock. The following table illustrates the pro forma per
share dilution, as of June 30, 1998:
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share............. $14.00
Pro forma net tangible book value per share at June 30, 1998.. $5.97
Increase per share in pro forma net tangible book value
attributable to new investors................................ 1.76
-----
Pro forma net tangible book value per share after the
Offering..................................................... 7.73
------
Dilution per share to new investors........................... $ 6.27
======
</TABLE>
The following table sets forth, after giving effect to the Offering, the
number of shares of Common Stock purchased from the Company, the total
consideration paid therefor and the average price per share paid by the
existing stockholder and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder............ 4,200,000 72.8% $26,692,000 54.8% $ 6.36
New investors................... 1,570,000 27.2 21,980,000 45.2 14.00
--------- ----- ----------- -----
Total......................... 5,770,000 100.0% $48,672,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table does not give effect to the sale of Common Stock in the
Offering by the Selling Stockholder. The sale of shares of Common Stock by the
Selling Stockholder in the Offering will reduce the number of such shares held
by the existing stockholder to 3,620,000, or approximately 62.7% of the total
number of shares of Common Stock outstanding upon completion of the Offering,
and will increase the number of such shares held by new investors to
2,150,000, or 37.3% of the total number of shares of Common Stock outstanding
upon completion of the Offering. See "Principal and Selling Stockholders."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
FOR THE PERIOD FROM FEBRUARY 9, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995,
THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND THE SIX MONTHS ENDED JUNE 30,
1997 AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The statement
of operations data for the period from February 9, 1995 (inception) through
December 31, 1995, for the years ended December 31, 1996 and 1997, and the
balance sheet data as of December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company which have been audited by
KPMG Peat Marwick LLP, independent auditors, and are included elsewhere in
this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." (1)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX
FOR THE PERIOD ENDED MONTHS ENDED
FROM FEBRUARY 9, 1995 DECEMBER 31, JUNE 30,
(INCEPTION) THROUGH ---------------- ----------------
DECEMBER 31, 1995 1996 1997 1997 1998
--------------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Finance lease.......... $ -- $ 1,763 $ 7,027 $ 3,245 $ 5,708
Operating lease ....... 2,293 5,020 8,634 4,562 4,193
Financing income....... -- 92 546 291 336
Management fees........ 145 485 729 326 407
Revenue from sale of
leases and related
assets................ 1,252 2,188 3,737 1,605 1,776
------- ------- ------- ------- -------
Revenues from ongoing
business activities... 3,690 9,548 20,673 10,029 12,420
Revenues from the
management of Equis
investor programs...... 1,635 -- -- -- --
------- ------- ------- ------- -------
Total revenues......... 5,325 9,548 20,673 10,029 12,420
Expenses:
Operations support..... 5,686 3,509 3,947 1,921 2,021
Depreciation and
amortization.......... 8 4,292 6,622 3,569 3,633
General and
administrative........ 867 1,178 1,263 632 596
------- ------- ------- ------- -------
Total costs and
expenses.............. 6,561 8,979 11,832 6,122 6,250
------- ------- ------- ------- -------
Operating income........ (1,236) 569 8,841 3,907 6,170
Interest expense........ -- (2,019) (5,800) (2,804) (4,780)
Interest income......... -- 176 324 151 232
Other expenses.......... -- (19) -- -- --
------- ------- ------- ------- -------
Income (loss) before
income taxes........... (1,236) (1,293) 3,365 1,254 1,622
Provision for (benefit
from) income taxes..... (442) (457) 1,259 469 605
------- ------- ------- ------- -------
Net income (loss)....... $ (794) $ (836) $ 2,106 $ 785 $ 1,017
======= ======= ======= ======= =======
Basic and diluted
earnings (loss) per
weighted-average share
of Common Stock
outstanding (2)........ $ (0.19) $ (0.20) $ 0.50 $ 0.19 $ 0.24
======= ======= ======= ======= =======
PRO FORMA DATA: (3)
Historical net loss..... $ (836)
Pro forma adjustments
to reflect net income
from subsidiary of
Parent earned on
behalf of the
Company............... 838
-------
Pro forma net income.. $ 2
=======
Pro forma basic and
diluted earnings per
weighted-average share
of Common Stock
outstanding (2)....... $ 0.00
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997 1998
------ ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net investment in direct finance leases.... $ -- $52,964 $112,465 $158,785
Net investment in operating leases......... -- 31,134 23,745 20,458
Loans receivable........................... -- 5,718 5,861 22,634
Total assets............................... 2,644 99,321 151,466 214,312
Short term debt............................ -- 26,886 23,040 44,803
Advance from PLMI.......................... -- -- 6,478 --
Nonrecourse debt........................... -- 45,392 81,302 123,491
Total liabilities.......................... 810 81,448 131,487 186,127
Stockholder's equity....................... 1,834 17,873 19,979 28,185
</TABLE>
- -------
(1) The consolidated financial data as of and for the six months ended June
30, 1997 and 1998 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 fair presentation of the financial position and
results of operations for these periods.
(2) Earnings per share reflect the 4,200-for-1 stock split effected on August
27, 1998. Weighted average shares outstanding used in the earnings per
share calculation were 4,200,000 for the years ended December 31, 1997 and
1998 and for the six months ended June 30, 1998.
(3) Pro forma data give effect to income earned on equipment purchased by
another subsidiary of PLMI. The Company arranged for the purchase of this
equipment, incurred all related origination costs and serviced the related
receivables. See Note 13 to the consolidated financial statements included
elsewhere in this Prospectus.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The primary activity of the Company is the funding and servicing of long-
term direct finance leases, operating leases and secured loans. Master lease
agreements are entered into with predominantly investment-grade lessees and
serve as the basis for marketing efforts. The underlying assets represent a
broad range of commercial and industrial equipment, such as manufacturing and
materials handling equipment, computer and telecommunications equipment, point
of sale equipment, construction and mining equipment, over-the-road trucks and
office equipment. The Company derives an operating profit from the positive
difference between the yield received on leases and secured loans owned by the
Company and the associated cost of funds. The Company also originates and
services leases for institutional leasing investment programs ("institutional
programs") for which it receives acquisition and management fees. In addition,
the Company earns syndication fees for arranging purchases and sales of
equipment between other unaffiliated third parties.
The Company earns finance lease income for leases that meet the criteria for
direct finance leases, as defined by Statement of Financial Accounting
Standards ("SFAS") No. 13, "Accounting for Leases" ("SFAS No. 13"). A lease is
a direct finance lease if the collectibility of lease payments is reasonably
certain and one of the following criteria is met: (i) the lease transfers
ownership of the equipment to the lessee by the end of the lease term, (ii)
the lease contains a bargain purchase option, (iii) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment or (iv) the present value of the minimum lease payments, including
third party guaranteed residual values, is at least 90% of the fair value of
the leased equipment at the inception of the lease. For direct finance leases,
the underlying equipment is not recorded on the Company's balance sheet, but
an investment in direct finance lease is recorded that equals the present
value of the minimum lease payments and the estimated residual value. The
Company amortizes the lease payments over the life of the relevant direct
finance lease to the estimated residual value. The Company earns operating
lease income for leases that do not meet the criteria of direct finance
leases, as defined by SFAS No. 13. For operating leases, the underlying
equipment is recorded on the Company's balance sheet at cost and depreciated
to an estimated residual value over the lease term, which usually ranges from
one to seven years. The Company reviews the carrying values of its residual
interests at least annually in relation to expected future market values for
the equipment in which it holds residual interests for the purpose of
assessing recoverability of recorded amounts.
The Company earns financing income on loans to customers and retains a
security interest in the equipment purchased with the loan proceeds and the
related leases.
On January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides guidelines for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The Company's transfers of direct finance leases
and loans to the Securitization Facility are accounted for as financings under
SFAS No. 125.
The transfer to the Securitization Facility of equipment subject to
operating leases, in which the Company retains substantial risk of ownership,
are accounted for as financings under SFAS No. 13. The transfer of equipment
subject to operating leases to institutional programs and third parties, where
the Company retains no risk of ownership, are treated as sales with gain or
loss on sale recognized in the period title passes.
During 1996 and 1997, the Company originated transactions with an original
cost to the Company of $192.0 million and $155.8 million, respectively. During
1996 and 1997, the Company sold equipment subject to lease with an original
cost of $40.7 million and $58.3 million, respectively. As of December 31, 1996
and 1997, the Company's portfolio (based on original equipment cost) totaled
$92.0 million and $161.9 million, respectively. As of December 31, 1996 and
1997, the Company's owned or serviced portfolio (based on original equipment
cost) totaled $195.2 million and $297.6 million, respectively.
20
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND 1998
Revenues
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------------
1997 1998
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finance lease..................................... $ 3,245 $ 5,708
Operating lease................................... 4,562 4,193
Financing income.................................. 291 336
Management fees................................... 326 407
Revenue from sale of leases and related assets.... 1,605 1,776
------------ ------------
Total revenues................................... $ 10,029 $ 12,420
============ ============
</TABLE>
Finance lease. Finance lease income increased $2.5 million (76%) during the
six months ended June 30, 1998, compared to the same period of 1997, due to an
increase in commercial and industrial assets that were on finance lease.
During the six months ended June 30, 1997, the average investment in direct
finance leases was $59.6 million, compared to $130.1 million in the same
period of 1998.
Operating lease. Operating lease income decreased $0.4 million (8%) as a
result of a decrease in average commercial and industrial equipment owned and
on operating lease during the six months ended June 30, 1998, compared to the
same period in 1997.
Financing income. Financing income increased $45,000 (15%) during the six
months ended June 30, 1998, compared to the same period of 1997, as a result
of an increase in average loans outstanding to customers. During the six
months ended June 30, 1997, the average loans outstanding to customers were
$5.8 million, compared to $9.3 million in the same period of 1998.
Management fees. Management fees increased $0.1 million (25%) during the six
months ended June 30, 1998, compared to the same period of 1997, as a result
of an increase in the aggregate equipment portfolio serviced on behalf of the
institutional programs and due to the timing of receipts from the
institutional programs. The average cost of equipment managed on behalf of
institutional programs for the six months ended June 30, 1997 and 1998 was
$106.1 million and $142.3 million, respectively.
Revenue from the sale of leases and related assets. Revenue from the sale of
leases and related assets includes gains from the sale of commercial and
industrial equipment, syndication fees and acquisition fees. During the six
months ended June 30, 1997, the Company earned $1.4 million from the sale of
commercial and industrial equipment, which included $0.4 million of gains from
sales to the institutional programs and $1.0 million of gains from sales to
other unaffiliated third parties. During the six months ended June 30, 1998,
the Company earned $1.1 million from the sale of commercial and industrial
equipment, which included $0.6 million of gains from sales to the
institutional programs and $0.5 million of gains from sales to other
unaffiliated third parties. These sales typically occurred within six months
of the original purchase of the equipment.
From time to time, the Company earns syndication fees for arranging
purchases and sales of equipment subject to lease between unaffiliated third
parties. There were no material syndication fees earned for the six months
ended June 30, 1997. Syndication fees were $0.3 million for the six months
ended June 30, 1998. During the six months ended June 30, 1998, the Company
syndicated transactions for commercial and industrial equipment with an
original cost of $25.1 million.
Acquisition fees related to equipment subject to lease purchased by the
Company for the institutional programs were $0.2 million and $0.4 million for
the six months ended June 30, 1997 and 1998, respectively. For the six months
ended June 30, 1997 and 1998, the Company placed equipment with a cost of $7.6
million and $14.1 million, respectively, into these programs.
21
<PAGE>
Costs and Expenses
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1998
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Operations support................................ $ 1,921 $ 2,021
Depreciation and amortization..................... 3,569 3,633
General and administrative........................ 632 596
------------ ------------
Total costs and expenses......................... $ 6,122 $ 6,250
============ ============
</TABLE>
Operations support. Operations support expense (including salary and office-
related expenses for lease origination and servicing activities and provision
for doubtful accounts) increased $0.1 million (5%) for the six months ended
June 30, 1998, compared to the same period of 1997. The increase resulted
mainly from an increase in compensation and benefits expenses relating to the
expansion of overall leasing activities. Operations support expense increased
5% for the six months ended June 30, 1998, compared to the same period of
1997, while the original cost of the equipment portfolio increased 132%.
Other Income and (Expenses)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
----------------
1997 1998
------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Interest expense........................................... $(2,804) $(4,780)
Interest income............................................ 151 232
</TABLE>
Interest expense. Interest expense increased $2.0 million (70%) for the six
months ended June 30, 1998, compared to the same period of 1997, due to an
increase in average borrowings to fund the Company's equipment portfolio
growth. Average balances outstanding on the Securitization Facility during the
six months ended June 30, 1997 and 1998 were $48.6 million and $82.8 million,
respectively. Average balances outstanding on the Warehouse Credit Facility
during the six months ended June 30, 1997 and 1998 were $23.7 million and
$28.5 million, respectively. The average balance outstanding on the advance
from PLMI was $1.6 million during the six months ended June 30, 1997. There
were no nonrecourse notes payable during the six months ended June 30, 1997.
The average balance outstanding on the advance from PLMI and the nonrecourse
notes payable were $1.4 million and $14.5 million, respectively, during the
six months ended June 30, 1998.
Interest income. Interest income increased $0.1 million (54%) for the six
months ended June 30, 1998, compared to the same period of 1997, due to an
increase in average restricted cash balances.
Provision for Income Taxes
For the six months ended June 30, 1997, the provision for income taxes was
$0.5 million resulting from $1.3 million in pretax income, representing an
effective rate of 37%. For the six months ended June 30, 1998, the provision
for income taxes was $0.6 million resulting from $1.6 million in pretax
income, representing an effective rate of 37%.
Net Income
As a result of the foregoing, the six months ended June 30, 1997 net income
was $0.8 million. For the same period of 1998, net income was $1.0 million.
22
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE PERIOD FROM FEBRUARY 9,
1995 ("INCEPTION") THROUGH DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31,
1996
In January 1995, PLMI entered into an agreement to obtain certain assets and
manage certain operations of an entity presently named Equis Financial Group,
a Massachusetts general partnership ("Equis"). During 1995, the Company
provided management services under the agreement for certain of the Equis
investor programs, for which the Company earned management fees and other
revenues. In December 1995, the agreement was modified to terminate the
management of the Equis investor programs. Under the modified agreement, the
Company hired certain Equis lease origination and servicing employees and
acquired from Equis certain customer lists, master lease agreements and the
rights to originate and service equipment leases sold to an institutional
program. The Company paid $3.2 million in the transaction, $0.5 million of
which was allocated to software, computers and furniture, $0.8 million of
which was allocated to certain intangible assets based on estimated fair
value, and the balance of $1.9 million was recorded as goodwill.
Revenues
<TABLE>
<CAPTION>
1995 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finance lease................................. $ -- $ 1,763
Operating lease............................... 2,293 5,020
Financing income.............................. -- 92
Management fees............................... 145 485
Revenue from sale of leases and related
assets....................................... 1,252 2,188
------------ ------------
Revenues from ongoing business activities..... 3,690 9,548
Revenues from the management of Equis investor
programs..................................... 1,635 --
------------ ------------
Total revenues............................... $ 5,325 $ 9,548
============ ============
</TABLE>
Finance lease, operating lease and financing income. Increases in finance
lease, operating lease and financing income for the period from inception
through December 31, 1995, as compared to the year ended December 31, 1996,
resulted from the overall expansion of leasing activities during 1996.
Management fees. During the period from inception through December 31, 1995
and the year ended December 31, 1996, the Company earned management fees
related to institutional programs. Management fees were $0.1 million during
the period from inception through December 31, 1995 and $0.5 million for 1996
(a 234% increase) as a result of an increase in the average equipment
portfolio serviced on behalf of an institutional program. The average cost of
equipment managed on behalf of institutional programs in the period from
inception through December 31, 1995 and in the year ended December 31, 1996
was $45.2 million and $86.7 million, respectively.
Revenue from sale of leases and related assets. During 1996, the Company
earned $1.0 million from the sale of commercial and industrial equipment,
which included $0.5 million of gains from sales to institutional programs and
$0.5 million of gains from sales to other unaffiliated third parties. There
were no gains from the sale of commercial and industrial equipment in 1995.
During the period from inception through December 31, 1995 and the year
ended December 31, 1996, the Company earned syndication fees for arranging
purchases and sales of equipment subject to lease between unaffiliated third
parties. Syndication fees were $0.1 million and $0.4 million in the period
from inception through December 31, 1995 and in the year ended December 31,
1996, respectively, due to an increase in lease syndication transactions in
1996, compared to the period from inception through December 31, 1995.
During the period from inception through December 31, 1995 and the year
ended December 31, 1996, the Company earned acquisition fees related to
institutional programs. Acquisition fees were $1.1 million from the
23
<PAGE>
period from inception through December 31, 1995, compared to $0.8 million for
the year ended December 31, 1996 (a 27% decrease) as a result of a decrease in
equipment purchased and leased on behalf of institutional programs in 1996.
Revenues from the management of Equis investor programs. Management fees and
other revenues related to the management services provided by the Company for
the Equis investor programs in 1995 are shown as revenues from the management
of Equis investor programs from the period from inception through December 31,
1995 in the statement of operations. As a result of the modification of the
purchase agreement with Equis in December 1995, the Company no longer performs
these services.
Costs and Expenses
<TABLE>
<CAPTION>
1995 1996
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Operations support................................ $ 5,686 $ 3,509
Depreciation and amortization..................... 8 4,292
General and administrative........................ 867 1,178
------------ ------------
Total costs and expenses......................... $ 6,561 $ 8,979
============ ============
</TABLE>
Operations support. Operations support expense (including salary and office-
related expenses for lease origination and servicing activities and provision
for doubtful accounts) decreased $2.2 million (38%) in the year ended December
31, 1996, compared to the period from inception through December 31, 1995, as
a result of the modifications to the management agreement in December 1995
pursuant to which the Company no longer provides management services to the
Equis investor programs. This resulted in reduced staffing related to lease
servicing activities.
Depreciation and amortization. Depreciation and amortization expense
increased $4.3 million for the year ended December 31, 1996, compared to the
period from inception through December 31, 1995. The increase was due to an
increase in average commercial and industrial equipment owned and on operating
lease.
General and administrative. General and administrative expense (including
the cost of legal, accounting, data processing, human resources and risk
management services) increased $0.3 million (36%) for the year ended December
31, 1996, compared to the period from inception through December 31, 1995, as
a result of management information services and human resources expenses
allocated to the Company and increased services provided by PLMI and allocated
to the Company due to the expansion of overall leasing activities in the year
ended December 31, 1996. No management information or human resources expenses
were allocated to the Company by PLMI from inception through December 31, 1995
as no such services were provided by PLMI to the Company during that period.
These costs were allocated to the Company based on time spent on these
activities by personnel of PLMI.
Other Income and (Expenses)
<TABLE>
<CAPTION>
1995 1996
-------------------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense.................................. $ -- $ (2,019)
Interest income................................... -- 176
Other expense..................................... -- (19)
</TABLE>
All increases in other income and expenses for the year ended December 31,
1996, as compared to the period from inception through December 31, 1995,
resulted from the overall expansion of leasing activities during 1996.
The average balance outstanding on the Warehouse Credit Facility during 1996
was $30.9 million. The average balance outstanding on the Securitization
Facility during 1996 was $15.6 million.
24
<PAGE>
Benefit from Income Taxes
For the period from inception through December 31, 1995, the Company
recognized a benefit for income taxes of $0.4 million as a result of the $1.2
million pretax loss, resulting in an effective benefit rate of 36%. For the
year ended December 31, 1996, the benefit for income taxes was $0.5 million as
a result of the $1.3 million pretax loss, representing an effective rate of
35%.
Net Loss
As a result of the foregoing, for the period from inception through December
31, 1995 and for the year ended December 31, 1996, the net loss was $0.8
million.
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1997
Revenues
<TABLE>
<CAPTION>
1996 1997
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Finance lease.................................... $ 1,763 $ 7,027
Operating lease.................................. 5,020 8,634
Financing income................................. 92 546
Management fees.................................. 485 729
Revenue from sale of leases and related assets... 2,188 3,737
------------ -------------
Total revenues.................................. $ 9,548 $ 20,673
============ =============
</TABLE>
Finance lease. Finance lease income increased $5.3 million (299%) during
1997, compared to 1996, due to an increase in commercial and industrial assets
that were on finance lease. During 1996, the average investment in direct
finance leases was $20.6 million, compared to $74.5 million in 1997.
Operating lease. Operating lease income increased $3.6 million (72%) as a
result of an increase in commercial and industrial equipment owned and on
operating lease. During 1996, the average cost of equipment on operating lease
was $12.9 million, compared to $24.0 million in 1997.
Financing income. Financing income increased $0.5 million (493%) during 1997
as a result of increased average loans to customers. During 1996 and 1997, the
average loans outstanding were $1.1 million and $5.5 million, respectively.
Management fees. Management fees increased $0.2 million (50%) during 1997,
compared to 1996, as a result of an increase in the aggregate equipment
portfolio serviced on behalf of institutional programs. The average cost of
equipment managed on behalf of institutional programs in 1996 and 1997 was
$86.7 million and $112.4 million, respectively.
Revenue from sale of leases and related assets. During 1996, the Company
earned $1.0 million from the sale of commercial and industrial equipment,
which included $0.5 million of gains from sales to institutional programs and
$0.5 million of gains from sales to other unaffiliated third parties. During
1997, the Company earned $2.4 million from the sale of commercial and
industrial equipment, which included $0.8 million of gains from sales to
institutional programs and $1.6 million of gains from sales to other
unaffiliated third parties. These sales typically occurred within six months
of the original purchase of the equipment.
The Company earns syndication fees for arranging purchases and sales of
equipment subject to lease between unaffiliated third parties. Syndication
fees were $0.4 million and $0.5 million in 1996 and 1997, respectively, due to
an increase in lease syndication transactions in 1997, compared to 1996.
During 1996, the Company syndicated commercial and industrial equipment with
an original cost of $49.2 million. During 1997, the Company syndicated
transactions for commercial and industrial equipment with an original cost of
$32.0 million.
25
<PAGE>
Acquisition fees related to equipment subject to lease purchased by the
Company for institutional programs were $0.8 million for both 1996 and 1997.
In 1996 and 1997, the Company placed equipment, with a cost of $23.0 million
and $29.6 million, respectively, into these programs.
Costs and Expenses
<TABLE>
<CAPTION>
1996 1997
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Operations support............................... $ 3,509 $ 3,947
Depreciation and amortization.................... 4,292 6,622
General and administrative....................... 1,178 1,263
------------ -------------
Total costs and expenses........................ $ 8,979 $ 11,832
============ =============
</TABLE>
Operations support. Operations support expense (including salary and office-
related expenses for lease origination and servicing activities and provision
for doubtful accounts) increased $0.4 million (12%) for 1997, compared to
1996. The increase resulted mainly from an increase in compensation and
benefits expenses and other costs associated with the expansion of overall
leasing activities. Operations support expense increased 12% for 1997,
compared to 1996, while the original cost of the equipment portfolio increased
76%.
Depreciation and amortization. Depreciation and amortization expense
increased $2.3 million (54%) for 1997, compared to 1996. The increase was due
to an increase in average commercial and industrial equipment owned and on
operating lease.
General and administrative. General and administrative expense (including
the cost of legal, accounting, data processing, human resources and risk
management services) increased $0.1 million (7%) for 1997, compared to 1996,
as a result of increased services provided by PLMI and allocated to the
Company, due to the expansion of overall leasing activities. These costs were
allocated to the Company based on time spent on these activities by personnel
of PLMI.
Other Income and (Expenses)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Interest expense................................. $ (2,019) $ (5,800)
Interest income.................................. 176 324
Other expense.................................... (19) --
</TABLE>
Interest expense. Interest expense increased $3.8 million (187%) for 1997,
compared to 1996, due to an increase in average borrowings under the Warehouse
Credit Facility and Securitization Facility to fund the Company's equipment
portfolio growth. Average balances on the Warehouse Credit Facility during
1996 and 1997 were $30.9 million and $13.8 million, respectively. Average
balances outstanding on the Securitization Facility during 1996 and 1997 were
$15.6 million and $57.4 million, respectively.
Interest income. Interest income increased $0.1 million (84%) for 1997,
compared to 1996, as a result of higher average restricted cash balances in
1997, compared to 1996.
Provision for (Benefit from) Income Taxes
For 1996, the Company recognized a benefit for income taxes of $0.5 million
as a result of the $1.3 million pretax loss, resulting in an effective benefit
rate of 35%. For 1997, the provision for income taxes was $1.3 million as a
result of the $3.4 million pretax income, representing an effective rate of
37%.
26
<PAGE>
Net Income (Loss)
As a result of the foregoing, the 1996 net loss was $0.8 million. For 1997,
net income was $2.1 million.
Pro Forma Data
Prior to the Company becoming a borrower on the Warehouse Credit Facility in
September 1996, the Company arranged for the purchase of commercial and
industrial equipment by TEC AquiSub, Inc., another subsidiary of PLMI ("TEC
AcquiSub"). All costs related to arranging these transactions are included in
the Company's 1996 results, but, the revenues earned from those transactions
are not included in the Company's results. As of September 1, 1996, all
equipment owned by TEC AcquiSub was sold to the Company at its net book value,
which approximated its fair market value. Incorporating the income and
expenses incurred by TEC AcquiSub related to these transactions would add $0.8
million of income for the period, producing pro forma net income of $2,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through borrowings,
capital contributions from PLMI, cash flow from operations and the sale of
equipment. In the past, the Company has funded the equity portion of equipment
purchases through investments in the Company by PLMI. The Company believes
that the net proceeds to the Company from the sale of the shares of Common
Stock in the Offering will be adequate to fund the equity portion of equipment
purchases for the forseeable future.
Liquidity for the remainder of 1998 and beyond will depend, in part, on the
volume of commercial and industrial equipment leasing transactions for which
the Company earns fees and an interest rate spread, the servicing of existing
leases sold to institutional programs, and the purchase and sale of equipment.
Management believes that it will have sufficient liquidity and capital
resources for the foreseeable future. Future liquidity is influenced by the
factors summarized below.
Debt Financing
Warehouse Credit Facility. In May 1996, the Company entered as a co-borrower
into the Warehouse Credit Facility, a $35.0 million warehouse agreement, with
First Union National Bank of North Carolina ("First Union") and certain other
lenders. The other borrowers were another subsidiary of PLMI and several
investment programs managed by an affiliate of PLMI. In December 1997, the
Warehouse Credit Facility was amended and increased to provide $50.0 million
and certain terms and conditions of the facility were revised to accommodate
borrowing requirements specific to the Company's leases and collateral. This
facility was amended on June 1, 1998 to temporarily increase the Company's
borrowing capacity on the facility from $50.0 million to $55.0 million until
September 1, 1998. On June 8, 1998, this facility was amended again to
temporarily increase the Company's borrowing capacity on the facility from
$55.0 million to $60.0 million until July 8, 1998. The Warehouse Credit
Facility provides a source of interim financing prior to transfer of leases
and associated equipment into the Securitization Facility or sale to
institutional programs or unaffiliated third parties. The Warehouse Credit
Facility also provides for advances against the lease payment stream (up to
90% of the original equipment cost) and a portion of the insured residual
value. As of June 30, 1998, the Company had $44.8 million outstanding under
the Warehouse Credit Facility, bearing interest at a floating rate equal to
30-day LIBOR plus 1.625% or the prime rate of interest. The Warehouse Credit
Facility is with recourse to the Company and contains a tangible net-worth
financial covenant by the Company with which the Company has remained in
compliance. The Warehouse Credit Facility currently expires on November 2,
1998, and all borrowings under the facility are guaranteed by PLMI. The
Warehouse Credit Facility is being revised to provide at least $35.0 million
for the Company without guarantees, support from PLMI or access to the
facility by other PLMI affiliates. The revised facility will bear interest at
a floating rate equal to 30-day LIBOR plus 1.25% or the prime rate of interest
and will include additional financial covenants. Had such additional covenants
been in place at June 30, 1998, the Company would have been in compliance with
such covenants. First Union, as agent, has approved the terms and conditions
of the revised facility, including its provision for a term of one year. The
Company believes that the one-year term of the revised facility will be
renewed.
27
<PAGE>
Borrowings secured by investment-grade lessees can be held under the
Warehouse Credit Facility until the facility's expiration. Borrowings secured
by noninvestment-grade lessees may be outstanding for 120 days. As of August
31, 1998, the Company had $38.4 million in borrowings outstanding under the
Warehouse Credit Facility and there were $4.1 million in additional borrowings
on this facility by other co-borrowers.
Securitization Facility. In July 1995, AFG Credit Corporation, a wholly
owned, bankruptcy-remote special purpose subsidiary of the Company ("AFG
Credit"), entered into the Securitization Facility, an $80.0 million
securitized master trust facility with First Union. Pursuant to the
Securitization Facility, the Company, on an on-going basis, transfers and
sells leases and associated equipment to AFG Credit, which finances the
receivables due under the leases through a master trust. The transfer and sale
of leases and associated equipment to AFG Credit are treated as a financing,
and the Company recognizes direct finance and operating lease income over the
life of the lease. In October 1997, the Securitization Facility was increased
to $125.0 million. As of June 30, 1998, $105.9 million was outstanding under
the Securitization Facility, bearing interest at the commercial paper index
plus the cost of the Company's hedging contracts. The Securitization Facility
requires that not less than 90% of the receivables in the facility be hedged
against interest rate risks. As of June 30, 1998, all of the outstanding
receivables in the facility were hedged against such risks. The Securitization
Facility financed approximately $49.6 million of receivables during the six
months ended June 30, 1998. To date the master trust has issued 100% of the
notes as senior notes and has not issued any subordinated notes through the
facility. The Securitization Facility is recourse to AFG Credit but
nonrecourse to the Company. In October 1998, the Company received a commitment
letter from First Union extending the availability of borrowings under the
facility through October 12, 1999.
The Company continually seeks to improve the efficiency and execution of its
securitization transactions. The Company has maintained a spread over
comparable treasury securities on the senior notes of 50 basis points, before
hedging costs, which the Company is striving to improve. The Company intends
that improvements in the effective costs of funds provided through the
Securitization Facility generally will be reflected in the pricing offered by
the Company, thereby maintaining or improving the Company's competitiveness in
the marketplace. Repayment under the Securitization Facility matches the terms
of the underlying leases. As of August 31, 1998, $105.0 million in borrowings
was outstanding under the facility. The Company believes that it will be able
to renew the Securitization Facility on substantially the same terms upon its
expiration. The Company believes that it will be able to increase the
Securitization Facility as necessary.
Nonrecourse Notes. In addition to the Securitization Facility, the Company
also had $17.5 million and $19.6 million in nonrecourse notes payable
outstanding as of June 30, 1998 and August 31, 1998, respectively. These
nonrecourse notes are secured by direct finance leases on commercial and
industrial equipment with terms corresponding to the note repayment schedule
with maturities through and including May 2005. The notes bear interest from
8.32% to 9.5% per annum.
Interest-Rate Swap Contracts
The Company has entered into interest-rate swap agreements in order to
manage the interest-rate exposure associated with the Securitization Facility.
As of June 30, 1998, the swap agreements had a weighted-average duration of
1.41 years, corresponding to the terms of the related debt. As of June 30,
1998, a notional amount of $108.4 million of interest-rate swap agreements
effectively fixed interest rates at an average of 6.66% on such obligations.
Interest expense increased by $0.2 million due to these arrangements in the
six months ended June 30, 1998.
Lease and Financing Activities
During the six months ended June 30, 1997 and 1998, the Company originated
transactions with an original equipment cost of $30.6 million and $131.2
million, respectively. During the six months ended June 30, 1997 and 1998, the
Company sold equipment subject to lease with an original cost of $25.9 million
and $29.5 million, respectively. As of December 31, 1997 and June 30, 1998,
the Company's portfolio (based on original equipment cost) totaled
$161.9 million and $222.2 million, respectively. As of December 31, 1997 and
June 30, 1998, the Company's owned or serviced portfolio (based on original
equipment cost) totaled $297.6 million and $389.9 million, respectively.
28
<PAGE>
The Company has residual interests in its equipment. If the projected
residual is less than the amount recorded, the Company writes down the
residual and a loss is recorded. The Company reviews its residual interests
periodically and makes appropriate adjustments.
As of June 30, 1998, the Company had outstanding commitments to fund $99.7
million of equipment for its lease and finance receivables portfolio, to be
held by the Company or sold to the institutional programs or to unaffiliated
third parties.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of leases and finance receivables.
Concentrations of credit risk with respect to lease and finance receivables
are limited due to the large number of typically investment-grade customers
comprising the Company's customer base and their dispersion across different
business and geographic areas. Currently, none of the Company's equipment is
leased internationally.
Management believes the Company has had no significant concentrations of
credit risk since inception that could have resulted in a material adverse
effect on the Company's business, financial condition or results of
operations.
EFFECTS OF YEAR 2000
It is possible that the Company's currently installed computer systems,
software products and other business systems, or those of PLMI or the
Company's vendors, service providers and customers, working either alone or in
conjunction with other software or systems, may not accept input of, store,
manipulate and output dates on or after January 1, 2000 without error or
interruption (a problem commonly known as the "Year 2000" problem). Although
the Company's asset management software has been modified so that it correctly
recognizes dates on or after January 1, 2000 and is therefore "Year 2000
compliant," the Company depends, and will continue to depend, on PLMI for
certain essential administrative and other operational services to be provided
under the terms of the Intercompany Agreement. As the Company relies
substantially on PLMI's software systems, applications and control devices in
operating and monitoring significant aspects of its business, any Year 2000
problem suffered by PLMI could have a material adverse effect on the Company's
business, financial condition and results of operations.
PLMI has indicated to the Company that it has established a special Year
2000 oversight committee to review the impact of Year 2000 issues on its
software products and other business systems in order to determine whether
such systems will retain functionality after December 31, 1999. PLMI has also
informed the Company that (i) it is currently integrating Year 2000 compliant
programming code into its existing internally customized and internally
developed transaction processing software systems and (ii) PLMI's accounting
and asset management software systems have either already been made Year 2000
compliant or Year 2000 compliant upgrades of such systems are planned to be
implemented by PLMI before the end of fiscal 1999. Although PLMI has indicated
to the Company that it believes that its Year 2000 compliance program can be
completed by the beginning of 1999, there can be no assurance that the
compliance program will be completed by that date. As of August 31, 1998,
allocations to the Company to become Year 2000 compliant amounted to
approximately $12,000. The Company expects to spend or be allocated an
additional $100,000 in order to become Year 2000 compliant. Because the
Company relies significantly on PLMI's software systems and the cost allocable
to the Company of making such systems Year 2000 compliant is not expected to
be material, the incremental cost to the Company of becoming Year 2000
compliant is not expected to have a material adverse effect on the business,
financial position or results of operations of the Company.
29
<PAGE>
Some risks associated with the Year 2000 problem are beyond the ability of
the Company to control, including the extent to which third parties can
address the Year 2000 problem. The Company has begun to communicate with
vendors, service providers and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Company is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by PLMI or such other parties to
make their respective systems Year 2000 compliant could have a material
adverse effect on the business, financial position and results of operations
of the Company. The Company will make an ongoing effort to recognize and
evaluate potential exposure relating to third-party Year 2000 non-compliance
and will develop a contingency plan if the Company determines, or is unable to
determine, that third-party non-compliance would have a material adverse
effect on the Company's business, financial position or results of operation.
INFLATION
Inflation had no significant impact on the Company's operations during the
six months ended June 30, 1997 or 1998.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources, and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Both statements are effective for the Company's fiscal year ending
December 31, 1998, with earlier application permitted. The effect of adoption
of these statements will be limited to the form and content of the Company's
disclosures and will not impact the Company's results of operations, cash flow
or financial position.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits," which revises employers' disclosure obligations about pension and
other post-retirement benefit plans. The statement is effective for fiscal
years beginning after December 15, 1997, with earlier application permitted.
Since the Company currently has no pension or other post-retirement benefit
plans, the statement has no impact on the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. This statement is effective
for all quarters of fiscal years beginning after June 15, 1999. The Company is
reviewing the effect this standard will have on the Company's consolidated
financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires start-up activities and organization costs to be expensed as
incurred. The statement requires that initial application be reported as a
cumulative effect of a change in accounting principle. This statement is
effective for the Company's fiscal year ending December 31, 1999, with earlier
application permitted. The Company intends to adopt this statement in the
fourth quarter of 1998. The pre-tax charge in the fourth quarter of 1998
related to the write-offs of these start-up costs will be approximately
$425,000.
30
<PAGE>
BUSINESS
GENERAL
The Company is a commercial finance company engaged in the leasing and
secured financing of a variety of equipment for investment-grade "Fortune
1000" companies and creditworthy middle-market companies. The Company's
principal businesses include (i) the direct origination through its sales
force of (a) equipment leases and (b) secured loans, hybrid leases and other
specialized financings ("structured finance products"), (ii) the management
and servicing of equipment leases and structured finance products retained by
the Company or sold to institutional leasing investment programs
("institutional programs"), (iii) the sale and acquisition of equipment leases
and structured finance products to and from third parties ("syndication") and
(iv) the sale and re-marketing of equipment as it comes off lease. The
Company's sales force markets its equipment leases and structured finance
products nationally through sales offices located in the Boston, Houston,
Chicago, Atlanta and San Francisco metropolitan areas and in Charlottesville,
Virginia. Since entering its current line of business in January 1996, the
Company has originated over $500 million of equipment leases and structured
finance products covering over 62,000 items of equipment.
The Company's leases and structured finance products encompass a broad
spectrum of equipment classes, including manufacturing and materials handling
equipment, computer and telecommunications equipment, point of sale equipment,
construction and mining equipment, over the road trucks and office equipment.
The Company seeks to maintain a diversified asset portfolio in order to
minimize its credit and residual exposure to any single lessee, industry or
equipment category. As of June 30, 1998, no single industry accounted for more
than 22%, and no single lessee accounted for more than 13%, of the Company's
portfolio of leases, on a net book value basis. No single customer accounted
for more than 10% of the Company's revenue in the six-month period ended June
30, 1998.
The Company's ten largest lessees by cumulative dollar volume of leases and
finance receivables (based on original equipment cost) owned or serviced
through June 30, 1998 were Chrysler Corporation, Ultramar Diamond Shamrock
Corp., Atmel Corporation, Owens Corning, Fina Oil and Chemical Company,
Marathon Oil Company, Merck & Co., Inc., ConAgra, Inc., Inland Paperboard and
Packaging, Inc. and Wal-Mart Stores, Inc. At June 30, 1998, based primarily on
published credit ratings by Moody's Investor Services, Inc. and Standard &
Poor's Ratings Services, a division of the McGraw-Hill Companies, the dollar-
weighted average credit rating of the Company's lessees was the equivalent of
a Moody's Investor Services, Inc. rating of Baa2, an investment-grade rating.
The Company has master leases in place with approximately 400 potential
customers, approximately 110 of which are currently doing business with the
Company. Master leases are commonly employed in the equipment leasing industry
and establish the general terms and conditions under which a finance company
and its customers will subsequently enter into lease and financing schedules
relating to particular items of equipment. Master leases are frequently the
subject of extensive negotiations between the Company and prospective
customers. Once in place, however, a master lease usually simplifies a
prospective lessee's internal approval process relating to any particular
lease or financing schedule and can serve as both starting point and framework
for lease and financing arrangements between any of such lessee's operational
divisions and the Company. As such, a master lease permits the Company to
offer a prospective customer streamlined solutions for its equipment leasing
and financing needs on an enterprise-wide basis.
The Company initially finances the origination and acquisition of its
equipment leases and structured finance products through a traditional
warehouse credit facility. The Company either retains the equipment leases and
structured finance products financed in a long-term nonrecourse facility,
sells them to institutional programs or syndicates them to unaffiliated third
parties. Of the equipment leases and structured finance products originated or
acquired by the Company, the percentage of retained leases has increased from
45% in 1996 to 55% in 1997 and 74% in the first six months of 1998. Equipment
leases and structured finance products retained or serviced by the Company
increased 290%, to $397.1 million as of June 30, 1998 from $101.8 million as
of January 1996.
31
<PAGE>
The Company serviced $102.4 million and $126.3 million in assets (by original
equipment cost) for institutional programs in 1996 and 1997, respectively.
Increased market penetration and an expanding range of financing offerings
have led to continued growth in the Company's business. As of June 30, 1998,
the Company had awards for future business amounting to approximately $99.7
million. On average, the Company has experienced that over 90% of its awarded
business ultimately is funded.
The Company's revenue for the first six months of 1998 grew to $12.4 million
from $10.0 million for the same period of 1997, representing an increase of
24%. The Company's revenue for 1997 grew to $20.7 million from $9.5 million
for 1996, representing an increase of 117%. The Company's net income for the
first six months of 1998 was $1.0 million as compared to $0.8 million for the
same period in 1997. The Company's net income for 1997 was $2.1 million as
compared to a net loss of $0.8 million in 1996 incurred as a result of
existing overhead expenses exceeding revenue from a then limited portfolio of
leases and structured finance products. The Company earns direct finance lease
or operating lease income on leases originated and retained by the Company.
The Company derives an operating profit from the positive difference between
the yield received on leases and secured loans owned by the Company and the
associated cost of funds. The financing of these leases is accomplished
through the Company's securitization facility, which requires the Company to
retain an equity interest in a majority of these leases. The Company does not
recognize a gain on sale of assets financed through its securitization
facility, retaining the leases and debt on its balance sheet ("on balance
sheet securitization"). The Company, however, does recognize a gain on sale of
assets in the case of leases and associated equipment sold without a retained
equity interest to institutional programs or syndicated to unaffiliated third
parties. The gain on sale represents the cash received from sales of the
leases and associated equipment above the Company's book value of such assets.
BUSINESS STRATEGY
Capitalize on Master Lease Relationships. The Company's principal business
strategy is to expand its business through internal growth. The Company's
network of long-term financial relationships based on approximately 400 master
leases in place at the Company provides significant opportunity for internal
growth. The Company is currently servicing lease schedules under approximately
110 of the master leases. The Company intends to continue to strengthen its
sales force by attracting additional qualified and experienced individuals who
can expand existing relationships and establish new customer relationships on
both regional and national bases. The Company intends to continue its
development of new customized products to increase its share of existing
customers' business and of the overall market. Value added structures and
services have been the primary business focus of the Company's management
team, and the Company intends to continue to differentiate itself from its
competition by emphasizing and delivering value added, customer-specific
structures and services to its customers. The Company's success to date in
capitalizing on its master lease relationships is evidenced by the amount of
business derived from that base. In 1997, approximately 80% of the Company's
originated business came from its existing master lease relationships.
The Company intends to continue to develop strong relationships with new
customers by understanding how different services and structures affect each
customer's operations and expectations. The Company intends to respond to the
needs of its customers by (i) structuring creative, customized products, (ii)
establishing capital structures to finance these products and (iii) providing
the operational support and flexibility required to manage and service these
products efficiently.
Expand Middle-Market Business Line. The Company intends to expand its
targeted business market to include additional creditworthy middle-market
companies (that is, companies whose revenues generally range from $75 million
to $1 billion annually), focusing on transactions ranging in size from
$100,000 to $2,000,000. The Company has generated over $105 million in middle-
market transactions since inception and intends to grow its marketing efforts
with the goal of furthering its presence in this market.
Continue to Access Capital at Lower Costs. The Company intends to continue
to increase its access to low-cost capital from both public and private
sources by utilizing traditional credit facilities and on balance sheet
securitizations. The Company intends to focus on reducing its cost of funds in
an effort to maximize the profitability of its leases and structured finance
products.
32
<PAGE>
Expand Offering of Structured Finance Products. The Company intends to
expand its underwriting of structured finance products to increase its market
share, manage its residual exposure and allow the Company to manage a larger
portfolio at lower incremental operating costs. As of June 30, 1998, the
Company's portfolio consisted of approximately 20% structured or fixed-rate
transactions. The Company intends to increase the proportion of structured and
fixed-rate instruments in its portfolio to over 35%. While the Company intends
to increase the proportion of structured and fixed-rate transactions, there
can be no assurance that the Company will reach this goal.
Expand Syndication Business. The Company intends to expand its activities in
the syndication area. Products designed for syndication allow the Company's
sales force to bid for all of a customer's business, regardless of whether any
particular transaction meets the Company's established economic parameters,
capital structure, effective tax rate, tenor, concentration limits or costs of
funds. The Company completed over $140 million in syndication transactions in
1996 and 1997.
Explore and Develop Related Business Opportunities. The Company intends to
develop strategic alliances and pursue acquisitions that will provide
management expertise, specific equipment knowledge, information systems and
origination capabilities that complement the Company's existing business in an
effort to provide the Company's customers the best services and product mix
possible. The Company also intends to explore opportunities to expand its
currently limited operations in markets outside of the United States and
Canada, whether by acquisitions or direct sales of its equipment leases and
structured finance products in such markets.
Utilize Technology and Infrastructure. The Company intends to improve
continually its information and customer servicing systems in order to enhance
its operational efficiency and offer differentiated services. The Company's
systems and infrastructure were designed specifically with a customer-service
objective, and management believes that these systems have excess capacity to
service the increasing number of customers, contracts and assets that the
Company expects to originate and manage in the future. In addition, management
believes the Company's infrastructure, in conjunction with its systems, will
allow it to continue to manage its leases at very low per-asset servicing
costs and remain competitive as a result.
INDUSTRY OVERVIEW
The equipment leasing and financing industry in the United States is a large
and growing source of financing for capital expenditures by businesses. The
Equipment Leasing Association (the "ELA") estimates that 80% of U.S. companies
lease all or a portion of their equipment. The ELA projects that $183 billion
of the $593 billion expected to be invested in equipment in 1998 will be
financed by means of leasing. According to the ELA, from 1996 to 1997
equipment placed on lease grew by approximately $10 billion to an estimated
$180 billion, and investment in equipment placed on lease in 1996 represents
an increase of approximately 100% from comparable 1986 data. The Company
believes that leasing allows businesses to acquire capital equipment more
efficiently, receive favorable tax and accounting treatment, and avoid or
mitigate the perceived risks of equipment ownership, including obsolescence.
The Company believes there are opportunities for growth in the equipment
leasing industry due to (i) the consolidation of the banking industry, (ii)
stricter lending requirements imposed by commercial banks and (iii) 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, the Company believes
that two primary factors contributing to the favorable funding environment
experienced by the commercial leasing industry are a better understanding of
the leasing business by bank regulators and a growing understanding of the
leasing industry by the investment community and credit rating agencies.
The Company believes larger, better capitalized participants in the
equipment leasing market will have opportunities to consolidate a portion of
the market on account of operating efficiencies made possible by advances in
technology and access to asset backed securities markets. The Company believes
this consolidation will be driven
33
<PAGE>
by (i) the highly fragmented nature of the equipment leasing industry, (ii)
the need for reductions in the cost of funds in order to remain competitive,
which will require market participants to access capital through
securitizations or other low-cost sources of funds, (iii) the need to increase
the size of lease portfolios in order to achieve productivity gains and
reductions in overhead as a percentage of revenues and (iv) new technologies
whose relatively high costs may put them beyond the reach of small to mid-
sized market participants.
PORTFOLIO
At June 30, 1998, the Company had $201.9 million of lease and finance
receivables in its portfolio, $20.5 million of which were operating leases.
Low obsolescence materials handling equipment and short-term computing assets
comprised the largest two equipment classes in the Company's portfolio. At
June 30, 1998, no single equipment class represented over 33% of the portfolio
based on total equity invested or 30% of the portfolio based on a net book
value basis. The table below shows the Company's equipment concentrations as
of June 30, 1998.
<TABLE>
<CAPTION>
% OF EQUITY % OF TOTAL
EQUIPMENT TYPE INVESTED NET BOOK VALUE
-------------- ----------- --------------
<S> <C> <C>
Materials handling................................ 33% 18%
Manufacturing..................................... 22 16
Computers and peripherals......................... 18 30
Retail fixtures................................... 13 11
Construction...................................... 4 2
Communications.................................... 3 3
Other............................................. 7 20
--- ---
Total........................................... 100% 100%
=== ===
</TABLE>
Equity invested in leases represents the Company's exposure to the equipment
subject to the leases, net of the discounted present value of committed
rentals owed by the lessees. Therefore, equity invested in leases highlights
the Company's exposure to each category of equipment net of lessee credit
risk. Net book value of leases represents the carrying value of the leases in
the Company's financial statements and represents both the discounted present
value of committed rentals owed by the lessees and the projected future
residual proceeds assumed by the Company.
As of June 30, 1998, the portfolio carried an equivalent credit rating of
Baa2 on a weighted average net book value basis. This average rating is based
on ratings published by Moody's Investor Services, Inc. and Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies (each, a "Credit
Rating Agency") and, in the case of lessees for which neither Credit Rating
Agency publishes a rating, the Company's internal rating procedures. See "--
Leasing and Financing Activity--Credit Policies and Procedures." Credit
ratings ranging from Baa3 to Aaa are considered investment grade, while credit
ratings ranging from Ba1 to B3 are considered non-investment grade. As of
June 30, 1998, the credit ratings of lessees with leased equipment in the
portfolio were as follows:
<TABLE>
<CAPTION>
NON-
INVESTMENT
INVESTMENT GRADE GRADE
% OF ----------------------------- -------------
PORTFOLIO AAA AA1-AA3 A1-A3 BAA1-BAA3 BA1-BA3 B1-B3
--------- --- ------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Credit Rating Agency.... 77.5% 7.3% 0.2% 27.5% 26.7% 9.0% 6.8%
Internal rating equiva-
lent................... 22.5 -- -- -- 17.2 5.1 0.2
----- --- --- ----- ---- ---- ---
Aggregate credit
rating............... 100.0% 7.3% 0.2% 27.5% 43.9% 14.1% 7.0%
===== === === ===== ==== ==== ===
</TABLE>
As of June 30, 1998, the portfolio was comprised of lease and finance
receivables of 66 customers. The highest individual customer exposure on a net
book value basis was less than 13%, with the weighted-average customer
exposure being Baa2 as of June 30, 1998. The top five customer exposures
represented approximately 43% of the total net book value exposure in the
portfolio.
34
<PAGE>
The Company has developed credit underwriting policies and procedures that
management believes have been effective in the selection of creditworthy
lessees and in minimizing the risks of delinquencies and credit losses. For
1996, 1997 and the first six months of 1998, delinquencies were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE
--------------------------------------------- SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
---------------------- ---------------------- ----------------------
(IN THOUSANDS OF DOLLARS)
% OF TOTAL % OF TOTAL % OF TOTAL
DOLLARS NET BOOK VALUE DOLLARS NET BOOK VALUE DOLLARS NET BOOK VALUE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net Investment in
Leases:
Delinquencies over
90 days............... $1,615 1.8% $212 0.2% $393 0.2%
Net credit charge-
offs.................. -- -- -- -- -- --
</TABLE>
LEASING AND FINANCING ACTIVITY
General
The Company leases diverse classes of business essential equipment for lease
terms of generally 84 months or less. In general, the equipment under lease is
subject to either operating lease or direct finance lease structures.
Operating leases are designed to return only a portion of the original
acquisition cost of the equipment during the initial contracted lease term. At
the completion of the initial lease term, the customer may renew the lease for
an additional term, purchase the equipment or return the equipment to the
Company for re-leasing or disposition in the secondary marketplace. The
Company's objective is to renew, extend or re-lease the equipment or dispose
of equipment profitably in the aggregate at the conclusion of the initial
lease term in order to achieve its investment objectives.
The Company prices the periodic lease payments due under its leases with the
intent of recovering the acquisition cost of the underlying asset (less
residual value) and earning an attractive return on investment over the
initial term of the lease. The Company's leases usually provide for charges
for use of leased equipment for periods before and after the initial lease
term. As a result of the foregoing and the fact that customers frequently use
leased assets both before and after the initial lease term, a substantial
portion of the Company's profitability is attributable to revenues for periods
of use of leased assets by its customers before and after the initial lease
term. The Company believes that use of leased assets by customers after the
initial lease term will continue to be an increasing source of operating
revenue for the Company.
Customers
The Company engages in business with large investment-grade "Fortune 1000"
and creditworthy middle-market companies under master lease agreements that
govern one or more equipment schedules, each of which is a separate and
independent lease. The Company has approximately 400 master leases in place,
and repeat business with its existing customer base in the form of new leases
or renewal or extension of existing leases is an important source of earnings
for the Company. The Company structures innovative leases and structured
finance products in response to customer needs in a continuing effort to build
long term relationships with its customers. The Company's operations are
customer focused both in terms of its account-based operational support and
extensive technical infrastructure.
Sales and Marketing
The Company's network of long-term financial relationships is based on the
approximately 400 master leases in place at the Company and serves as a focus
for the Company's sales and marketing activities. The Company currently
services over 110 customers through its direct leasing and acquisition
activities. The Company's current sales force consists of 12 people located in
sales offices in the Boston, Houston, Chicago, Atlanta and San Francisco
metropolitan areas and in Charlottesville, Virginia. Members of the
35
<PAGE>
Company's sales force have long-term relationships with some of the Company's
current customers extending back more than 15 years. The Company has been an
active member of the ELA since the Company's inception, and the Company
actively seeks to build strategic alliances with equipment vendors,
manufacturers, lease brokers and investment banks in order to provide the
Company's customers with effective means of financing and structuring the
acquisition of essential equipment.
The Company originates its products through direct calling on customers and
intermediaries as well as manufacturers, vendors, dealers and distributors
with whom the Company has completed business in the past. The Company's
marketing strategy is to focus on large investment-grade and creditworthy
middle-market customers and to provide them with a "single source" financing
solution. The ability to finance a variety of equipment types provides the
Company with an advantage over some of its competitors that finance only a
narrow range of equipment types. The Company's syndication capability allows
the Company to offer prospective customers product structures that might
otherwise not fit the investment and portfolio parameters of the Company. The
Company can subsequently syndicate these products and thereby generate
syndication income while satisfying the needs of the customer and
strengthening the customer relationship.
Personal visits to existing and prospective customers by the Company's sales
representatives and operations account managers afford the Company an improved
understanding of the financial requirements of its customers and the
opportunity to provide customers with attractive financing solutions. The
inclusion of the operations department representative allows the sales call to
focus on the administration and systems requirements of the customer and to
articulate the Company's financing capabilities as well as the range of
available services that can be customized for each transaction. Repeat
business is an important source of lease volume and earnings for the Company.
During 1997, 80% of the Company's transactions were with existing customers.
Lease Underwriting
The Company's leases, whether operating or direct finance, are predominantly
non cancellable "triple net" leases that contain "hell or high water"
provisions whereby the customers' obligations to make rental payments are
absolute, irrevocable and unconditional, may not be affected by any
circumstance and are not subject to any defense, counterclaim, set off,
diminution, abatement or recoupment. Under these leases, the customer
generally waives its rights to terminate or surrender the lease, for any
reason, including defects in the equipment. In addition, the customer is
contractually obligated to provide for "all risk" and "public liability"
insurance with respect to the equipment and its use, provide maintenance and
repair of the equipment, and pay all property, sales and use taxes assessed
with respect to the equipment or the lease throughout the lease term. The
triple net leases also provide for a full customer indemnification for any
failure by the customer to perform any of its "net" lease obligations. The
Company does, and intends to continue to, consider modifications to its leases
during their contracted term in an effort to (i) facilitate upgrades or
extensions, (ii) respond to changing or increased customer requirements or
(iii) hedge or capitalize on changing market circumstances. In this regard,
however, the Company's policy is not to agree to lease modifications that
result in reduced returns to the Company.
The Company, or each institutional program serviced by the Company,
generally retains ownership in its leased equipment and, therefore, a carried
residual interest. In the case of operating leases, the Company realizes
substantially all of its return on investment through residual realization.
The Company's ability to renew or extend the terms of its leases or obtain
substantial sale values in the secondary market is dependent on many factors,
most of which are outside of the control of the Company. These factors include
prevailing general market conditions at the time of lease expiration, economic
or technological obsolescence, replacement cost for like equipment, unusual or
excessive wear and tear not covered in contracted return conditions, and the
impact of any applicable amendments to government regulations.
The Company attempts to utilize its standard documentation as a basis for
contracts with new customers. In circumstances where legal counsel is
warranted, the Company relies on a core group of law firms with specific
expertise. The Company reviews periodically its standard documentation in an
effort to ensure compliance with
36
<PAGE>
new legal judgments and modifications to governing law, including the Uniform
Commercial Code (the "UCC"), various standards boards, bankruptcy codes and
other laws affecting secured transactions.
Credit Policies and Procedures
The Company has developed credit underwriting policies and procedures that
management believes have been effective in the selection of creditworthy
lessees and in minimizing the risks of delinquencies and credit losses. The
Securitization Facility, as well as the lease portfolio owned by institutional
programs and serviced by the Company, require a dollar-weighted investment
grade rating equivalent of Baa2 or better by a Credit Rating Agency. The
Securitization Facility also requires that lessees accounting for at least 60%
of the receivables in the facility have a debt rating published by a Credit
Rating Agency. As of June 30, 1998, 77% of lessees included in the portfolio
had ratings published by the Credit Rating Agencies, and the dollar-weighted
average rating of such lessees was Baa1. The dollar-weighted average credit
rating of the remaining lessees in the portfolio, as rated by the Company, was
Ba1. The aggregate credit rating of the portfolio was Baa2.
In order to establish the creditworthiness of a prospective customer, the
Company first reviews the current ratings, if any, published by the Credit
Rating Agencies. The Company subscribes to services from both of the Credit
Rating Agencies to ensure the availability of the most current data. The
Company also subscribes to additional sources of financial information for
purposes of reviewing the credit of existing and prospective customers. In the
event a prospective customer does not have a published credit rating, the
Company undertakes an internal analysis of the customer's credit relying on a
credit-rating software package, financial statement ratios and industry
analyses. The Company's credit-rating software package compares certain
financial information concerning the prospective customer input by the Company
against similar information regarding other companies with the same standard
industrial classification code to account for industry-specific debt risk
characteristics. The software package's database maintains current information
on over 2,000 companies and is updated quarterly.
Servicing and Administration
As of June 30, 1998, the Company serviced its portfolio and the portfolios
of two institutional programs with cumulative assets totaling $389.9 million
on an original equipment cost basis. One of the institutional programs,
Cantrip Investments Limited, accounted for 24%, 19%, and 10% of total revenues
of the Company in 1995, 1996 and 1997, respectively. For the six months ended
June 30, 1998, this institutional program accounted for 7% of the Company's
total revenues. The loss of revenues attributable to this institutional
program could have a material adverse effect on the Company's business,
financial condition and results of operations. No other party has accounted
for more than 10% of the Company's revenues.
The servicing and administration performed by the Company includes
underwriting, receivables administration, sales, use, property tax and UCC
compliance and asset management. The Company is currently servicing over 1,000
contracts, covering over 70,000 items of equipment. Since the Company's
inception, neither the Company nor either of the institutional programs
serviced by the Company have charged off as uncollectible any of their
respective receivables.
The leasing business is compliance intensive, and the Company's
geographically diversified asset base requires that the Company undertake
compliance with differing jurisdictional requirements. The Company is
qualified to do business in 48 states in the United States. The Company uses
various vendor software packages to manage its compliance efforts. Each of
such packages is Windows-based and receives core data directly from the
Company's AS/400 database. These packages support the Company's ability to
assess and report its assets and remit tax receipts, all in accordance with
the specific requirements of the respective jurisdiction. These software
packages also provide the Company with fully integrated, standard audit
reporting capacities, generally accepted as satisfactory in jurisdictional
audits. The Company utilizes a Windows-based application to prepare and
maintain its UCC statements and employs a third party to file such statements
in the appropriate jurisdiction.
37
<PAGE>
The Company also is required to provide monthly reporting under the
Warehouse Credit Facility and the Securitization Facility, as well as monthly
reports and cash reconciliation for institutional programs serviced by the
Company. In addition, the Company receives a servicing fee for assets managed
in its securitized portfolio. The Company is compensated for servicing
institutional programs with a management fee based on receivables collected by
the Company.
Asset Management
The Company's operating structure and computer systems are integral parts of
its ability to manage assets and their performance effectively throughout the
lease term and during the disposition phase. The diversified nature of the
Company's expiring lease base results in staggered expirations of often
dissimilar assets. To manage the complexity of this expiring lease pool, the
Company approaches asset management as a continual process and develops pro-
actively a thorough understanding of specific assets and the particular needs
of its customers. The Company's asset management team analyzes future periods
of expiring leases in terms of concentrations, exposures and the expected
vitality of the secondary marketplace. The Company's asset management effort
is focused on maintaining leased assets in-place with current lessees through
reduced usage rates, upgrades or other enhanced structures. The Company has
established numerous contacts in the secondary marketplace, including original
manufacturers, resellers, refurbishers, user groups and international brokers,
to facilitate disposition of assets coming off lease. The Company collects
information related to asset management from a variety of sources, including
manufacturer brochures, industry periodicals and the Internet.
CAPITAL RESOURCES
The Company's lease finance business is capital intensive and requires
access to substantial short-term and long-term credit facilities. The
Company's ability to obtain and maintain efficient financing is critical to
its business. In May 1996, the Company was added as a co-borrower to the $35
million Warehouse Credit Facility with First Union, which was subsequently
increased to $50 million in December 1997. Borrowings under the Warehouse
Credit Facility bear interest, at the option of the Company, at a floating
rate equal to 30 day LIBOR plus 1.625% or at the prime rate. The Warehouse
Credit Facility currently expires on November 2, 1998, and all borrowings
under the facility are guaranteed by PLMI. The Warehouse Credit Facility is
being revised to provide $50.0 million for the Company without guarantees,
support from PLMI or access to the facility by other PLMI affiliates. The
revised facility will bear interest at a floating rate equal to 30-day LIBOR
plus 1.25% or the prime rate of interest and include additional financial
covenants. Had such additional covenants been in place at December 31, 1997,
the Company would have been in compliance with such covenants. First Union, as
agent, has approved the terms and conditions of the revised facility,
including its provision for a term of one year, and a commitment letter in
respect thereof has been issued to the Company by First Union, as agent. The
Company believes that the revised facility will provide for a renewable one-
year term. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Debt Financing."
In July 1995, the Company entered into the Securitization Facility with
First Union, under which the Company transfers leases and related equipment to
AFG Credit, a wholly owned, bankruptcy-remote special purpose subsidiary, that
in turn finances lease receivables through a related master trust. The
Securitization Facility was amended in October 1997, increasing the aggregate
availability under the facility from $80 million to $125 million. Borrowings
under the Securitization Facility bear interest equivalent to the lender's
cost of funds based on commercial paper market rates for the period of
borrowings, plus an interest rate spread and fees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Debt
Financing."
Since inception, the Company has been able to realize 100% of the discounted
lease payments of leases subject to the Warehouse Credit Facility and the
Securitization Facility. There can be no assurance, however, that the Company
will be able to sustain this level of performance in the future.
The Company seeks to maintain a highly diversified portfolio of lease and
finance receivables. The Securitization Facility is governed by various
concentration parameters designed to ensure diversification in terms of
customer exposure, credit exposure, equipment exposure and industry exposure.
The Securitization Facility requires the Company to manage the exposures
within the following concentration limits on an
38
<PAGE>
outstanding receivable basis: (i) single customer exposures vary by credit
risk with limits of 20%, 9% and 3% for credit risks of Aa3 or better, A1 to
Baa3 and Ba1 to B3, respectively; (ii) no more than 5% of the outstanding
receivables can be comprised of single-B credits; and (iii) equipment
concentration exposures must be less than 40% of outstanding receivables.
The Securitization Facility's concentration parameters do not limit
significantly the Company's ability to finance new business since the
Warehouse Credit Facility is not governed by such parameters and the Company
has access to transaction-specific financing. From time to time, the Company
enters into lease arrangements that contain terms that lie outside the
parameters of the Securitization Facility. The Company manages the
concentration parameters of the Securitization Facility by carrying leases in
the Warehouse Credit Facility until such time as they can be properly absorbed
by the Securitization Facility. The Company also may hold leases in the
Warehouse Credit Facility in order to optimize its return on investment upon
their ultimate transfer to the Securitization Facility or sale to
institutional programs or in the syndication markets.
Operations and Information Systems
The Company's central operations are located in Boston, Massachusetts. The
operations consist of pricing and portfolio management, underwriting and
portfolio administration, credit analysis and compliance, syndication, asset
management, systems administration and sales support. The Company's
operational structure is directed towards customer-focused portfolio
management and enables the Company to provide superior services to its
customers and absorb significant additional workload from time to time without
requiring additional staff. The cost efficiency of the operational structure
has been central to the Company's ability to realize its investments in leased
assets.
The Company's computer systems facilitate active management of the Company's
investment in leased assets beginning prior to lease inception and concluding
upon ultimate disposition. The Company operates in a standardized desktop
environment over a local area network. The Company's central data repository
is an IBM AS/400 Model 320 located and managed at PLMI. The AS/400 supports a
relational database whose information is the core driver of all operations of
the Company. The Company accesses the AS/400 via a dedicated T1 line. The
Company believes that its technical enhancement program is forward looking,
and the Company expects its focus on technological development will allow the
Company to continue to experience sizeable growth without necessitating
significant increases in staffing. The Company is currently completing core
functionality on its website maintained locally on a secured server attached
to its local network.
Prior to the Offering, the Company received significant administrative
support from PLMI in the areas of accounting, cash management, accounts
payable, administration of payroll and benefits, and non-local systems
administration and programming. Following completion of the Offering, the
Company will continue to rely on PLMI to provide such services pursuant to the
Intercompany Agreement. See "Certain Transactions." The Company intends to
employ Boston-based financial and accounting expertise to enhance the
efficiency of support and services to be provided by PLMI.
COMPETITION
The business of equipment leasing and secured financing is highly
competitive. The Company competes for customers with a number of
international, national and regional finance and leasing companies and banks.
In addition, the Company's competitors include equipment manufacturers that
finance the sale or lease of their products themselves. Many of the Company's
competitors and potential competitors have greater financial, marketing and
operational resources than the Company. The Company's competitors, some of
which are larger and more established than the Company, may have a lower cost
of funds than the Company and access to capital markets and to other funding
sources that may not be available to the Company. The Company believes that
the principal competitive factors in the equipment leasing and secured
financing business, and the bases on which it competes, are (i) access to
sufficient capital with an efficient cost of funds, (ii) the ability to
provide flexible lease and financing structures, (iii) the ability to develop
and maintain "relationship" accounts, (iv) customer
39
<PAGE>
service, including customized value-added services, (v) repeat business
generated on relationship accounts, (vi) the skill and expertise of a
company's employees and (vii) the image a company enjoys among lessees in the
marketplace.
EMPLOYEES
The Company has 28 employees, 23 of whom are in its corporate headquarters
in Boston, Massachusetts and 5 of whom are in regional sales offices. The
Company believes that its relations with its employees are good.
FACILITIES
The Company's corporate offices are located at 24 School Street, Suite 700,
Boston, Massachusetts 02108. The Company leases 6,736 square feet pursuant to
a lease expiring in March 2001. Over the term of the lease, the rent expense
is approximately $10,665 per month, escalating to $10,946 in the final 12
months of the lease term. The Company also pays real estate taxes and a pro
rata share of the increases over base operating expenses equal to
approximately 8% of such increases. The Company also leases office space and
services for its regional sales personnel in the Houston, Chicago, Atlanta and
San Francisco metropolitan areas and in Charlottesville, Virginia under leases
of varying lengths and at local market rates. The total current aggregate
monthly rent due under all of the Company's office leases is approximately
$15,000 per month.
The Company believes that its existing facilities will be adequate for the
foreseeable future and that additional space will be available as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each of the directors and executive officers of the Company as of October
15, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Robert N. Tidball (1)(3)... 59 Director and Chairman of the Board
Donald R. Dugan, Jr. (3)... 37 Director, President and Chief Executive
Officer
J. Michael Allgood ........ 49 Director
Joseph C. Berenato (1)(2).. 52 Director*
Richard E. Carolan (1)(2).. 48 Director*
John F. O'Brien (2)(3)..... 46 Director*
Gary M. Abrams............. 45 Senior Vice President, Chief Financial
Officer
and Treasurer
Jeffrey F. Zerrer.......... 41 Senior Vice President, Marketing
Christopher J. Condon...... 37 Vice President, Asset Management
Carol A. Larkin............ 37 Vice President, Operations
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
* Effective upon completion of the Offering
Robert N. Tidball, Chairman of the Board of Directors of the Company, has
been a director of the Company since February 1995. Mr. Tidball was appointed
President and Chief Executive Officer of PLMI in March 1989. At the time of
his appointment, he was Executive Vice President of PLMI. Mr. Tidball became a
director of PLMI in April 1989 and a member of the Executive Committee of the
Board of Directors of PLMI in September 1990. Mr. Tidball was Executive Vice
President of Hunter Keith, Inc., a Minneapolis-based investment banking firm,
from March 1984 to January 1986. Prior to his employment by Hunter Keith,
Inc., he was Vice President & General Manager and Director of North American
Car Corporation, and Director of the American Railcar Institute and the
Railway Supply Association. Mr. Tidball earned a bachelor's degree from the
United States Naval Academy and an MBA from the University of Chicago.
Donald R. Dugan, Jr., President and Chief Executive Officer of the Company,
has been a director of the Company since December 1995. Mr. Dugan has over 15
years of general management experience, the last nine years being in the
leasing and structured finance industry. Mr. Dugan has been President of the
Company since January 1996 and Chief Executive Officer of the Company since
May 1998. Prior to joining the Company in January 1996, Mr. Dugan held various
positions with Equis, including National Sales Manager, Treasurer and head of
its capital markets group, beginning in 1989. Prior to joining Equis, Mr.
Dugan was a Lieutenant in the United States Navy. Mr. Dugan earned a
bachelor's degree from the United States Naval Academy and an MBA from Boston
College.
J. Michael Allgood has been a director of the Company since December 1995.
Mr. Allgood was appointed Vice President of Finance and Chief Financial
Officer of PLMI in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings plc of London, where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood
served as a First Vice President with American Express Bank, Ltd. In February
1978, Mr. Allgood founded, and until June 1981 served as a director of, Trade
Projects International/Philadelphia Overseas Finance Company, a joint venture
with Philadelphia
41
<PAGE>
National Bank. From March 1975 to February 1978, Mr. Allgood served in various
capacities with Citibank, N.A. Mr. Allgood received a bachelor's degree from
the University of California, Riverside, and an MBA from The Haas School at
the University of California, Berkeley.
Joseph C. Berenato has been appointed to become a director of the Company
upon completion of the Offering. Mr. Berenato is currently President and Chief
Executive Officer and a director of Ducommun Incorporated, a manufacturer of
components and assemblies for the aerospace and wireless telecommunications
industries. Mr. Berenato has been employed by Ducommun Incorporated since 1991
and served previously as its Chief Operating Officer and Chief Financial
Officer. Between June 1980 and October 1991, Mr. Berenato served in various
capacities at Manufacturers Hanover Trust Co., including Senior Vice
President. Mr. Berenato earned a bachelor's degree from the United States
Military Academy, a master's degree from the University of Virginia and an MBA
from New York University.
Richard E. Carolan has been appointed to become a director of the Company
upon completion of the Offering. Mr. Carolan is currently an Executive Vice
President and director of BTM Capital Corp., an equipment leasing firm
providing structured finance and related services in the United States and
abroad. Since 1979, Mr. Carolan has held various positions with BTM Capital
Corp. and its predecessor companies, BOT Financial Corp., BancNewEngland
Leasing Group and New England Merchants Leasing Corp., including Regional
Manager, Vice President and Vice President of Joint Ventures as well as
Chairman of New Boston Partners, Ltd., BTM Capital Corp.'s London-based
affiliate. Mr. Carolan earned a bachelor's degree from Georgetown University
and an MBA from Boston College.
John F. O'Brien has been appointed to become a director of the Company upon
completion of the Offering. Mr. O'Brien is currently a Managing Director of
Investment Banking for Bluestone Capital Partners, an investment and merchant
banking firm. In 1997, Mr. O'Brien founded and served as a Managing Director
of Montgomery Capital Corporation, a mergers and acquisitions advisory firm.
From 1996 to 1997, Mr. O'Brien was a Managing Director of Newbury, Piret &
Co., Inc., a specialized boutique providing investment banking services to
companies across a broad range of industries. From 1991 to 1995, Mr. O'Brien
served as a Vice President of Investment Banking for H.C. Wainwright & Co.,
Inc., a brokerage and investment banking firm. Mr. O'Brien earned a bachelor's
degree from Northeastern University.
Gary M. Abrams, Senior Vice President, Chief Financial Officer and Treasurer
of the Company, joined the Company in September 1998. Prior to joining the
Company, Mr. Abrams was Senior Vice President, Treasurer, Chief Financial
Officer and Chief Investment Officer for Somerset Savings Bank. From 1985 to
1987, Mr. Abrams was Senior Vice President, Senior Investment Officer and
Senior Financial Officer of University Bank and Trust Company. Mr. Abrams
earned a bachelor's degree from Northeastern University.
Jeffrey F. Zerrer, Senior Vice President, Marketing of the Company, has over
18 years experience in the equipment leasing industry. Prior to joining the
Company in January 1996, Mr. Zerrer held various positions with Equis,
including Vice President, Marketing and Regional Sales Manager, beginning in
1984. Prior to joining Equis, Mr. Zerrer worked for various leasing companies,
including Leasing Services, Inc. and Chancellor Corporation. Mr. Zerrer earned
a bachelor's degree from Northeastern University.
Christopher J. Condon, Vice President, Asset Management of the Company, has
over eight years of experience in the leasing industry in the field of asset
management. Prior to joining the Company in October 1998, Mr. Condon was,
beginning in July 1994, Vice President and, more recently, Assistant Manager
of the Equipment Remarketing Group for Fleet Capital Leasing, Inc., a
subsidiary of Fleet Financial Group, Inc. From 1990 to 1994, Mr. Condon was a
Senior Equipment Management Representative with First National Bank of Boston.
Mr. Condon earned a bachelor's degree from Stonehill College and an MBA from
Bentley College.
Carol A. Larkin, Vice President, Operations of the Company, has over 15
years of experience in the leasing industry in the fields of administration,
operations and business development. Prior to joining the Company in August
1998, Ms. Larkin had been Assistant Vice President since July 1996 for the
leasing division of Eastern
42
<PAGE>
Bank. From September 1993 to February 1996, Ms. Larkin was Assistant Vice
President for Shawmut Bank, N.A., and from 1989 to 1993, she was Assistant
Vice President of Baybank. Ms. Larkin earned a bachelor's degree from Regis
College.
DIRECTOR COMPENSATION
Following the Offering, it is anticipated that each director of the Company
who is not an officer or employee of the Company or any of its subsidiaries or
affiliated with PLMI will receive a monthly fee of $1,500. In addition, each
such director will receive an additional fee of $1,000 for each meeting of the
Board of Directors attended in person ($300 for each such meeting attended by
teleconference) and $500 for each meeting of a committee of the Board of
Directors attended in person ($300 for each such meeting attended by
teleconference). Directors of the Company who are also officers or employees
of the Company or any of its subsidiaries will not receive any direct fee by
virtue of his service as a director but will participate in the Company's 1998
Management Stock Compensation Plan.
Each director of the Company who is not an officer or employee of the
Company or any of its subsidiaries will automatically be granted as of the
completion of the Offering an option to purchase 10,000 shares of Common Stock
at a per share exercise price equal to the initial public offering price.
These options will vest in three equal installments on the first, second and
third anniversary of the date of grant. In addition, on each of February 1,
1999 and February 1, 2000, each such director automatically will be granted an
option to purchase 5,000 shares of Common Stock at a per share exercise price
equal to the average of the high and low prices, as reported in the Wall
Street Journal, of such shares on the Nasdaq National Market or such other
national stock exchange on which such shares are traded on the day immediately
preceding the date as of which such option is granted. Each option described
above will be granted pursuant to the Directors' 1998 Nonqualified Stock
Option Plan, as described below.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the Board of Directors of the Company will
have an Audit Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee will, among other things, oversee actions by the Company's
independent public accountants with respect to the Company. The Audit
Committee will be composed initially of Messrs. Berenato, Carolan and O'Brien.
The Compensation Committee will review and approve the compensation and
benefits payable to the Company's executive officers and consultants and make
recommendations to the Board of Directors concerning such matters. The
Compensation Committee will be composed initially of Messrs. Tidball, Berenato
and Carolan. The Nominating Committee will select nominees to fill vacancies
on the Board of Directors and to replace retiring members of the Board of
Directors. The Nominating Committee will be composed initially of Messrs.
Tidball, Dugan and O'Brien.
43
<PAGE>
EXECUTIVE COMPENSATION
Summary of Compensation
The following Summary Compensation Table sets forth information concerning
compensation earned in the Company's most recently completed fiscal year by
the Company's chief executive officer and its two other most highly
compensated executive officers whose salary and bonus for 1997 exceeded
$100,000 (the "Named Executive Officers"). Each option grant and restricted
stock award relates to the common stock of PLMI.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
RESTRICTED ALL
STOCK OTHER
NAME AND SALARY BONUS AWARD(S) COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($) ($)
------------------ ---- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Donald R. Dugan, Jr.............. 1997 150,400 105,000 46,668 6,683(2)
President and Chief Executive Of-
ficer
Jeffrey F. Zerrer................ 1997 150,400 157,606 -- 6,033(3)
Senior Vice President, Marketing
Susan S. Franklin (4)............ 1997 103,667 70,749 -- 6,033(3)
Senior Vice President, Operations
</TABLE>
- --------
(1) Mr. Zerrer's and Ms. Franklin's bonus amounts in 1997 were earned as
commissions.
(2) The amount shown represents (i) a $4,000 employer 401(k) matching
contribution made to Mr. Dugan's account under the PLMI Profit Sharing and
401(k) Plan (the "PLMI 401(k) Plan"), (ii) a $2,033 profit sharing
contribution to Mr. Dugan's account under the PLMI 401(k) Plan and (iii) a
$650 payment in respect of life insurance premiums.
(3) The amount shown represents (i) a $4,000 employer 401(k) matching
contribution made to the executive's account under the PLMI 401(k) Plan
and (ii) a $2,033 profit sharing contribution to the executive's account
under the PLMI 401(k) Plan.
(4) Ms. Franklin resigned from her position at the Company in May 1998.
The following table sets forth information concerning the exercise by the
Named Executive Officers of stock options during the most recently completed
fiscal year and the aggregate value of options held by such officers as of the
end of such fiscal year. Each option exercise and the value of option holdings
relates to the common stock of PLMI.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(PLM INTERNATIONAL, INC.)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
YEAR-END FISCAL YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)(1)
---- --------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
Donald R. Dugan, Jr..... -- -- 9,999/20,001 23,797/47,602
Jeffrey F. Zerrer....... -- -- 3,333/6,667 7,932/15,867
Susan S. Franklin (2)... -- -- 3,333/6,667 7,932/15,867
</TABLE>
- --------
(1) Based on a closing price of $5.63 per share of common stock of PLMI on the
American Stock Exchange on December 31, 1997.
(2) Ms. Franklin resigned from her position at the Company in May 1998.
44
<PAGE>
STOCK INCENTIVE PLANS
1998 Management Stock Compensation Plan
The Company has adopted, and PLMI, as the Company's sole stockholder, has
approved, the 1998 Management Stock Compensation Plan (the "Management Plan")
for the purpose of attracting, retaining and motivating certain management and
key employees of the Company or of any subsidiary of the Company by giving
such employees an opportunity to acquire, or be awarded, shares of Common
Stock. The employees selected to participate in the Management Plan are
referred to hereinafter as "Participants" and awards granted under the
Management Plan are referred to hereinafter collectively as "Awards." The
Management Plan will be administered by the Board; provided, however, that (i)
Awards granted to executive officers of the Company will be made and
administered by a committee of the Board consisting of two or more directors
who are "outside directors" within the meaning of Section 162(m) of the
Internal Revenue Code (the "Code") and (ii) Awards granted to Participants who
are subject to Section 16 of the Exchange Act with respect to the Company
will, if the Board determines that such committee administration is necessary,
be made and administered by a committee of the Board consisting of two or more
directors who are "non-employee directors" within the meaning of Rule 16b-3
under the Exchange Act. Subject to the express provisions of the Management
Plan, the Board will have full and final authority, in its sole discretion, to
(i) determine the management and key employees of the Company to whom, and the
time or times at which, Awards will be granted, the number of shares of Common
Stock to be made subject to any Award, and the exercise or purchase price of
any Award, (ii) determine the terms and provisions of each Award and, but only
with the consent of the holder thereof where such consent is required,
terminate, cancel, modify or amend the terms of any Award, (iii) authorize any
person to execute on behalf of the Company an agreement evidencing an Award,
(iv) interpret the Management Plan and any Award, (v) accelerate or extend the
permissible exercise date of, or the lapse of any restrictions with respect
to, any Award and (vi) make all other determinations deemed necessary or
advisable for the administration of the Management Plan. The Board may also
make whatever rules and regulations it deems useful to administer the
Management Plan. Any decision or action of the Board in connection with the
Management Plan or any Award, or any shares purchased pursuant to an Award,
will be final and binding.
The Board may, without stockholder approval, alter, suspend or terminate the
Management Plan at any time or from time to time; provided, however, that
stockholder approval will be required if and to the extent the Board
determines that such approval is appropriate for purposes of satisfying
applicable law, including but not limited to the Exchange Act or Sections
162(m) or 422 of the Code. The Board may amend or modify the terms of any
outstanding Award at any time and from time to time; provided, however, that
no such amendment will, without the prior written consent of the Participant,
adversely affect the rights of such Participant under a then outstanding
Award. Unless earlier terminated, the Management Plan will expire on the tenth
anniversary of its adoption; provided, however, expiration or other
termination of the Management Plan will not, without the prior written consent
of the Participant, adversely affect the rights of any Participant under a
then outstanding Award.
The Management Plan provides for the grant of stock options intended to be
"incentive stock options" within the meaning of Section 422 of the Code
("ISOs"), stock options not intended to be ISOs ("NQSOs"; and together with
ISOs, "options"), and Awards of shares of Common Stock which may be subject to
such restrictions and conditions as the Board may determine at the time of
grant. Each Award will be evidenced by an agreement (the "Award Agreement")
entered into between the Participant and the Company, which will set forth the
terms and conditions of such Award, as determined by the Board. Subject to
other provisions of the Management Plan relating to changes in the capital
structure of the Company, the total number of shares of Common Stock that may
be made subject to Awards may not exceed 865,500, and the total number to each
individual may not exceed 33.33% of the total number of shares of Common Stock
that may be subject to Awards under the Management Plan. The Management Plan
provides that if the outstanding Common Stock is increased or decreased in
number, or changed into, or exchanged for, a different number or kind of
securities of the Company or any other corporation by reason of a
recapitalization, reclassification, stock split, combination of shares, stock
dividend or other event, or if any other dilutive event occurs, the number and
kind of securities
45
<PAGE>
that may be issued pursuant to the grant, vesting or exercise of any
outstanding or future Award, and the purchase price with respect to any
outstanding or future Awards, will be adjusted by the Board if and to the
extent the Board determines in its sole discretion that such an adjustment is
necessary or desirable.
An aggregate of 544,682 options will be granted under the Management Plan to
certain members of management of the Company upon completion of the Offering.
Options granted under the Management Plan will become exercisable as to one-
third of the shares covered thereby on each of the first, second and third
anniversaries of the date of grant. The exercise price of any option will be
determined by the Board; provided, however, that (i) the options to be granted
under the Management Plan as of completion of the Offering will have a per
share exercise price equal to the initial public offering price and (ii) with
respect to all other options granted under the Management Plan, the per share
exercise price will be equal to 100% of the closing price of the Common Stock
on the Nasdaq National Market or such other national stock exchange on which
such shares are traded as of the date of grant (110%, in the case of an ISO
granted to a Participant (a "10% Holder") who, at the time of grant, owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of any "parent corporation" or "subsidiary
corporation" of the Company (as such terms are defined in Section 424(f) of
the Code)). The term of any option will be determined by the Board and
specified in the applicable Award Agreement; provided, however, that in the
case of an ISO, the term of such option will not exceed 10 years from the date
of grant (five years, in the case of an ISO granted to a 10% Holder). The
Management Plan provides that the exercise price of all or any portion of an
option must be paid in full at the time of exercise. The exercise price of an
option may, as determined by the Board in its discretion, be paid in cash, by
check, by delivery to the Company of previously owned shares of Common Stock,
by the Participant's interest-bearing full recourse promissory note, by
cashless exercise methods, or by a combination of the above.
At the time an Award is granted under the Management Plan, the Board may
determine that the Company will retain, for itself or others, such rights to
repurchase, rights of first refusal, and other transfer restrictions
applicable to Common Shares issued pursuant to an Award, or may impose such
other restrictions as the Board may determine, which rights will be set forth
in the applicable Award Agreement. In addition, the Board may impose such
other restrictions on any shares of Common Stock issued pursuant to the
Management Plan as it may deem advisable, including, without limitation,
restrictions under the Securities Act, under the requirements of any stock
exchange upon which the shares of the same class are then listed, and under
any blue sky or other securities laws applicable to such shares.
The issuance of shares of Common Stock pursuant to the grant, vesting or
exercise of an Award will be conditioned upon payment by the Participant to
the company of amounts sufficient to enable the Company to pay all applicable
federal, state and local withholding taxes. Such payment may be effected
through (i) the Company's withholding from the number of shares that would
otherwise be delivered a number of whole shares having a fair market value
equal to or less than the aggregate withholding taxes, (ii) payment by the
Participant of the aggregate withholding taxes in cash, (iii) withholding by
the Company from other amounts contemporaneously owed by the Company to the
Participant or (iv) any combination of the foregoing.
Upon the occurrence of a Change in Control (as defined in the Management
Plan), the Board may in its absolute discretion do any one or more of the
following: (i) shorten the period during which options are exercisable
(provided they remain exercisable, to the extent otherwise exercisable, for at
least ten days after the date notice is given), (ii) accelerate any vesting
schedule to which an Award is subject or cause to lapse any repurchase or
other rights the Company may have with respect to shares of Common Stock
acquired by a Participant pursuant to the grant, vesting or exercise of an
Award, (iii) arrange for the grant of replacement Awards or (iv) cancel
outstanding Awards or shares of Common Stock acquired by a Participant which
are subject to restrictions, for which each such Participant will be entitled
to receive in consideration an amount in cash that, in the discretion of the
Board, is determined to be equivalent to the fair market value of such Award
or shares. In considering the advisability, or the terms and conditions, of
any action it may take in connection with a Change in Control, the Board will
take into account the penalties that may result directly or indirectly from
such action to either the Company or the Participant, or both, under Section
280G of the Code, and may decide to limit such action to the extent necessary
to avoid or mitigate such penalties or their effects.
46
<PAGE>
Directors' 1998 Nonqualified Stock Option Plan
The Company has adopted, and PLMI, as the Company's sole stockholder, has
approved, the Directors' 1998 Nonqualified Stock Option Plan (the "Director
Plan") for the purpose of motivating and rewarding those directors of the
Company who are not employees of the Company or any subsidiary of the Company
(such individuals, "Non-employee Directors") by granting to such directors
NQSOs (each such NQSO, a "Director Option"). The Director Plan will be
administered by the Board, which, subject to the express provisions of the
Director Plan, will have full and final authority to (i) authorize any person
to execute on behalf of the Company an agreement evidencing the grant of a
Director Option, (ii) interpret the Director Plan and any Director Option and
(iii) make all other determinations determined by the Board to be necessary or
advisable for the administration of the Director Plan. The Board may also make
whatever rules and regulations it deems useful to administer the Director
Plan. Any decision or action of the Board in connection with the Director Plan
or any Director Option, or any shares purchased pursuant to a Director Option,
will be final and binding.
The Board may, without stockholder approval, alter, suspend or terminate the
Director Plan at any time or from time to time; provided, however, that
stockholder approval will be required if and to the extent the Board
determines that such approval is appropriate for purposes of satisfying
applicable law, including but not limited to federal securities laws. The
Board may amend or modify the terms of any outstanding Director Option at any
time and from time to time; provided, however, that no such amendment will,
without the prior written consent of the optionee, adversely affect the rights
of such optionee under a then outstanding option. Unless earlier terminated,
the Director Plan will expire on the tenth anniversary of its adoption;
provided, however, expiration or other termination of the Director Plan will
not, without the prior written consent of the optionee, adversely affect the
rights of any optionee under a then outstanding option.
The total number of shares of Common Stock that may be made subject to
Director Options will not exceed in the aggregate 100,000, subject to
adjustment. The Director Plan provides that if the outstanding Common Stock is
increased or decreased in number, or changed into, or exchange for, a
different number or kind of securities of the Company or any other corporation
by reason of a recapitalization, reclassification, stock split, combination of
shares, stock dividend or other event, or if any other dilutive event occurs,
the number and kind of securities that may be issued pursuant to the grant,
vesting or exercise of any outstanding or future Director Option, and the
purchase price with respect to any outstanding or future Director Options,
will be adjusted by the Board if and to the extent the Board determines in its
sole discretion that such an adjustment is necessary or desirable.
Each Non-employee Director automatically will be granted as of the
completion of the Offering an option to purchase 10,000 shares of Common Stock
at a per share exercise price equal to the initial public offering price. In
addition, on each of February 1, 1999 and February 1, 2000, each such director
automatically will be granted an option to purchase 5,000 shares of Common
Stock at a per share exercise price equal to the average of the high and low
prices, as reported in the Wall Street Journal, of such shares on the Nasdaq
National Market or such other national stock exchange on which such shares are
traded on the day immediately preceding the date as of which such option is
granted. The terms and conditions of each Director Option will be set forth in
an agreement entered into between the optionee and the Company. The term of
each Director Option will be ten years and each Director Option will become
exercisable as to one-third of the shares covered thereby on each of the
first, second and third anniversaries of the date of grant. If a Non-employee
Director ceases to be a director of the Company for any reason other than
death, Director Options then held by such Non-employee Director may, to the
extent then exercisable, be exercised within six months (12 months, if such
individual ceases to be a director of the Company due to the such individual's
permanent and total disability) following the effective date of such cessation
of service. If a Non-employee Director dies while a director of the Company or
within the period that the Director Option remains exercisable after ceasing
to be a director, any Director Option then held by such Non-employee Director
may be exercised by such individual's personal representative or beneficiary
at any time prior to the original expiration date of such option or, if
earlier, within twelve months after the death of the Non-employee Director.
47
<PAGE>
Upon the occurrence of a Change in Control (as defined in the Director
Plan), the Board may in its absolute discretion do any one or more of the
following: (i) shorten the period during which Director Options are
exercisable (provided they remain exercisable, to the extent otherwise
exercisable, for at least 10 days after the date notice is given), (ii)
accelerate any vesting schedule to which a Director Option is subject or cause
to lapse any restrictions applicable to Common Stock acquired pursuant to the
exercise of a Director Option, (iii) arrange for the grant of replacement
Director Options or (iv) cancel outstanding Director Options, for which each
such optionee will be entitled to receive in consideration an amount in cash
that, in the discretion of the Board, is determined to be equivalent to the
fair market value of such Director Option. In considering the advisability, or
the terms and conditions, of any action it may take in connection with a
Change in Control, the Board will take into account the penalties that may
result directly or indirectly from such action to either the Company or the
Non-employee Director, or both, under Section 280G of the Code, and may decide
to limit such action to the extent necessary to avoid or mitigate such
penalties or their effects.
BONUS PLANS
The Company has established a bonus program for Mr. Dugan pursuant to which
Mr. Dugan is eligible to receive (i) an annual cash bonus (the "Target
Bonus"), subject to the achievement of certain goals, and (ii) additional
bonuses (the "Residual Bonuses"), each of which is equal to 50% of the Target
Bonus and which may be earned in full in each of the four years following the
year in respect of which the Target Bonus is earned. The Target Bonus is set
annually by the Board of Directors and the percentage of the Target Bonus
actually paid is based on the achievement of certain goals ("Goals") relating
to the financial performance of the Company (including without limitation
return on equity, meeting or exceeding the Company's budget for pre-tax income
and additions to the Company's owned portfolio). Performance that exceeds the
Goals may, in the sole discretion of the Board of Directors, result in a
payment in excess of 100% of the Target Bonus.
In each year, the aggregate Residual Bonuses to be paid (including Residual
Bonuses payable based on Target Bonuses earned in respect of earlier years)
will be payable out of the gain from the disposition of leased assets owned by
AFG Credit Corporation, such payment not to exceed 50% of such gain.
EMPLOYMENT AGREEMENTS
The Company and Gary M. Abrams have entered into an employment agreement,
dated as of September 2, 1998 (the "Abrams Agreement"), pursuant to which Mr.
Abrams is to be employed as the Company's Senior Vice President, Chief
Financial Officer and Treasurer at an annual salary of $150,000 (which salary
may be increased, but not decreased). The Abrams Agreement further provides
for Mr. Abrams' participation in all of the Company's employee benefit plans
and arrangements made available from time to time to its senior executives, as
well as any bonus or incentive compensation plan in which other senior
executives of the Company may reasonably expect to participate, provided that
Mr. Abrams' total bonus in respect of the fiscal year ending December 31, 1998
will be a cash amount equal to $45,000. Under the Abrams Agreement, Mr. Abrams
is subject to a covenant not to compete with the Company or solicit the
Company's customers during the period of his employment or during the two-year
period following termination of his employment with the Company. In the event
that the Company terminates Mr. Abrams' employment under the Abrams Agreement
other than for death, disability or "Cause" (as each such term is defined in
the Abrams Agreement), the Company is obligated to pay to Mr. Abrams, in
exchange for his release of claims against the Company, severance pay in the
form of salary continuation for a period of 24 months at the current rate per
month at the time of such termination of employment. In addition, any stock
options or similar stock-based rights held by Mr. Abrams at such time would
become immediately accelerated and fully vested, and, during such 24-month
period, Mr. Abrams would also be entitled to continued enrollment at the
Company's expense in the Company's group medical, dental and vision insurance
plans, disability insurance plan and life insurance plan.
48
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company has not had a Compensation Committee.
Messrs. Tidball, Dugan and Allgood each participated in deliberations
concerning executive officer compensation in 1997. With the exception of Mr.
Tidball, who is a director of PLMI and certain of PLMI's subsidiaries other
than the Company, no interlocking relationship exists between the Company's
Board of Directors and the board of directors or compensation committee of any
unaffiliated company, nor has any such relationship existed in the past. The
Company has engaged in certain business transactions, and has had and will
continue to have certain business relationships, with PLMI. See "Certain
Transactions."
49
<PAGE>
CERTAIN TRANSACTIONS
PROVISION OF CERTAIN CORPORATE SERVICES BY PLMI
PLMI provides to the Company certain essential corporate services, including
accounting, management information systems and data processing, human
resources, legal and risk management services. Prior to the Offering, the
amount payable by the Company in respect of such services was based on the
time spent by personnel of PLMI in providing such services. The allocated cost
of these services in 1997 was $1.3 million.
INTERCOMPANY AGREEMENT
Prior to the Offering, the Company and PLMI will enter into the Intercompany
Agreement, certain provisions of which are summarized below. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Intercompany Agreement, a copy of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Capitalized terms used but not defined in the following summary have the
meanings given to them in the Intercompany Agreement. As used herein, "PLMI
Affiliated Group" means PLMI collectively with its subsidiaries (other than
the Company and its subsidiaries).
Indemnification
The Intercompany Agreement provides that the Company will indemnify each
member of the PLMI Affiliated Group and each of their respective officers,
directors, employees and agents (collectively, the "Indemnitees") against
losses based on, arising out of or resulting from (i) the ownership or the
operation of the assets or properties, and the operation or conduct of the
business, of the Company or its subsidiaries, (ii) any other activities of the
Company or its subsidiaries, (iii) any other acts or omissions arising out of
performance of the Intercompany Agreement, (iv) any guaranty, keep well, net
worth or financial condition maintenance agreement of or by any member of the
PLMI Affiliated Group provided to any parties with respect to any actual or
contingent obligation of the Company or its subsidiaries and (v) certain other
matters. In addition, the Company has agreed to indemnify the Indemnitees
against certain civil liabilities, including liabilities under the Securities
Act, relating to misstatements in or omissions from the Registration Statement
of which this Prospectus forms a part and any other registration statement
that the Company files under the Securities Act (other than misstatements or
omissions made in reliance on information relating to and furnished by any
member of the PLMI Affiliated Group for use in the preparation thereof,
against which PLMI has agreed to indemnify the Company). PLMI has also agreed
to indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from (i) any breach by PLMI of the Intercompany Agreement,
(ii) the ownership or the operation of the assets or properties, and the
operation or conduct of the business, of the PLMI Affiliated Group and (iii)
certain other specifically identified matters.
PLMI Consent to Certain Events
The Intercompany Agreement provides that until members of the PLMI
Affiliated Group cease to control at least 35% of the combined voting power of
the outstanding Common Stock or no longer own at least 35% of the outstanding
Common Stock, the prior written consent of PLMI will be required for: (i) any
consolidation or merger of the Company or any of its subsidiaries with any
person (other than certain transactions involving wholly owned subsidiaries);
(ii) any sale, lease, exchange or other disposition by the Company or any of
its subsidiaries (other than transactions to which the Company and its wholly
owned subsidiaries are the only parties), directly or indirectly, of all or
substantially all of the assets of the Company or any of its subsidiaries;
(iii) any alteration, amendment or repeal of the Charter or Bylaws: (iv) any
issuance by the Company or any subsidiary of the Company of any equity
securities or equity derivative securities (except (a) up to 965,500 options
to purchase shares of Common Stock pursuant to employee and director stock
option, profit sharing and other benefit plans of the Company and its
subsidiaries and the issuance of the shares of Common Stock
50
<PAGE>
underlying such options, (b) the issuance of shares of capital stock of a
wholly owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company and (c) in the Offering); (v) the election or
appointment of persons to, or the filling of a vacancy in, the offices of
president or chief executive officer of the Company; and (vi) the dissolution,
liquidation or winding up of the Company.
Registration Rights
The Company has granted to the PLMI Affiliated Group certain demand
registration rights with respect to shares of Common Stock owned by the PLMI
Affiliated Group. The PLMI Affiliated Group has the right to request demand
registrations from time to time, and such registration rights are transferable
by the PLMI Affiliated Group. The Company has agreed to pay all costs and
expenses in connection with each such registration, except underwriting
discounts and commissions applicable to the shares of Common Stock sold by the
PLMI Affiliated Group. The Intercompany Agreement contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Common Stock on behalf of the PLMI Affiliated Group.
Reimbursement of Expenses
The Company has agreed to pay all costs and expenses incurred in connection
with the Offering and certain other transactions.
Equity Purchase Rights
The Company has agreed that, to the extent permitted by the principal
national securities exchange in the United States upon which the Common Stock
is listed and so long as PLMI controls at least 35% of the combined voting
power of the outstanding Common Stock or at least 35% of the issued and
outstanding Common Stock, the PLMI Affiliated Group may purchase its pro rata
share (based on its then current percentage equity interest in the Company) of
any voting equity security issued by the Company (excluding any such
securities offered in connection with the Offering and pursuant to employee
stock options or other benefit plans, dividend reinvestment plans and other
offerings other than for cash). The exercise of such rights is currently
prohibited by the NYSE.
Certain Services to Be Provided by PLMI
The Intercompany Agreement also provides for PLMI to provide certain
corporate services to the Company during the three-year period immediately
following the date thereof, including accounting, data processing, human
resources, legal and risk management services. In consideration of the
provision of such services under the agreement, the Company is obligated to
pay PLMI a base annual service fee in the amount of $500,000 in four equal
installments of $125,000 each on or before the thirtieth day of each January,
April, July and September.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of October 15, 1998, as adjusted to
reflect the sale of the Common Stock offered hereby, for (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) the Selling Stockholder, (iii) each director of the Company, (iv)
each Named Executive Officer and (v) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)
NAME OF -------------------- SHARES --------------------
BENEFICIAL OWNER NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
---------------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
PLM International, Inc. ... 4,200,000 100% 580,000 3,620,000 62.7%
One Market
Steuart Street Tower
Suite 800
San Francisco, California
94105
Robert N. Tidball.......... 0 * -- 0 *
Donald R. Dugan, Jr........ 0 * -- 0 *
J. Michael Allgood......... 0 * -- 0 *
Joseph C. Berenato......... 0 * -- 0 *
Richard E. Carolan......... 0 * -- 0 *
John F. O'Brien............ 0 * -- 0 *
Jeffrey F. Zerrer.......... 0 * -- 0 *
Susan S. Franklin (3)...... 0 * -- 0 *
All directors and executive
officers as a group (10
persons).................. 0 * -- 0 *
</TABLE>
- --------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Applicable percent ownership is based on 4,200,000 shares of Common Stock
outstanding as of October 15, 1998 and 5,770,000 shares of Common Stock
outstanding upon completion of the Offering.
(3) Ms. Franklin resigned from her position at the Company in May 1998.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
common stock, par value $0.01 per share ("Common Stock"), and 5,000,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock").
COMMON STOCK
As of September 30, 1998, 4,200,000 shares of Common Stock were outstanding,
all of which were held by the Selling Stockholder. Upon completion of the
Offering, 5,770,000 shares of Common Stock will be outstanding.
The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of holders of Common Stock. The Common Stock
does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding are able to
elect all the directors and the holders of the remaining shares are not able
to elect any directors. Upon completion of the Offering, the Selling
Stockholder will own a majority of the outstanding shares of Common Stock.
Each share of Common Stock is entitled to participate equally in dividends,
if, as and when declared by the Company's Board of Directors, and in the
distribution of assets in the event of liquidation, subject in all cases to
any prior rights of outstanding shares of Preferred Stock. The Company has
never paid cash dividends on its Common Stock. The shares of Common Stock have
no preemptive rights, redemption rights or sinking fund provisions. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby upon issuance and sale will be, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Charter authorizes the Board of Directors, without any action by the
stockholders of the Company, to issue up to 5,000,000 shares of Preferred
Stock. Pursuant to such authorization, the Company's Board of Directors may
establish, without stockholder approval, one or more classes or series of
Preferred Stock having such number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations as the Board of Directors may designate, including in connection
with the adoption of a stockholder rights plan. The Company believes that this
authorization to issue Preferred Stock will provide flexibility in connection
with possible corporate transactions. The issuance of Preferred Stock,
however, could adversely affect the voting power of holders of Common Stock
and restrict their rights to receive payments upon liquidation of the Company.
The issuance of Preferred Stock could also have the effect of delaying,
deferring or preventing a change in control of the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (i)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination, (ii) upon
completion of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the Company and by
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer) or (iii) following the transaction in which that
person became an interested stockholder, the business combination is approved
by the Company's Board of Directors and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock not owned by the interested stockholder.
53
<PAGE>
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving the
Company and a person who was not an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the Company's directors, if that extraordinary transaction is
approved or not opposed by a majority of the directors who were directors
before any person became an interested stockholder in the previous three years
or who were recommended for election or elected to succeed such directors by a
majority of such directors then in office.
The Charter provides that following completion of the Offering, the ability
of the Company's stockholders to consent in writing, pursuant to Section 228
of the Delaware General Corporation Law, to the taking of any action with
respect to any of the following is specifically denied: (i) any consolidation
or merger of the Company with or into any person, or of any person with or
into the Company, requiring the approval of stockholders of the Company, (ii)
any sale, lease, exchange or other disposition by the Company or any
subsidiary of the Company of all or substantially all of the assets of the
Company requiring the approval of stockholders of the Company, (iii) any
dissolution, liquidation or winding up of the Company requiring the approval
of stockholders of the Company, (iv) any election of directors pursuant to
Section 211(b) of the Delaware General Corporation Law and (v) any amendment,
alteration, change or repeal of Article NINTH of the Charter, which sets forth
such provision.
The Bylaws provide that the Company's Board of Directors will be elected by
a plurality of votes cast at the annual meeting of holders of Common Stock. In
general, the Board of Directors, not the stockholders, has the right to
appoint persons to fill vacancies on the Board of Directors. The Bylaws also
provide that as long as the PLMI Affiliated Group maintains a 35% interest in
the Common Stock, the Board of Directors will nominate two persons designated
by PLMI for election to the Board of Directors at each annual meeting and at
any special meeting of stockholders called for the purpose of electing
directors.
The Bylaws provide that special meetings of holders of Common Stock may be
called only by the Company's Board of Directors or by the holders of a
majority in voting power of the outstanding capital stock of the Company and
that only such business as is specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors may
be conducted at a special meeting of stockholders of the Company.
The Bylaws provide that the only business that may be considered at an
annual meeting of holders of Common Stock, in addition to business specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors or otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors, is business
proposed (or persons nominated to be director) by certain stockholders who
comply with the notice requirements set forth in the Bylaws. The Bylaws
require that a stockholder give the Company notice of proposed business or
nominations not less than 60 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders or (if the annual meeting
is called for a date not within 30 days before or after such anniversary date)
ten days after the day on which notice of the annual meeting is mailed or
public disclosure thereof made, whichever occurs first. The notice must also
contain information about the stockholder proposing the business or
nomination, the stockholder's interest in the business, and (with respect to
nominations for director) information about the nominee of the nature required
to be disclosed in public proxy statements. The stockholder also must submit a
notarized letter from each of the stockholder's nominees stating the nominee's
acceptance of the nomination and indicating the nominee's intention to serve
as director if elected.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless the
corporation's certificate of incorporation or bylaws requires a greater
percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, LLC.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 5,770,000 shares of
Common Stock outstanding. The 2,150,000 shares of Common Stock offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act, except for shares sold by persons deemed to be "affiliates" of
the Company or acting as "underwriters," as those terms are defined in the
Securities Act. Following the expiration of the lock-up period described
below, all of the remaining outstanding shares of Common Stock will be freely
tradeable subject to restrictions on resale imposed upon "affiliates" by Rule
144 under the Securities Act.
An aggregate of 965,500 shares of Common Stock are reserved for issuance to
directors, executives, consultants and employees of the Company pursuant to
the Management Plan and the Director Plan. The Company intends to file a
registration statement on Form S-8 covering the issuance of shares of Common
Stock pursuant to the Management Plan and the Director Plan. Accordingly,
shares issued pursuant to these plans will be freely tradeable, except for any
shares held by an "affiliate" of the Company.
PLMI and certain of its subsidiaries have been granted certain demand
registration rights pursuant to the Intercompany Agreement. See "Certain
Transactions."
The Company, its officers and directors, and the Selling Stockholder have
agreed not to offer, sell or grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock for a period of 180
days commencing on the date of this Prospectus without the prior written
consent of the Legg Mason Wood Walker, Incorporated, other than the issuance
of options to purchase Common Stock or shares of Common Stock issuable upon
the exercise thereof in connection with the Company's stock option plans,
provided that such options will not vest and such shares will not be
transferable prior to the end of the 180 day period. See "Underwriting."
Prior to the Offering, there has been no market for the Common Stock. No
predictions can be made of the effect, if any, that market sales of shares of
Common Stock or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of Common Stock could adversely affect the prevailing market price of
the Common Stock, as well as impair the ability of the Company to raise
capital through the issuance of additional equity securities.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") between the Company and the Selling
Stockholder, on the one hand, and Legg Mason Wood Walker, Incorporated ("Legg
Mason") and ING Baring Furman Selz LLC, as representatives of the underwriters
(the "Representatives"), on the other hand, the underwriters named below (the
"Underwriters") have severally agreed to purchase from the Company and the
Selling Stockholder the following respective numbers of shares of Common Stock
at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Legg Mason Wood Walker, Incorporated.............................
ING Baring Furman Selz LLC.......................................
---------
Total.......................................................... 2,150,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to the satisfaction of
certain conditions precedent and that the Underwriters are committed to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares
are purchased.
The Company and the Selling Stockholder have been advised by Legg Mason that
the Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such public offering price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other underwriters or to certain other brokers or dealers. After the
initial offering to the public, the offering price and other selling terms may
be changed by Legg Mason.
The Company and the Selling Stockholder have granted the Underwriters an
option to purchase up to an additional 235,490 shares of Common Stock and
87,010 shares of Common Stock, respectively, to cover over-allotments, if any,
at the public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus. The Underwriters may exercise
this option at any time up to 30 days after the date of this Prospectus. To
the extent that the Underwriters exercise this option, each Underwriter will
be committed, subject to certain conditions, to purchase a number of the
additional shares of Common Stock that is proportionate to such Underwriter's
initial commitment as indicated in the preceding table.
The Selling Stockholder and all of the Company's directors and officers have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or any right to acquire Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Legg Mason. In addition, the Company has agreed in the Underwriting
Agreement that, during the period of 180 days after the date of this
Prospectus, without the prior written consent of Legg Mason, it will not
issue, offer, sell, grant options to purchase or otherwise dispose of any of
the Company's equity securities or any other securities convertible into or
exchangeable with the Company's Common Stock or other equity security, subject
to certain limited exceptions. Legg Mason may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to these lock-up agreements. See "Shares Eligible for Future Sale."
56
<PAGE>
Legg Mason has advised the Company and the Selling Stockholder that the
Underwriters do not intend to confirm sales in excess of 5% of the shares
offered hereby to accounts over which they exercise discretionary authority.
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Until the distribution of the shares of Common Stock is completed, the rules
of the Securities and Exchange Commission (the "Commission") may limit the
ability of the Underwriters and certain selling group members to bid for and
purchase shares of Common Stock. As an exception to these rules, in connection
with this offering, certain Underwriters and selling group members and their
respective affiliates may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Common Stock. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M promulgated by the Commission pursuant to which such persons may
bid for or purchase Common Stock for the purpose of pegging, fixing or
maintaining the market price of the Common Stock.
The Underwriters may also create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company and the Selling
Stockholder, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such
position. The Underwriters also may elect to reduce any short position by
exercising all or part of the over-allotment option described herein.
In addition, Legg Mason, on behalf of the Underwriters, also may impose
"penalty bids" under contractual arrangements with the Underwriters whereby
they may reclaim from an Underwriter (or any selling group member
participating in this offering) for the account of the other Underwriters, the
selling concession with respect to shares of Common Stock that are distributed
in this offering but subsequently purchased for the account of the
Underwriters in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company, the Selling Stockholder 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
shares of Common Stock. In addition, neither the Company, the Selling
Stockholder nor any of the Underwriters makes any representations that the
Underwriters will engage in such transactions, or that such transactions once
commenced, will not be discontinued without notice.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiation among the Company, the Selling Stockholder and the
Representatives. Among the factors to be considered in such negotiations are
the prevailing market conditions, the Company's results of operations and
current financial position, estimates of the business potential and prospects
of the Company, the experience of the Company's management, the economics of
the industry in general and other factors deemed relevant.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "AFGC."
57
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom
LLP, San Francisco, California. Certain legal matters relating to the Common
Stock offered hereby will be passed upon for the Underwriters by Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1997
and 1996, for each of the years in the two-year period ended December 31, 1997
and for the period from February 9, 1995 (inception) through December 31, 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 in the Registration Statement and upon the
authority of said firm as experts in accounting and auditing.
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 with respect to the offer and sale of
Common Stock pursuant to this Prospectus. This Prospectus, filed as a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement or the exhibits and schedules thereto in
accordance with the rules and regulations of the Commission and reference is
hereby made to such omitted information. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document filed as
an exhibit to the Registration Statement are intended to discuss all relevant
material provisions of such contracts, agreements or documents; however,
reference is made to each such exhibit for a more complete description of the
matters involved, and such statements are qualified in their entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed with the Commission may be inspected, without charge, and copies may be
obtained at prescribed rates, at the public reference facility maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511. The Registration
Statement and other information filed by the Company with the Commission are
also available at the web site maintained by the Commission on the World Wide
Web at http://www.sec.gov. For further information pertaining to the Company
and the Common Stock offered by this Prospectus, reference is made to the
Registration Statement, including the exhibits thereto and the consolidated
financial statements, notes and schedules included as a part thereof.
58
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Statements of Operations for the period from February 9, 1995
(inception) through December 31, 1995, the Years Ended December 31, 1996
and 1997 and the Six Months Ended June 30, 1997 and 1998 (unaudited)..... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)......................................................... F-4
Consolidated Statements of Changes in Stockholder's Equity for the period
from February 9, 1995 (inception) through December 31, 1995, the Years
Ended December 31, 1996 and 1997 and the Six Months Ended June 30, 1997
and 1998 (unaudited)..................................................... F-5
Consolidated Statements of Cash Flows for the period from February 9, 1995
(inception) through December 31, 1995, the Years Ended December 31, 1996
and 1997 and the Six Months Ended June 30, 1997 and 1998 (unaudited)..... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Finance Group, Inc.
We have audited the consolidated financial statements of American Finance
Group, Inc. and subsidiaries (the "Company") as listed in the accompanying
index. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above
present fairly, in all material respects, the financial position of American
Finance Group, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for the period from February
9, 1995 (inception) through December 31, 1995 and each of the years in the
two-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
April 24, 1998 (except with
respect to the matters discussed
in Note 18, as to which the
date is October 13, 1998)
F-2
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE PERIOD FROM ENDED FOR THE SIX MONTHS
FEBRUARY 9, 1995 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) THROUGH ---------------- --------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Finance lease (Note 2).. $ -- $ 1,763 $ 7,027 $ 3,245 $ 5,708
Operating lease (Note
4)..................... 2,293 5,020 8,634 4,562 4,193
Financing income (Note
3)..................... -- 92 546 291 336
Management fees (Note
1)..................... 145 485 729 326 407
Revenue from sale of
leases and related
assets (Note 1)........ 1,252 2,188 3,737 1,605 1,776
------- ------- ------- --------- --------
Revenues from ongoing
business activities.. 3,690 9,548 20,673 10,029 12,420
Revenues from the
management of Equis
investor programs
(Note 14).............. 1,635 -- -- -- --
------- ------- ------- --------- --------
Total revenues...... 5,325 9,548 20,673 10,029 12,420
COSTS AND EXPENSES
Operations support...... 5,686 3,509 3,947 1,921 2,021
Depreciation and
amortization........... 8 4,292 6,622 3,569 3,633
General and
administrative (Note
9)..................... 867 1,178 1,263 632 596
------- ------- ------- --------- --------
Total costs and
expenses........... 6,561 8,979 11,832 6,122 6,250
------- ------- ------- --------- --------
Operating income
(loss)................. (1,236) 569 8,841 3,907 6,170
Interest expense........ -- (2,019) (5,800) (2,804) (4,780)
Interest income......... -- 176 324 151 232
Other expense........... -- (19) -- -- --
------- ------- ------- --------- --------
Income (loss) before
income taxes........... (1,236) (1,293) 3,365 1,254 1,622
Provision for (benefit
from) income taxes
(Note 8)............... (442) (457) 1,259 469 605
------- ------- ------- --------- --------
Net income (loss)... $ (794) $ (836) $ 2,106 $ 785 $ 1,017
======= ======= ======= ========= ========
Basic and diluted
earnings (loss) per
weighted-average common
share outstanding (Note
1)..................... $ (0.19) $ (0.20) $ 0.50 $ 0.19 $ 0.24
======= ======= ======= ========= ========
PRO FORMA DATA
(UNAUDITED--SEE NOTE
13)
Historical net loss..... $ (836)
Pro forma adjustments
to reflect net income
from subsidiary of
Parent earned on
behalf of the
Company.............. 838
-------
Pro forma net income.. $ 2
=======
Pro forma basic and
diluted earnings per
weighted-average
common share
outstanding.......... $ 0.00
=======
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
------------------ JUNE 30,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Restricted cash (Note 1)....................... $ 3,552 $ 3,775 $ 6,956
Receivables.................................... 1,971 1,762 1,524
Investment in direct finance leases, net (Note
2)............................................ 52,964 112,465 158,785
Loans receivable (Note 3)...................... 5,718 5,861 22,634
Commercial and industrial equipment held for
operating leases (Note 4)..................... 34,196 28,806 28,258
Less accumulated depreciation................ (3,062) (5,061) (7,800)
-------- -------- --------
31,134 23,745 20,458
Other assets, net (Note 5)..................... 3,982 3,858 3,955
-------- -------- --------
Total assets............................... $ 99,321 $151,466 $214,312
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Warehouse credit facility (Note 6)........... $ 26,886 $ 23,040 $ 44,803
Nonrecourse notes payable (Note 7)........... -- 10,000 17,545
Nonrecourse securitization facility (Note
7).......................................... 45,392 71,302 105,946
Advance from PLMI (Note 9)................... -- 6,478 --
Payables and other liabilities............... 6,860 13,477 6,908
Deferred income taxes (Note 8)............... 2,310 7,190 10,925
-------- -------- --------
Total liabilities.......................... 81,448 131,487 186,127
Commitments and contingencies (Note 10)
Stockholder's equity (Notes 11 and 18):
Preferred stock ($0.01 par value, 5,000,000
shares authorized, no shares issued or
outstanding as of December 31, 1996 or 1997
or June 30, 1998)............................ -- -- --
Common stock ($0.01 par value, 30,000,000
shares authorized, 4,200,000 shares issued
and outstanding as of December 31, 1996 and
1997 and June 30, 1998)...................... 42 42 42
Paid-in capital, in excess of par.............. 19,461 19,461 26,650
Retained earnings (accumulated deficit)........ (1,630) 476 1,493
-------- -------- --------
Total stockholder's equity................. 17,873 19,979 28,185
-------- -------- --------
Total liabilities and stockholder's
equity.................................. $ 99,321 $151,466 $214,312
======== ======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM FEBRUARY 9, 1995 (INCEPTION) THROUGH
DECEMBER 31, 1995, THE YEARS ENDED DECEMBER 31, 1996 AND 1997,
AND THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PAID-IN RETAINED
CAPITAL EARNINGS/ TOTAL
COMMON IN EXCESS (ACCUMULATED STOCKHOLDER'S
STOCK OF PAR DEFICIT) EQUITY
------ --------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCES, FEBRUARY 9, 1995
(INCEPTION)...................... $42 $ -- $ -- $ --
Capital contributions from
Parent........................... -- 2,586 -- 2,628
Net loss.......................... -- -- (794) (794)
--- ------- ------- -------
BALANCES, DECEMBER 31, 1995....... 42 2,586 (794) 1,834
Capital contributions from
Parent........................... -- 16,875 -- 16,875
Net loss.......................... -- -- (836) (836)
--- ------- ------- -------
BALANCES, DECEMBER 31, 1996....... 42 19,461 (1,630) 17,873
Net income........................ -- -- 2,106 2,106
--- ------- ------- -------
BALANCES, DECEMBER 31, 1997....... 42 19,461 476 19,979
Capital contributions from
Parent........................... -- 7,189 -- 7,189
Net income........................ -- -- 1,017 1,017
--- ------- ------- -------
BALANCES, JUNE 30, 1998
(UNAUDITED)...................... $42 $26,650 $ 1,493 $28,185
=== ======= ======= =======
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
FOR THE PERIOD FROM DECEMBER 31, ENDED JUNE 30,
FEBRUARY 9, 1995 (INCEPTION) -------------------- -------------------
THROUGH DECEMBER 31, 1995 1996 1997 1997 1998
---------------------------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ (794) $ (836) $ 2,106 $ 785 $ 1,017
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization......... 8 4,292 6,622 3,569 3,633
Deferred income tax
expense.............. 806 1,504 4,880 2,440 3,735
Gain on the sale or
disposition of
assets, net.......... -- (1,039) (2,388) (1,434) (1,086)
Changes in assets and
liabilities:
(Increase) decrease in
receivables.......... (360) (1,611) 209 1,163 238
Decrease (increase) in
other assets, net.... -- (182) 115 (99) (399)
Increase in payables
and other
liabilities.......... 4 1,561 1,520 1,395 1,221
------- --------- --------- -------- ---------
Net cash provided by
(used in) operating
activities.......... (336) 3,689 13,064 7,819 8,359
------- --------- --------- -------- ---------
INVESTING ACTIVITIES
Principal payments
received on loans..... -- 227 2,020 979 1,878
Investment in loans
receivable............ -- (5,945) (2,163) (777) (18,651)
Principal payments
received on finance
leases................ -- 4,832 15,569 7,350 14,981
Investment in direct
finance leases........ -- (53,281) (72,704) (20,803) (81,546)
Purchase of commercial
and industrial
equipment held for
operating lease....... -- (73,027) (50,204) (13,728) (16,261)
Proceeds from the sale
of commercial and
industrial equipment
on operating lease.... -- 39,888 56,638 24,699 15,409
Proceeds from the sale
of commercial and
industrial equipment
on finance lease...... -- -- -- -- 14,349
Proceeds from the sale
of fixed assets....... -- 528 -- -- --
Purchase of fixed
assets................ (19) (605) (539) (348) --
Purchase of certain
lease origination and
management assets..... (1,342) (1,907) -- -- --
------- --------- --------- -------- ---------
Net cash used in
investing
activities.......... (1,361) (89,290) (51,383) (2,628) (69,841)
------- --------- --------- -------- ---------
FINANCING ACTIVITIES
Borrowings on warehouse
credit facility....... -- 76,392 90,908 23,510 72,065
Repayment of warehouse
credit facility....... -- (49,506) (94,754) (43,255) (50,302)
Borrowings on
nonrecourse notes
payable............... -- -- 10,000 -- 9,496
Repayment of
nonrecourse notes
payable............... -- -- -- -- (1,951)
Borrowings on
nonrecourse
securitization
facility.............. -- 56,024 111,716 14,394 45,016
Repayment of
nonrecourse
securitization
facility.............. -- (10,632) (85,806) (7,443) (10,372)
Payment of loan fees... (931) -- -- -- --
Increase in restricted
cash.................. -- (3,552) (223) (384) (3,181)
Advance from PLMI,
net................... -- -- 6,478 7,987 (6,478)
Capital contributions
from Parent........... 2,628 16,875 -- -- 7,189
------- --------- --------- -------- ---------
Net cash provided by
(used in) financing
activities.......... 1,697 85,601 38,319 (5,191) 61,482
------- --------- --------- -------- ---------
Net change in cash and
cash equivalents...... -- -- -- -- --
Cash and cash
equivalents at
beginning of period... -- -- -- -- --
------- --------- --------- -------- ---------
Cash and cash
equivalents at end of
period................ $ -- $ -- $ -- $ -- $ --
======= ========= ========= ======== =========
SUPPLEMENTAL DISCLOSURE
NET CASH PAID
(RECEIVED) FOR:
Interest............... $ -- $ 1,893 $ 5,057 $ 2,613 $ 4,433
======= ========= ========= ======== =========
Income taxes........... $ (442) $ (457) $ 1,259 $ 469 $ 605
======= ========= ========= ======== =========
SUPPLEMENTAL
DISCLOSURE--NONCASH
INVESTING ACTIVITIES:
Commercial and
industrial equipment
purchases included in
accounts payable...... $ -- $ 5,295 $ 10,594 $ 600 $ 2,805
======= ========= ========= ======== =========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements contain all necessary
adjustments, consisting primarily of normal recurring accruals, to present
fairly the results of operations, financial position, changes in stockholder's
equity, and cash flows of American Finance Group, Inc. and its wholly owned
subsidiaries (the "Company"). The principal subsidiary is AFG Credit
Corporation, whose primary purpose is to own equipment pledged in the
nonrecourse securitization facility. All intercompany transactions among the
consolidated group have been eliminated.
The Company was incorporated in Delaware and commenced operations in
February 1995. The Company is a wholly owned subsidiary of PLM International,
Inc., a Delaware corporation ("PLMI" or the "Parent"). The Company is an
equipment leasing and management company that originates and services lease
and loan transactions for commercial and industrial equipment, such as data
processing, communications, materials-handling, and construction equipment.
These may be financed by nonrecourse debt for the Company's own account or for
sale to institutional leasing investment programs ("institutional programs")
or other investors. The Company uses its short-term secured debt facility to
finance the acquisition of assets prior to sale or permanent financing by
nonrecourse debt. The leases are accounted for as operating or direct finance
leases. The Company also originates loans in which it takes a security
interest in the assets financed.
In 1995, PLMI entered into an agreement to obtain certain assets and manage
certain operations of an entity presently named Equis Financial Group, a
Massachusetts general partnership ("Equis"). During 1995, the Company provided
management services for the Equis investor programs, for which the Company
earned management fees and other revenues. In December 1995, the agreement was
modified to exclude the management of the Equis investor programs. Under the
modified agreement, the Company hired certain Equis lease origination and
servicing employees and acquired from Equis certain customer lists, master
lease agreements and the rights to originate and service equipment leases sold
to an institutional program. The Company paid $3.2 million in the transaction,
$0.5 million of which was allocated to software, computers and furniture, $0.8
million of which was allocated to certain intangible assets based on estimated
fair value, and the balance of $1.9 million was recorded as goodwill.
These consolidated financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures 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.
LEASING OPERATIONS
The Company's leasing operations generally consist of operating and direct
finance leases on commercial and industrial equipment. Under the operating
lease method of accounting, the leased asset is recorded at cost and
depreciated over its estimated useful life. Rental payments are recorded as
revenue over the lease term.
Under the direct finance lease method of accounting, the leased asset is
recorded as an investment in direct finance leases and represents the minimum
net lease payments receivable, including third-party guaranteed residuals,
plus the unguaranteed residual value of the equipment, less unearned income.
Rental payments, including principal and interest on the lease, reduce the
investment each month, and the interest is recorded as revenue over the lease
term.
F-7
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASING OPERATIONS (CONTINUED)
The Company capitalizes initial direct costs of lease originations. Amounts
capitalized related to direct finance leases are included in the net
investment and are amortized using the effective interest method. Amounts
capitalized related to operating leases are included in other assets and are
amortized straight-line over the lease term, which usually ranges from one to
seven years.
EQUIPMENT
Commercial and industrial equipment on operating lease is depreciated to its
estimated residual value over the lease term, which usually ranges from one to
seven years. Residual values for commercial and industrial equipment vary
according to the type of equipment and term of the lease.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121") of the Financial Accounting
Standards Board, the Company reviews the carrying value of its equipment at
least annually in relation to expected future market conditions for the
purpose of assessing recoverability of the recorded amounts. In addition, from
time to time the Company utilizes third-party appraisals to estimate fair
value of its equipment, comparing the aggregate carrying value for each
equipment type under each lease agreement to the aggregate appraisal value in
order to assess potential impairment. If projected undiscounted future lease
revenues plus residual values are lower than the carrying value of the
equipment, the loss on revaluation is recorded. There were no revaluations in
1995, 1996 or 1997.
Maintenance costs are generally the obligation of the lessee.
RESIDUAL INTERESTS
The residual value of equipment under direct finance lease is the estimated
amount to be received by the Company from disposition of equipment at lease
termination. The Company reviews the carrying values of its residual interests
at least annually in relation to expected future market values for the
equipment in which it holds residual interests for the purpose of assessing
recoverability of recorded amounts. In addition, from time to time the Company
utilizes third-party appraisals to estimate fair value of its residual values,
comparing the aggregate carrying value for each equipment type under each
lease agreement to the aggregate appraisal value in order to assess potential
impairment. If the projected residual is less than the amount recorded, a loss
on revaluation is recorded. There were no revaluations in 1995, 1996 or 1997.
INTEREST-RATE SWAP AGREEMENTS
The Company has entered into interest-rate swap agreements to hedge its
interest-rate exposure on its nonrecourse securitization facility. The terms
of the swap agreements correspond to the hedged debt. The differential to be
paid or received under the swap agreement is charged or credited to interest
expense.
INSTITUTIONAL PROGRAMS
The Company earns revenues in connection with lease originations and
servicing equipment leases for institutional programs. Acquisition fees, which
are included in revenue for sale of leases and related assets, are generally
earned through the purchase and initial lease of equipment, and are generally
recognized as revenue when the Company completes substantially all of the
services required to earn the fees, generally when binding commitment
agreements are signed. Management fees are earned for servicing the equipment
portfolios and leases as provided for in various agreements, and are
recognized as revenue over time as they are earned.
F-8
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSFER OF DIRECT FINANCE LEASES, LOANS AND OPERATING LEASES
On January 1, 1997, the Company adopted SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" ("SFAS No. 125"). SFAS No. 125 provides guidelines for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The Company's transfers of direct finance leases
and loans to the securitization facility are accounted for as financings under
SFAS No. 125.
The transfer to the securitization facility of equipment subject to
operating leases in which the Company retains substantial risk of ownership,
are not treated as sales in accordance with the provisions of SFAS No. 13 and
are also accounted for as financings. The transfer of equipment subject to
operating leases to institutional programs and third parties, where the
Company retains no risk of ownership, are treated as sales with gain or loss
on sale recognized in the period title passes.
RESTRICTED CASH
Restricted cash consists of a collateral account subject to withdrawal
restrictions of the nonrecourse debt facility. This agreement requires all
payments on pledged lease receivables to be deposited into a restricted cash
account. Principal, interest, and related fees are paid monthly in arrears
from this account. Cash remaining after these payments may be released to the
Company subject to certain debt covenant limitations.
INTANGIBLES
Intangibles are included in other assets, net on the balance sheet, and are
shown at the lower of net amortized cost or fair value. Intangibles primarily
relate to the purchase of certain assets from Equis and loan fees. Intangible
assets are being amortized over eight years from the acquisition date. Loan
fees are amortized over the life of the related loan. The Company annually
reviews the valuation of its intangibles based on projected future cash flows.
EARNINGS PER WEIGHTED-AVERAGE COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which required the Company to present basic and
diluted earnings per share on the face of the income statement, effective
December 15, 1997. Basic earnings per common share is computed by dividing net
income into common shares by the weighted-average number of shares outstanding
during the period. The computation of diluted earnings per share is similar to
the computation of basic earnings per share, except for the inclusion of all
potentially dilutive common shares. The Company did not have any potentially
dilutive shares outstanding in the years ended December 31, 1996 and 1997. The
weighted average number of shares deemed outstanding for the basic and diluted
earnings per share calculation was 4,200,000 for the period from February 9,
1995 (inception) through December 31, 1995 and the years ended December 31,
1996 and 1997.
INCOME TAXES
The Company recognizes income tax expense using the liability method.
Deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.
F-9
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
The Company is included in the consolidated federal and certain combined
state income tax returns of the Parent. The Company provides for income tax
expense using a combined federal and state tax rate applied to pretax earnings.
The tax provision is calculated on a separate return basis.
Deferred income taxes arise primarily because of differences in the timing of
reporting equipment depreciation and certain reserves for financial statement
and income tax reporting purposes.
2. DIRECT FINANCE LEASES
During 1996, the Company purchased $57.8 million in commercial and industrial
equipment that was placed on finance lease. During 1997, the Company purchased
$75.3 million in commercial and industrial equipment that was placed on finance
lease.
Commercial and industrial equipment, at original equipment cost, subject to
finance leases is represented by the following types (in thousands of dollars):
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30,
DECEMBER 31, 1997 1998
--------------------------------
<S> <C> <C> <C> <C>
Computers and peripherals................. $ 60,274 45% $ 72,668 37%
Materials handling........................ 28,693 21 40,183 21
Manufacturing............................. 7,200 5 28,458 15
Point of sale............................. 21,991 17 22,980 12
General purpose plant and warehouse ...... 3,239 2 11,395 6
Communications............................ 3,481 3 4,220 2
Construction and mining................... 3,348 3 4,169 2
Other..................................... 4,842 4 9,854 5
----------- ------ -------- ---
Total................................... $ 133,068 100% $193,927 100%
=========== ====== ======== ===
</TABLE>
The following lists the components of the investment in direct finance
leases, net (in thousands of dollars):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------------ JUNE 30,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Minimum lease payments receivable............ $ 56,651 $115,521 $162,600
Estimated unguaranteed residual values of
leased properties........................... 6,928 18,998 26,032
Initial lease origination costs, net......... 294 535 809
-------- -------- --------
63,873 135,054 189,441
Less unearned income......................... (10,909) (22,589) (30,656)
-------- -------- --------
Investment in direct finance leases, net..... $ 52,964 $112,465 $158,785
======== ======== ========
</TABLE>
F-10
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
2. DIRECT FINANCE LEASES (CONTINUED)
SCHEDULE OF MINIMUM LEASE PAYMENTS RECEIVABLE
AS OF DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<S> <C>
1998............................................................... $ 36,592
1999............................................................... 32,395
2000............................................................... 25,136
2001............................................................... 15,132
2002............................................................... 6,144
Thereafter......................................................... 122
--------
Total minimum lease payments receivable.......................... $115,521
========
</TABLE>
3. LOANS RECEIVABLE
As of December 31, 1997, the Company had loans receivable outstanding with
three customers, totaling $5.9 million with interest rates ranging from 8.70%
to 10.81%, secured by commercial and industrial equipment and related leases.
Future payments receivable on the notes as of December 31, 1997 are as follows
(in thousands of dollars):
<TABLE>
<S> <C>
1998................................................................. $2,824
1999................................................................. 2,816
2000................................................................. 221
------
Total loans receivable............................................. $5,861
======
</TABLE>
As of December 31, 1997, the Company estimates, based on recent
transactions, that the fair market value of the $5.9 million loans receivable
approximates book value.
As of June 30, 1998, the Company had loans receivable outstanding with six
customers, totaling $22.6 million with interest rates ranging from 6.23% to
10.81%, secured by commercial and industrial equipment and related leases.
F-11
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
4. COMMERCIAL AND INDUSTRIAL EQUIPMENT HELD FOR OPERATING LEASES
Commercial and industrial equipment, at cost, held for operating leases, is
represented by the following types (in thousands of dollars):
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30,
DECEMBER 31, 1997 1998
--------------------------------
<S> <C> <C> <C> <C>
Point of sale............................ $ 4,259 15% $ 9,325 33%
Materials handling....................... 7,356 26 7,158 25
Computers and peripherals................ 2,219 8 4,064 14
Manufacturing............................ 6,735 23 2,757 10
Communications........................... 5,419 19 2,312 8
Medical.................................. 1,010 3 1,009 4
Construction and mining.................. 701 2 643 2
Other.................................... 1,107 4 990 4
---------- ------ ------- ---
28,806 100% 28,258 100%
====== ===
Less accumulated depreciation............ (5,061) (7,800)
---------- -------
Net equipment held for operating
leases................................ $ 23,745 $20,458
========== =======
</TABLE>
During 1996, the Company purchased $74.9 million in commercial and
industrial equipment, which was placed on operating lease. During 1996, the
Company sold to third parties commercial and industrial equipment that was on
operating lease with an original cost of $40.7 million, for net gain of $1.0
million. During 1997, the Company purchased $52.9 million in commercial and
industrial equipment, which was placed on operating lease. During 1997, the
Company sold to third parties commercial and industrial equipment that was on
operating lease with an original cost of $58.3 million, for a net gain of $2.4
million.
Future minimum rentals receivable under noncancellable operating leases as
of December 31, 1997 are approximately $6.3 million in 1998, $4.6 million in
1999, $3.2 million in 2000, $1.5 million in 2001, $1.0 million in 2002, and $0
thereafter.
F-12
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
5. OTHER ASSETS, NET
Other assets net, consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------- JUNE 30,
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Intangibles, net of accumulated amortization of $343
and $685 as of December 31, 1996 and 1997,
respectively, and $856 as of June 30, 1998.......... $2,399 $2,055 $1,884
Prepaid expenses and deposits........................ 143 138 646
Loan fees, net of accumulated amortization of $47 and
$207 as of December 31, 1996 and 1997, respectively,
and $316 as of June 30, 1998........................ 884 725 615
Software, net of accumulated depreciation of $80 and
$214 as of December 31, 1996 and 1997, respectively,
and $301 as of June 30, 1998........................ 320 646 560
Furniture, fixtures and equipment, net of accumulated
depreciation of $35 and $83 as of December 31, 1996
and 1997, respectively, and $110 as of June 30, 1998 170 201 174
Lease origination costs, net of accumulated
amortization of $10 and $33 as of December 31, 1996
and 1997, respectively, and $50 as of June 30, 1998 66 93 76
------ ------ ------
Total other assets, net............................ $3,982 $3,858 $3,955
====== ====== ======
</TABLE>
6. WAREHOUSE CREDIT FACILITY
The Company maintains a $50.0 million warehouse credit facility to be used
to acquire assets on an interim basis prior to placement in the Company's
nonrecourse securitization facility, sale to institutional programs or
syndication to unaffiliated third parties. This facility is shared with
another subsidiary of the Parent and various investment programs managed by an
affiliate of the Parent. Borrowings under this facility by the other eligible
borrowers reduce the amount available to be borrowed by the Company. All
borrowings under this facility are guaranteed by the Parent.
The Company amended this facility during 1997 to extend the availability of
the facility until November 2, 1998. The facility provides for 100% of the
present value of the lease stream plus 100% of the guaranteed residual value
of commercial and industrial equipment, up to 90% of the original equipment
cost of the assets held on this facility.
Borrowings secured by investment-grade lessees can be held under this
facility until the facility's expiration. Borrowings secured by noninvestment-
grade lessees may be outstanding for 120 days. Interest accrues at prime or
LIBOR plus 162.5 basis points, at the option of the Company. The weighted-
average interest rates on the Company's short-term secured debt were 8.41% and
7.60% for 1996 and 1997, respectively. Repayment of the borrowings matches the
terms of the underlying leases. As of December 31, 1996 and 1997, the Company
had $26.9 million and $23.0 million in borrowings on this facility,
respectively. As of December 31, 1996, there was a total of $9.8 million in
additional borrowings on this facility by another subsidiary of the Parent and
various investment programs managed by an affiliate of the Parent. There were
no other borrowings on this facility as of December 31, 1997 by any of the
other eligible borrowers. As of June 30, 1998, the Company had $44.8 million
in borrowings on this facility, and there were $3.6 million in additional
borrowings on this facility by another subsidiary of the Parent and various
investment programs managed by an affiliate of the Parent.
F-13
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
6. WAREHOUSE CREDIT FACILITY (CONTINUED)
As of December 31, 1997, the Company believes that the fair market value of
the $23.0 million short-term secured debt approximated the outstanding balance
due to the floating rate of interest on this facility.
7. NONRECOURSE DEBT
The Company has available a nonrecourse securitization facility to be used
to acquire assets secured by direct finance leases, operating leases and loans
on commercial and industrial equipment that generally have terms from one to
seven years. The Company amended this facility on October 14, 1997, increasing
the facility from $80.0 million to $125.0 million and extending the
availability of the facility until October 13, 1998. See Note 18 to these
consolidated financial statements.
Repayment of the facility matches the terms of the underlying leases. The
securitized debt bears interest equivalent to the lender's cost of funds based
on commercial paper market rates for the determined period of borrowing plus
an interest rate spread and fees (7.03% and 7.16% as of December 31, 1996 and
1997, respectively). As of December 31, 1996 and 1997, borrowings under this
facility were $45.4 million and $71.3 million, respectively. As of June 30,
1998, borrowings under this facility were $105.9 million.
The Company also had $10.0 million and $17.5 million in nonrecourse notes
payable outstanding as of December 31, 1997 and June 30, 1998, respectively,
bearing interest ranging from 8.32% to 9.5% per annum. Principal and interest
on the notes are due monthly beginning November 1997 and ending May 2005. The
notes are secured by direct finance leases for commercial and industrial
equipment that have terms corresponding to the repayment of the notes.
Scheduled principal payments on long-term nonrecourse debt are (in thousands
of dollars):
<TABLE>
<S> <C>
1998................................................................. $28,944
1999................................................................. 25,606
2000................................................................. 16,301
2001................................................................. 8,904
2002................................................................. 1,481
Thereafter........................................................... 66
-------
Total............................................................. $81,302
=======
</TABLE>
As of December 31, 1997, the Company believes that the fair market value of
the $71.3 million debt on the nonrecourse debt facility approximates the
outstanding balance due to the floating rate of interest. As of December 31,
1997, the Company believes that the fair market value of the $10.0 million
fixed-rate 9.16% nonrecourse notes payable is $10.4 million.
F-14
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
8. INCOME TAXES
The provision for (benefit from) income taxes attributable to income from
operations for the period from inception through December 31, 1995, for the
years ended December 1996 and 1997, and for the six months ended June 30, 1997
and 1998 consists of the following (in thousands of dollars):
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
THROUGH FOR THE YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------------- -----------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Current.................... $(1,117) $(131) $(1,248) $(1,754) $(207) $(1,961)
Deferred................... 723 83 806 1,347 157 1,504
------- ----- ------- ------- ----- -------
$ (394) $ (48) $ (442) $ (407) $ (50) $ (457)
======= ===== ======= ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------------
FEDERAL STATE TOTAL
------- ----- -------
<S> <C> <C> <C>
Current............................................. $(3,240) $(381) $(3,621)
Deferred............................................ 4,361 519 4,880
------- ----- -------
$ 1,121 $ 138 $ 1,259
======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1998
----------------------- -----------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
------- ----- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Current.................... $(1,763) $(208) $(1,971) $(2,800) $(330) $(3,130)
Deferred................... 2,181 259 2,440 3,339 396 3,735
------- ----- ------- ------- ----- -------
$ 418 $ 51 $ 469 $ 539 $ 66 $ 605
======= ===== ======= ======= ===== =======
</TABLE>
Amounts for the current year are based on estimates and assumptions as of
the date of this report and could vary significantly from amounts shown on the
tax returns ultimately filed. Accordingly, the variances in classification, if
any, from the amounts previously reported for prior years are primarily the
result of adjustments to conform to the tax returns as filed.
The difference between the effective rate and the expected federal statutory
rate is reconciled below:
<TABLE>
<CAPTION>
FOR THE
SIX
FOR THE PERIOD FOR THE MONTHS
FROM INCEPTION YEAR ENDED ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------- ----------
1995 1996 1997 1997 1998
-------------- ------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Federal statutory tax expense
rate........................... (34)% (34)% 34% 34% 34%
State income tax................ (3) (2) 2 2 3
Nondeductible expenses.......... 1 1 1 1 --
--- ------ ------ --- ---
Effective tax expense
(benefit) rate............... (36)% (35)% 37% 37% 37%
=== ====== ====== === ===
</TABLE>
F-15
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
8. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities are presented below (in thousands of
dollars):
<TABLE>
<CAPTION>
AS OF DECEMBER
31, AS OF
--------------- JUNE 30,
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Deferred tax assets:
Lease classification.................................. $ -- $ 2,282 $ 1,158
Federal benefit of state taxes........................ -- 13 36
Bad debt reserve...................................... -- 9 4
------- ------- -------
Total deferred tax assets........................... -- 2,304 1,198
------- ------- -------
Deferred tax liabilities:
Equipment, principally differences in depreciation.... 2,088 9,469 12,117
Lease classification.................................. 137 -- --
Federal benefit of state taxes........................ 33 -- --
Other................................................. 52 25 6
------- ------- -------
Total deferred tax liabilities...................... 2,310 9,494 12,123
------- ------- -------
Net deferred tax liabilities...................... $ 2,310 $ 7,190 $10,925
======= ======= =======
</TABLE>
Management has reviewed all established tax interpretations of items
reflected in its consolidated tax returns and believes that these
interpretations do not require valuation allowances as described in SFAS No.
109.
Current taxes receivable for 1995, 1996 and 1997, and for the six months
ended June 30, 1998, were paid to the Company by the Parent in the respective
years. Amounts reported by the Company and its subsidiaries are included in
the consolidated and combined tax returns filed by PLMI. The above amounts
have been computed on a separate company basis.
The Company believes that future operations will generate sufficient taxable
income to realize the deferred tax assets.
9. TRANSACTIONS WITH AFFILIATES
PLMI and its various subsidiaries, including the Company, incur costs
associated with management, accounting, legal, data processing, and other
general and administrative activities. Direct expenses are charged directly to
the Company as incurred. Indirect expenses are allocated among the Company,
PLMI, and other subsidiaries of PLMI using an allocation method that
management believes is reasonable when compared to business activities.
General and administrative expenses allocated from the Parent to the Company
during 1995, 1996 and 1997 were $0.9 million, $1.2 million, and $1.3 million,
respectively.
During 1996 and 1997, the Parent typically made capital contributions to the
Company for the equity required for the purchase of equipment and for loan
fundings. In 1997, the Company periodically borrowed cash from the Parent in
lieu of borrowing on the short-term secured debt facility. The Parent charged
interest expense to the Company at market rates for these loans. Total
interest charged by the Parent for these loans was $0.5 million in 1997. As of
December 31, 1997, the Company had $6.5 million in outstanding borrowings from
the Parent.
F-16
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company has entered into operating leases for office space. The
Company's total net rent expense was $0.1 million in 1996, and $0.2 million in
1997. Annual lease commitments for the Company's locations are $0.1 million in
1998, $0.1 million in 1999, $0.1 million in 2000, $33,000 in 2001, and $0
thereafter.
PURCHASE COMMITMENTS
As of December 31, 1997, the Company had committed to purchase $153.8
million of equipment for its lease and finance receivable portfolio of which
$10.6 million had been received by lessees and accrued for as of December 31,
1997. This includes equipment that will be held by the Company and equipment
that will be sold to institutional programs or other unaffiliated third
parties.
From January 1, 1998 through June 30, 1998, the Company funded $133.8
million of commitments outstanding for its commercial and industrial lease and
finance receivable portfolio as of December 31, 1997 and entered into new
commitments for $69.5 million.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings and is not
aware of any pending or threatening legal proceedings that would have a
material adverse affect upon its financial condition or results of operations.
11. STOCKHOLDER'S EQUITY
The Company had 30,000,000 shares of common stock at $0.01 par value
authorized, 4,200,000 of which were issued and outstanding as of the years
ended December 31, 1996 and 1997. All 4,200,000 shares were owned by the
Parent.
During 1995 and 1996, the Company received capital contributions from the
Parent of $2.6 million and $16.9 million, respectively.
12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of receivables from loans and leases.
Concentrations of credit risk with respect to lease and finance receivables
are limited due to the large number of customers comprising the Company's
customer base and their dispersion across different business and geographic
areas. Currently, none of the Company's equipment is leased internationally.
As of December 31, 1997, the Company's five largest lessees accounted for
approximately 40% of its lease and finance receivables. As of June 30, 1998,
the Company's five largest lessees accounted for approximately 43% of the
Company's lease and finance receivables.
As of December 31, 1996 and 1997, management believes the Company had no
other significant concentrations of credit risk that could have a material
adverse effect on the Company's business, financial condition or results of
operations.
F-17
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
12. OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK (CONTINUED)
INTEREST-RATE RISK MANAGEMENT
The Company has entered into interest-rate swap agreements in order to
manage the interest-rate exposure associated with its nonrecourse debt
facility. As of December 31, 1997, the swap agreements had a weighted-average
duration of 1.0 year, corresponding to the terms of the remaining debt. As of
December 31, 1997, a notional amount of $72.5 million of interest-rate swap
agreements effectively fixed interest rates at an average of 6.70% on such
obligations. Interest expense was increased by $0.1 million and $0.3 million
due to these arrangements in 1996 and 1997, respectively. The fair value to
the Company of interest-rate swap agreements as of December 31, 1997 was
approximately $0.1 million, taking into account interest rates in effect at
the time.
13. PRO FORMA DISCLOSURE (UNAUDITED)
PRO FORMA NET INCOME (LOSS)
Since May 31, 1996 (as discussed in Note 6), the Company has had available a
warehouse credit facility used to acquire assets on an interim basis prior to
placement in the Company's nonrecourse securitization facility, sale to
institutional programs or syndication to unaffiliated third parties. Prior to
the Company's becoming a borrower under this facility, the Company arranged
for the purchase of commercial and industrial equipment by TEC AcquiSub, Inc.,
another subsidiary of the Parent ("TEC AcquiSub"). All costs related to
arranging these transactions are included in the Company's results; however,
the revenue earned from these transactions are not included in the Company's
results. As of September 1, 1996, all equipment owned by TEC AcquiSub was sold
to the Company at its net book value, which approximated its fair market
value. A pro forma adjustment to reflect the income and expenses to TEC
AcquiSub related to these transactions has been reflected in the accompanying
1996 statement of operations. Income taxes have been provided at an effective
rate of 35%.
F-18
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
13. PRO FORMA DISCLOSURE (CONTINUED)
PRO FORMA NET INCOME (LOSS) (CONTINUED)
The following pro forma unaudited statement of operations is presented to
reflect the transactions discussed above for the year ended December 31, 1996
(in thousands of dollars):
<TABLE>
<CAPTION>
PRO FORMA 1996
1996 ADJUSTMENTS PRO FORMA
------- ------------ ---------
<S> <C> <C> <C>
REVENUES
Finance lease.............................. $ 1,763 $ 996 $ 2,759
Operating lease............................ 5,020 2,449 7,469
Financing income........................... 92 -- 92
Management fees............................ 485 -- 485
Revenue from sale of leases and related
assets.................................... 2,188 353 2,541
------- ----- -------
Total revenues........................... 9,548 3,798 13,346
COSTS AND EXPENSES
Operations support......................... 3,509 6 3,515
Depreciation and amortization.............. 4,292 1,891 6,183
General and administrative................. 1,178 -- 1,178
------- ----- -------
Total costs and expenses................. 8,979 1,897 10,876
------- ----- -------
Operating income........................... 569 1,901 2,470
Interest expense........................... (2,019) (605) (2,624)
Interest income............................ 176 -- 176
Other expense.............................. (19) -- (19)
------- ----- -------
Income (loss) before income taxes.......... (1,293) 1,296 3
Provision for (benefit from) income taxes.. (457) 458 1
------- ----- -------
Net income (loss)........................ $ (836) $ 838 $ 2
======= ===== =======
</TABLE>
14. MANAGEMENT OF EQUIS INVESTOR PROGRAMS
In January 1995, PLMI entered into an agreement to obtain and manage certain
operations of Equis. During 1995, the Company provided management services for
Equis investor programs, for which the Company earned management fees and
other revenues. In December 1995, the agreement was modified to exclude the
management of the Equis investor programs. Under the modified agreement, the
Company hired certain Equis lease origination and servicing employees and
acquired from Equis certain customer lists, master lease agreements and the
rights to originate and service equipment leases sold to an institutional
program. Additionally, the agreement provided for the Company to purchase
certain software, computers and furniture from Equis.
Management fees and other revenues related to the management services
provided by the Company for the Equis investor programs during 1995 are shown
as revenues from the management of certain of the Equis investor programs for
the period from February 9, 1995 through December 31, 1995 in the statement of
operations.
15. PROFIT SHARING AND 401(K) PLAN
Since February 1996, the Company has participated in the PLM International,
Inc. Profit Sharing and 401(k) Plan (the "Plan"). The Plan provides for
deferred compensation as described in Section 401(k) of the Internal
F-19
<PAGE>
AMERICAN FINANCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS
UNAUDITED)
15. PROFIT SHARING AND 401(k) PLAN (CONTINUED)
Revenue Code. The Plan is a contributory plan available to essentially all
full-time employees of the Company. In 1997, employees who participated in the
Plan could elect to defer and contribute to the trust established under the
Plan up to 9% of pretax salary or wages up to $9,600. The Company matched up
to a maximum of $4,000 of employees' 401(k) contributions in 1996 and 1997 to
vest in four equal installments over a four-year period. The Company's total
401(k) contributions were $42,000 and $58,000 for 1996 and 1997, respectively.
During 1996 and 1997, the Parent accrued discretionary profit-sharing
contributions equal to $100,000 plus approximately 2% of pretax profit.
Profit-sharing contributions are allocated equally among the number of
eligible Plan participants. The Company's portion of the total profit-sharing
contributions was $21,000 for 1996 and $37,000 for 1997.
16. CONCENTRATION
Revenues related to one of the institutional programs accounted for 24%, 19%
and 10% of the Company's revenues in 1995, 1996 and 1997, respectively.
17. ESTIMATED FAIR VALUE OF THE COMPANY'S FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
AS OF DECEMBER AS OF DECEMBER
31, 1996 31, 1997
---------------- ----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Restricted cash (Note 1)................ $ 3,552 $ 3,552 $ 3,775 $ 3,775
Loans receivable (Note 3)............... 5,718 5,718 5,861 5,921
Financial liabilities:
Warehouse credit facility (Note 6)...... 26,886 26,886 23,040 23,040
Nonrecourse notes payable (Note 7)...... -- -- 10,000 10,407
Nonrecourse securitization facility
(Note 7)............................... 45,392 45,392 71,302 71,302
Unrecognized financial instruments....... -- 282 -- 113
</TABLE>
18. SUBSEQUENT EVENTS
On May 11, 1998, the Board of Directors of the Company authorized an
additional 25,800,000 shares of Common Stock and authorized a 4,200-for-1
stock split to become effective prior to the effectiveness of the Registration
Statement for the Company's initial public offering. In accordance with SEC
Staff Accounting Bulletin Topic 4(c), the stock split has been retroactively
reflected in the accompanying consolidated financial statements. The stock
split and the authorization of the additional shares of Common Stock were made
effective by the filing of the Company's Amended and Restated Certificate of
Incorporation with the Delaware Secretary of State on August 27, 1998.
On May 11, 1998, the Company authorized 5,000,000 shares of an undesignated
class of preferred stock, which authorization was made effective by the filing
of the Company's Amended and Restated Certificate of Incorporation with the
Delaware Secretary of State on August 27, 1998.
The Company has received a commitment letter, dated October 13, 1998,
extending the nonrecourse securitization facility through October 12, 1999.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THE SELLING STOCKHOLDER OR ANY UNDERWRITER. 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
WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Special Note Regarding Forward-Looking Statements........................ 15
The Company.............................................................. 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial and Operating Data....................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 31
Management............................................................... 41
Certain Transactions..................................................... 50
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 56
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,150,000 SHARES
[LOGO]
AMERICAN FINANCE GROUP, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
LEGG MASON WOOD WALKER
INCORPORATED
ING BARING FURMAN SELZ LLC
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 10,941
NASD filing fee.................................................... 4,209
Nasdaq listing fee................................................. 63,725
Legal fees and expenses............................................ 375,000
Blue Sky fees and expenses......................................... 5,000
Accounting fees and expenses....................................... 300,000
Printing expenses.................................................. 100,000
Transfer Agent fees................................................ 4,500
Miscellaneous...................................................... 36,625
--------
Total............................................................ $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to 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 such person is or was a
director, officer, employee or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of
another corporation or other enterprise, against reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually incurred by him in connection with such action, suit or proceeding,
if such director, officer, employee or agent acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Company is required
by Section 145 to indemnify any person against reasonable expenses (including
attorneys' fees) actually incurred by him in connection with an action, suit
or proceeding in which he is a party because he is or was a director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
other enterprise, if he has been successful, on the merits or otherwise, in
the defense of the action, suit or proceeding. Section 145 also allows a
corporation to purchase and maintain insurance on behalf of any such person
against any liability asserted against him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of Section 145.
In addition, Section 145 provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
Article SEVENTH of the Company's Amended and Restated Certificate of
Incorporation (the "Charter") provides that the Company shall indemnify and
hold harmless any person who was, is, or is threatened to be made a party to a
proceeding by reason of the fact that he or she (i) is or was a director or
officer of the Company or (ii) while a director or officer of the Company, is
or was serving at the request of the Company as a director, officer, employee
or agent of a corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent authorized or permitted under the DGCL. The
right to indemnification under Article SEVENTH of the Charter is a contract
right which includes, with respect to directors and officers, the right to be
paid by the Company the expenses incurred in defending any such proceeding in
advance of its disposition.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception in February 1995, the Company has sold and issued the
following securities which were not registered under the Securities Act:
(1) On Feburary 9, 1995, the Company sold and issued to PLMI 1,000 shares of
Common Stock for an aggregate amount of $10.00 in cash.
The sale and issuance of securities in the transaction described in
paragraph (1) was deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) thereof as a transaction by an issuer not
involving a public offering. An appropriate legend is affixed to the stock
certificate issued in connection with the aforementioned transaction.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
+1.1 --Form of Underwriting Agreement
+3.1 --Certificate of Incorporation of the Company
+3.2 --Bylaws of the Company
3.3 --Amended and Restated Certificate of Incorporation of the Company
3.4 --Form of Amended and Restated Bylaws of the Company to be effective
upon completion of the Offering
4.1 --Specimen Common Stock certificate
*5.1 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
+10.1 --1998 Management Stock Compensation Plan
+10.2 --Directors' 1998 Nonqualified Stock Option Plan
+10.3 --Amended and Restated Warehousing Credit Agreement, dated as of
December 2, 1997, between the Company and First Union
+10.4 --Security Agreement, dated as of May 31, 1996, between the Company and
First Union, as amended by the Amendment to Security Agreement, dated
as of December 2, 1997, between the Company and First Union
+10.5 --Pooling and Servicing Agreement and Indenture of Trust dated as of
July 1, 1995, between AFG Credit Corporation, the Company and Bankers
Trust Company
+10.6 --Asset Purchase Agreement, dated as of July 1, 1995, between the
Company and AFG Credit Corporation
+10.7 --Series 1995-1 Supplemental Indenture, dated as of July 1, 1995, to
Pooling and Servicing Agreement and Indenture of Trust, dated as of
July 1, 1995, between AFG Credit Corporation, the Company, First Union
and Bankers Trust Company
+10.8 --Amendment No. 1, dated as of September 1, 1995, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.9 --Amendment No. 2, dated as of December 5, 1995, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.10 --Amendment No. 3, dated as of October 14, 1997, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.11 --Series 1997-1 Supplemental Indenture, dated as of October 14, 1997,
to Pooling and Servicing Agreement and Indenture of Trust, dated as of
July 1, 1995, between AFG Credit Corporation, the Company, First Union
Capital Markets Corp. and Bankers Trust Corporation
+10.12 --Note Purchase Agreement, dated as of October 14, 1997, between AFG
Credit Corporation, Variable Funding Capital Corporation and Bankers
Trust Corp.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
+10.13 --Purchase and Sale Agreement dated as of December 30, 1997 between the
Company and Varilease Corporation
+10.14 --Form of Intercompany Relationship Agreement, dated as of , 1998,
between the Company and PLMI
10.15 --Amendment No. 1, dated as of June 1, 1998, to Amended and Restated
Warehousing Credit Agreement, dated as of December 2, 1997, between
the Company and First Union
10.16 --Amendment No. 2, dated as of June 8, 1998, to Amended and Restated
Warehousing Credit Agreement, dated as of December 2, 1997, between
the Company and First Union
10.17 --Employment Agreement, dated as of September 2, 1998, between the
Company and Gary M. Abrams
10.18 --Amendment No. 4, dated as of April 14, 1998, to Pooling and Servicing
Agreement and Indenture of Trust, dated as of July 1, 1995, between
AFG Credit Corporation, the Company and Bankers Trust Company.
+21.1 --Subsidiaries of the Company
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1 hereto)
24.1 --Powers of Attorney (included in Part II)
+27.1 --Financial Data Schedule
99.1 --Consent of Joseph C. Berenato
99.2 --Consent of Richard E. Carolan
99.3 --Consent of John F. O'Brien
</TABLE>
- --------
*To be filed by amendment.
+Previously Filed.
(b) Consolidated Financial Statement Schedules
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 for
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.
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 Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
+1.1 --Form of Underwriting Agreement
+3.1 --Certificate of Incorporation of the Company
+3.2 --Bylaws of the Company
3.3 --Amended and Restated Certificate of Incorporation of the Company
3.4 --Form of Amended and Restated Bylaws of the Company to be effective
upon completion of the Offering
4.1 --Specimen Common Stock certificate
*5.1 --Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
+10.1 --1998 Management Stock Compensation Plan
+10.2 --Directors' 1998 Nonqualified Stock Option Plan
+10.3 --Amended and Restated Warehousing Credit Agreement, dated as of
December 2, 1997, between the Company and First Union
+10.4 --Security Agreement, dated as of May 31, 1996, between the Company
and First Union, as amended by the Amendment to Security Agreement,
dated as of December 2, 1997, between the Company and First Union
+10.5 --Pooling and Servicing Agreement and Indenture of Trust dated as of
July 1, 1995, between AFG Credit Corporation, the Company and Bankers
Trust Company
+10.6 --Asset Purchase Agreement, dated as of July 1, 1995, between the
Company and AFG Credit Corporation
+10.7 --Series 1995-1 Supplemental Indenture, dated as of July 1, 1995, to
Pooling and Servicing Agreement and Indenture of Trust, dated as of
July 1, 1995, between AFG Credit Corporation, the Company, First
Union and Bankers Trust Company
+10.8 --Amendment No. 1, dated as of September 1, 1995, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.9 --Amendment No. 2, dated as of December 5, 1995, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.10 --Amendment No. 3, dated as of October 14, 1997, to Pooling and
Servicing Agreement and Indenture of Trust, dated as of July 1, 1995,
between AFG Credit Corporation, the Company and Bankers Trust Company
+10.11 --Series 1997-1 Supplemental Indenture, dated as of October 14, 1997,
to Pooling and Servicing Agreement and Indenture of Trust, dated as
of July 1, 1995, between AFG Credit Corporation, the Company, First
Union Capital Markets Corp. and Bankers Trust Corporation
+10.12 --Note Purchase Agreement, dated as of October 14, 1997, between AFG
Credit Corporation, Variable Funding Capital Corporation and Bankers
Trust Corp.
+10.13 --Purchase and Sale Agreement dated as of December 30, 1997 between
the Company and Varilease Corporation
+10.14 --Form of Intercompany Relationship Agreement, dated as of ,
1998, between the Company and PLMI
10.15 --Amendment No. 1, dated as of June 1, 1998, to Amended and Restated
Warehousing Credit Agreement, dated as of December 2, 1997, between
the Company and First Union
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.16 --Amendment No. 2, dated as of June 8, 1998, to Amended and Restated
Warehousing Credit Agreement, dated as of December 2, 1997, between
the Company and First Union
10.17 --Employment Agreement, dated as of September 2, 1998, between the
Company and Gary M. Abrams
10.18 --Amendment No. 4, dated as of April 14, 1998, to Pooling and Servicing
Agreement and Indenture of Trust, dated as of July 1, 1995, between
AFG Credit Corporation, the Company and Bankers Trust Company.
+21.1 --Subsidiaries of the Company
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained in
Exhibit 5.1 hereto)
24.1 --Powers of Attorney (included in Part II)
+27.1 --Financial Data Schedule
99.1 --Consent of Joseph C. Berenato
99.2 --Consent of Richard E. Carolan
99.3 --Consent of John F. O'Brien
</TABLE>
- --------
* To be filed by amendment.
+ Previously Filed.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement on Form
S-1 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Boston, State of Massachusetts, on the 15th day of October 1998.
American Finance Group, Inc.
/s/ Donald R. Dugan, Jr.
By ___________________________________
Donald R. Dugan, Jr. President
and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Donald R. Dugan, Jr. and Robert N. Tidball, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, 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 and any additional registration
statement pursuant to Rule 462(b), and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
ratifying and confirming all that said attorney-in-fact and agent 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, as amended, this
Amendment to the Registration Statement on Form S-1 has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Donald R. Dugan, Jr. Director, President October 15,
- ------------------------------------ and Chief Executive 1998
Donald R. Dugan, Jr. Officer (principal
executive officer)
/s/ Gary M. Abrams Senior Vice October 15,
- ------------------------------------ President, Chief 1998
Gary M. Abrams Financial Officer
and Treasurer
(principal
financial and
accounting officer)
/s/ Robert N. Tidball Director and October 15,
- ------------------------------------ Chairman of the 1998
Robert N. Tidball Board
/s/ J. Michael Allgood Director October 15,
- ------------------------------------ 1998
J. Michael Allgood
</TABLE>
II-6
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF AMERICAN FINANCE GROUP, INC.
Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware
American Finance Group, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"GCL"), does hereby certify as follows:
(1) The name of the Corporation is American Finance Group, Inc. The original
certificate of incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on February 9, 1995.
(2) This Amended and Restated Certificate of Incorporation (this "Restated
Certificate") was duly adopted by the Board of Directors of the Corporation
and by the sole stockholder of the Corporation in accordance with Sections
228, 242 and 245 of the GCL.
(3) This Restated Certificate restates and integrates and further amends the
certificate of incorporation of the Corporation, as heretofore amended or
supplemented.
(4) The text of the certificate of incorporation of the Corporation is amended
and restated in its entirety as follows:
FIRST: The name of the Corporation is American Finance Group, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is at 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is
The Corporation Trust Company.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
FOURTH: (a) AUTHORIZED CAPITAL STOCK. The total number of shares of stock
that the Corporation will have authority to issue is 35,000,000 shares of
capital stock, consisting of 30,000,000 shares of common stock, par value
$0.01 per share (the "Common Stock"), and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). Upon the filing
of this Amended and Restated Certificate of Incorporation (this "Restated
Certificate"), each share of Common Stock issued and outstanding at the
time of such filing shall be automatically subdivided into 4,200 shares of
Common Stock.
(b) PREFERRED STOCK. The Board of Directors of the Corporation
(the "Board of Directors") is hereby expressly authorized to provide for
the issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issuance of such class or series.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and
of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(b) The number of directors of the Corporation shall be as from time to
time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless the
By-Laws so provide.
(c) A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
2
<PAGE>
(d) Subject to the terms of any one or more classes or series of Preferred
Stock, any vacancy on the Board of Directors that results from an increase
in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a
sole remaining director. Any director elected to fill a vacancy shall have
the same remaining term as that of his predecessor. Subject to the rights,
if any, of the holders of shares of Preferred Stock then outstanding, any
or all of the directors of the Corporation may be removed from office at
any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's
then outstanding capital stock entitled to vote generally in the election
of directors.
(e) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors of the Corporation are hereby
empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, however, to the
provisions of the GCL, this Restated Certificate and any By-Laws adopted by
the stockholders; PROVIDED, HOWEVER, that no By-Laws hereafter adopted by
the stockholders shall invalidate any prior act of the directors that would
have been valid if such By-Laws had not been adopted.
SIXTH: No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter
be amended. If the GCL is amended hereafter to authorize the further
elimination or limitation of the liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the
fullest extent authorized by the GCL, as so amended. Any repeal or
modification of this Article SIXTH by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
SEVENTH: The Corporation shall indemnify its directors and officers to the
fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure
to the benefit of his or her heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for
3
<PAGE>
proceedings to enforce rights to indemnification, the Corporation shall not
be obligated to indemnify any director or officer (or his or her heirs,
executors or personal or legal representatives) in connection with a
proceeding (or part thereof) initiated by such person unless such
proceeding (or part thereof) was authorized or consented to by the Board of
Directors. The right to indemnification conferred by this Article SEVENTH
shall include the right to be paid by the Corporation the expenses incurred
in defending or otherwise participating in any proceeding in advance of its
final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar
to those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses conferred in
this Article SEVENTH shall not be exclusive of any other right that any
person may have or hereafter acquire under this Restated Certificate, the
By-Laws of the Corporation, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders of
the Corporation shall not adversely affect any rights to indemnification
and to the advancement of expenses of a director or officer of the
Corporation existing at the time of such repeal or modification with
respect to any acts or omissions occurring prior to such repeal or
modification.
EIGHTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation.
NINTH: Following the consummation of an initial public offering of Common
Stock or any transaction or event as a result of which any Common Stock is
listed on a national securities exchange or registered under Section 12 of
the Securities Exchange Act of 1934, as amended, the ability of the
stockholders to consent in writing pursuant to Section 228 of the GCL to
the taking of any action with respect to any of the following is hereby
specifically denied: (i) any consolidation or merger of the Corporation
with or into any person, or of any person with or into the Corporation,
requiring the approval of stockholders of the Corporation, (ii) any sale,
lease, exchange or other disposition by the Corporation or any subsidiary
of the Corporation of all or
4
<PAGE>
substantially all of the assets of the Corporation requiring the approval
of stockholders of the Corporation, (iii) any dissolution, liquidation or
winding up of the Corporation requiring the approval of stockholders of the
Corporation, (iv) any election of directors pursuant to Section 211(b) of
the GCL and (v) any amendment, alteration, change or repeal of this Article
NINTH.
TENTH: Except as otherwise required by law, special meetings of
stockholders of the Corporation may be called only by the Board of
Directors or by the holders of a majority in voting power of the shares of
capital stock of the Corporation entitled to vote in the election of
directors.
ELEVENTH: In furtherance and not in limitation of the powers conferred upon
it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the By-Laws of the Corporation.
The affirmative vote of at least eighty percent (80%) of the entire Board
of Directors shall be required to adopt, amend, alter or repeal the By-Laws
of the Corporation. The By-Laws of the Corporation also may be adopted,
amended, altered or repealed by the affirmative vote of the holders of at
least a majority in voting power of the shares of capital stock of the
Corporation entitled to vote in an election of directors.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate in the manner
now or hereafter prescribed in this Restated Certificate, the By-Laws of
the Corporation or the GCL, and all rights herein conferred upon
stockholders are granted subject to such reservation.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate to be executed on its behalf as of the 27th day of August 1998.
AMERICAN FINANCE GROUP, INC.
By: /s/ DONALD R. DUGAN, JR.
----------------------------
Name: Donald R. Dugan, Jr.
Title: President and Chief Executive Officer
5
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
of
AMERICAN FINANCE GROUP, INC.
A Delaware Corporation
Effective ___, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
OFFICES
PAGE
<S> <C> <C>
Section 1 Registered Office................................. 1
Section 2 Other Offices..................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1 Place of Meetings................................. 1
Section 2 Annual Meetings................................... 2
Section 3 Special Meetings.................................. 2
Section 4 Quorum............................................ 3
Section 5 Proxies........................................... 3
Section 6 Voting............................................ 5
Section 7 Nature of Business at Meetings of Stockholders.... 5
Section 8 List of Stockholders Entitled to Vote............. 8
Section 9 Stock Ledger...................................... 8
Section 10 Record Date....................................... 8
Section 11 Inspectors of Election............................ 9
ARTICLE III
DIRECTORS
Section 1 Number and Election of Directors.................. 10
Section 2 Nomination of Directors........................... 11
Section 3 Vacancies......................................... 14
Section 4 Duties and Powers................................. 15
Section 5 Organization...................................... 15
Section 6 Resignations of Directors......................... 15
Section 7 Meetings.......................................... 16
Section 8 Quorum............................................ 16
Section 9 Actions of Board.................................. 17
Section 10 Meetings by Means of Conference Telephone......... 17
Section 11 Committees........................................ 17
Section 12 Compensation...................................... 19
Section 13 Interested Directors.............................. 19
ARTICLE IV
OFFICERS
Section 1 General............................................20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 2 Election............................................ 21
Section 3 Voting Securities Owned by the Corporation.......... 21
Section 4 Chairman of the Board of Directors.................. 22
Section 5 President........................................... 22
Section 6 Vice Presidents..................................... 23
Section 7 Secretary........................................... 24
Section 8 Treasurer........................................... 25
Section 9 Assistant Secretaries............................... 25
Section 10 Assistant Treasurers................................ 26
Section 11 Other Officers...................................... 26
ARTICLE V
STOCK
Section 1 Form of Certificates................................ 27
Section 2 Signatures.......................................... 27
Section 3 Lost, Destroyed, Stolen or Mutilated Certificates... 27
Section 4 Transfers........................................... 28
Section 5 Transfer and Registry Agents........................ 29
Section 6 Beneficial Owners................................... 29
ARTICLE VI
NOTICES
Section 1 Notices............................................. 29
Section 2 Waivers of Notice................................... 30
ARTICLE VII
GENERAL PROVISIONS
Section 1 Dividends........................................... 31
Section 2 Disbursements....................................... 31
Section 3 Fiscal Year......................................... 31
Section 4 Corporate Seal...................................... 32
ARTICLE VIII
INDEMNIFICATION
Section 1 Power to Indemnify in Actions, Suits or Proceedings Other than
Those by or in the Right of the Corporation................... 32
Section 2 Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation.................................. 33
Section 3 Authorization of Indemnification.............................. 34
Section 4 Good Faith Defined............................................ 35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5 Indemnification by a Court.....................................35
Section 6 Expenses Payable in Advance....................................36
Section 7 Nonexclusivity of Indemnification and Advancement of Expenses..37
Section 8 Insurance......................................................37
Section 9 Certain Definitions............................................38
Section 10 Survival of Indemnification and Advancement of Expenses........39
Section 11 Limitation on Indemnification..................................39
Section 12 Indemnification of Employees and Agents........................39
ARTICLE IX
AMENDMENTS
Section 1 Amendments.....................................................40
Section 2 Entire Board of Directors......................................40
ARTICLE X
INVESTMENT COMMITTEE
Section 1 Special Corporate Committee....................................40
Section 2 Duties and Powers..............................................41
Section 4 Resignations and Removals of Members...........................42
Section 5 Meetings.......................................................42
Section 6 Quorum.........................................................42
Section 7 Actions of Committee...........................................42
Section 8 Meetings by Means of Conference Telephone......................43
Section 9 Financial Transaction..........................................43
Section 10 Subsidiary.....................................................43
</TABLE>
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
AMERICAN FINANCE GROUP, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of New Castle, County of Wilmington, State of
Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have
offices at such other places, both within and without the State of Delaware, as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place,
1
<PAGE>
either within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The annual meetings of
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect directors, and transact
such other business as may properly be brought before the meeting. Written
notice of the annual meeting stating the place, date and hour of the meeting
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), special
meetings of stockholders, for any purpose or purposes, may be called exclusively
by the Board of Directors or by holders of a majority in voting power of the
shares of capital stock of the Corporation entitled to vote in the election of
directors. At a special meeting of the stockholders, only such business shall be
conducted as shall be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors. Written notice
of a special meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less than
2
<PAGE>
ten nor more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise required by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting not less than ten nor more than
sixty days before the date of the meeting.
SECTION 5. PROXIES. Any stockholder entitled to vote may do so
in person or by his or her proxy appointed by an instrument in writing
subscribed by such stockholder or by his or her attorney thereunto authorized,
delivered to the Secretary of
3
<PAGE>
the meeting; PROVIDED, HOWEVER, that no proxy shall be voted or acted upon after
three years from its date, unless said proxy provides for a longer period.
Without limiting the manner in which a stockholder may authorize another person
or persons to act for him or her as proxy, either of the following shall
constitute a valid means by which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing another
person or persons to act for him or her as proxy. Execution
may be accomplished by the stockholder or his or her
authorized officer, director, employee or agent signing such
writing or causing his or her signature to be affixed to such
writing by any reasonable means, including, but not limited
to, by facsimile signature.
(ii) A stockholder may authorize another person or persons to
act for him or her as proxy by transmitting or authorizing the
transmission of a telegram or other means of electronic
transmission to the person who will be the holder of the proxy
or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission,
provided that any such telegram or other means of electronic
transmission must either set forth or be submitted with
4
<PAGE>
information from which it can be determined that the telegram
or other electronic transmission was authorized by the
stockholder.
Any copy, facsimile telecommunication or other reliable reproduction of the
writing or transmission authorizing another person or persons to act as proxy
for a stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
SECTION 6. VOTING. At all meetings of the stockholders at
which a quorum is present, except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present in person or
represented by proxy and entitled to vote on such question, voting as a single
class. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his or her discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
SECTION 7. NATURE OF BUSINESS AT MEETINGS OF STOCKHOLDERS. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b)
5
<PAGE>
otherwise properly brought before the annual meeting by or at the direction of
the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 7 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 7.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
6
<PAGE>
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 7, PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 7 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing
7
<PAGE>
procedures, the Chairman shall declare to the meeting that the business was not
properly brought before the meeting and such business shall not be transacted.
SECTION 8. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 9. STOCK LEDGER. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 10. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any
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adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors and which record date: (1) in
the case of determination of stockholders entitled to vote at any meeting of
stockholders or adjournment thereof, shall not be more than sixty nor less than
ten days before the date of such meeting; and (2) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (2) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting
of stockholders, the Board by resolution or the Chairman or President shall
appoint one
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or more inspectors of election to act at the meeting and make a written report
thereof. One or more other persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is present,
ready and willing to act at a meeting of stockholders, the Chairman of the
meeting shall appoint one or more inspectors to act at the meeting. Unless
otherwise required by law, inspectors may be officers, employees or agents of
the Corporation. Each inspector, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall have the duties prescribed by law and shall take
charge of the polls and, when the vote is completed, shall make a certificate of
the result of the vote taken and of such other facts as may be required by law.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of six members. Except as provided in Section 3 of this
Article III, directors shall be elected by a plurality of the votes cast at the
annual meetings of stockholders, and each director so elected shall hold office
until such director's successor is duly elected and qualified, or until such
director's death, or until such director's earlier resignation or removal.
Directors need not be stockholders.
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SECTION 2. NOMINATION OF DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided in
the Certificate of Incorporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders, or at any
special meeting of stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Company (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 2 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 2. Notwithstanding anything to the contrary
set forth in this Section 2, until the earlier to occur of (a) the date on which
PLM International, Inc., a Delaware corporation ("PLMI"), together with all of
its direct and indirect subsidiaries other than the Corporation and the
Corporation's subsidiaries (collectively, the "PLMI Affiliated Group"), shall
cease to own, in the aggregate, at least 35% of the voting power of all of the
issued and outstanding shares of common stock, par value $0.01 per share, of the
Corporation ("Common Stock") and (b) the date on which the members of the PLMI
Affiliated Group shall cease to own, in the aggregate, at least 35% of all of
the issued
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and outstanding shares of Common Stock (not including, for purposes of
determining such percentages, any shares of Common Stock held as treasury stock
by the Corporation or held by any subsidiary of the Corporation), the Board of
Directors shall, at each annual meeting of stockholders and at any special
meeting of stockholders called for the purpose of electing directors, nominate
two persons designated by PLMI for election to the Board of Directors.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of
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business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information
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relating to such stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations promulgated thereunder. Such notice must be
accompanied by a notarized written consent of each proposed nominee to being
named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
SECTION 3. VACANCIES. Subject to the terms of any one or more
classes or series of preferred stock, any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the directors then in office, provided that a quorum is present, and any
other vacancy occurring on the Board of Directors may be filled by a majority of
the Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Notwithstanding the foregoing, whenever the holders of any
one or more class or classes or series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of
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vacancies and other features of such directorships shall be governed by the
Certificate of Incorporation.
SECTION 4. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws required to be exercised or done by the stockholders.
SECTION 5. ORGANIZATION. At each meeting of the Board of
Directors, the Chairman of the Board of Directors, or, in his or her absence, a
director chosen by a majority of the directors present, shall act as Chairman.
The Secretary of the Corporation shall act as Secretary at each meeting of the
Board of Directors. In case the Secretary shall be absent from any meeting of
the Board of Directors, an Assistant Secretary shall perform the duties of
Secretary at such meeting; and in the absence from any such meeting of the
Secretary and all the Assistant Secretaries, the Chairman of the meeting may
appoint any person to act as Secretary of the meeting.
SECTION 6. RESIGNATIONS OF DIRECTORS. Any director of the
Corporation may resign at any time, by giving written notice to the Chairman of
the Board of Directors, the President or the Secretary of the Corporation. Such
resignation shall take effect at the time therein specified or, if no time is
specified, immediately; and, unless
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otherwise specified in such notice, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 7. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the Chairman
of the Board of Directors, the Vice Chairman, if there be one, or a majority of
the directors then in office. Notice thereof stating the place, date and hour of
the meeting shall be given to each director either by mail not less than
forty-eight (48) hours before the date of the meeting, by telephone, facsimile
or telegram on twenty-four (24) hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 8. QUORUM. Except as may be otherwise required by law,
the Certificate of Incorporation or these By-Laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat
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may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
SECTION 9. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 10. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 10 shall
constitute presence in person at such meeting.
SECTION 11. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any
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committee, who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member; provided, however, that in the case of any of the Standing
Committees (as defined below), any such appointee shall meet the nomination
qualification, if any, of the absent or disqualified member. Any committee, to
the extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required. Notwithstanding anything to the contrary set forth in this
Section 11, the committees of the Board of Directors shall consist of at least
an Audit Committee, a Compensation Committee and a Nominating Committee (each, a
"Standing Committee"). A majority of the members of each of the Standing
Committees shall be members of the Board of Directors nominated by PLMI (the
"PLMI Members"). The combined act of at least half of the PLMI Members of a
Standing Committee and such number, if any, of additional members as is
necessary to constitute a majority of the members
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present at any meeting at which there is a quorum present shall be the act of a
Standing Committee.
SECTION 12. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary, or such other emoluments as the Board of Directors shall
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 13. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such person's or their
votes are counted for such purpose if (i) the material facts as to such person's
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority
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of the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to such person's or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor,
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except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership
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of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. Except where by law the signature of
the President is required, the Chairman of the Board of Directors shall possess
the same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him or her by these By-Laws or by the Board of
Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages, contracts
and other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may
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sign and execute documents when so authorized by these By-Laws, the Board of
Directors or the President. In the absence or disability of the Chairman of the
Board of Directors, or if there be none, the President shall preside at all
meetings of the stockholders and the Board of Directors. The President shall be
the Chief Executive Officer of the Corporation. The President shall also perform
such other duties and may exercise such other powers as from time to time may be
assigned to him or her by these By-Laws or by the Board of Directors.
SECTION 6. VICE PRESIDENTS. At the request of the President or
in his or her absence or in the event of his or her inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice President or
the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
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SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision the Secretary shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if there be
no Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed are properly kept or
filed, as the case may be.
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SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under control of the Treasurer belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the
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absence of the Secretary or in the event of his or her disability or refusal to
act, shall perform the duties of the Secretary, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Assistant Treasurer and for the restoration to the Corporation, in case of
the Assistant Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in the
Assistant Treasurer's possession or under control of the Assistant Treasurer
belonging to the Corporation.
SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to
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any other officer of the Corporation the power to choose such other officers and
to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation, (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder of stock in the Corporation.
SECTION 2. SIGNATURES. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 3. LOST, DESTROYED, STOLEN OR MUTILATED CERTIFICATES.
The Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed,
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upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or such person's legal representative, to
advertise the same in such manner as the Board of Directors shall require and/or
to give the Corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, properly endorsed for transfer
and payment of all necessary transfer taxes; PROVIDED, HOWEVER, that such
surrender and endorsement or payment of taxes shall not be required in any case
in which the officers of the Corporation shall determine to waive such
requirement. Every certificate exchanged, returned or surrendered to the
Corporation shall be marked "Cancelled," with the date of cancellation, by the
Secretary or Assistant Secretary of the Corporation or the transfer agent
thereof. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been
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entered in the stock records of the Corporation by an entry showing from and to
whom transferred.
SECTION 5. TRANSFER AND REGISTRY AGENTS. The Corporation may
from time to time maintain one or more transfer offices or agencies and registry
offices or agencies at such place or places as may be determined from time to
time by the Board of Directors.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears
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on the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
facsimile, telex or cable.
SECTION 2. WAIVERS OF NOTICE.
(a) Whenever any notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
(b) Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders, directors or members of
a committee of directors need be specified in any written waiver of notice
unless so required by law, the Certificate of Incorporation or these By-Laws.
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ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the requirements of the
Delaware General Corporation Law (the "GCL") and the provisions of the
Certificate of Incorporation, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors, and may be paid in cash, in property, or in
shares of the Corporation's capital stock. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
purchasing any of the shares of capital stock, warrants, rights, options, bonds,
debentures, notes, scrip or other securities or evidences of indebtedness of the
Corporation, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any other proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
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SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall 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, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and,
32
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with respect to any criminal action or proceeding, such person had no reasonable
cause to believe his or her conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that such person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall
33
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be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
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SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
his or her conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Section 1 or
2 of this Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstand-
35
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ing the absence of any determination thereunder, any director or officer may
apply to the Court of Chancery of the State of Delaware or any other court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections 1 and 2 of this Article VIII. The
basis of such indemnification by a court shall be a determination by such court
that indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director
36
<PAGE>
or officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT
OF EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or pursuant to the
direction (howsoever embodied) of any court of competent jurisdiction or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Section 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Section 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the GCL, or otherwise.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership,
37
<PAGE>
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power or the obligation to indemnify such person
against such liability under the provisions of this Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or
38
<PAGE>
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer (or his or her heirs, executors or personal or legal representatives) or
advance expenses in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the
39
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Corporation similar to those conferred in this Article VIII to directors and
officers of the Corporation.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the Board of
Directors or by the stockholders as provided in the Certificate of
Incorporation.
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
ARTICLE X
INVESTMENT COMMITTEE
SECTION 1. SPECIAL CORPORATE COMMITTEE. The Corporation shall
have an Investment Committee whose duties will include the review and approval
of all financial transactions entered into by the Corporation or any of its
subsidiaries. The Investment Committee shall consist of seven members. Until the
earlier to occur of (a) the date on which the members of the PLMI Affiliated
Group shall cease to own, in the aggregate, at least 35% of the voting power of
all of the issued and outstanding shares of Common Stock and (b) the date on
which the members of the PLMI Affiliated Group
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shall cease to own, in the aggregate, at least 35% of all of the issued and
outstanding shares of Common Stock (not including, for purposes of determining
such percentages, any shares of Common Stock held as treasury stock by the
Corporation or held by any subsidiary of the Corporation), four members of the
Investment Committee shall be designated by PLMI, and the remaining three
members shall be designated by the Board of Directors of the Corporation. Each
of such members shall serve until such member's successor is duly designated in
accordance with the foregoing, or until such member's death, or until such
member's earlier resignation. Members of the Investment Committee need not be
stockholders nor members of the Board of Directors of the Corporation.
SECTION 2. DUTIES AND POWERS. The Company shall not enter into
a financial transaction without the approval of at least four members of the
Investment Committee, including at least two members designated by PLMI and one
member designated by the Board of Directors of the Corporation.
SECTION 3. ORGANIZATION. The members of the Investment
Committee shall designate a Chairman of the Investment Committee from among such
members, who shall serve until his successor is duly designated. The Chairman of
the Investment Committee shall also act as Secretary of all meetings of the
Investment Committee. The Investment Committee shall keep regular minutes of all
meetings and report to the Board of Directors of the Corporation when required.
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SECTION 4. RESIGNATIONS AND REMOVALS OF MEMBERS. Any member of
the Investment Committee may resign at any time, by giving written notice to the
Chairman of the Investment Committee or the Chairman of the Board of Directors.
Such resignation shall take effect at the time therein specified or, if no time
is specified, immediately; and, unless otherwise specified in such notice, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. MEETINGS. Meetings of the Investment Committee may
be held either within or without the State of Delaware and shall be called by
the Chairman of the Investment Committee, who shall act at the direction of the
Board of Directors. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, by telephone, facsimile or telegram
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 6. QUORUM. At all meetings of the Investment
Committee, four members of such committee shall constitute a quorum for the
transaction of business. If a quorum shall not be present at any meeting of the
Investment Committee, the members present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of the adjourned meeting, until a quorum shall be present.
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SECTION 7. ACTIONS OF COMMITTEE. Any action required or
permitted to be taken at any meeting of the Investment Committee may be taken
without a meeting, if all the members of the committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Investment Committee.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Members
of the Investment Committee may participate in a meeting of the Investment
Committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.
SECTION 9. FINANCIAL TRANSACTION. As used in this Article X,
the term "financial transaction" means any (a) equipment lease, (b) secured
loan, hybrid lease or other specialized financing (each, a "structured finance
product"), (c) agreement to manage or service equipment leases or structured
finance products and (d) acquisition of equipment leases or structured finance
products, in each case where the aggregate purchase price of the equipment that
is the subject of such transaction exceeds $100,000.
SECTION 10. SUBSIDIARY. As used in this Article X and in these
By-Laws generally, the term "subsidiary" (when used with reference to a
particular person) means all corporations, partnerships, joint ventures, limited
liability companies, associations and other entities (a) in which such person
owns (directly or indirectly) fifty percent or
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more of the outstanding voting stock, voting power, partnership interests or
similar ownership interests, (b) which such person otherwise directly or
indirectly controls or whose policies or operations such person directs or (c)
that would be considered subsidiaries of such person within the meaning of
Regulation S-K or Regulation S-X of the Securities and Exchange Commission.
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EXHIBIT 4.1
COMMON STOCK COMMON STOCK SHARES
NUMBER
AFG
AMERICAN FINANCE GROUP, INC.
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 026073 10 6
NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J.
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER
SHARE, OF
AMERICAN FINANCE GROUP, INC.
transferable only on the books of the Corporation in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
AMERICAN FINANCE GROUP, INC.
CORPORATE SEAL
/s/ Robert N. Tidball FEBRUARY 9, 1995 /s/ Donald R. Dugan
CHAIRMAN OF THE BOARD DELAWARE PRESIDENT AND CHIEF
EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
BY
AUTHORIZED SIGNATURE
2
AMERICAN FINANCE GROUP, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and
<PAGE>
by any certificate of designation and the number of shares constituting each
class and series and the designations thereof, may be obtained by the holder
hereof upon request and without charge from the Corporation at its principal
office.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -- ______Custodian____
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants under Uniform Gifts to
with right of survivorship and not Minors Act ________
as tenants in common State
UNIF TRF MIN ACT -- ___ Custodian (until age___)
(Cust.)
____ under Uniform Tranfers
(Minor)
to Minors Act __________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________
___________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________
____________________________________________________________________
_______________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
2
<PAGE>
____________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
x ___________________________________
x____________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By _____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT
TO S.E.C. RULE 17Ad-15.
3
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EXHIBIT 10.15
AMENDMENT NO. 1
TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT
(American Finance Group, Inc.)
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED WAREHOUSING CREDIT
AGREEMENT dated as of June 1, 1998 (the "Amendment"), is entered into by and
among AMERICAN FINANCE GROUP, INC., a Delaware corporation ("Borrower"), FIRST
UNION NATIONAL BANK ("FUNB"), BANK OF MONTREAL ("BMO") and each other financial
institution which may hereafter execute and deliver an instrument of assignment
pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one
financial institution individually, a "Lender," and collectively, "Lenders"),
and FUNB, as agent on behalf of Lenders (not in its individual capacity, but
solely as agent, "Agent"). Capitalized terms used herein without definition
shall have the same meanings herein as given to them in the Credit Agreement.
RECITALS
A. Borrower, Lenders and Agent have entered into that Amended and Restated
Warehousing Credit Agreement dated as of December 2, 1997 (as the same may from
time to time be amended, the "Credit Agreement"), pursuant to which Lenders have
agreed to extend and make available to Borrower certain advances of money.
B. Borrower desires that Lenders and Agent amend the Credit Agreement to
increase the Commitments set forth on Schedule A to the Credit Agreement from
$50,000,000 to $55,000,000 for a period of ninety (90) days from the date first
written above.
C. Subject to the representations and warranties of Borrower and upon the
terms and conditions set forth in this Amendment, Lenders and Agent are willing
to so amend the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and
intending to be legally bound, the parties hereto agree as follows:
SECTION 1. AMENDMENTS
1.1 Commitment. The definition of "Commitment" set forth in Section 1.1
of the Credit Agreement is amended by deleting it in its entirety and replacing
it with the following:
"Commitment" means, with respect to each Lender, the amounts set forth
on Schedule A, for each period as set forth therein, and "Commitments"
means, for each such period, all such amounts collectively, as each may
be amended from time to time upon the execution and delivery of an
<PAGE>
instrument of assignment pursuant to Section 11.10, which amendments
shall be evidenced on Schedule 1.1.
and by deleting Schedule A in its entirety and replacing such schedule with a
new Schedule A in the form attached to this Amendment as Attachment I.
SECTION 2. LIMITATIONS ON AMENDMENTS
2.1 The amendments set forth in Section 1, above, are effective for the
purposes set forth herein and shall be limited precisely as written and shall
not be deemed to (i) be a consent to any amendment, waiver or modification of
any other term or condition of any Loan Document or (ii) otherwise prejudice any
right or remedy which Lenders or Agent may now have or may have in the future
under or in connection with any Loan Document.
2.2 This Amendment shall be construed in connection with and as part of
the Loan Documents and all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Documents, except as herein
amended, are hereby ratified and confirmed and shall remain in full force and
effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders
and Agent to enter into this Amendment, Borrower represents and warrants to each
Lender and Agent as follows:
(a) Immediately after giving effect to this Amendment (i) the
representations and warranties contained in the Loan Documents (other than those
which expressly speak as of a different date which shall be true as of such
different date) are true, accurate and complete in all material respects as of
the date hereof and (ii) no Event of Default, or event which constitutes a
Potential Event of Default, has occurred and is continuing;
(b) Borrower has the corporate power and authority to execute and
deliver this Amendment and to perform its Obligations under the Credit
Agreement, as amended by this Amendment, and each of the other Loan Documents to
which it is a party;
(c) The certificate of incorporation, bylaws and other organizational
documents of Borrower delivered to each Lender as a condition precedent to the
effectiveness of the Credit Agreement are true, accurate and complete and have
not been amended, supplemented or restated and are and continue to be in full
force and effect;
(d) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its Obligations under the Credit Agreement, as
amended by this Amendment, and each of the other Loan Documents to which it is a
party have been duly authorized by all necessary corporate action on the part of
Borrower;
(e) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its respective Obligations under the Credit
Agreement, as amended by this Amendment, and each of the other Loan Documents to
which it is a party do not and will not contravene (i) any law or regulation
binding on or affecting Borrower, (ii) the
<PAGE>
certificate of incorporation, bylaws, or other organizational documents of
Borrower, (iii) any order, judgment or decree of any court or other governmental
or public body or authority, or subdivision thereof, binding on Borrower or (iv)
any contractual restriction binding on or affecting Borrower;
(f) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its Obligations under the Credit Agreement, as
amended by this Amendment, and each of the other Loan Documents to which it is a
party do not require any order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by any
governmental or public body or authority, or subdivision thereof, binding on
Borrower, except as already has been obtained or made; and
(g) This Amendment has been duly executed and delivered by Borrower and
is the binding Obligation of Borrower, enforceable against it in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application and equitable principles relating to or affecting creditors'
rights.
SECTION 4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under
each Loan Document to which it is a party.
SECTION 5. EFFECTIVENESS. This Amendment shall become effective upon the
last to occur of:
(a) The execution and delivery of this Amendment, whether the same or
different copies, by each of Borrower, Lenders and Agent.
(b) The execution and delivery by Borrower to FUNB of a promissory note
substantially in the form of Exhibit A hereto which promissory note shall be a
"Note" under and as defined in the Credit Agreement.
(c) The execution and delivery by PLMI to Agent of the Acknowledgment
of Amendment and Reaffirmation of Guaranty attached to this Amendment.
(d) The delivery to Agent of a certificate of secretary or assistant
secretary of Borrower and PLMI (i) certifying that the certified copies of the
certificate of incorporation and bylaws of Borrower or PLMI, as the case may be,
delivered to Agent on the Closing Date are true and accurate and remain in full
force and effect and have not been amended since the Closing Date, (ii)
attaching true and correct copies of all resolutions of the board of directors
of Borrower or PLMI, as the case may be, duly adopted by such board, and
relating to the authorization, execution, delivery and performance of this
Amendment and the Credit Agreement as amended thereby or the Acknowledgement of
Amendment and Reaffirmation of Guaranty and (iii) setting forth the name, title
and signatures of the authorized signers for Borrower or PLMI, as the case may
be.
<PAGE>
(e) The delivery to Agent of an originally executed favorable opinion
of counsel on behalf of Borrower and Guarantor, in form and substance
satisfactory to Lenders, dated as of the date hereof and addressed to Lenders,
together with copies of any officer's certificate or legal opinion of other
counsel or law firm specifically identified and expressly relied upon by such
counsel.
(f) The delivery to Agent of a certificate, dated as of the date
hereof, of the Chief Financial Officer or Corporate Controller of Borrower to
the effect that the representations and warranties of Borrower contained in
Section 4 of the Credit Agreement and in the other Loan Documents are true,
accurate and complete in all material respects as of the date hereof as though
made on such date (other than those which expressly speak as of a different date
which shall be true as of such different date) and no Event of Default or
Potential Event of Default has occurred and is continuing.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA.
SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. BORROWER
HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE
OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-
OFF.
SECTION 8. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER AMERICAN FINANCE GROUP, INC.
By: /s/ RICHARD K. BROCK
--------------------------------------
Richard K. Brock
Vice President & Corporate Controller
LENDERS FIRST UNION NATIONAL BANK
By: /s/ BILL A. SHIRLEY
--------------------------------------
Printed name: Bill A. Shirley
----------------------------
Title: Senior Vice President
-----------------------------------
BANK OF MONTREAL
By: /s/ LEON H. SINCLAIR
--------------------------------------
Printed name: Leon H. Sinclair
---------------------------
Title: Director
----------------------------------
AGENT FIRST UNION NATIONAL BANK, as Agent
By: /s/ BILL A. SHIRLEY
--------------------------------------
Printed name: Bill A. Shirley
----------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
ATTACHMENT I
Revised Schedule A
<PAGE>
SCHEDULE A
COMMITMENTS
For the period from and including June 1, 1998 through August 30, 1998:
LENDER COMMITMENT PRO RATA SHARE
First Union National Bank $40,000,000 72.73%
Bank of Montreal $15,000,000 27.27%
At all other times:
LENDER COMMITMENT PRO RATA SHARE
First Union National Bank $35,000,000 70%
Bank of Montreal $15,000,000 30%
<PAGE>
EXHIBIT A
REVOLVING PROMISSORY NOTE
(First Union National Bank)
$40,000,000.00 San Francisco, California
Date: June 1, 1998
AMERICAN FINANCE GROUP, INC., a Delaware corporation (the "Borrower"),
FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of First
Union National Bank ("FUNB"), in lawful money of the United States of America,
the aggregate principal amount of FUNB's Pro Rata Share of all Loans outstanding
under the Credit Agreement referred to below, payable in the amounts, on the
dates and in the manner set forth below.
This revolving promissory note (the "Note") is one of the Notes
referred to in that certain Amended and Restated Warehousing Credit Agreement
dated as of December 2, 1997 (as the same may from time to time be further
amended, modified, supplemented, renewed, extended or restated, the "Credit
Agreement") by and among the Borrower, FUNB, solely in its capacity as agent
(the "Agent") for FUNB and Bank of Montreal and such other financial
institutions as shall from time to time become "Lenders" pursuant to Section
11.10 of the Credit Agreement (such entities, together with their respective
successors and assigns being collectively referred to herein as the "Lenders"),
and the Lenders. All capitalized terms used but not defined herein shall have
the same meaning as given to them in the Credit Agreement.
1. Principal Payments. Subject to the terms and conditions of the
Credit Agreement, the entire principal amount outstanding under each Loan shall
be due and payable on the Maturity Date with respect to such Loan, with any and
all unpaid and not previously due and payable principal amounts under the Loans
being due and payable on the Commitment Termination Date.
2. Interest Rate. The Borrower further promises to pay interest on the
sum of the daily unpaid principal balance of all Loans outstanding on each day
in lawful money of the United States of America, from the Closing Date until all
such principal amounts shall have been repaid in full, which interest shall be
payable at the rates per annum and on the dates determined pursuant to the
Credit Agreement.
3. Place of Payment. All amounts payable hereunder shall be payable to
the Agent, on behalf of FUNB, at the office of First Union National Bank, One
First Union Center, 301 South College Street, Charlotte, North Carolina 28288,
Attention: Elisha Sabido, or such other place of payment as may be specified by
the Agent in writing.
4. Application of Payments; Acceleration. Payments on this Note shall
be applied in the manner set forth in the Credit Agreement. The Credit Agreement
contains provisions for acceleration of the maturity of the Loans upon the
occurrence of certain stated events and also
<PAGE>
provides for mandatory and optional prepayments of principal prior to the stated
maturity on the terms and conditions therein specified.
Each Advance made by FUNB to the Borrower constituting FUNB's Pro Rata
Share of a Loan pursuant to the Credit Agreement shall be recorded by FUNB on
its books and records. The failure of FUNB to record any Advance or any
repayment or prepayment made on account of the principal balance thereof shall
not limit or otherwise affect the obligations of the Borrower under this Note
and under the Credit Agreement to pay the principal, interest and other amounts
due and payable hereunder and thereunder.
5. Default. The Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on or within five (5) calendar days after the date the same becomes
due and payable shall constitute a default under this Note. Upon the occurrence
of a default hereunder or an Event of Default under the Credit Agreement, all
unpaid principal, accrued interest and other amounts owing hereunder shall, at
the option of Required Lenders, be immediately collectible by the Lenders and
the Agent pursuant to the Credit Agreement and applicable law.
6. Waivers. The Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred by or on behalf of the Lenders, including,
without limitation, reasonable attorneys' fees, costs and other expenses as
provided in the Credit Agreement.
7. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of North Carolina, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
8. Successors and Assigns. The provisions of this Note shall inure to
the benefit of and be binding on any successor to the Borrower and shall extend
to any holder hereof.
BORROWER AMERICAN FINANCE GROUP, INC.,
a Delaware corporation
By_______________________________________
Richard K. Brock
Vice President & Corporate Controller
<PAGE>
ACKNOWLEDGEMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY
(PLMI/AFG)
SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and
confirms that it has reviewed and approved the terms and conditions of this
Amendment No. 1 to Amended and Restated Warehousing Credit Agreement
("Amendment").
SECTION 2. PLMI hereby consents to this Amendment and agrees that its
Guaranty of the Obligations of Borrower under the Credit Agreement shall
continue in full force and effect, shall be valid and enforceable and shall not
be impaired or otherwise affected by the execution of this Amendment or any
other document or instrument delivered in connection herewith.
SECTION 3. PLMI represents and warrants that, after giving effect to
this Amendment, all representations and warranties contained in its Guaranty are
true, accurate and complete as if made on the date hereof.
GUARANTOR PLM INTERNATIONAL, INC.
By________________________________________
Richard K. Brock
Vice President & Corporate Controller
<PAGE>
EXHIBIT 10.16
AMENDMENT NO. 2
TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT
(American Finance Group, Inc.)
THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED WAREHOUSING CREDIT
AGREEMENT dated as of June 8, 1998 (the "Amendment"), is entered into by and
among AMERICAN FINANCE GROUP, INC., a Delaware corporation ("Borrower"), FIRST
UNION NATIONAL BANK ("FUNB"), BANK OF MONTREAL ("BMO") and each other financial
institution which may hereafter execute and deliver an instrument of assignment
pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one
financial institution individually, a "Lender," and collectively, "Lenders"),
and FUNB, as agent on behalf of Lenders (not in its individual capacity, but
solely as agent, "Agent"). Capitalized terms used herein without definition
shall have the same meanings herein as given to them in the Credit Agreement.
RECITALS
A. Borrower, Lenders and Agent have entered into that Amended and
Restated Warehousing Credit Agreement dated as of December 2, 1997, as amended
by that certain Amendment No. 1 to Amended and Restated Warehousing Credit
Agreement dated as of June 1, 1998 (as the same may from time to time be further
amended, the "Credit Agreement"), pursuant to which Lenders have agreed to
extend and make available to Borrower certain advances of money.
B. Borrower desires that Lenders and Agent amend the Credit Agreement to
increase the Commitments set forth on Schedule A to the Credit Agreement from
$55,000,000 to $60,000,000 for a period of thirty (30) days from the date first
written above.
C. Subject to the representations and warranties of Borrower and upon the
terms and conditions set forth in this Amendment, Lenders and Agent are willing
to so amend the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and
intending to be legally bound, the parties hereto agree as follows:
SECTION 1. AMENDMENTS.
1.1 Commitment. The definition of "Commitment" set forth in Section
1.1 of the Credit Agreement is amended by deleting Schedule A in its entirety
and replacing such schedule with a new Schedule A in the form attached to this
Amendment as Attachment I.
<PAGE>
SECTION 2. LIMITATIONS ON AMENDMENTS.
2.1 The amendments set forth in Section 1, above, are effective for
the purposes set forth herein and shall be limited precisely as written and
shall not be deemed to (i) be a consent to any amendment, waiver or modification
of any other term or condition of any Loan Document or (ii) otherwise prejudice
any right or remedy which Lenders or Agent may now have or may have in the
future under or in connection with any Loan Document.
2.2 This Amendment shall be construed in connection with and as part
of the Loan Documents and all terms, conditions, representations, warranties,
covenants and agreements set forth in the Loan Documents, except as herein
amended, are hereby ratified and confirmed and shall remain in full force and
effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and
Agent to enter into this Amendment, Borrower represents and warrants to each
Lender and Agent as follows:
(a) Immediately after giving effect to this Amendment (i) the
representations and warranties contained in the Loan Documents (other than those
which expressly speak as of a different date which shall be true as of such
different date) are true, accurate and complete in all material respects as of
the date hereof and (ii) no Event of Default, or event which constitutes a
Potential Event of Default, has occurred and is continuing;
(b) Borrower has the corporate power and authority to execute and
deliver this Amendment and to perform its Obligations under the Credit
Agreement, as amended by this Amendment, and each of the other Loan Documents to
which it is a party;
(c) The certificate of incorporation, bylaws and other organizational
documents of Borrower delivered to each Lender as a condition precedent to the
effectiveness of the Credit Agreement are true, accurate and complete and have
not been amended, supplemented or restated and are and continue to be in full
force and effect;
(d) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its Obligations under the Credit Agreement, as
amended by this Amendment, and each of the other Loan Documents to which it is a
party have been duly authorized by all necessary corporate action on the part of
Borrower;
(e) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its respective Obligations under the Credit
Agreement, as amended by this Amendment, and each of the other Loan Documents to
which it is a party do not and will not contravene (i) any law or regulation
binding on or affecting Borrower, (ii) the certificate of incorporation, bylaws,
or other organizational documents of Borrower, (iii) any order, judgment or
decree of any court or other governmental or public body or authority, or
subdivision thereof, binding on Borrower or (iv) any contractual restriction
binding on or affecting Borrower;
<PAGE>
(f) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its Obligations under the Credit Agreement, as
amended by this Amendment, and each of the other Loan Documents to which it is a
party do not require any order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by any
governmental or public body or authority, or subdivision thereof, binding on
Borrower, except as already has been obtained or made; and
(g) This Amendment has been duly executed and delivered by Borrower
and is the binding Obligation of Borrower, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application and equitable principles relating to or affecting creditors'
rights.
SECTION 4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under
each Loan Document to which it is a party.
SECTION 5. EFFECTIVENESS. This Amendment shall become effective upon the
last to occur of:
(a) The execution and delivery of this Amendment, whether the same or
different copies, by each of Borrower, Lenders and Agent.
(b) The execution and delivery by Borrower to FUNB of a promissory
note substantially in the form of Exhibit A hereto which promissory note shall
be a "Note" under and as defined in the Credit Agreement.
(c) The execution and delivery by PLMI to Agent of the Acknowledgment
of Amendment and Reaffirmation of Guaranty attached to this Amendment.
(d) The delivery to Agent of a certificate of secretary or assistant
secretary of Borrower and PLMI (i) certifying that the certified copies of the
certificate of incorporation and bylaws of Borrower or PLMI, as the case may be,
delivered to Agent on the Closing Date are true and accurate and remain in full
force and effect and have not been amended since the Closing Date, (ii)
attaching true and correct copies of all resolutions of the board of directors
of Borrower or PLMI, as the case may be, duly adopted by such board, and
relating to the authorization, execution, delivery and performance of this
Amendment and the Credit Agreement as amended thereby or the Acknowledgement of
Amendment and Reaffirmation of Guaranty and (iii) setting forth the name, title
and signatures of the authorized signers for Borrower or PLMI, as the case may
be.
(e) The delivery to Agent of an originally executed favorable opinion
of counsel on behalf of Borrower and Guarantor, in form and substance
satisfactory to Lenders, dated as of the date hereof and addressed to Lenders,
together with copies of any officer's certificate or legal opinion of other
counsel or law firm specifically identified and expressly relied upon by such
counsel.
<PAGE>
(f) The delivery to Agent of a certificate, dated as of the date
hereof, of the Chief Financial Officer or Corporate Controller of Borrower to
the effect that the representations and warranties of Borrower contained in
Section 4 of the Credit Agreement and in the other Loan Documents are true,
accurate and complete in all material respects as of the date hereof as though
made on such date (other than those which expressly speak as of a different date
which shall be true as of such different date) and no Event of Default or
Potential Event of Default has occurred and is continuing.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA.
SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. BORROWER
HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE
OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-
OFF.
SECTION 8. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER AMERICAN FINANCE GROUP, INC.
By: /s/ RICHARD K. BROCK
--------------------------------
Richard K. Brock
Vice President & Corporate Controller
LENDERS FIRST UNION NATIONAL BANK
By: /s/ DAVID M. ROBERTS
--------------------------------
Printed name: David M. Roberts
----------------------
Title: Senior Vice President
-----------------------------
BANK OF MONTREAL
By: /s/ LEON H. SINCLAIR
--------------------------------
Printed name: Leon H. Sinclair
----------------------
Title: Director
-----------------------------
AGENT FIRST UNION NATIONAL BANK, as Agent
By: /s/ DAVID M. ROBERTS
--------------------------------
Printed name: David M. Roberts
----------------------
Title: Senior Vice President
-----------------------------
<PAGE>
ATTACHMENT I
Revised Schedule A
<PAGE>
SCHEDULE A
COMMITMENTS
For the period from and including June 8, 1998 through July 8, 1998:
LENDER COMMITMENT PRO RATA SHARE
First Union National Bank $45,000,000 75%
Bank of Montreal $15,000,000 25%
For the period from and including June 1, 1998 through August 30, 1998,
excluding the period from June 8, 1998 through July 8, 1998:
LENDER COMMITMENT PRO RATA SHARE
First Union National Bank $40,000,000 72.73%
Bank of Montreal $15,000,000 27.27%
At all other times:
LENDER COMMITMENT PRO RATA SHARE
First Union National Bank $35,000,000 70%
Bank of Montreal $15,000,000 30%
<PAGE>
EXHIBIT A
REVOLVING PROMISSORY NOTE
(First Union National Bank)
$45,000,000.00 San Francisco, California
Date: June 8, 1998
AMERICAN FINANCE GROUP, INC., a Delaware corporation (the "Borrower"),
FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of First
Union National Bank ("FUNB"), in lawful money of the United States of America,
the aggregate principal amount of FUNB's Pro Rata Share of all Loans outstanding
under the Credit Agreement referred to below, payable in the amounts, on the
dates and in the manner set forth below.
This revolving promissory note (the "Note") is one of the Notes
referred to in that certain Amended and Restated Warehousing Credit Agreement
dated as of December 2, 1997, as amended by that certain Amendment No. 1 to
Amended and Restated Warehousing Credit Agreement dated as of June 1, 1998 and
by that certain Amendment No. 2 to Amended and Restated Warehousing Credit
Agreement dated as of even date herewith (as the same may from time to time be
further amended, modified, supplemented, renewed, extended or restated, the
"Credit Agreement") by and among the Borrower, FUNB, solely in its capacity as
agent (the "Agent") for FUNB and Bank of Montreal and such other financial
institutions as shall from time to time become "Lenders" pursuant to Section
11.10 of the Credit Agreement (such entities, together with their respective
successors and assigns being collectively referred to herein as the "Lenders"),
and the Lenders. All capitalized terms used but not defined herein shall have
the same meaning as given to them in the Credit Agreement.
1. Principal Payments. Subject to the terms and conditions of the Credit
Agreement, the entire principal amount outstanding under each Loan shall be due
and payable on the Maturity Date with respect to such Loan, with any and all
unpaid and not previously due and payable principal amounts under the Loans
being due and payable on the Commitment Termination Date.
2. Interest Rate. The Borrower further promises to pay interest on the
sum of the daily unpaid principal balance of all Loans outstanding on each day
in lawful money of the United States of America, from the Closing Date until all
such principal amounts shall have been repaid in full, which interest shall be
payable at the rates per annum and on the dates determined pursuant to the
Credit Agreement.
3. Place of Payment. All amounts payable hereunder shall be payable to
the Agent, on behalf of FUNB, at the office of First Union National Bank, One
First Union Center, 301 South College Street, Charlotte, North Carolina 28288,
Attention: Elisha Sabido, or such other place of payment as may be specified by
the Agent in writing.
<PAGE>
4. Application of Payments; Acceleration. Payments on this Note shall be
applied in the manner set forth in the Credit Agreement. The Credit Agreement
contains provisions for acceleration of the maturity of the Loans upon the
occurrence of certain stated events and also provides for mandatory and optional
prepayments of principal prior to the stated maturity on the terms and
conditions therein specified.
Each Advance made by FUNB to the Borrower constituting FUNB's Pro Rata
Share of a Loan pursuant to the Credit Agreement shall be recorded by FUNB on
its books and records. The failure of FUNB to record any Advance or any
repayment or prepayment made on account of the principal balance thereof shall
not limit or otherwise affect the obligations of the Borrower under this Note
and under the Credit Agreement to pay the principal, interest and other amounts
due and payable hereunder and thereunder.
5. Default. The Borrower's failure to pay timely any of the principal
amount due under this Note or any accrued interest or other amounts due under
this Note on or within five (5) calendar days after the date the same becomes
due and payable shall constitute a default under this Note. Upon the occurrence
of a default hereunder or an Event of Default under the Credit Agreement, all
unpaid principal, accrued interest and other amounts owing hereunder shall, at
the option of Required Lenders, be immediately collectible by the Lenders and
the Agent pursuant to the Credit Agreement and applicable law.
6. Waivers. The Borrower waives presentment and demand for payment,
notice of dishonor, protest and notice of protest of this Note, and shall pay
all costs of collection when incurred by or on behalf of the Lenders, including,
without limitation, reasonable attorneys' fees, costs and other expenses as
provided in the Credit Agreement.
7. Governing Law. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of North Carolina, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
8. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to the Borrower and shall extend to
any holder hereof.
BORROWER AMERICAN FINANCE GROUP, INC.,
a Delaware corporation
By ______________________________________
Richard K. Brock
Vice President & Corporate Controller
<PAGE>
ACKNOWLEDGEMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY
(PLMI/AFG)
SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and
confirms that it has reviewed and approved the terms and conditions of this
Amendment No. 2 to Amended and Restated Warehousing Credit Agreement
("Amendment").
SECTION 2. PLMI hereby consents to this Amendment and agrees that its
Guaranty of the Obligations of Borrower under the Credit Agreement shall
continue in full force and effect, shall be valid and enforceable and shall not
be impaired or otherwise affected by the execution of this Amendment or any
other document or instrument delivered in connection herewith.
SECTION 3. PLMI represents and warrants that, after giving effect to this
Amendment, all representations and warranties contained in its Guaranty are
true, accurate and complete as if made on the date hereof.
GUARANTOR PLM INTERNATIONAL, INC.
By __________________________________________
Richard K. Brock
Vice President & Corporate Controller
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
this 2nd day of September, 1998, by and between American Finance Group, Inc.
("Employer") and Gary M. Abrams ("Employee").
WHEREAS, the Board of Directors of Employer deems it in the best
interest of the shareholders of the Employer to maintain a continuity of
management, and to retain an experienced, successful and proven management team;
and
WHEREAS, Gary M. Abrams is willing to serve as Senior Vice President,
Chief Financial Officer and Treasurer, subject to, but not limited by, the terms
of this Agreement.
W I T N E S S E T H
-------------------
That in consideration of the covenants, duties, terms and conditions
hereinafter set forth, the parties hereto agree as follows:
1. SERVICES. Employer hereby engages the exclusive services of
--------
Employee as Senior Vice President, Chief Financial Officer and Treasurer, with
his/her powers and duties in that capacity to be determined by Employer's Board
of Directors, and Employee hereby agrees to perform such services on the terms
and conditions herein contained and to abide by all rules and regulations for
the conduct of the Employee that are now or may hereafter be established by
Employer. In connection with this Agreement, Employee shall be based at the
principal executive offices of Employer or at such location as may be designated
from time to time by the Board of Directors of Employer, except for required
travel on Employer's business.
2. EMPLOYMENT TERM. The term of this Agreement shall commence on
---------------
the date hereof (the "Commencement Date"), and shall continue until Employee's
employment with Employer is terminated pursuant to Section 10 of this Agreement.
3. COMPENSATION. Employer shall pay to Employee as full
------------
compensation for all services performed, the sum of One Hundred Fifty Thousand
Dollars ($150,000) per year (or such higher amount as may be agreed to by
Employer and Employee from time to time)(the original amount or the adjusted
amount, if applicable, being the "Base Salary") payable in equal semi-monthly
installments. Employee's compensation may be adjusted from time to time, but it
may not be reduced below the Base Salary without the Employee's prior written
consent. Employer may deduct and withhold from all payments to be made to
Employee hereunder the amounts required or permitted to be deducted or withheld
pursuant to any provisions of any present or future applicable
1
<PAGE>
law or regulation, together with the right and authority to pay any such
deductions or withholdings over to any party entitled to the same pursuant to
the provisions of any such law or regulation.
4. BONUS. Starting in the fiscal year ending December 31, 1999, the
-----
Employee shall be eligible to participate in any bonus or incentive compensation
plan for which Employee or other senior executives of Employer may reasonably
expect to participate (the "Incentive Compensation Plan"). To the extent not
otherwise determined pursuant to the Incentive Compensation Plan, the Board of
Directors shall have the sole discretion to determine the amount of such bonus,
or incentive compensation, if any. For the fiscal year ending December 31, 1998,
Employee shall be paid a bonus in the amount of Forty-Five Thousand Dollars
($45,000) at the same time the Company pays its other senior executives their
bonuses related to such time period. Employee shall not be entitled to any other
bonus or incentive compensation for the fiscal year ending December 31, 1998.
5. OTHER BENEFITS. Employer shall maintain in full force and
--------------
effect, and Employee shall be entitled to participate in, all of Employer's
employee benefit plans and arrangements in effect on the date hereof in which
Employee or other senior executives of Employer may reasonably expect to
participate, or such other plans or arrangements that would provide Employee
with substantially equivalent benefits thereunder (including without limitation
each pension and retirement plan and arrangement, supplemental pension and
retirement plan and arrangement, stock option plan, life insurance plan and
arrangement, health and accident plan and arrangement, medical insurance plan
and arrangement, disability plan and arrangement, survivor income plan and
arrangement, relocation plan and vacation plan)(the "Employee Benefit Plans");
provided, however, that this Section 5 shall not apply to any of Employer's
Incentive Compensation Plan(s). Employer shall not make any changes in any
Employee Benefit Plan which would adversely affect Employee's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
employees or executives of the Employer and does not result in a proportionately
greater reduction in the rights of or benefits to the Employee as compared with
any other similarly situated executive of the Employer. Employee shall be
entitled to participate in and receive benefits under any Employee Benefit Plan
or arrangement made available by Employer in the future to its employees,
executives or key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to the Employee under any Employee Benefit Plan or
any plan or arrangement made available in the future shall be deemed to be in
lieu of the salary payable to the Employee pursuant to Section 3.1 hereof or
pursuant to an Incentive Compensation Plan as provided in Section 4 hereof. Any
payments or benefits payable to the Employee hereunder with respect to any
calendar year during which Employee is employed by Employer for less than the
entire such year shall, unless otherwise provided in the applicable plan or
arrangement, be prorated in accordance with the number of days in such calendar
year during which he is employed.
2
<PAGE>
6. OTHER INTERESTS. During the term of employment, Employee shall
---------------
devote his full business time and attention solely to the business and interest
of Employer, and Employer shall be entitled to all the benefits arising from or
incident to Employee's services. During the employment term, Employee shall
not, without Employer's written consent, have any interest in any business which
conflicts either directly or indirectly with Employer's business, except that
Employee may hold an interest not exceeding five percent (5%) in any corporation
whose stock is publicly traded.
7. CONFIDENTIALITY. It is specifically understood and agreed that
---------------
some of the Employer's business activities are secret in nature and constitute
trade secrets, including but not limited to Employer's practices, procedures,
trade secrets, product marketing, "know-how", methods of production and
manufacturing, ideas and results of research and development, specifications of
equipment and materials, profit margins, planning information, projections,
customer lists and supplier information, reports, analyses, agreements, as well
as financial data and reports (the "Proprietary Information"). All Employer's
Proprietary Information is and shall be the property of Employer, for its own
exclusive use and benefit, and Employee agrees that he/she will hold the same in
strictest confidence and will not at any time, either during or after his/her
employment by the Employer, disclose, use or permit the use of the same for
his/her own benefit or for the benefit of others unless authorized to do so by
the Employer's written consent or by a contract or agreement to which the
Employer is a party or by which it is bound.
8. SERVICES FURNISHED. During the term of Employee's employment with
------------------
Employer, Employer shall furnish Employee with office space, secretarial
assistance and such other facilities and service as has been made available to
other of Employer's senior executives.
9. OTHER POSITIONS. Employee agrees to serve without additional
---------------
compensation (other than compensation accruing to any other person serving in
such capacity), if elected or appointed a director of the Employer or any of its
subsidiaries, provided that Employee is indemnified for serving in any and all
such capacities on a basis no less favorable than is currently provided the
directors of the Employer.
10. TERMINATION.
-----------
10.1 BY EMPLOYER FOR DEATH, DISABILITY OR CAUSE. Employee's employment
------------------------------------------
hereunder may be terminated by Employer without any breach of this Agreement and
with no further obligations of Employer (except to pay Employee his/her full
Base Salary pro-rated through the date of such termination at the rate in effect
at the time of such termination) only under the following circumstances:
(A) DEATH. Employee's employment hereunder shall terminate upon
-----
his/her death.
(B) DISABILITY. If, as a result of Employee's incapacity due to
----------
any injury, sickness or mental illness, Employee shall have been absent or
substantially absent from his/her
3
<PAGE>
duties hereunder for the period of six (6) consecutive months, and within thirty
(30) days after written notice of termination is given (which may occur before
or after the end of such six month period) shall not have returned to the
performance of his/her duties hereunder on a full-time basis, Employer may
terminate Employee's employment hereunder. Employee's absence or substantial
absence from his/her duties will be treated as resulting from incapacity due to
injury, sickness or mental illness if Employee is totally disabled from his/her
own occupation. Total disability from Employee's own occupation will exist
where Employee (1) is unable to perform all the material duties of his own
occupation on a full-time or part-time basis because of an injury, sickness or
mental illness, (2) does not work at all in any occupation, and (3) is under a
Physician's Care. All capitalized terms used in this section shall have the
meanings as set forth in any Group Long Term Disability Policy in effect for the
Company's employees at the time of Employee's disability.
(C) CAUSE. Employer may terminate Employee's employment
-----
hereunder for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure by Employee to
perform his/her duties hereunder (other than any failure resulting from
Employee's incapacity due to physical or mental illness) after demand for
substantial performance is delivered by Employer, which demand specifically
identifies the manner in which Employee has not substantially performed his/her
duties and provides a reasonable time period of not less than thirty (30) days
for Employee to substantially perform;
(ii) the willful and intentional act by the Employee that
is, in the reasonable determination of the Employer, materially injurious to the
Employer, monetarily or otherwise;
(iii) the breach by the Employee of any material provision
of this Agreement which has not been substantially cured within ten (10) days
after written notice of such breach is given by Employer to Employee; or
(iv) the conviction of the Employee of a crime involving
an act of moral turpitude, which is a felony or which results or is intended to
result, directly or indirectly, in gain or personal enrichment of the Employee,
relations of the Employee, or their affiliates at the expense of the Employer.
For purposes of this Section 10(C), no act, or failure to act, on
Employee's part shall be considered willful unless done, or omitted to be done,
by him/her not in good faith and without the reasonable belief that his/her
action(s) or omission(s) was in the best interests of the Employer.
10.2. BY EMPLOYER WITHOUT CAUSE. The Company may terminate Employee's
-------------------------
employment hereunder for any reason other than the reasons set forth in
Paragraph 10.1 above so long as the Company offers to pay Employee Severance Pay
pursuant to Section 11 in exchange for Employee's release of any claims against
the Company ("Release"), such Release to be
4
<PAGE>
substantially in the form of the Separation Agreement and Release attached
hereto as Exhibit A, with all blank lines appropriately completed.
10.3. BY EMPLOYEE FOR GOOD REASON. Employee may terminate his
---------------------------
employment hereunder for Good Reason upon thirty (30) days' written notice to
Employer. If Employee terminates his employment hereunder and such termination
is made for any of the reasons listed below, then such termination shall be
deemed to have been done for good reason ("Good Reason"). If Employee terminates
his employment for Good Reason then he shall be entitled to Severance Pay
pursuant to Section 11 in exchange for Employee's Release.
(A) Reasons constituting Good Reason shall be limited to:
(i) any breach by Employer of any material provision of
this Agreement which has not been substantially cured within ten (10) days after
written notice of such breach is given by Employee to Employer; or
(ii) any demonstrable, material and continued diminution of
the compensation, benefits, duties, responsibilities, authority or powers of
Employee as such relate to Employee's position as Vice President, Chief
Financial Officer, and Treasurer of the Company which has first occurred within
the thirty (30) days preceding Employee's written demand to Employer, which
demand specifically identifies the manner in which Employee's compensation,
benefits, duties, responsibilities, authority or powers have been diminished, a
statement that Employee finds, in good faith, that the acts or omissions to act
causing such diminution in duties, responsibilities, authority or powers to be a
material diminution and that, if Employer has not cured the diminution within
thirty (30) days by restoring any such diminution, he elects to terminate his
employment hereunder for Good Reason.
10.4 BY EMPLOYEE FOR ANY OTHER REASON. Employee may voluntarily
--------------------------------
terminate his/her employment with Employer for any reason other than Good
Reason, and upon such termination Employee shall not be entitled to Severance
Pay and there shall be no breach of this Agreement by Employer.
11. SEVERANCE PAY.
-------------
11.1 "Severance Pay" shall be defined as twenty-four (24) months of
Employee's base salary at his/her current rate per month at the time of his/her
termination pursuant to Section 10.2 or 10.3 less customary payroll deductions.
Severance Pay will be paid to Employee on a semi-monthly basis, pursuant to the
Company's normal payroll schedule, with the first payment being made following
the "Effective Date" as defined in the Release. The term "Severance Pay" shall
also include Employee's conti ued enrollment at the Company's expense for
twenty-four (24) months in the Company's group medical, dental and vision
insurance plans, disability insurance plan and life insurance plan (together,
the "Insurance Plans"), all at the same level as provided during the period
immediately preceding Employee's termination of employment, provided,
5
<PAGE>
however, "Severance Pay" shall not include enrollment in any Insurance Plan to
the extent the insurer or underwriter of such Insurance Plan will not cover
Employee under or include same level benefit coverage for Employee after
termination of Employee's employment at a comparable premium. Employee will
continue to be obligated to pay the same employee portion of any premium and any
deductible and/or co-payments associated with such Insurance Plan as other
employees of the Company. Employee's right to continued group benefits after any
period covered by the Company will be determined in accordance with federal and
state law.
11.2 Employee shall not be entitled to Severance Pay and there shall
be no breach of this Agreement by Employer if, after Employee's employment has
been terminated pursuant to Section 10.2 or 10.3, Employee shall not have
delivered to Employer an executed Release, or if such Release has been delivered
by Employee, Employee shall have revoked such Release, within 28 days of
receiving the form of Release from Employer.
11.3. Employee shall not be required to mitigate the amount of any
Severance Pay provided for in this Agreement by seeking other employment or
otherwise. Employee acknowledges that the Severance Pay provided in this
Agreement is in excess of the amount that the Employee would have customarily
received as a terminated employee under Company policy and that these additional
benefits are expressly given as consideration for the execution and delivery of
this Agreement and the Release attached hereto as Exhibit A.
12. STOCK OPTIONS.
-------------
12.1 Upon the consummation of the initial public offering ("IPO") of
the Company's common stock, Employee shall be granted a non-qualified stock
options or incentive stock options, as determined by the Company and granted to
other executive officers, to purchase 2.0% of the Company's common shares
outstanding at the time of the initial public offering at a per share price
equal to the offering price, which option shall be subject to all terms and
conditions pertaining to stock options contained in the Company's 1998
Management Stock Option Plan. Future awards of stock options, if any, will be
granted at the sole discretion of the Company's Board of Directors.
12.2 In the event Employee's employment with Employer is terminated
pursuant to Section 10.2 or 10.3 and Employee executes and delivers to Employer
a Release, any and all options to purchase stock (common or otherwise) in the
Employer granted pursuant to any plan or otherwise, or any equivalent or similar
rights which appreciate or tend to appreciate as the value of the Employer's
stock appreciates ("Options"), shall become immediately accelerated and fully
vested and any restrictions on such options or equivalent or similar rights
shall, to the extent permissible under applicable securities laws, fully lapse.
Employer shall endeavor to cause any restrictions on such options or equivalent
or similar rights not lapsed by operation of this Section 12 to so lapse. In
the event Employee's employment with Employer is terminated other than pursuant
to Section 10.2 or 10.3, or in the event of a termination under Section 10.2 or
10.3, Employee fails to deliver to Employer, or revokes, a Release, such
termination shall have no effect on any Options
6
<PAGE>
previously granted to Employee, which Options shall be governed exclusively by
the terms of such Options.
13. COVENANT NOT TO COMPETE. Employee, in consideration of the
-----------------------
compensation and other benefits to be received by him/her pursuant to this
Agreement, expressly agrees that he/she will not, within a radius of fifty (50)
miles from any place of business of the Employer, engage directly, as employee,
principal, agent, partner, director or independent contractor, consultant or
otherwise, in any business which is competitive to that of the Employer for two
(2) years after he/she ceases to be employed by the Employer so long as Employee
is receiving Severance Pay hereunder.
14. NON-SOLICITATION. For two (2) years following termination of
----------------
this Agreement, and so long as Employee is receiving Severance Pay hereunder,
Employee shall not directly or indirectly solicit any of Employer's customers
existing as of the date of termination. If Employee violates this Section 14,
Section 13 or Section 7, and continues to do so after Employer has notified
Employee of such violation, Employer shall have the right to seek equitable
restraint of Employee from such activities in contravention of the provisions of
this Agreement, including seeking and obtaining a temporary restraining order
and/or injunction against Employee.
15. ARBITRATION. Except for the equitable relief provided for in
-----------
Section 14, if a dispute arises between Employer and Employee concerning or
arising out of termination of this Agreement or Employee's employment with or
termination from Employer, the disputed matter shall be submitted to
arbitration. Any disputed matter shall be settled by arbitration in the City of
Boston, Massachusetts, in accordance with the labor arbitration rules of the
American Arbitration Association ("AAA Rules"). Any judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The arbitrators shall have the authority to grant any equitable and
legal remedies that would be available in any judicial proceeding instituted to
resolve the disputed matter. The arbitrators shall apply the law of the State
of Massachusetts in making any determination hereunder. Notwithstanding
anything to the contrary which may now or hereafter be contained in the AAA
Rules, the parties agree any such arbitration shall be conducted before a panel
of three arbitrators who shall be compensated for their services at a rate to be
determined by the American Arbitration Association in the event the parties are
not able to agree upon their rate of compensation. Each party shall have the
right to appoint one arbitrator (to be appointed within twenty days of the
notice of a dispute to be resolved by arbitration hereunder) and the two
arbitrators so chosen shall mutually agree upon the selection of the third
impartial arbitrator. The majority decision of the arbitrators will be final
and conclusive upon the parties hereto.
16. MISCELLANEOUS.
-------------
16.1 Written notices required by this Agreement shall be sent to
Employer or Employee by certified mail, with a return receipt requested, to
Employer's registered address and to
7
<PAGE>
Employee's last shown address on Employer's records, respectively. Such notice
shall be deemed to be delivered two days after mailing.
8
<PAGE>
16.2 This Agreement contains the full and complete understanding of
the parties with respect to the subject matter covered hereunder, and supersedes
all prior representations, promises, agreements, and warranties, whether oral or
written. This Agreement does not affect the validity or enforceability of the
terms of any separate letter of confidentiality, standard employment letter or
Company policy handbook executed by Employee except to the extent that a
provision of any such document directly contradicts a provision herein, in which
instance the terms of this Agreement shall apply.
16.3 This Agreement shall be governed by and interpreted according
to the laws of the State of Massachusetts.
16.4 With respect to Employer, this Agreement shall inure to the
benefit of and be binding upon any successors or assigns of Employer. With
respect to Employee, this Agreement shall not be assignable, but shall inure to
the benefit of and be binding upon the heirs, executors, administrators, and
successors of Employee.
16.5 The captions of the various sections of this Agreement are
inserted only for convenience and shall not be considered in construing this
Agreement.
16.6 This Agreement can be modified, amended or any of its terms
waived only by a writing signed by both parties.
16.7 If any provision of this Agreement shall be held invalid,
illegal or unenforceable, the remaining provisions of the Agreement shall
remain in full force and effect and the invalid, illegal or unenforceable
provision shall be limited or eliminated only to the extent necessary to remove
such invalidity, illegality or unenforceability in accordance with the
applicable law at that time.
16.8 Without limiting the provisions of Section 14, if either party
institutes arbitration proceedings pursuant to Section 14 or an action to
enforce the terms of this Agreement, the prevailing party in such proceeding or
action shall be entitled to recover reasonable attorneys' fees, costs and
expenses.
16.9 No remedy made available to Employer by any of the provisions of
this Agreement is intended to be exclusive of any other remedy. Each and every
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder as well as those remedies existing at law, in equity, by statute or
otherwise.
16.10 The provisions of Section 7, 13 and 14 shall expressly survive
termination of this Agreement.
9
<PAGE>
16.11 Each of Employee and Employer represents that he or it is fully
authorized to execute and deliver this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed under seal on the
day and year specified above.
EMPLOYER: EMPLOYEE:
By: /s/ Donald R. Dugan /s/ Gary M. Abrams
----------------------------- ------------------------------------
Donald R. Dugan Gary M. Abrams
Its: President
----------------------------
ATTEST: /s/ Cynthia Drislane ATTEST: /s/ Paul Ramseur, Jr.
-------------------------- ---------------------------
10
<PAGE>
EXHIBIT A
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (the "Separation Agreement"),
dated as of _______________, ____, is entered into by and between American
Finance Group, Inc. ("Employer"), and Gary M. Abrams ("Employee"), an
individual, who hereby state as follows:
WHEREAS, Employee has been employed by Employer since September __,
1998, and has most recently held the position of Senior Vice President, Chief
Financial Officer and Treasurer;
WHEREAS, Employee and Employer are parties to that certain Employment
Agreement (the "Employment Agreement") dated as of September __, 1998;
WHEREAS, Employee's employment with Employer has been terminated
effective __________________ (the "Termination Date"); and
WHEREAS, Employer and Employee each desire to resolve any and all
claims Employee may have arising out of the Employment Agreement and/or
Employee's employment with or termination from Employer.
NOW, THEREFORE, EMPLOYER AND EMPLOYEE DO HEREBY AGREE AS FOLLOWS:
1. In consideration of the provisions hereinabove and hereinafter set
forth, Employee and each of his/her heirs, executors, affiliates, successors,
administrators, assigns, agents, attorneys, and any other persons acting on
his/her behalf (collectively "Releasors"), do hereby irrevocably and
unconditionally release and forever discharge Employer, its predecessors,
successors, representatives, assignees, subsidiaries, affiliates, parents,
partners, officers, directors, stockholders, agents, employees, insurers,
attorneys, and all persons acting by, through, under or in concert with any of
them (collectively, "Releasees"), of and from any and all manner of liabilities,
claims, demands, actions, causes of action, damages, obligations, all theories
of fault or wrongdoing (whether statutory, common law, tort or otherwise),
debts, expenses, costs, and attorneys' fees, of every kind, known or unknown
(hereinafter referred to as a "Claim" or the "Claims"), arising out of, or in
anyway related to, Employee's employment with or termination from Employer.
These Claims include, but are not limited to, any Claims arising out of, based
upon, or relating to Employee's hire, working conditions, employment,
separation, termination or remuneration (including salary, bonus, incentive or
other compensation, vacation, sick leave or medical insurance benefits); the
Employment Agreement; any Claims under Title VII of the Civil Rights Act of
1964, as amended, the Age Discrimination in Employment Act, as amended, the
Equal Pay Act, as amended, the Fair Labor Standards Act, as amended, the
Employee Retirement Income Security Act, as amended, the Massachusetts Labor
Code, or any other local, state or federal statutory or common law governing the
employment of individuals, the working conditions of individuals or the payment
of wages and benefits; and any Claims for sexual harassment, constructive
discharge, misrepresentation, negligent supervision, negligent hiring, invasion
of privacy, unsafe working conditions, race, sex, color, national origin, libel,
slander, defamation, negligence, intentional or negligent infliction of
emotional distress, or any Claims that related to or are in any manner connected
with any aspect of Employer's business.
A-1
<PAGE>
2. Employee acknowledges and agrees that he/she is aware of the facts
and intend that the execution of this Separation Agreement shall be effective as
full and final accord and satisfaction and settlement of and as a bar to each
and every Claim or Claims arising out of the above which Employee or the
Releasors has, may have in the future or has had against the Employer or the
Releasees, whether such Claims are known or unknown, foreseen or unforeseen.
3. In consideration for the release set forth in Section 1 and the
other terms and conditions of this Agreement, Employee will be paid twenty-four
(24) months of Employees base salary at his/her current rate per month at the
time of his/her termination ($_________), less customary payroll deductions, as
severence pay, as well as certain other post employment insurance benefits
specified and defined as "Severance Pay" in Section 11.2 of the Employment
Agreement. Such severance pay will be paid in semi-monthly installments for a
total of forty-eight (48) installments, starting on the first regularly
scheduled pay day following the Effective Date of this Separation Agreement, as
defined in Paragraph 13 below. Employee acknowledges that the severence pay and
other post employment insurance benefits are conferred on Employee as
consideration for the execution and delivery of the Employment Agreement and
this Separation Agreement.
4. In executing this Separation Agreement, the parties hereby
acknowledge and agree that Employee is retaining all rights and interests which
have vested through the Termination Date in Employer's stock option plan(s), its
401(k) Plan and any other plan in which Employee holds a vested interest except
as expressly identified as being released under this Agreement, and it is
expressly agreed that Employee is not releasing or waiving his vested interest
in said plans.
5. Employee agrees to immediately return to Employer any Proprietary
Information as defined in Section 7 of the Employment Agreement and any other
Employer documents in any form, and Employee remains obligated to maintain the
confidentiality of such Proprietary Information at all timesas set forth in
Section 7 of the Employment Agreement.
6. Nothing in this Separation Agreement shall be construed as an
admission by either party of any unlawful or actionable conduct by either party
and the parties hereto make no admission of liability of any kind whatsoever.
A-2
<PAGE>
7. The provisions of this Separation Agreement shall be deemed to
obligate, extend to and inure to the benefit of, with respect to Employer, its
agents, servants, employees, officers, directors, parents, subsidiaries and
affiliates, successors and assigns, and, with respect to Employee, his
representatives, executors, heirs, administrators, successors and assigns.
8. Employee agrees that he/she shall keep and hold the contents, terms
and provisions of this Agreement in the strictest confidence and that he/she
shall not discuss, disclose, disseminate, produce, publish, comment upon,
reference or reveal the existence of this Agreement or any of the contents,
terms and provisions of this Agreement to any person or any entity without first
securing the prior written consent of the Company, except (1) to Employee's
personal representatives or as required in a judicial proceeding to enforce the
terms of this Agreement, or (2) as otherwise required by law (in which latter
instance, the Employee, upon becoming aware of any such legal duty, shall
promptly give notice thereof to the Company and shall, to the greatest extent
possible, cooperate with the request of the Company to keep this Agreement
confidential). This paragraph does not apply to the reporting, completing and
filing of state and federal income tax returns or any and all subsequent
proceedings relating thereto, or the filing of any information or documents
required to be filed with the Securities and Exchange Commission. The Employee
agrees that any breach of this paragraph will cause irreparable harm and loss to
the Company and that the Company shall be entitled to have and secure against
the Employee injunctive relief against any future or further violations of this
paragraph.
9. This Separation Agreement contains the entire understanding among
the parties and supersedes and replaces all prior negotiations, proposed
agreements and agreements (except for Section 7, 13 and 14 of the Employment
Agreement, which Sections are expressly continuing in effect and shall survive),
written and oral, and may not be modified or amended in any respect whatsoever,
except by a writing signed by all parties hereto.
10. This Separation Agreement shall be governed and construed in
accordance with the laws of the State of Massachusetts. Venue of any action to
enforce the terms of this Separation Agreement shall lie in Boston,
Massachusetts. Except as set forth in Paragraph8, or Section 14 of the
Employment Agreement, any dispute, claim or controversy arising out of or
related to this Separation Agreement shall be resolved by arbitration under the
A-3
<PAGE>
Employment Dispute Resolution Arbitration Rules and auspices of the American
Arbitration Association, Boston, Massachusetts (the "Association"). Any such
arbitration shall be conducted by an arbitrator selected by mutual agreement of
the parties, and such arbitration decision shall be final. The party prevailing
in the arbitration shall be awarded its share of the fees and expenses of the
arbitration (including, but not limited to, arbitrator's fees), in addition to
attorneys' fees. Employee specifically consents to such arbitration and hereby
represents such consent is willfully and voluntarily given without influence by
coercion or threatening statements from Employer.
11. Each signatory hereto represents that he, she or it is fully
authorized to execute this Separation Agreement.
12. The Parties agree that if any provision of this Separation
Agreement is held by a court of competent jurisdiction or arbitrator to be
invalid, void or unenforceable, the remaining provisions shall continue in full
force and effect.
13. The following is required by the Older Workers Benefit Protection
Act of 1990:
Employee has up to 21 days from the date of this Separation Agreement
to accept the terms of this Separation Agreement, although Employee may accept
it at any time within those 21 days.
Employee is advised to consult an attorney about this Separation
Agreement.
Once Employee accepts this Separation Agreement, by signing and dating
this Separation Agreement, Employee will have an additional seven days in which
to revoke his acceptance. To revoke, Employee must send to Employer's President
a written statement of revocation by facsimile and registered mail, return
receipt requested. If Employee does not revoke, the eighth day after the date of
his acceptance will be the "Effective Date" of the Separation Agreement.
14. Employer and Employee do hereby acknowledge and agree that they
have each been represented by independent counsel of their own choice throughout
all negotiations which preceded the execution of this Separation Agreement and
that they fully understand and voluntarily accept this Separation Agreement and
A-4
<PAGE>
have executed this Separation Agreement after seeking the advice of said
independent counsel. Each party shall bear, and be solely responsible for, their
own respective costs and expenses related to the preparation and subject matter
of this Separation Agreement.
IN WITNESS WHEREOF, the parties have executed this document under seal
as of the date set forth below.
EMPLOYEE AMERICAN FINANCE GROUP, INC.
Gary M. Abrams
Dated: Title:
A-5
<PAGE>
EXHIBIT 10.18
AMENDMENT NO. 4 TO
POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST
FOURTH AMENDMENT, dated as of April 14, 1998 (this "Amendment") to the
Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1,
1995, as amended by Amendment No. 1 thereto dated as of September 1, 1995,
Amendment No. 2 thereto dated as of December 5, 1995, and Amendment No. 3
thereto dated as of October 14, 1997 (the "Agreement"), among AFG CREDIT
CORPORATION, a Delaware corporation, as Transferor (the "Transferor"), AMERICAN
FINANCE GROUP, INC., a Delaware corporation ("AFG"), as Servicer, and BANKERS
TRUST COMPANY, a banking corporation organized and existing under the laws of
the State of New York, as Trustee (in such capacity, the "Trustee") and as
Collateral Trustee (in such capacity, the "Collateral Trustee").
WHEREAS, the Transferor, AFG, the Trustee and the Collateral Trustee
wish to amend the Agreement in the manner provided for in this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. The definition of "Servicing Fee Percentage" in Section 1.1 of
the Agreement is amended by deleting the definition in its entirety and
replacing it with the following text:
"Servicing Fee Percentage" shall mean .40%.
2. Paragraph 1(d) of Schedule 3 to the Agreement is amended by
deleting the text in its entirety and substituting in its place the following
text:
The sum of the Discounted Lease Balances of Included Leases with
respect to which the Lessees thereunder are rated internally by
AFG, on a cumulative basis, is not more than 40% of the Aggregate
Pool Balance.
3. Paragraph 2(a) of Schedule 3 to the Agreement is hereby amended
by replacing the chart therein with the chart attached hereto as Exhibit I.
4. Except as expressly amended, modified and supplemented hereby,
the provisions of the Agreement are and shall remain in full force and effect.
5. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN
<PAGE>
ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE TRUSTEE AND THE COLLATERAL TRUSTEE SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
6. Capitalized terms used in this Amendment without definition shall
have the meanings assigned to them in the Agreement.
7. This Amendment may be executed in two or more counterparts (and
by different parties on separate counterparts), each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
[THE REST OF THIS PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed by their respective officers as of the day and year first above
written.
AFG CREDIT CORPORATION,
as Transferor
By: /s/ J. Michael Allgood
--------------------------------------
Title: Vice President
-----------------------------------
AMERICAN FINANCE GROUP, INC.
as Servicer
By: /s/ J. Michael Allgood
--------------------------------------
Title: Vice President
-----------------------------------
BANKERS TRUST COMPANY,
as Trustee
By: /s/ Kevin Weeks
--------------------------------------
Title: Assistant Vice President
-----------------------------------
BANKERS TRUST COMPANY,
as Collateral Trustee
By: /s/ Kevin Weeks
--------------------------------------
Title: Assistant Vice President
-----------------------------------
<PAGE>
EXHIBIT I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Percentage of Aggregate
Category Pool Balance
- --------------------------------------------------------------------------------------
<S> <C> <C>
1. Included Leases of any individual Based on External Based on Internal
Lessee that are rated AA- or higher Ratings Ratings
by Standard & Poor's and Aa3 or
higher by Moody's
20% 7%
- --------------------------------------------------------------------------------------
2. Included Leases of any individual Based on External Based on Internal
Lessee that are rated between Ratings Ratings
investment grade and (i) AA- by
Standard & Poor's and (ii) Aa3 by
Moody's
9% 7%
- --------------------------------------------------------------------------------------
3. Included Leases of any individual Based on External Based on Internal
Lessee that are not rated investment Ratings Ratings
grade by Moody's and Standard & Poor's
3% 3%
- --------------------------------------------------------------------------------------
4. Included Leases of all Lessees that
operate in the same industry*
40%
- --------------------------------------------------------------------------------------
5. Included Leases that relate to the same
type of Equipment**
40%
- --------------------------------------------------------------------------------------
6. Included Leases for which the Scheduled
Payments are payable semi-annually
10%
- --------------------------------------------------------------------------------------
</TABLE>
*Based upon Primary Standard Industrial Classification Code Number.
**As determined by AFG Credit Corporation in accordance with its customary
procedures.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial and Operating
Data" and "Experts" in this registration statement.
KPMG Peat Marwick llp
San Francisco, California
October 15, 1998
<PAGE>
EXHIBIT 99.1
CONSENT
The undersigned, who has agreed to serve as a member of the Board of
Directors of American Finance Group, Inc. (the "Company") upon completion of its
initial public offering of securities, hereby grants the Company consent to use
his name in its Registration Statement on Form S-1 in respect of such
securities, and any subsequent amendments thereto, filed with the Securities and
Exchange Commission.
Dated: June 8, 1998
/s/ Joseph C. Berenato
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Joseph C. Berenato
<PAGE>
EXHIBIT 99.2
CONSENT
The undersigned, who has agreed to serve as a member of the Board of
Directors of American Finance Group, Inc. (the "Company") upon completion of its
initial public offering of securities, hereby grants the Company consent to use
his name in its Registration Statement on Form S-1 in respect of such
securities, and any subsequent amendments thereto, filed with the Securities and
Exchange Commission.
Dated: June 11, 1998
/s/ Richard E. Carolan
----------------------------------------
Richard E. Carolan
<PAGE>
EXHIBIT 99.3
CONSENT
The undersigned, who has agreed to serve as a member of the Board of
Directors of American Finance Group, Inc. (the "Company") upon completion of its
initial public offering of securities, hereby grants the Company consent to use
his name in its Registration Statement on Form S-1 in respect of such
securities, and any subsequent amendments thereto, filed with the Securities and
Exchange Commission.
Dated: June 15, 1998
/s/ John F. O'Brien
----------------------------------------------
John F. O'Brien
