UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the fiscal quarter ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the transition period from to
Commission file number 1-9670
-------------------------------
PLM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3041257
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower,
Suite 800, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 974-1399
----------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: common stock - $.01 par
value; outstanding as of July 22, 1998 - 8,339,103 shares.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Operating lease income $ 5,452 $ 3,429 $ 9,344 $ 7,658
Finance lease income 3,042 1,984 5,694 3,798
Management fees 2,535 2,797 5,099 5,658
Partnership interests and other fees 357 507 681 993
Acquisition and lease negotiation fees 1,184 585 2,211 763
Aircraft brokerage and services 362 661 886 1,335
Gain on the sale or disposition of assets, net 1,533 1,233 2,295 2,601
Other 843 694 1,642 1,535
-------------------------------------------------------------------
Total revenues 15,308 11,890 27,852 24,341
-------------------------------------------------------------------
Costs and expenses
Operations support 4,829 4,158 8,754 8,222
Depreciation and amortization 3,497 2,141 6,047 4,346
General and administrative 2,085 2,710 3,883 4,726
-------------------------------------------------------------------
Total costs and expenses 10,411 9,009 18,684 17,294
-------------------------------------------------------------------
Operating income 4,897 2,881 9,168 7,047
Interest expense (3,604) (2,352) (6,674) (4,994)
Interest income 299 452 694 838
Other income (expenses), net 469 (3) 463 (24)
-------------------------------
--------------------------------------
Income before income taxes 2,061 978 3,651 2,867
Provision for income taxes 860 330 1,467 938
-------------------------------------------------------------------
Net income to common shares $ 1,201 $ 648 $ 2,184 $ 1,929
===============================
======================================
Basic earnings per weighted-average common
share outstanding $ 0.14 $ 0.07 $ 0.26 $ 0.21
===================================================================
Diluted earnings per weighted-average common
share outstanding $ 0.14 $ 0.07 $ 0.25 $ 0.20
===================================================================
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share amounts)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 3,293 $ 5,224
Receivables 4,299 4,969
Receivables from affiliates 2,764 5,007
Investment in direct finance leases, net 160,482 119,613
Loans receivable 22,634 5,861
Equity interest in affiliates 24,457 26,442
Asset held for sale 2,500 --
Transportation equipment held for operating leases 54,383 50,252
Less accumulated depreciation (24,256) (26,981 )
-----------------------------------------------
30,127 23,271
Commercial and industrial equipment held for operating leases 28,258 23,268
Less accumulated depreciation (7,800) (4,816 )
-----------------------------------------------
20,458 18,452
Restricted cash and cash equivalents 11,772 18,278
Other, net 8,049 9,166
-----------------------------------------------
Total assets $ 290,835 $ 236,283
===============================================
LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY
Liabilities
Warehouse credit facility $ 46,803 $ 23,040
Senior secured loan 17,647 20,588
Senior secured notes 21,333 23,843
Other secured debt 487 413
Nonrecourse securitized debt 123,491 81,302
Payables and other liabilities 15,967 25,366
Deferred income taxes 16,501 14,860
-----------------------------------------------
Total liabilities 242,229 189,412
Minority interest 239 323
Shareholders' equity
Common stock ($.01 par value, 50.0 million shares
authorized, 8,339,103 issued and outstanding as of
June 30, 1998 and 8,400,964 as of December 31, 1997) 112 112
Paid-in capital, in excess of par 74,729 74,650
Treasury stock (3,698,074 and 3,633,883 shares at
respective dates) (13,850) (13,435 )
Accumulated deficit (12,463) (14,647 )
Accumulated other comprehensive loss (161) (132 )
Total shareholders' equity 48,367 46,548
-----------------------------------------------
Total liabilities, minority interest, and shareholders' equity $ 290,835 $ 236,283
===============================================
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31,
1997 and the Six Months Ended
June 30, 1998 (in thousands of
dollars)
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------------------------------- Deficit &
Paid-in Accumulated
Capital in Other Total
At Excess Treasury Comprehensive Comprehensive Shareholders'
Par of Par Stock Loss Income Equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $ 117 $ 77,778 $ (12,382) $ (19,193 ) $ $ 46,320
Comprehensive income:
Net income 4,667 $ 4,667 4,667
Other comprehensive loss:
Foreign currency translation loss (123 ) (123) (123 )
Total comprehensive income 4,544
=============
Common stock repurchases (5 ) (3,128 ) (1,268) (4,401 )
Reissuance of treasury stock, net 215 (38 ) 177
Redemption of shareholder rights (92 ) (92 )
Balances, December 31, 1997 112 74,650 (13,435) (14,779 ) 46,548
Comprehensive income:
Net income 2,184 2,184 2,184
Other comprehensive loss:
Foreign currency translation loss (29 ) (29) (29 )
Total comprehensive income $ 2,155
==============
Common stock repurchases (626) (626 )
Reissuance of treasury stock 79 211 290
----------------------------------------------------------------- ----------
Balances, June 30, 1998 $ 112 $ 74,729 $ (13,850) $ (12,624 ) $ 48,367
================================================================= ==========
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
-----------------------------------
<S> <C> <C>
Operating activities
Net income $ 2,184 $ 1,929
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,047 4,346
Foreign currency translation (29) (61 )
Deferred income tax expense 1,641 883
Gain on sale or disposition of assets, net (2,295) (2,601 )
Undistributed residual value interests 546 208
Minority interest in net (loss) income of subsidiaries (84) 8
(Decrease) increase in payables and other liabilities (1,669) 962
Decrease in receivables and receivables from affiliates 2,913 1,535
Amortization of organization and offering costs 1,481 1,443
Decrease (increase) in other assets 521 (323 )
-----------------------------------
Net cash provided by operating activities 11,256 8,329
-----------------------------------
Investing activities
Principal payments received on finance leases 14,441 8,589
Principal payments received on loans 1,878 979
Investment in direct finance leases (82,047) (30,528 )
Investment in loans receivable (18,651) (777 )
Purchase of property, plant, and equipment (110) (483 )
Purchase of transportation equipment and capital improvements (32,919) (18,471 )
Purchase of commercial and industrial equipment held for operating lease (14,938) (3,976 )
Proceeds from the sale of transportation equipment for lease 3,081 9,958
Proceeds from the sale of assets held for sale 19,866 15,600
Proceeds from the sale of commercial and industrial equipment on finance lease 18,842 21,512
Proceeds from the sale of commercial and industrial equipment on operating lease 10,915 3,187
Decrease (increase) in restricted cash and cash equivalents 6,506 (4,118 )
-----------------------------------
Net cash (used in) provided by investing activities (73,136) 1,472
Financing activities
Borrowings of warehouse credit facility 88,065 31,910
Repayment of warehouse credit facility (64,302) (55,735 )
Repayment of senior secured loan (2,941) (1,471 )
Repayment of senior secured notes (2,510) --
Borrowings of senior secured notes -- 9,000
Borrowings of other secured debt 173 --
Repayment of other secured debt (99) (97 )
Borrowings of nonrecourse securitized debt 54,512 14,394
Repayment of nonrecourse securitized debt (12,323) (7,443 )
Purchase of stock (626) (46 )
-----------------------------------
Net cash provided by (used in) financing activities 59,949 (9,488 )
-----------------------------------
Net (decrease) increase in cash and cash equivalents (1,931) 313
Cash and cash equivalents at beginning of period 5,224 7,638
-----------------------------------
Cash and cash equivalents at end of period $ 3,293 $ 7,951
===================================
Supplemental information
Net cash paid for interest $ 5,754 $ 4,786
===================================
Net cash paid for income taxes $ 1,704 $ 43
===================================
Reissuance of treasury stock $ 290 $ 201
===================================
Commercial and industrial purchases included in accounts payable $ 2,805 $ 600
===================================
</TABLE>
See accompanying notes to these consolidated financial
statements.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. General
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary, consisting primarily of normal
recurring accruals, to present fairly PLM International, Inc. and its wholly-
and majority-owned subsidiaries (the Company's) financial position as of June
30, 1998 and December 31, 1997, statements of income for the three and six
months ended June 30, 1998 and 1997, statements of changes in shareholders'
equity for the year ended December 31, 1997 and the six months ended June 30,
1998, and statements of cash flows for the six months ended June 30, 1998 and
1997. Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the accompanying consolidated financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, on file with the Securities and
Exchange Commission.
Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued 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 ended 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 affect the Company's
results of operations, cash flow, or financial position. As of the first quarter
of 1998, the Company adopted SFAS No. 130, disclosing the foreign currency
translation gain (loss) as a component of comprehensive income on a gross basis,
because it relates to a foreign investment permanently reinvested outside of the
United States.
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. As of June 30, 1998, the
Company is reviewing the effect this standard will have on the Company's
consolidated financial statements.
Reclassifications
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
4. Financing Transaction Activities
The Company's wholly-owned subsidiary, American Finance Group, Inc. (AFG),
originates and manages lease and loan transactions on primarily new commercial
and industrial equipment that is financed by nonrecourse securitized debt, for
the Company's own account or for sale to institutional investment programs or
other unaffiliated investors. Periodically, the Company uses its warehouse
credit facility to finance the acquisition of the assets, subject to these
leases, prior to sale or permanent financing by nonrecourse securitized debt.
The majority of these leases are accounted for as finance leases, while some
transactions qualify as operating leases or loans.
Prior to 1998, the Company expensed initial direct lease origination costs,
which were not material, as incurred. Under generally accepted accounting
principles, the effects of such activities, if material, should be capitalized.
Because the Company anticipates its portfolio of equipment on lease to continue
to grow during the next few years, and for the resulting initial direct lease
origination costs to become material, effective January 1, 1998, the Company now
capitalizes these costs, which totaled $0.5 million for the six months ended
June 30, 1998. Initial direct lease origination costs are amortized over the
life of the related lease.
During the six months ended June 30, 1998, the Company purchased $82.0 million
in equipment that was placed on finance lease. Also during the six months ended
June 30, 1998, the Company sold equipment on finance lease with an original
equipment cost of $18.5 million, resulting in a net gain of $0.6 million.
5. Equipment
Equipment held for operating lease includes transportation equipment, which is
depreciated over its estimated useful life, and commercial and industrial
equipment, which is depreciated over the lease term.
During the six months ended June 30, 1998, the Company purchased $14.9 million
in commercial and industrial equipment, which was placed on operating lease.
During the six months ended June 30, 1998, the Company sold commercial and
industrial equipment that was on operating lease, with a net book value of $10.5
million, for a net gain of $0.4 million.
During the first six months of 1998, the Company purchased trailers for $11.0
million and sold trailers with a net book value of $1.9 million for $2.0
million. In addition, the Company sold an aircraft engine and its 20% interest
in a commuter aircraft, with a combined net book value of $0.4 million, for $1.1
million.
The Company classifies equipment as held for sale if the particular asset is
subject to a pending contract for sale or is held for sale to an affiliated
program. Equipment held for sale is valued at the lower of the depreciated cost
or the fair value less the costs to sell. During the first six months of 1998,
the Company purchased railcars for $1.9 million, portable heaters for $3.0
million, and a 100% interest in an entity that owns a marine vessel for $17.0
million. The railcars were sold during the first quarter to an unaffiliated
third party for a net gain of $0.5 million. The portable heaters and 85.3% of
the Company's interest in an entity that owns a marine vessel were sold during
the six months ended June 30, 1998 to affiliated programs at cost. As of June
30, 1998, the Company held for sale to an affiliated program a 14.7% interest in
an entity that owns a marine vessel with a cost of $2.5 million. As of December
31, 1997, the Company held no equipment for sale.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
6. Debt
Assets acquired and held on an interim basis for placement with affiliated
programs, for placement in the Company's nonrecourse securitization facility, or
for sale to unaffiliated third parties have, from time to time, been partially
funded by a $50.0 million warehouse credit facility that expires November 2,
1998. This facility was amended on June 1, 1998 to temporarily increase the
Company's AFG subsidiary'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 AFG subsidiary's borrowing
capacity on the facility from $55.0 million to $60.0 million until July 8, 1998.
The facility, which is shared with PLM Equipment Growth Funds (EGFs) V and VI,
PLM Equipment Growth & Income Fund VII (EGF VII), and Professional Lease
Management Income Fund I, LLC (Fund I), allows the Company to purchase equipment
prior to its designation to a specific program. Borrowings under this facility
by the other eligible borrowers reduce the amount available to be borrowed by
the Company. As of June 30, 1998, the Company had $46.8 million in borrowings
under this facility, and EGF V had $1.6 million in borrowings under this
facility. All borrowings under this facility are guaranteed by the Company. The
Company believes it will be able to extend the facility prior to its expiration
on similar terms.
The Company has available a securitization facility to be used to acquire assets
on a nonrecourse basis, which is secured by direct finance leases, operating
leases, and loans on commercial and industrial equipment that generally have
terms from one to seven years. This facility allows the Company to borrow up to
$125.0 million until October 13, 1998. As of June 30, 1998, borrowings under
this facility were $105.9 million. The Company believes it will be able to
extend this facility on similar terms prior to its expiration and increase its
borrowing capacity as needed.
In addition, during the first six months of 1998, the Company assumed $9.5
million in additional nonrecourse notes payable, bearing interest from 8.32% to
9.5% per annum, resulting in total nonrecourse notes payable, net of principal
payments received, of $17.6 million as of June 30, 1998. Principal and interest
on these 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.
During the six months ended June 30, 1998, the Company repaid $2.9 million of
the senior secured loan and $2.5 million of the senior secured notes, in
accordance with the debt repayment schedules.
7. Shareholders' Equity
During the first quarter of 1998, the Company completed the $5.0 million common
stock repurchase program authorized by the Company's Board of Directors in
February 1997 and amended in July 1997. The Company repurchased 921,940 shares
under this plan, for a total of $5.0 million.
During the six months ended June 30, 1998, 56,588 shares were issued from
treasury stock as part of the senior management bonus program. During the six
months ended June 30, 1998, 118,449 shares were repurchased. Consequently, the
total common shares outstanding decreased to 8,339,103 as of June 30, 1998 from
the 8,400,964 outstanding as of December 31, 1997.
In May 1998, the Company's Board of Directors adopted the 1998 Management Stock
Compensation Plan (the Plan), which reserves 800,000 shares of the Company's
common stock for issuance to certain management and key employees of the Company
upon exercise of stock options. Vesting of these options occurs in three equal
installments of 33 1/3% per year, initiating from the date of grant. During the
six months ended June 30, 1998, 500,000 nonqualified options were granted under
this plan at $6.81 per share, which equals 110% of the average daily closing
price of such shares on the American Stock Exchange for the 10 trading days
immediately preceding the grant (as required by the Plan).
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
7. Shareholders' Equity (continued)
Net income per basic weighted-average common share outstanding was computed by
dividing net income to common shares by the weighted-average number of shares
deemed outstanding during the period. The weighted-average number of shares
deemed outstanding for the basic earnings per share calculation during the three
months ended June 30, 1998 and 1997 was 8,337,963 and 9,204,167, respectively.
The weighted-average number of shares deemed outstanding for the basic earnings
per share calculation during the six months ended June 30, 1998 and 1997 was
8,399,098 and 9,186,428, respectively. The weighted-average number of shares
deemed outstanding, including potentially dilutive common shares, for the
diluted earnings per weighted-average share calculation during the three months
ended June 30, 1998 and 1997 was 8,520,188 and 9,473,719, respectively. The
weighted-average number of shares deemed outstanding, including potentially
dilutive common shares, for the diluted earnings per weighted-average share
calculation during the six months ended June 30, 1998 and 1997 was 8,596,458 and
9,457,520, respectively.
Legal Matters
In November 1995, a former employee of PLM International filed and served a
first amended complaint (the complaint) in the United States District Court for
the Northern District of California (Case No. C<0- 45>95<0- 45>2957 MMC) against
the Company, the PLM International, Inc. Employee Stock Ownership Plan (ESOP),
the ESOP's trustee, and certain individual employees, officers, and directors of
the Company. The complaint contains claims for relief alleging breaches of
fiduciary duties and various violations of the Employee Retirement Income
Security Act of 1974 (ERISA) arising principally from purported defects in the
structure, financing, and termination of the ESOP, and for defendants' allegedly
engaging in prohibited transactions and interfering with plaintiff's rights
under ERISA. Plaintiff seeks monetary damages, rescission of the preferred stock
transactions with the ESOP and/or restitution of ESOP assets, and attorneys'
fees and costs under ERISA. In January 1996, the Company and other defendants
filed a motion to dismiss the complaint for lack of subject matter jurisdiction,
arguing the plaintiff lacked standing under ERISA. The motion was granted and in
May 1996, the district court entered a judgment dismissing the complaint for
lack of subject matter jurisdiction. Plaintiff appealed to the U.S. Court of
Appeals for the Ninth Circuit seeking a reversal of the district court's
dismissal of his ERISA claims, and in an opinion filed in October 1997, the
Ninth Circuit reversed the decision of the district court and remanded the case
to the district court for further proceedings. The Company filed a petition for
rehearing, which was denied in November 1997. The Ninth Circuit mandate was
filed in the district court in December 1997.
In February 1998, plaintiff was permitted by the district court to file a second
amended complaint in order to bring the fourth, fifth, and sixth claims for
relief as a class action on behalf of himself and all similarly situated people.
These claims allege that the Company and the other defendants breached their
fiduciary duties and entered into prohibited transactions in connection with the
termination of the ESOP and by causing the ESOP to sell or exchange the
preferred shares held for the benefit of the ESOP participants for less than
their fair market value. Also in February 1998, the defendants filed a motion to
dismiss the fourth, fifth, and sixth claims relating to the termination of the
ESOP, and the seventh claim relating to defendants' alleged interference with
plaintiff's rights under ERISA, all for failure to state claims for relief. The
district court, in an order dated July 14, 1998, granted this motion and
dismissed the fourth through seventh claims for relief.
In June 1998 the defendants filed a motion for summary judgment seeking a ruling
that the first two claims for relief, which allege breaches arising out of the
purchase and sale of stock at the inception of the ESOP, are barred by the
applicable statute of limitations. In an order dated July 14, 1998, the district
court granted in part and denied in part this motion and ruled that these claims
for relief are barred by the statute of limitations to the extent that they rely
on a theory that the automatic conversion feature and other terms and conditions
of the purchase and sale of the preferred stock violated ERISA, but are not so
barred to the extent that they rely on a theory that the purchase and sale of
the preferred stock at the inception of the ESOP was for more than adequate
consideration. Trial in this matter is set for May 3, 1999. The Company does not
believe the remaining claims have any merit and plans to continue to defend this
matter vigorously.
8. Legal Matters (continued)
The Company and various of its affiliates are named as defendants in a lawsuit
filed as a class action on January 22, 1997 in the Circuit Court of Mobile
County, Mobile, Alabama, Case No. CV-97-251 (the Koch action). The plaintiffs,
who filed the complaint on their own and on behalf of all class members
similarly situated, are six individuals who allegedly invested in certain
California limited partnerships (the Partnerships) for which the Company's
wholly-owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the general
partner, including PLM Equipment Growth Funds IV, V, and VI, and PLM Equipment
Growth & Income Fund VII. The complaint asserts eight causes of action against
all defendants, as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action against PLM
Securities Corp. for breach of third party beneficiary contracts in violation of
the National Association of Securities Dealers rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against the
defendants for improper sales and marketing practices, mismanagement of the
Partnerships, and concealing such mismanagement from investors in the
Partnerships. Plaintiffs seek unspecified compensatory and recissory damages, as
well as punitive damages, and have offered to tender their limited partnership
units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. In September 1997, the district court denied plaintiffs' motion
and dismissed without prejudice the individual claims of the California class
representative, reasoning that he had been fraudulently joined as a plaintiff.
In October 1997, defendants filed a motion to compel arbitration of plaintiffs'
claims, based on an agreement to arbitrate contained in the limited partnership
agreement of each Partnership, and to stay further proceedings pending the
outcome of such arbitration. Notwithstanding plaintiffs' opposition, the
district court granted the motion in December 1997.
Following various unsuccessful requests that the district court reverse or
otherwise amend its decisions, plaintiffs filed with the U.S. Court of Appeals
for the Eleventh Circuit a notice of appeal from the district court's order
granting defendants' motion to compel arbitration and to stay the proceedings,
and of the district court's order denying plaintiffs' motion to remand and
dismissing the claims of the California plaintiff. This appeal was voluntarily
dismissed by plaintiffs in June 1998 pending settlement of the Koch action, as
discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The plaintiff is an investor in PLM Equipment Growth Fund V,
and filed the complaint on her own behalf and on behalf of all class members
similarly situated who invested in certain California limited partnerships for
which FSI acts as the general partner, including the Partnerships. The complaint
alleges the same facts and the same nine causes of action as in the Koch action,
plus five additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et seq.
for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, the defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. In October 1997, the district court denied the Company's
petition to compel arbitration and in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off calendar and the district court has dismissed the petition
pending settlement of the Romei action, as discussed below. The state court
action continues to be stayed pending such resolution. In connection
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
8. Legal Matters (continued)
with her opposition to the petition to compel arbitration, the plaintiff filed
an amended complaint with the state court in August 1997 alleging two new causes
of action for violations of the California Securities Law of 1968 (California
Corporations Code Sections 25400 and 25500) and for violation of California
Civil Code Sections 1709 and 1710. Plaintiff also served certain discovery
requests on defendants. Because of the stay, no response to the amended
complaint or to the discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding (MOU) related to the settlement of those actions. The MOU
contemplates a settlement and release of all claims in exchange for payment of
up to $6.0 million. The final settlement amount will depend on the number of
authorized claims filed by authorized claimants, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the Alabama district court. The Company will pay
up to $0.3 million of the settlement, with the remainder being funded by an
insurance policy. The defendants will continue to deny each of the claims and
contentions and admit no liability in connection with the proposed settlement.
The settlement remains subject to numerous conditions, including but not limited
to (a) agreement and execution by the parties of a settlement agreement, (b)
notice to and certification of the class for settlement purposes and (c)
preliminary and final approval of the settlement by the Alabama district court.
The Company continues to believe that the allegations of the Koch and Romei
actions are completely without merit and intends to continue to defend this
matter vigorously if the settlement is not consummated.
The Company is involved as plaintiff or defendant in various other legal actions
incident to its business. Management does not believe that any of these actions
will be material to the financial condition of the Company.
9. Purchase Commitments
As of June 30, 1998, the Company, through its AFG subsidiary, had committed to
purchase $99.7 million of equipment for its commercial and industrial lease and
finance receivables portfolio.
From July 1, 1998 to July 22, 1998, the Company, through its AFG subsidiary,
funded $4.5 million of the commitments outstanding as of June 30, 1998 for its
commercial and industrial lease and finance receivables portfolio.
As of July 22, 1998, the Company had committed to purchase $98.1 million of
equipment for its commercial and industrial lease and finance receivables
portfolio.
10. Initial Public Offering
In March 1998, the Company announced that its Board of Directors had authorized
management to engage investment bankers for the purpose of undertaking an
initial public offering of common stock for AFG. On May 7, 1998, AFG filed a
registration statement with the Securities and Exchange Commission for the
initial public offering. The offering is expected to commence in the third or
fourth quarter of 1998; however, the timing of the offering is subject to market
conditions and other factors. The Company will continue to own a majority
interest in AFG after the initial public offering.
Subsequent Event
On July 15, 1998, the Company entered into a revolving line of credit agreement
in the form of a promissory note that allows the Company to borrow up to $5.0
million until October 13, 1998. The promissory note bears interest at the prime
rate, with interest due monthly in arrears. On July 21, 1998, the Company
borrowed $1.6 million on this note.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Commercial and Industrial Equipment Leasing
A major activity of the Company is the funding and management of long-term
direct finance leases, operating leases, and loans through its American Finance
Group, Inc. (AFG) subsidiary. 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 materials-handling, computer, point-of-sale,
general plant and warehouse, mining and construction, and communications
equipment. Through AFG, the Company also engages in the servicing of
institutional investment programs for which it originates leases and receives
acquisition and management fees. The Company also earns syndication fees for
arranging purchases and sales of equipment to other unaffiliated third parties.
In March 1998, the Company announced that its Board of Directors had authorized
management to engage investment bankers for the purpose of undertaking an
initial public offering of common stock for AFG. On May 7, 1998, AFG filed a
registration statement with the Securities and Exchange Commission for the
initial public offering. The offering is expected to commence in the third or
fourth quarter of 1998; however, the timing of the offering is subject to market
conditions and other factors. The Company will continue to own a majority
interest in AFG after the initial public offering.
Trailer Leasing
The Company operates 14 trailer rental facilities that engage in short-term and
mid-term operating leases. Equipment operated in these facilities consists of
refrigerated trailers used to transport temperature-sensitive food products and
dry van trailers leased to a variety of customers. The Company opened four of
these rental yards in the six months ended June 30, 1998 and intends to open
additional rental yard facilities in the future. The Company is selling certain
of its older trailers and is replacing them with new or late-model refrigerated
trailers. The new trailers will be placed in existing rental facilities or in
new yards.
Other Transportation Equipment Leasing, Management of Investment Programs, and
Other
The Company also owns intermodal trailers, in addition to the refrigerated and
dry van over-the-road trailers mentioned above, from which it earns operating
lease income and incurs operating expenses. The Company's intermodal trailers
were mainly built prior to 1988. As the equipment ages, the Company continues to
monitor the performance of these assets and current market conditions for
leasing this equipment in order to seek the best opportunities for investment.
As the Company does not intend to replace its intermodal equipment, this may
result in higher costs of maintaining and operating aged equipment, and, in
certain instances, limited remarketability.
The Company also has an 80% interest in a company owning 100% of a company
located in Australia involved in aircraft brokerage and aircraft spare parts
sales.
The Company has syndicated investment programs from which it earns various fees
and equity interests. Professional Lease Management Income Fund I, LLC (Fund I)
was structured as a limited liability company with a no front-end fee structure.
The previously syndicated limited partnership programs allow the Company to
receive fees for the acquisition and initial leasing of the equipment. The Fund
I program does not provide for acquisition and lease negotiation fees. The
Company invested the equity raised through syndication in transportation
equipment and related assets, which it then manages on behalf of the investors.
The equipment management activities for these types of programs generate
equipment management fees for the Company over the life of a program, which is
typically 10 to 12 years. The limited partnership agreements generally entitle
the Company to receive a 1% or 5% interest in the cash distributions and
earnings of a program, subject to certain allocation provisions. The Fund I
agreement entitles the Company to a 15% interest in the cash distributions and
earnings of the program, subject to certain allocation provisions, which will
increase to 25% after the investors have received distributions equal to their
original invested capital.
<PAGE>
In 1996, the Company announced the suspension of public syndication of equipment
leasing programs with the close of Fund I. As a result of this decision,
revenues earned from managed programs, which include management fees,
partnership interests and other fees, and acquisition and lease negotiation
fees, will be reduced in the future as the older programs begin liquidation and
the managed equipment portfolio for these programs becomes permanently reduced.
Comparison of the Company's Operating Results for the Three Months Ended June
30, 1998 and 1997
The following analysis reviews the operating results of the Company:
Revenues
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 5,452 $ 3,429
Finance lease income 3,042 1,984
Management fees 2,535 2,797
Partnership interests and other fees 357 507
Acquisition and lease negotiation fees 1,184 585
Aircraft brokerage and services 362 661
Gain on the sale or disposition of assets, net 1,533 1,233
Other 843 694
---------------------------------------------------
Total revenues $ 15,308 $ 11,890
</TABLE>
The fluctuations in revenues for the three months ended June 30, 1998, compared
to the same quarter in 1997, are summarized and explained below.
Operating lease income by equipment type:
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Commercial and industrial equipment $ 2,686 $ 1,220
Refrigerated and dry van over-the-road trailers 1,854 1,197
Intermodal trailers 590 715
Marine vessel 284 --
Aircraft 16 143
Other 22 154
---------------------------------------------------
Total operating lease income $ 5,452 $ 3,429
</TABLE>
Operating lease income includes revenues generated from assets held for
operating lease and assets held for sale that are on lease. Operating lease
income increased $2.0 million during the second quarter of 1998, compared to the
same quarter of 1997. Operating lease income increased due to the following:
(a) A $1.5 million increase in operating lease income was generated from
commercial and industrial equipment. During the quarter ended June 30, 1998, the
average original cost of commercial and industrial equipment on operating lease
was $24.3 million, compared to $15.8 million during the quarter ended June 30,
1997.
(b) A $0.7 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment, due to an increase in the amount of
these types of equipment owned and on operating lease.
(c) During the second quarter of 1998, the Company purchased a 100%
interest in an entity owning a marine vessel that generated $0.3 million in
lease revenues. The Company sold 85.3% of its interest in the entity that owns a
marine vessel, for the amount of the Company's cost, to an affiliated program
during the second quarter of 1998. During the second quarter of 1997, no similar
revenue was earned by the Company.
These increases in operating lease income were partially offset by a $0.4
million decrease in marine container, aircraft, and intermodal trailer operating
lease income, due to the Company's strategic decision to dispose of certain of
these transportation assets and exit certain equipment markets. Intermodal
trailer lease revenues also decreased due to lower utilization, compared to the
same quarter of the prior year.
Finance lease income:
The Company earns finance lease income for certain leases originated by AFG that
are either retained for long-term investment or sold to third parties or to
institutional investment programs. Finance lease income increased $1.1 million
in the three months ended June 30, 1998, compared to the same quarter in 1997,
reflecting an increase in commercial and industrial assets that were on finance
lease. For the quarter ended June 30, 1998, the average investment in direct
finance leases was $150.1 million, compared to $68.0 million for the same
quarter of 1997.
Management fees:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees decreased $0.3 million for the
quarter ended June 30, 1998, compared to the same quarter of the prior year. The
decrease in management fees resulted from a net decrease in managed equipment
from the PLM Equipment Growth Fund (EGF) programs. With the termination of
syndication activities in 1996, management fees from the older programs are
expected to decrease in the future as they begin liquidation and the associated
equipment portfolios become permanently reduced.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $0.5 million and $0.6 million for the quarters ended
June 30, 1998 and 1997, respectively. In addition, a decrease of $0.1 million in
the Company's residual interests in the programs was recorded during both the
quarters ended June 30, 1998 and 1997. The decrease in net earnings and
distribution levels and residual interests in the quarter ended June 30, 1998,
compared to the same quarter of 1997, resulted mainly from the disposition of
equipment in certain of the EGF programs. Residual income is based on the
general partner's share of the present value of the estimated disposition
proceeds of the equipment portfolios of the affiliated programs when the
equipment is purchased. Net decreases in the recorded residual values result
when partnership assets are sold and the reinvestment proceeds are less than the
original investment in the sold equipment.
Acquisition and lease negotiation fees:
During the quarter ended June 30, 1998, the Company, on behalf of the EGF
programs, purchased a commercial aircraft for $7.8 million and a beneficial
interest in an entity that owns a marine vessel for $9.6 million, compared to
$10.0 million of equipment purchased on behalf of the EGFs during the same
quarter of 1997, resulting in a $0.4 million increase in acquisition and lease
negotiation fees. Also during the quarter ended June 30, 1998, equipment
purchased by AFG for the institutional investment programs was $8.1 million,
compared to $1.3 million for the same quarter in 1997, resulting in an increase
of $0.2 million in acquisition and lease negotiation fees for the quarter ended
June 30, 1998. Because of the Company's decision to halt syndication of
equipment leasing programs with the close of Fund I in 1996, and because Fund I
has a no front-end fee structure, acquisition and lease negotiation fees will be
substantially reduced in the future.
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue earned by
Aeromil Holdings, Inc., the Company's spare part sales and brokerage subsidiary,
decreased $0.3 million during the quarter ended June 30, 1998, compared to the
same quarter in 1997, due to a decrease in spare parts sales.
Gain on the sale or disposition of assets, net:
During the quarter ended June 30, 1998, the Company recorded $1.5 million in
gain on the sale or disposition of assets. Of this gain, $0.6 million resulted
from the sale or disposition of an aircraft engine, a 20% interest in a commuter
aircraft, and trailers, and $0.9 million related to the sale of commercial and
industrial equipment. During the quarter ended June 30, 1997, the Company
recorded $1.2 million in net gain on the sale or disposition of assets. Of this
gain, $0.4 million resulted from the sale or disposition of trailers, marine
containers, commuter aircraft, storage units, and railcars, and $0.4 million
related to the sale of commercial and industrial equipment. Also during the
second quarter of 1997, the Company purchased and subsequently sold a commercial
aircraft to an unaffiliated third party for a net gain of $0.4 million.
Other:
Other revenues increased $0.1 million for the quarter ended June 30, 1998,
compared to the quarter ended June 30, 1997, due to an increase in brokerage and
consulting fees.
Costs and Expenses
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 4,829 $ 4,158
Depreciation and amortization 3,497 2,141
General and administrative 2,085 2,710
---------------------------------------------------
Total costs and expenses $ 10,411 $ 9,009
</TABLE>
Operations support:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts, increased $0.7 million (16%) for the quarter ended June 30, 1998,
compared to the same quarter in 1997. The increase resulted from a $0.5 million
write-down of the Company's spare parts aircraft inventory located in Australia
and a $0.4 million increase in compensation and benefits expense primarily due
to the expansion of PLM Rental, partially offset by a $0.2 million decrease in
costs of goods sold associated with the decrease in aircraft spare parts sales.
Depreciation and amortization:
Depreciation and amortization expenses increased $1.4 million (63%) for the
quarter ended June 30, 1998, compared to the quarter ended June 30, 1997. The
increase resulted from an increase in commercial and industrial equipment and
refrigerated trailer equipment owned and on operating lease, which was partially
offset by the reduction in depreciable aircraft, marine containers, and
intermodal trailers (discussed in the operating lease income section).
General and administrative:
General and administrative expenses decreased $0.6 million (23%) during the
quarter ended June 30, 1998, compared to the same quarter in 1997, primarily due
to a $0.5 million decrease in expenses related to the Company's response to
shareholder-sponsored initiatives in the quarter ended June 30, 1997 and to a
$0.1 million decrease in legal expenses related to the Koch action (refer to
Note 8).
Other Income and Expenses
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1998 1997
-------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Interest expense $ (3,604) $ (2,352)
Interest income 299 452
Other income (expenses), net 469 (3)
</TABLE>
Interest expense:
Interest expense increased $1.3 million (53%) during the quarter ended June 30,
1998, compared to the same quarter in 1997, due to an increase in borrowings of
nonrecourse securitized debt and due to an increase in borrowings on the
warehouse credit facility. The increase in interest expense caused by these
increased borrowings was partially offset by lower interest expense resulting
from reductions in the amounts outstanding on the senior secured loan and the
senior secured notes.
Interest income:
Interest income decreased $0.2 million (34%) during the quarter ended June 30,
1998, compared to the same quarter in 1997, due to a decrease in average cash
balances.
Other income (expenses), net:
Other income (expenses), net increased $0.5 million. During the second quarter
of 1998, the Company recorded income of $0.7 million related to the settlement
of a lawsuit against Tera Power Corporation and others, and recorded expense of
$0.3 million related to a legal settlement for the Koch and Romei actions (refer
to Note 8).
Provision for income taxes:
For the three months ended June 30, 1998, the provision for income taxes was
$0.9 million, representing an effective rate of 42%. For the three months ended
June 30,1997, the provision for income taxes was $0.3 million, representing an
effective rate of 34%. In 1997, the Company's income tax rate included the
benefit of certain income earned from foreign activities that has been
permanently invested outside the United States.
Net Income
As a result of the foregoing, for the three months ended June 30, 1998, net
income was $1.2 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.14. For the same quarter in
1997, net income was $0.6 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.07.
<PAGE>
Comparison of the Company's Operating Results for the Six Months Ended June 30,
1998 and 1997
The following analysis reviews the operating results of the Company:
Revenues
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 9,344 $ 7,658
Finance lease income 5,694 3,798
Management fees 5,099 5,658
Partnership interests and other fees 681 993
Acquisition and lease negotiation fees 2,211 763
Aircraft brokerage and services 886 1,335
Gain on the sale or disposition of assets, net 2,295 2,601
Other 1,642 1,535
---------------------------------------------------
Total revenues $ 27,852 $ 24,341
</TABLE>
The fluctuations in revenues for the six months ended June 30, 1998, compared to
the same period in 1997, are summarized and explained below.
Operating lease income by equipment type:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Commercial and industrial equipment $ 4,299 $ 2,423
Refrigerated and dry van over-the-road trailers 3,432 2,407
Intermodal trailers 1,179 1,453
Marine vessel 284 --
Aircraft 74 451
Mobile offshore drilling units -- 604
Other 76 320
---------------------------------------------------
Total operating lease income $ 9,344 $ 7,658
</TABLE>
Operating lease income includes revenues generated from assets held for
operating lease and assets held for sale that are on lease. Operating lease
income increased $1.7 million during the six months ended June 30, 1998,
compared to the same period in 1997. Operating lease income increased due to the
following:
(a) A $1.9 million increase in operating lease income was generated from
commercial and industrial equipment. During the six months ended June 30, 1998,
the average original cost of commercial and industrial equipment on operating
lease was $24.2 million, compared to $16.3 million during the six months ended
June 30, 1997.
(b) A $1.0 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment, due to an increase in the amount of
these types of equipment owned and on operating lease.
(c) During the second quarter of 1998, the Company purchased a 100%
interest in an entity owning a marine vessel that generated $0.3 million in
lease revenues. The Company sold 85.3% of its interest in the entity that owns
the marine vessel, for the amount of the Company's cost, to an affiliated
program during the second quarter of 1998.
These increases in operating lease income were partially offset by the
following:
(a) During the six months ended June 30, 1997, the Company owned one mobile
offshore drilling unit, as well as a 25.5% interest in an entity that owned
another mobile offshore drilling unit, which generated $0.6 million in lease
revenues. Both of these drilling units were sold at the Company's cost to an
affiliated program during the first quarter of 1997. No similar asset was owned
by the Company during the six months ended June 30, 1998.
(b) A $0.8 million decrease in marine container, aircraft and intermodal
trailer operating lease income was due to the Company's strategic decision to
dispose of certain of these transportation assets and exit certain equipment
markets. Intermodal trailer lease revenues also decreased due to lower
utilization, compared to the same period of the prior year.
Finance lease income:
The Company earns finance lease income for certain leases originated by AFG that
are either retained for long-term investment or sold to third parties or to
institutional investment programs. Finance lease income increased $1.9 million
in the six months ended June 30, 1998, compared to the same period in 1997,
reflecting an increase in commercial and industrial assets that were on finance
lease. For the six months ended June 30, 1998, the average investment in direct
finance leases was $134.4 million, compared to $68.8 million for the same period
of 1997.
Management fees:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees decreased $0.6 million for the six
months ended June 30, 1998, compared to the same period of the prior year. The
decrease in management fees resulted from a net decrease in managed equipment
from the remaining older programs. With the termination of syndication
activities in 1996, management fees from the EGF programs are expected to
decrease in the future as they begin liquidation and the associated equipment
portfolios become permanently reduced.
Partnership interests and other fees:
The Company records as revenues its equity interest in the earnings of the
Company's affiliated programs. The net earnings and distribution levels from the
affiliated programs were $1.0 million and $1.2 million for the six months ended
June 30, 1998 and 1997, respectively. In addition, a decrease of $0.3 million
and $0.2 million in the Company's residual interests in the programs was
recorded during the six months ended June 30, 1998 and 1997, respectively. The
decrease in net earnings and distribution levels and residual interests in the
six months ended June 30, 1998, compared to the same period of 1997, resulted
mainly from the disposition of equipment in certain of the EGF programs.
Residual income is based on the general partner's share of the present value of
the estimated disposition proceeds of the equipment portfolios of the affiliated
programs when the equipment is purchased. Net decreases in the recorded residual
values result when partnership assets are sold and the reinvestment proceeds are
less than the original investment in the sold equipment.
Acquisition and lease negotiation fees:
During the six months ended June 30, 1998, the Company, on behalf of the EGF
programs, purchased transportation and other equipment for $14.1 million and
beneficial interests in entities that own marine vessels for $18.8 million,
compared to $10.0 million in equipment purchased on behalf of the EGFs during
the same period of 1997, resulting in a $1.2 million increase in acquisition and
lease negotiation fees. Also during the six months ended June 30, 1998,
equipment purchased by AFG for the institutional investment programs was $14.1
million, compared to $7.6 million for the same period in 1997, resulting in a
$0.2 million increase in acquisition and lease negotiation fees for the six
months ended June 30, 1998, compared to the same period of the prior year.
Because of the Company's decision to halt syndication of equipment leasing
programs with the close of Fund I in 1996, and because Fund I has a no front-end
fee structure, acquisition and lease negotiation fees will be substantially
reduced in the future.
Aircraft brokerage and services:
Aircraft brokerage and services revenue, which represents revenue earned by
Aeromil Holdings, Inc., the Company's spare part sales and brokerage subsidiary,
decreased $0.4 million during the six months ended June 30, 1998, compared to
the same period in 1997, due to a decrease in spare parts sales.
Gain on the sale or disposition of assets, net:
During the six months ended June 30, 1998, the Company recorded $2.3 million in
gain on the sale or disposition of assets. Of this gain, $0.8 million resulted
from the sale or disposition of an aircraft engine, a 20% interest in a commuter
aircraft, and trailers, and $1.0 million related to the sale of commercial and
industrial equipment. Also during the six months ended June 30, 1998, the
Company purchased and subsequently sold railcars to an unaffiliated third party
for a net gain of $0.5 million. During the six months ended June 30, 1997, the
Company recorded $2.6 million in gain on the sale or disposition of assets. Of
this gain, $0.6 million resulted from the sale or disposition of trailers,
marine containers, commuter aircraft, storage units, and railcars, and $1.2
million related to the sale of commercial and industrial equipment. Also during
the six months ended June 30, 1997, the Company purchased and subsequently sold
two commercial aircraft to an unaffiliated third party for a net gain of $0.8
million.
Costs and Expenses
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 8,754 $ 8,222
Depreciation and amortization 6,047 4,346
General and administrative 3,883 4,726
---------------------------------------------------
Total costs and expenses $ 18,684 $ 17,294
</TABLE>
Operations support:
Operations support expense, including salary and office-related expenses for
operational activities, equipment insurance, repair and maintenance costs,
equipment remarketing costs, costs of goods sold, and provision for doubtful
accounts, increased $0.5 million (6%) for the six months ended June 30, 1998,
compared to the same period of 1997. The increase resulted from a $0.5 million
write-down of the Company's spare parts aircraft inventory located in Australia,
and a $0.2 million increase in compensation and benefits expense due to the
expansion of PLM Rental. These increases were partially offset by a $0.2 million
decrease in costs of goods sold associated with the decrease in aircraft spare
parts sales.
Depreciation and amortization:
Depreciation and amortization expenses increased $1.7 million (39%) for the six
months ended June 30, 1998, compared to the six months ended June 30, 1997. The
increase resulted from an increase in commercial and industrial equipment and
refrigerated trailer equipment owned and on operating lease, which was partially
offset by the reduction in depreciable aircraft, marine containers, and
intermodal trailers (discussed in the operating lease income section).
General and administrative:
General and administrative expenses decreased $0.8 million (18%) during the six
months ended June 30, 1998, compared to the same period of the prior year,
primarily due to a $0.5 million decrease in expenses related to the Company's
response to shareholder-sponsored initiatives in the six months ended June 30,
1997, a $0.2 million decrease in legal expenses related to the Koch action
(refer to Note 8), and a $0.1 million decrease in compensation and benefits
expenses, (after allocations to the managed programs), as a result of a decrease
in staffing requirements.
Other Income and Expenses
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1997
-------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Interest expense $ (6,674) $ (4,994)
Interest income 694 838
Other income (expenses), net 463 (24)
</TABLE>
Interest expense:
Interest expense increased $1.7 million (34%) during the six months ended June
30, 1998, compared to the same period in 1997, due to an increase in borrowings
of nonrecourse securitized debt and due to an increase in borrowings on the
warehouse credit facility. The increase in interest expense caused by these
increased borrowings was partially offset by lower interest expense resulting
from reductions in the amounts outstanding on the senior secured loan and the
senior secured notes.
Interest income:
Interest income decreased $0.1 million (17%) during the six months ended June
30, 1998, compared to the six months ended June 30, 1997, due to a decrease in
average cash balances.
Other income (expenses), net:
Other income (expenses), net increased $0.5 million. During the second quarter
of 1998, the Company recorded income of $0.7 million related to the settlement
of a lawsuit against Tera Power Corporation and others, and recorded expense of
$0.3 million related to a legal settlement for the Koch and Romei actions (refer
to Note 8).
Provision for income taxes:
For the six months ended June 30, 1998, the provision for income taxes was $1.5
million, representing an effective rate of 40%. For the six months ended June
30,1997, the provision for income taxes was $0.9 million, representing an
effective rate of 33%. In 1997, the Company's income tax rate included the
benefit of certain income earned from foreign activities that has been
permanently invested outside the United States.
Net Income
As a result of the foregoing, for the six months ended June 30, 1998, net income
was $2.2 million, resulting in basic and diluted earnings per weighted-average
common share outstanding of $0.26 and $0.25, respectively. For the same period
in 1997, net income was $1.9 million, resulting in basic and diluted earnings
per weighted-average common share outstanding of $0.21 and $0.20, respectively.
<PAGE>
Liquidity and Capital Resources
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and the sale of equipment.
Liquidity in 1998 and beyond will depend, in part, on the continued remarketing
of the equipment portfolio at similar lease rates, the management of existing
sponsored programs, the effectiveness of cost control programs, the purchase and
sale of equipment, the volume of commercial and industrial equipment leasing
transactions for which the Company earns fees and a spread, additional
borrowings, and the potential proceeds from the initial public offering of AFG.
Management believes that the Company can accomplish the preceding and that it
will have sufficient liquidity and capital resources for the future. Future
liquidity is influenced by the factors summarized below.
Debt financing:
Senior Secured Loan: The Company's senior loan with a syndicate of insurance
companies, which had an outstanding balance of $17.6 million as of June 30, 1998
and July 22, 1998, provides that equipment sale proceeds from pledged equipment
or cash deposits be placed into collateral accounts or used to purchase
additional equipment to the extent required to meet certain debt covenants. As
of June 30, 1998, the cash collateral balance for this loan was $2.4 million and
is included in restricted cash and cash equivalents on the Company's balance
sheet. During the six months ended June 30, 1998, the Company repaid $2.9
million on this facility. The facility required quarterly interest payments
through June 30, 1997, with quarterly principal payments of $1.5 million plus
interest charges beginning June 30, 1997 through termination of the loan in June
2001.
Senior Secured Notes: On June 28, 1996, the Company closed a floating-rate
senior secured note agreement that allowed the Company to borrow up to $27.0
million within a one-year period. During the six months ended June 30, 1998, the
Company repaid $2.5 million on this facility. As of June 30, 1998 and July 22,
1998, the Company had $21.3 million outstanding under this agreement. Principal
payments of $1.3 million are payable quarterly through termination of the loan
on August 15, 2002.
Promissory Note: On July 15, 1998, the Company entered into a $5.0 million
revolving line of credit agreement in the form of a promissory note that allows
the Company to borrow up to $5.0 million until October 13, 1998. The promissory
note bears interest at the prime rate, with interest due monthly in arrears. On
July 21, 1998, the Company borrowed $1.6 million on this note.
Warehouse Credit Facility: Assets acquired and held on an interim basis for
placement with affiliated programs or sale to third parties or purchased for
placement in the Company's nonrecourse securitization facility have, from time
to time, been partially funded by a $50.0 million warehouse credit facility that
expires November 2, 1998. This facility was amended on June 1, 1998 to
temporarily increase the Company's AFG subsidiary'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 AFG
subsidiary's borrowing capacity on the facility from $55.0 million to $60.0
million until July 8, 1998. The Company believes that it will be able to extend
this facility on similar terms prior to its expiration.
This facility, which is shared with PLM Equipment Growth Funds (EGFs) V and VI,
PLM Equipment Growth & Income Fund VII (EGF VII), and Professional Lease
Management Fund I, LLC (Fund I), allows the Company to purchase equipment prior
to its designation to a specific program. Borrowings under this facility by the
other eligible borrowers reduce the amount available to be borrowed by the
Company. As of June 30, 1998, the Company had $46.8 million in borrowings under
this facility, and EGF V had $1.6 million in borrowings under this facility. As
of July 22, 1998, the Company had $46.1 million in borrowings under this
facility. There were no other borrowings under this facility as of July 22,
1998.
<PAGE>
Nonrecourse Securitized Debt: The Company has available a nonrecourse
securitization facility for up to $125.0 million, secured by direct finance
leases, operating leases, and loans on commercial and industrial equipment that
generally have terms of one to seven years. This facility is available for a
one-year period expiring October 13, 1998. Repayment of the facility matches the
terms of the underlying leases. The Company believes that it will be able to
renew this facility on substantially the same terms upon its expiration and
increase its borrowing capacity as needed. As of June 30, 1998, $105.9 million
in borrowings was outstanding under this facility. As of July 22, 1998, $107.1
million in borrowings was outstanding under this facility.
In addition to the $125.0 million nonrecourse securitization facility
discussed above, as of June 30, 1998 and July 22, 1998, the Company had $17.6
million and $17.5 million, respectively, in nonrecourse notes payable secured by
direct finance leases on commercial and industrial equipment that have terms
corresponding to the note repayment schedules beginning November 1997 and ending
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 its
nonrecourse securitized debt. 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. For the six months ended June 30, 1998, interest
expense increased by $0.2 million due to these arrangements.
Commercial and industrial equipment leasing:
The Company earns finance lease or operating lease income for leases originated
and retained by AFG. The funding of leases requires the Company to retain an
equity interest in all leases financed through the nonrecourse securitization
facility. AFG also originates loans in which it takes a security interest in the
assets. From January 1, 1998 through July 22, 1998, the Company funded
commercial and industrial leases and finance receivables with an original
equipment cost of $120.1 million. A portion of these transactions was financed,
on an interim basis, through the Company's warehouse credit facility. Some
equipment subject to leases is sold to institutional investment programs for
which the Company is the servicer. Acquisition and management fees are received
for the sale and subsequent servicing of these leases. The Company believes that
this lease origination operation is a growth area for the future.
In March 1998, the Company announced that its Board of Directors had authorized
management to engage investment bankers for the purpose of undertaking an
initial public offering of common stock for AFG. On May 7, 1998, AFG filed a
registration statement with the Securities and Exchange Commission for the
initial public offering. The offering is expected to commence in the third or
fourth quarter of 1998; however, the timing of the offering is subject to market
conditions and other factors. The Company will continue to own a majority
interest in AFG after the initial public offering.
As of June 30, 1998, the Company had committed to purchase $99.7 million of
equipment for its commercial and industrial lease and finance receivables
portfolio, to be held by the Company or sold to the institutional investment
programs or to other third parties.
From July 1, 1998 through July 22, 1998, the Company funded $4.5 million of
commitments outstanding as of June 30, 1998 for its commercial and industrial
lease and finance receivables portfolio.
As of July 22, 1998, the Company had committed to purchase $98.1 million of
equipment for its commercial and industrial lease and finance receivables
portfolio.
<PAGE>
Trailer leasing:
The Company operates 14 trailer rental facilities that engage in short-term and
mid-term operating leases. Equipment operated in these facilities consists of
refrigerated trailers used to transport temperature-sensitive food products and
dry van trailers leased to a variety of customers. The Company opened four of
these rental yards in the six months ended June 30, 1998 and intends to open
additional rental yard facilities in the future. The Company is selling certain
of its older trailers and is replacing them with new or late-model refrigerated
trailers. The new trailers will be placed in existing rental facilities or in
new yards.
Other transportation equipment leasing, management of investment programs, and
other:
During the six months ended June 30, 1998, the Company generated proceeds of
$22.9 million from the sale of transportation and other related equipment. The
net proceeds from the sale of assets that were collateralized as part of the
senior secured loan facility were placed in a collateral account.
Over the last four years, the Company has downsized its transportation equipment
portfolio through the sale or disposal of underperforming assets. The Company
will continue to analyze its transportation equipment portfolio for
underperforming assets to sell or dispose of as necessary.
The Company also has an 80% interest in a company owning 100% of a company
located in Australia involved in aircraft brokerage and aircraft spare parts
sales. This company is being marketed for sale.
Management believes that, through debt and equity financing, possible sales of
equipment, and cash flows from operations, the Company will have sufficient
liquidity and capital resources to meet its projected future operating needs.
Year 2000 compliance:
The Company is currently addressing the year 2000 computer software issues and
is creating a timetable for carrying out any program modifications that may be
required. The Company anticipates that all such program modifications will be
completed by the end of 1998, and does not anticipate that the cost of these
modifications will be material.
Forward-looking information:
Except for historical information contained herein, the discussion in this Form
10-Q contains forward-looking statements that contain risks and uncertainties,
such as statements of the Company's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Company's actual results could differ materially from
those discussed here.
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to the consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders, held June 8, 1998, four items were
submitted to a vote of the Company's security holders.
1. Randall L. -W. Caudill was re-elected to the Board of Directors of the
Company. The votes cast in the election were 5,433,448 votes for, and 1,705,326
votes withheld.
Directors whose terms continued after the Annual Meeting of Stockholders, held
June 8, 1998 are as follows:
Class I (Terms Expire in 2000)
Robert N. Tidball
Robert L. Witt
Class III (Terms Expire in 1999)
Douglas P. Goodrich
Harold R. Somerset
2. The recommendation to repeal Article Eleventh of the Company's Certificate of
Incorporation was approved.
Votes
For Against Abstentions Broker Non Votes
3,333,937 2,412,236 137,419 1,255,182
3. The recommendation to amend the Company's Certificate of Incorporation so
that the Company would not be governed by Section 203 of Delaware General
Corporation Law was approved.
Votes
For Against Abstentions Broker Non Votes
3,154,309 2,590,770 138,513 1,255,182
4. The recommendation to amend Article Sixth of the Company's Certificate of
Incorporation to eliminate the division of the directors into classes so that
all directors are elected annually was approved.
Votes
For Against Abstentions Broker Non Votes
4,447,626 1,308,454 127,512 1,255,182
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.1 First Amendment to Restated Warehousing Credit Agreement among American
Finance Group, Inc., First Union National Bank of North Carolina, and Bank of
Montreal, dated as of June 1, 1998.
10.2 Second Amendment to Restated Warehousing Credit Agreement among American
Finance Group, Inc., First Union National Bank, and Bank of Montreal, dated as
of June 8, 1998.
10.3 1998 Management Stock Compensation Plan, dated May 12, 1998.
10.4 $5.0 million Promissory Note, dated July 15, 1998, executed by PLM
International, Inc. in favor of First Union National Bank.
(B) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM INTERNATIONAL, INC.
/s/ Richard K Brock
--------------------------
Richard K Brock
Vice President and
Corporate Controller
Date: July 22, 1998
<PAGE>
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 "Lend ," 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 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 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.
4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under each Loan
Document to which it is a party.
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.
(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.
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.
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.
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:
Richard K. Brock
Vice President & Corporate Controller
LENDERS FIRST UNION NATIONAL BANK
By:
Printed name:
Title:
BANK OF MONTREAL
By:
Printed name:
Title:
AGENT FIRST UNION NATIONAL BANK , as Agent
By:
Printed name:
Title:
By
Printed Name:
Title:
<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 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>
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 "Lend ," 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.
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.
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;
(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.
4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under each Loan
Document to which it is a party.
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.
(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.
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.
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.
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:
Richard K. Brock
Vice President & Corporate Controller
LENDERS FIRST UNION NATIONAL BANK
By:
Printed name:
Title:
BANK OF MONTREAL
By:
Printed name:
Title:
AGENT FIRST UNION NATIONAL BANK , as Agent
By:
Printed name:
Title:
By
Printed Name:
Title:
<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.
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>
PLM INTERNATIONAL, INC.
1998 MANAGEMENT STOCK COMPENSATION PLAN
1. Purpose
The purpose of this 1998 Management Stock Compensation Plan (the
"Plan") is to attract, retain, and motivate certain management and key employees
of PLM International, Inc. (the "Company"), or any subsidiary of the Company, by
giving such employees (as defined below) an opportunity to acquire stock, or to
be granted, shares of the Company's common stock, par value $.01 per share
("Common Shares"). The Company may grant options under this Plan that (a) are
intended to be "incentive stock options" ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or (b) are
not intended to be ISOs (such nonqualified options, "NQSOs"). In addition, the
Company may grant under this Plan awards of Common Shares which may be subject
to such restrictions as the Board may determine at the time of grant. Such
options and any other awards granted under this Plan are hereinafter referred to
collectively as "Awards." For the purposes of this Plan, an individual shall be
considered to be an "employee" for such period of time as the Company is
required to withhold federal income tax from the compensation paid by the
Company to such individual because the individual constitutes an "employee"
under Section 3401(c) of the Code.
2. Effective Date
This Plan was adopted by the Company's board of directors (the "Board")
on May 12, 1998.
3. Shares Subject to Plan
Subject to the other provisions of this Plan, the total number of
Common Shares that may be made subject to Awards under this Plan shall not
exceed in the aggregate 800,000, subject to adjustment in accordance with
Paragraph 13(b). Common Shares delivered to a grantee or optionee by the Company
as the result of the grant, vesting or exercise of an Award may be previously
unissued shares or repurchased shares, including shares repurchased under the
terms of this Plan, or under the terms of any agreement (an "Award Agreement")
evidencing the grant of an Award under this Plan. Common Shares covered by
expired, lapsed, terminated or surrendered Awards shall again become available
for the grant of Awards. All Common Shares issued under this Plan, whatever
their source, shall be counted against the 800,000-share limitation.
4. Administration
(a) Board to Administer. The Plan and all Awards shall be
administered by the Board; provided, however, that notwithstanding any other
provision of this Plan, (i) Awards granted to executive directors of the Company
shall 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 Code, and (ii) Awards granted to participants in the Plan who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the Company shall, 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.
(b) Voting. A majority of the Board shall constitute a quorum
for the purposes of this Plan. Provided a quorum is present, the Board may take
action by consent of a majority of its members present at a meeting. Meetings
may be held telephonically as long as all parties are able to hear one another,
and a member of the Board shall be "present" for purposes of the preceding
sentence if he or she is in simultaneous communication by telephone with the
other members, provided, again, that all parties are able to hear one another.
(c) Tasks of Administering Plan. The Board shall have full and
final authority, in its sole discretion, subject to the express provisions of
this Plan, to (i) determine the management and key employees of the Company to
whom, and the times or times at which, Awards shall be granted, the number of
shares to be subject to any Award, and the exercise or purchase price of any
Award; (ii) determine the terms and provisions of each Award (which terms and
provisions may differ from those of other Awards) and, but only with the consent
of the holder thereof where such consent is required under Paragraph 17,
terminate, cancel, modify or amend the terms of any Award; (iii) authorize any
person to execute on behalf of the Company an Award agreement; (iv) interpret
the 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 Plan. The Board may also make whatever rules and regulations it deems useful
to administer the Plan. Any decision or action of the Board in connection with
the Plan or any Award granted, or shares purchased pursuant to an Award, shall
be final and binding.
(d) Reports. Unless otherwise decided by the Board, the Board
shall cause written summaries of Awards to be maintained, including descriptions
of all restrictions thereon, as follows: (i) from time to time, all recent
Awards that have not previously been included in such a summary shall be
summarized; (ii) annually within 60 days after the end of the calendar year
Awards made during such preceding calendar year shall be summarized; (iii)
annually within 60 days of the end of the calendar year, and at other times
within the Board's discretion, all outstanding Awards shall be summarized; and
(iv) at any additional time, within the Board's discretion, all Awards ever made
under the Plan shall be reported.
(e) Delegation. The Board may delegate non-discretionary
administrative duties to such employees of the Company as it deems proper.
5. Eligibility.
(a) Only Employees May Receive Awards. Awards may be granted
under this Plan only to persons who are management employees and other key
employees of the Company or any subsidiary of the Company selected by the Board
to participate in this Plan (such individuals and, where appropriate, such
individual's legal representative or beneficiary, "Participants"); provided,
however, that an ISO may be granted only to a Participant who is at the time of
grant an employee of the Company or a "subsidiary corporation" of the Company,
within the meaning of Section 424 (f) of the Code.
(b) Selection of Participants. In selecting the Participants,
and in determining the size, terms and conditions of an Award, the Board shall
take into consideration such factors as it deems relevant in accomplishing the
Plan's purposes. A Participant who has been granted an Award may later, if he or
she is otherwise eligible, be granted additional Awards.
6. Grant of Awards; Limitations
(a) General Rules. Subject to the rules and restrictions
contained elsewhere in this Plan, the Company may grant Awards at any time, and
from time to time, until the Plan expires or otherwise terminates. The Board
shall specify the date of grant or, if it fails to, the date of grant shall be
the date of the action taken by the Board to grant the Award; provided, however,
that in the case of any Award that is approved in anticipation of employment,
the date of grant with respect to such Award shall be the date the intended
Participant first becomes an employee of the Company or a parent or subsidiary
of the Company. Notice of the determination shall be given to each person to
whom an Award is granted. Within a reasonable time after the date of grant of
any Award that is subject to restrictions, the Participant and the Company shall
enter into a written agreement (the "Award Agreement") that shall specify the
date of grant, the number of shares covered by the Award, and the other terms
and conditions of the Award.
(b) Special ISO Limit. To the extent that the aggregate fair
market value (within the meaning of Section 422(b)(4) of the Code) of Common
Shares with respect to which ISOs are exercisable for the first time by a
Participant during any calendar year under the Plan and any other stock option
plan of the Company (or any "parent corporation" or "subsidiary corporation" of
the Company, as such terms are defined in Section 424(f) of the Code) exceeds
$100,000, such options shall be treated as NQSOs.
(c) Identification of Option as ISO or NQSO. The determination
of whether any option granted under this Plan is intended to be an ISO or an
NQSO shall be made by the Board at the time the Board acts to grant the option,
and shall be clearly reflected in the Award Agreement.
(d) Special Limitation on Amounts Paid for Common Shares. In
the case of any Award of Common Shares, whether or not subject to restrictions
at the time of grant or thereafter, the Company shall receive no consideration
for such grant in excess of any minimum price required to be paid for such
shares under the General Corporation Law of the State of Delaware, the
California Corporate Securities Rules, or any other state corporation or
securities law, if applicable, including, but not by way of limitation, a
requirement that shares not be sold for less than their par value.
(e) Notwithstanding anything to the contrary contained herein,
the maximum number of shares that may be made subject to Awards to any one
individual shall not exceed, in the aggregate, 33.33% of the shares that may be
made subject to Awards under this Plan.
7. Terms and Conditions of Options
Options granted under this Plan shall be subject to the following terms
and conditions, and to any other terms and conditions, not inconsistent with
this Plan, that the Board imposes when the option is granted;
(a) Time of Exercise. Unless earlier terminated under the
terms of this Plan and the applicable Award Agreement, options granted under
this Plan shall become exercisable as to one-third of the Common Shares covered
thereby on each of the first, second and third anniversaries of the date of
grant.
(b) Exercise Price of Options Generally. Unless otherwise
decided by the Board, with respect to any option granted under this Plan, the
price to be paid by the option holder for Common Shares issued pursuant to such
option shall be equal to 110% of the average daily closing price of such shares
on the AMEX or such other national stock exchange on which the Common Shares are
traded for the ten trading days immediately preceding the date as of which such
option is granted, which price shall be specified in the applicable Award
Agreement.
(c) Option Term. The term of any option granted under the Plan
shall commence and expire on the date specified in the applicable Award
Agreement (such date, the "Expiration Date"); provided, however, that in the
case of any ISO the Expiration Date shall not be later than the date that is 10
years after the date the option is granted, or, in the case of an ISO that is
granted to a Participant who, as of the date such ISO is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of any "subsidiary corporation" (as such term is defined
in Section 424(f) of the Code) of the Company (a "10% Owner"), the Expiration
Date of such ISO may not be later than 5 years after such date. Options may be
terminated earlier than their original Expiration Date, in the Board's
discretion, and the Board also may extend the term of any option, except that in
no event may an ISO's term be extended beyond that date that is 10 years after
the date it was granted, or in the case of 10% Owner, 5 years after the date of
grant.
(d) Method of Exercise. Unless otherwise determined by the
Board, options may be exercised, in whole or in part, from time to time, by
written notice from the Participant to the Company stating the number of shares
being purchased and accompanied by payment in full of the exercise price for the
shares. Unless the Award Agreement provides otherwise, or in the discretion of
the Board exercised at the time the option is exercised, payment may be made in
cash, by check, by delivery to the Company of whole Common Shares owned by the
Participant (duly endorsed in favor of the Company or accompanied by a duly
endorsed stock power), by the Participant's interest-bearing full recourse
promissory note (subject to any applicable restrictions, limitations, or
conditions imposed by General Corporation Law of the State of Delaware, the
California Corporations Code, or any other state law, if applicable), by
non-cash exercise methods permitted by law, including, without limitation,
methods whereby a broker sells shares of Common Stock to which an exercise
relates or holds such shares as collateral for a margin loan, delivers the
aggregate exercise price to the Company, and delivers the remaining proceeds to
the Participant (and in conjunction therewith the Company may establish a
non-cash exercise program including a program where the commissions on the sale
of shares of Common Stock to which the exercise relates are paid by the
Company), or by a combination of the above having a combined fair market value
equal to the aggregate exercise of the option, determined in the same manner as
the option price under Paragraph 7(b).
(e) Nontransferability of Options. An option granted under
this Plan shall not be transferable other than (i) by will or by the laws of
descent and distribution or (ii) by gratuitous transfer to any of the
Participant's immediate family members or a trust established for the benefit of
such family member, and an option may be exercised, during the lifetime of the
holder of the option, only by such holder. An option may not be assigned,
transferred (except as provided in the preceding sentence), pledged or
hypothecated in any way (whether by operation of law or otherwise), and will not
be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of any option
contrary to the provisions of this Plan, and any levy of any attachment or
similar process upon an option, will be null and void, and otherwise without
effect, and the Board may, in its sole discretion, upon the happening of any
such event, terminate such option forthwith.
(f) Optionee Not a Stockholder Until Exercise. A Participant
shall not have any of the rights of a stockholder with respect to the Common
Shares covered by his or her option until such option (or any portion thereof)
shall have been exercised and such shares shall have been issued to him or her
(as evidenced by an appropriate entry on the books of a duly authorized transfer
agent of the Company) pursuant to the exercise of the option.
(g) Exercise After Termination of Employment. If a Participant
ceases to be employed by the Company, or a subsidiary of the Company, for any
reason other than death, options held by such Participant at the effective date
of termination of employment may, to the extent exercisable immediately before
the termination of employment, be exercised, in whole or in part, within, in the
case of an ISO, three months (12 months if the termination of employment results
from such Participant's permanent and total disability) following the effective
date of such termination and, in the case of an NQSO, six months (12 months if
the termination of employment results from the Optionee's permanent and total
disability) after the effective date of such termination of employment, or
within such lesser period as may be specified in the Award Agreement; provided,
however, that in no case may an option be exercised after its Expiration Date,
if that occurs first. A Participant shall be considered permanently and totally
disabled if he or she is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death, or that has lasted or can be expected to last for a
continuous period of not less than 12 months, but in either case only as
evidenced by the such Participant's receipt of disability benefits under Social
Security.
(h) Exercise Following Death. If a Participant dies while
employed by the Company or a subsidiary of the Company, or within the period
that the option remains exercisable after termination of employment, those
options held by such Participant at the date of his or her death, to the extent
then exercisable by him or her, may be exercised in whole or in part by the
holder of such option (whether such option was transferred prior to the
Participant's death or by will or the laws of descent distribution), at any time
prior to the earliest of their Expiration Date or within 12 months after the
death of such Participant, or within any lesser period specified in the Award
Agreement.
(i) Sick Leaves and Leaves of Absence. A Participant's
employment shall not be deemed to be terminated by reason of sick leave,
military leave, or other leave of absence approved by the Company, if the period
of any such leave does not exceed a period approved by the Company, or, if
longer, if such Participant's right to reemployment by the Company (or any
parent or subsidiary) of the Company is guaranteed either contractually or by
statute. Individual Award Agreements may contain such other (additional or
different) provisions with respect to leaves of absence as the Board may
approve, either at the time of grant or later.
(j) Discretionary Transfers. Notwithstanding anything herein
to the contrary, the Board may, in its sole discretion, permit lifetime or death
transfers to the extent permitted by Rule 16b-3 under the Exchange Act.
8. Compliance with Securities Laws
The Company shall not be obligated to offer or sell any shares upon
exercise of an option unless the shares are at that time effectively registered
or exempt from registration under the federal securities laws and the offer and
sale of the shares are otherwise in compliance with all applicable securities
laws, including, without limitation, the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, and the General Rules and
Regulations promulgated thereunder. The grant of any shares under this Plan, or
the offer or sale of any shares upon exercise of an option, shall further be
subject to approval by the Company's counsel with respect to such compliance.
The Company shall have no obligation to register under the federal securities
laws any shares granted under this Plan, or to take any other steps necessary to
enable shares to be offered and sold under federal or other securities laws.
Prior to the transfer by the Company of any shares to a Participant, or upon the
exercise of all or any portion of an option, such Participant may be required to
furnish representations or undertakings deemed appropriate by the Board to
enable the offer and sale of the option shares, or subsequent transfers of any
interest in the shares, to comply with applicable securities laws. Stock
certificates evidencing Common Shares acquired pursuant to an Award shall bear
any legend required by, or useful for compliance with, applicable securities
laws, this Plan, or any Award Agreement.
9. Restrictions on Shares
(a) Repurchase Rights. At the time an Award is granted, the
Board may determine that the Company shall retain, for itself or others, such
rights to repurchase, rights of first refusal, and other transfer restrictions
applicable to Common Shares acquired pursuant to such Award, or may impose such
other restrictions as the Board, in is complete discretion, may determine, which
Company rights or other restrictions shall be set forth in the applicable Award
Agreement.
(b) Financial Covenants. The Company may be precluded from
paying dividends on Common Shares which may be acquired pursuant to an Award by
the terms of financial covenants with any person that has purchased preferred
equity or debt securities of, or loaned money to, the Company or any parent or
subsidiary of the Company.
(c) Escrow Agreement. In order to enforce restrictions which
may be imposed upon Common Shares which may be acquired pursuant to an Award
hereunder, the Board may require any Participant to enter into an escrow
agreement providing that the certificates representing shares shall remain in
the physical custody of an escrow holder until any or all of the restrictions
imposed pursuant to the Plan or applicable Award Agreement shall have lapsed or
otherwise been terminated.
(d) Legending Share Certificates. In order to enforce
restrictions which may be imposed upon Common Shares which may be acquired
pursuant to an Award hereunder, the Board may cause a legend or legends to be
placed on any certificates representing such shares, which legend or legends
shall make appropriate reference to the restrictions imposed hereunder,
including, but not limited to (i) the Company's repurchase rights, if any, under
Paragraph 9(a) and (ii) a restriction against sale of such shares for any period
of time as may be required by an appropriate law or regulation. If any
restriction with respect to which a legend was placed on any certificate ceases
to apply to Common Shares represented by such certificate, the owner of the
Common Shares represented by such certificate may require the Company to cause
the issuance of a new certificate not bearing the legend.
(e) Additional Restrictions. Additionally, and not by way of
limitation, the Board may impose such restrictions on any Common Shares issued
pursuant to this Plan as it may deem advisable, including, without limitation,
restrictions under the Securities Act of 1933, as amended, 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.
10. Taxes. The issuance of Common Shares pursuant to the grant, vesting
or exercise of an Award shall 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 to the Company by the
Participant may be effected through (i) the Company's withholding from the
number of Common 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 to the Company 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 three preceding methods.
11. Use of Proceeds
Proceeds realized from the sale of Common Shares pursuant to the grant,
vesting or exercise of an Award shall constitute general funds of the Company.
12. Acquisitions and Other Transactions
Upon the occurrence of a Change in Control (as defined below), 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 10 days after the
date the notice of such modification is given to the Participants); (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 Common
Shares acquired by a Participant pursuant to the grant, vesting or exercise of
an Award; (iii) arrange for the grant of replacement Awards with appropriate
adjustments in the number and kind of securities and option prices; or (iv)
cancel outstanding Awards or Common Shares acquired by a Participant which are
subject to restrictions, for which each such Participant shall be entitled to
receive in consideration of such cancellation an amount in cash that, in the
absolute discretion of the Board, is determined to be equivalent to the fair
market value (at the effective time of the Change in Control) 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 shall 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.
A "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
(a) any Person becomes the Beneficial Owner of securities of
the Company representing 17% or more of the combined voting power of
the Company's then outstanding securities;
(b) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary of the Company,
at least 40% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person increases its Beneficial
Ownership, directly or indirectly, of securities of the Company by more
than 17% of the combined voting power of the Company's then outstanding
securities;
(c) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least 40% of the combined voting power of the
voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale; or
(d) a change in the Board, which change is the result of a
proxy solicitation or other action to influence voting at a
stockholders' meeting of the Company (other than by voting one's own
stock) by a Person or group of Persons which causes the Continuing
Directors to cease to be a majority of the Board;
provided, however, that none of the foregoing events described in
paragraphs (a) through (d) above shall be deemed to be a Change in Control if
the event or election causing such change shall have been approved specifically
for purposes of this Agreement by the affirmative vote of at least a majority of
the members of the Continuing Directors.
13. Changes in Capital Structure
(a) No Impediment to Corporate Transactions. The fact that
Common Shares are subject to Awards shall not affect the Company's right to
effect adjustments, recapitalizations, reorganizations, or other changes in its
or any other corporations' capital structure or business, or merger or
consolidation, any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting Common Shares, the dissolution or liquidation of the
Company's or any other corporation's assets or business, or any other corporate
act, whether similar to the events described above or otherwise.
(b) Adjustments. Subject to Paragraph 12, which shall, when
applicable, take precedence over this Paragraph 13(b), if the outstanding Common
Shares are 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 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, shall 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.
14. Disqualifying Dispositions of ISOs
If any Common Share acquired upon exercise of any ISO is disposed of in
a disposition that, under Section 422 of the Code, disqualifies such portion of
such ISO from the application of Section 421(a) of the Code, the holder of such
Common Shares at the time of such disposition shall notify the Company in
writing of the date and terms of the disposition and shall comply with any other
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled.
15. No Representations.
Neither the Company nor the Board shall at any time make, and at no
time shall be deemed to have made, any representations to any Participant or
beneficiary thereof concerning the specific legal, vesting or exercise of any
Award or tax effect surrounding such Award, it being a condition of each Award
that the recipient thereof shall be subject to all applicable federal and state
laws and regulations.
16. Limitation on Right of Action.
Any and all rights of action by the Company or any stockholder or
stockholders of the Company against any past, present, or future members of the
Board, or against any past or present employee of the Company or any parent or
subsidiary of the Company, arising out of or in connection with the Plan, any
Award Agreement or any act or omissions related thereto, shall be limited to
acts or omissions only that are the result of gross negligence or willful
misconduct. Any such right of action shall terminate and forever be barred
unless action is brought within one year of the time of the occurrence of the
act or omission upon which liability is claimed.
17. Amendment/Termination of Plan
The Board may, without stockholder approval, alter, suspend or
terminate this Plan at any time or from time to time; provided, however, that
stockholder approval shall 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 shall,
without the prior written consent of the Participant, adversely affect the
rights of such Participant under a then outstanding Award.
This Plan shall automatically expire on the tenth anniversary of the
date of its adoption, and no options may be granted under this Plan following
such date. The expiration or other termination of this Plan shall not, without
the prior written consent of the Participant, adversely affect the rights of any
Participant under a then outstanding Award.
18. Interpretation; Severability.
This Plan is designed and intended to comply with all applicable law,
including but not limited to Sections 162(m) and 422 of the Code and federal and
state securities laws, and all provisions hereof shall be construed in a manner
so to comply.
If any provision of this Plan is or becomes illegal, invalid or
unenforceable in any jurisdiction or as to any Participant or Award, such
provision shall be construed or deemed amended to conform to applicable law, or
if it cannot be construed or deemed amended without, in the determination of the
Board, materially altering the intent of the Plan or Award, such provision shall
be stricken as to such jurisdiction, Participant or Award and the other
provisions of this Plan shall remain in full force and effect.
19. No Effect on Terms of Employment.
Neither the establishment of this Plan and the granting of Awards
hereunder, nor the inclusion in any Award of a right of the Company to
repurchase Common Shares issued to a Participant shall have any effect on the
terms and conditions of employment of any Participant. Subject to the terms of
any employment contract to the contrary, the Company, or any parent or
subsidiary of the Company, shall have the right to terminate or change the terms
of employment of any Participant at any time, for any reason whatsoever, without
regard to the impact, if any, that such termination or change may have with
respect to such Participant's rights under this Plan, or under any Award
Agreement, immediately before such change or termination, and without regard to
any resulting tax consequences to such Participant.
<PAGE>
PROMISSORY NOTE
FIRST UNION NATIONAL BANK
$5,000,000.00 San Francisco, California
July 15, 1998
PLM INTERNATIONAL, INC., a Delaware corporation ("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 and in
immediately available funds, the principal sum of Five Million Dollars
($5,000,000) or the aggregate unpaid principal amount of all advances made to
Borrower by FUNB, whichever is less (each such advance being a "Loan"), together
with accrued and unpaid interest thereon, payable on the dates and in the manner
set forth below. All amounts owed hereunder shall be paid by Borrower in full,
free and clear of any deduction or withholding for taxes or otherwise.
1. Principal. The outstanding principal amount hereunder shall be due and
payable in full on October 13, 1998 (the "Maturity Date"). Amounts borrowed
hereunder may be repaid and, prior to the business day immediately preceding the
Maturity Date and subject to the applicable terms and conditions precedent to
borrowings hereunder, reborrowed. Each request for a Loan hereunder shall be in
the minimum dollar amount of One Hundred Thousand Dollars ($100,000) and shall
be requested by Borrower's irrevocable written notice, in the form of a "Notice
of Borrowing" attached hereto as Exhibit A, and delivered to FUNB by a
responsible officer of Borrower not later than 12:00 noon, Charlotte, North
Carolina time, one (1) business day prior to the requested funding date. Each
request for a Loan hereunder shall constitute a reaffirmation by Borrower and
the responsible officer of Borrower requesting the same that the representations
and warranties contained in this Note are true, correct and complete in all
material respects to the same extent as though made on and as of the date of the
request, except to the extent such representations and warranties specifically
relate to an earlier date, in which event they shall be true, correct and
complete in all material respects as of such earlier date.
2. Interest Rate and Payments. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rate per annum equal to the Prime Rate,
as the same may fluctuate on a daily basis, or the maximum rate permissible by
law, whichever is less. The "Prime Rate" shall be the rate of interest per annum
publicly announced from time to time by FUNB as its prime rate. Each change in
the Prime Rate shall be effective as of the opening of business on the day such
change in the Prime Rate occurs. Borrower acknowledges that the rate announced
publicly by FUNB as its prime rate is an index or base rate and shall not
necessarily be the lowest rate charged to FUNB's customers or other banks.
Interest shall be payable monthly in arrears on the first business day of each
calendar month following the date first set forth above and shall be calculated
on the basis of a 360-day year for the actual number of days elapsed. Any
principal repayment or interest payment on the Loans hereunder not paid when
due, whether at stated maturity, by acceleration or otherwise, shall bear
interest at a rate per annum which is determined by adding two percent (2.0%) to
the rate per annum otherwise applicable to such Loans.
3. Place of Payments. All amounts payable hereunder shall be payable at the
office of FUNB at One First Union Center, 301 South College Street, Charlotte,
North Carolina 28288, Attention: Maria Ostrowski, or at such other place as the
holder hereof may designate in writing.
4. Prepayment; Application of Payments and Notation on Books. This Note may be
prepaid at any time without penalty. All money paid toward the satisfaction of
this Note shall be applied first to the payment of interest as required
hereunder and then to the retirement of the principal. Each Loan made hereunder,
and all payments of principal and interest, shall be evidenced by notations made
by FUNB on its books and records; provided, however, that the failure by FUNB to
make such notations shall not limit or otherwise affect the obligations of
Borrower with respect to the repayments of principal or payments of interest on
the Loans. Absent manifest error, the aggregate unpaid amount of each Loan set
forth on the books and records of FUNB shall be presumptive evidence of the
principal amount owing and unpaid under this Note.
5. Conditions Precedent. The effectiveness of this Note and the obligation of
FUNB to make any Loan is conditioned upon FUNB's receiving, in form and
substance satisfactory to it, the following:
(a) Note. This Note, duly executed and delivered by Borrower;
(b) Corporate Documents. A certificate of a responsible officer of Borrower
(i) certifying that the certified copies of the certificate of incorporation and
bylaws of Borrower, attached as Exhibits A and B to the Certificate of Assistant
Secretary of Borrower dated as of December 2, 1997 and delivered to FUNB as
Agent under the AFG Agreement, as defined below, are true and accurate, remain
in full force and effect and have not been amended since that date, (ii)
attaching true and correct copies of all resolutions of the board of directors
of Borrower authorizing or relating to the execution, delivery and performance
of this Note and the consummation of the transactions contemplated hereby and
(iii) setting forth the name, title and signature of the authorized signers for
Borrower;
(c) Certificate of Officer. A certificate, dated as of the date hereof,
and, as to each requested Loan, a certificate dated as of the date of such Loan,
of the Chief Financial Officer or Corporate Controller of Borrower to the effect
that (i) the representations and warranties of Borrower contained in Section 6
are true, accurate and complete in all material respects as of the date hereof
and (ii) no Event of Default or event which with the passage of time or notice
or both would become an Event of Default under this Note has occurred;
(d) Opinion. An original favorable opinion of counsel on behalf of
Borrower, in form and substance satisfactory to FUNB, dated as of the date
hereof and addressed to FUNB, together with copies of any officer's certificates
or legal opinions of other counsel or law firm specifically identified and
expressly relied upon by such counsel;
(e) Notice of Borrowing. As to each requested Loan, at least one (1)
business day before each Loan, a Notice of Borrowing;
(f) No Event of Default. As to each requested Loan, no event shall have
occurred and be continuing or would result from the making of such Loan on the
requested funding date which constitutes an Event of Default or which with the
passage of time or notice or both would constitute an Event of Default under
this Note or under (and as separately defined in) the Growth Fund Agreement, the
TEC AcquiSub Agreement or the AFG Agreement, as each is defined below; and
(g) Other Documents. Such other documents, information and items from
Borrower as reasonably requested by FUNB.
6. Representations and Warranties. Borrower hereby warrants and represents to
FUNB as follows, and agrees that each of said warranties and representations
shall be deemed to continue until full, complete and indefeasible payment and
performance of the obligations hereunder and shall apply anew to each borrowing:
(a) Existence and Power. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified and licensed as a foreign corporation and authorized to do
business in each jurisdiction within the United States where its ownership of
property and assets or conduct of business requires such qualification. Borrower
has the corporate power and authority, rights and franchises to own its property
and assets and to carry on its business as now conducted. Borrower has the
corporate power and authority to execute, deliver and perform the terms of this
Note and all other instruments and documents contemplated hereby or thereby.
(b) Note Authorized; Binding Obligations. The execution, delivery and
performance of this Note have been duly authorized by all necessary and proper
corporate action on the part of Borrower and this Note constitutes a legally
valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws affecting the enforcement of creditors'
rights generally.
(c) No Conflict; Legal Compliance. The execution, delivery and payment of
this Note will not: (i) contravene any provision of Borrower's certificate of
incorporation or bylaws; (ii) contravene, conflict with or violate any
applicable law or regulation, or any order, writ, judgment, injunction, decree,
determination or award of any court or governmental authority, which
contravention, conflict or violation, in the aggregate, may have a Material
Adverse Effect ("Material Adverse Effect" means any set of circumstances or
events which has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity or enforceability of this Note, is or could
reasonably be expected to be material and adverse to the condition (financial or
otherwise) or business operations of Borrower, materially impairs or could
reasonably be expected to materially impair the ability of Borrower to perform
its obligations hereunder or under any other agreement between Borrower and
FUNB, or materially impairs or could reasonably be expected to materially impair
the ability of FUNB to enforce any of its legal remedies pursuant to this Note
or under applicable law); or (iii) violate or result in the breach of, or
constitute a default under any indenture or other loan or credit agreement, or
other agreement or instrument to which Borrower is a party or by which Borrower,
or its property and assets may be bound or affected. Borrower is not in
violation or breach of or default under any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any contract, agreement,
lease, license, indenture or other instrument to which it is a party, the
non-compliance with, the violation or breach of or the default under which
would, with reasonable likelihood, have a Material Adverse Effect.
7. Default. The occurrence of any one or more of the following shall constitute
an "Event of Default" hereunder:
(a) Failure to make Payments. Borrower fails to pay timely any of the
principal amount due under this Note or any accrued interest or other amounts
due hereunder on the date the same becomes due and payable, whether by
acceleration or otherwise and such failure shall not have been cured to FUNB's
satisfaction within five (5) calendar days; or
(b) Payments under Other Agreements with FUNB. Any of Borrower, American
Finance Group, Inc., TEC AcquiSub, Inc., PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, Professional
Lease Management Income Fund I, L.L.C., PLM Financial Services, Inc. fails to
pay any sum due FUNB under any agreement to which such person is a party, as
such sum shall become due and payable, whether by acceleration or otherwise and
such failure shall not be cured to FUNB's satisfaction within five (5) calendar
days; or
(c) Other Agreements. (i) Borrower defaults in the repayment of any
principal of or the payment of any interest on any indebtedness of Borrower, or
breaches any term of any evidence of such indebtedness or defaults in any
payment in respect of any contingent obligation in each case exceeding, in the
aggregate outstanding principal amount, $1,000,000 or (ii) Borrower breaches or
violates any term or provision of any evidence of indebtedness or contingent
obligation under any loan agreement, mortgage, indenture, guaranty or other
agreement relating thereto if the effect of such breach is to permit
acceleration under the applicable instrument, loan agreement, mortgage,
indenture, guaranty or other agreement and such failure shall not have been
cured within the applicable cure period, or there is an acceleration under the
applicable instrument, loan agreement, mortgage, indenture, guaranty or other
agreement or such indebtedness otherwise becomes or is caused to become then due
and payable in its entirety; or
(d) Breach of Covenants or Representations or Warranties. Borrower fails or
neglects to perform, keep or observe any of the covenants contained herein; or
any representation or warranty made by or on behalf of Borrower in this Note or
any other agreement or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false, misleading or
incomplete in any material respect when made; or
(e) Insolvency; Bankruptcy. Borrower shall (i) cease to be solvent, (ii)
admit in writing its inability to pay its debts as they mature, (iii) make an
assignment for the benefit of creditors, (iv) apply for or consent to the
appointment of a receiver, liquidator, custodian or trustee for it or for a
substantial part of its properties or business, or such a receiver, liquidator,
custodian or trustee otherwise shall be appointed and shall not be discharged
within sixty (60) days after such appointment, or a bankruptcy, insolvency,
reorganization or liquidation proceedings or other proceedings for relief under
any bankruptcy law or any law for the relief of debtors shall be instituted by
or against Borrower or any order, judgment or decree shall be entered against
Borrower decreeing its dissolution or division; provided, however, with respect
to an involuntary petition in bankruptcy, such petition shall not have been
dismissed within sixty (60) days after the filing of such petition; or
(f) Material Adverse Effect. There shall have been a change in the assets,
liabilities, financial condition, operations, affairs or prospects of Borrower
or any guarantor of any of Borrower's obligations to FUNB which, in the
reasonable determination of FUNB has, either individually or in the aggregate,
had a Material Adverse Effect; or
(g) Judgments, Writs and Attachments. There shall be a money judgment, writ
or warrant of attachment or similar process entered or filed against Borrower
which (net of insurance coverage) remains unvacated, unbonded, unstayed or
unpaid or undischarged for more than sixty (60) days (whether or not
consecutive) or in any event later than five (5) calendar days prior to the date
of any proposed sale thereunder; or
(h) Legal Obligations. This Note or any other agreement between Borrower
and FUNB shall for any reason other than the full, complete and indefeasible
satisfaction of the obligations thereunder cease to be, or be asserted by
Borrower, not to be, a legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms; or
(i) Other Credit Agreements. Without limiting the generality of, and in
addition to the events described in this Section 7, the occurrence of any "Event
of Default" (i) as defined under the Third Amended and Restated Warehousing
Credit Agreement dated as of December 2, 1997, by and among each of PLM
Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth &
Income Fund VII, Professional Lease Management Income Fund I, L.L.C., PLM
Financial Services, Inc. and the Lenders and Agent named therein, as the same
may from time to time be amended, modified, supplemented, renewed, extended or
restated (the "Growth Fund Agreement") or any other loan or security document
related to the Growth Fund Agreement; (ii) as defined in the Second Amended and
Restated Warehousing Credit Agreement dated as of December 2, 1997, by and among
TEC AcquiSub, Inc. and the Lenders and Agent named therein, as the same may from
time to time be amended, modified, supplemented, renewed, extended or restated
(the "TEC AcquiSub Agreement") or any other loan or security document related to
the TEC AcquiSub Agreement; or (iii) as defined in the Amended and Restated
Warehousing Credit Agreement dated as of December 2, 1997, as amended through
the date hereof, by and among American Finance Group, Inc. and the Lenders and
Agent named therein, as the same may from time to time be further amended,
modified, supplemented, renewed, extended or restated (the "AFG Agreement") or
any other loan or security document related to the AFG Agreement; or
(j) Criminal Proceedings. A criminal proceeding shall have been filed in
any court naming Borrower as a defendant for which forfeiture is a potential
penalty under applicable federal or state law which, in the reasonable
determination of FUNB, may have a Material Adverse Effect; or
(k) Action by Governmental Authority. Any court or governmental authority
enters a decree, order or ruling ("Government Action") which will materially and
adversely affect Borrower's financial condition, operations or ability to
perform or pay its obligations arising under this Note or any instrument or
agreement executed in relation hereto. Borrower shall have thirty (30) days from
the earlier of the date Borrower first discovers it is the subject of Government
Action or FUNB or any agency gives notice of Government Action to take such
steps as are necessary to obtain relief from the Government Action. For the
purpose of this paragraph, "relief from Government Action" means to discharge or
to obtain a dismissal of or release or relief from (i) any Government Action so
that the affected party or parties do not incur any monetary liability in the
case of Borrower, or (ii) any disqualification of or other limitation on the
operation of Borrower which in the reasonable determination of FUNB may have a
Material Adverse Effect; or
(l) Governmental Decrees. Any court or governmental authority, including,
without limitation, the Securities and Exchange Commission, shall enter a
decree, order or ruling prohibiting any of American Finance Group, Inc., TEC
AcquiSub, Inc., PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM
Equipment Growth & Income Fund VII, Professional Lease Management Income Fund I,
L.L.C. or PLM Financial Services, Inc. from releasing or paying to Borrower any
funds in the form of management fees, profits or otherwise which, in the
reasonable determination of FUNB may have a Material Adverse Effect.
8. Remedies. Upon the occurrence and continuance of any Event of Default, FUNB
shall have no further obligation to advance money or extend credit to or for the
benefit of Borrower. In addition, upon the occurrence and during the continuance
of an Event of Default, FUNB may do any one or more of the following, all of
which are hereby authorized by Borrower: (a) declare all or any of the
obligations of Borrower under this Note and any other instrument executed by
Borrower in relation hereto to be immediately due and payable, and such
obligations shall immediately become due and payable and immediately collectible
by FUNB pursuant to applicable law; provided that if such Event of Default is
under Section 7(f) or 7(g), then all of the obligations of Borrower hereunder
shall become immediately due and payable and collectible forthwith without the
requirement of any notice or other action by FUNB; and (b) exercise in addition
to all other rights and remedies granted hereunder, any and all rights and
remedies otherwise available at law or in equity.
9. Waiver; Representations and Expenses. Borrower waives presentment and demand
for payment, notice of dishonor, protest and notice of protest of this Note and
all other notices or demands in connection with the delivery, acceptance,
performance, default or endorsement of this Note, and shall pay all costs and
expenses of collection when incurred by FUNB, including, without limitation,
reasonable attorneys' fees, costs and other expenses. The right to plead any and
all statutes of limitations as a defense to any demands hereunder is hereby
waived to the full extent permitted by law. No extension nor indulgence granted
from time to time shall be construed as a novation of this Note or as a
reinstatement of the indebtedness evidenced hereby or as a waiver of the rights
of FUNB herein. The liability of Borrower shall be unconditional, without regard
to the liability of any other party, and shall not be in any manner affected by
any forbearance, partial action or delay on the part of FUNB in regard to the
exercise of any right, power or remedy under this Note.
10. Indemnity. Borrower shall pay, indemnify, and hold FUNB and each of its
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses or disbursements (including reasonable attorney's fees and the
allocated cost of in-house counsel) of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Note and any other documents related hereto, or the transactions
contemplated hereby and thereby, and with respect to any investigation,
litigation or proceeding (including any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, dissolution or relief of debtors or any appellate
proceeding) related to this Note or the Loans or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that Borrower
shall have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of such Indemnified Person.
11. Governing Law; Amendment and Interpretation. This Note shall be governed by,
and construed and enforced in accordance with, the laws of the North Carolina,
excluding conflict of laws principles that would cause the application of laws
of any other jurisdiction. If any provision of this Note is held to be invalid
or unenforceable by a court of competent jurisdiction, the other provisions of
this Note shall remain in full force and effect and FUNB may at any time
thereafter require payment in full of all amounts due hereunder. This Note may
not be terminated, amended, supplemented, waived or modified orally, but only by
an instrument in writing executed by the party against which enforcement of the
termination, amendment, supplement, waiver or modification is sought. The
headings of Sections shall not be taken into account in interpreting the terms
of this Note.
12. Successors and Assigns. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Borrower and shall extend to any
holder hereof. Borrower may not assign its rights or delegate its obligations
hereunder.
13. Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER,
BY EXECUTION HEREOF, AND FUNB, BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS
NOTE, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT TO FUNB TO ACCEPT THIS NOTE.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed
and delivered as of the date first written above.
PLM INTERNATIONAL, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
(PLM International, Inc.)
Date:
To: First Union National Bank
One First Union Center
301 South College Street
Charlotte, NC 28288
Re: Promissory Note dated as of July 15, 1998 (as the same may from time to
time be amended, modified, supplemented, renewed, extended or restated,
the "Note"), by PLM International, Inc., a Delaware corporation
("Borrower") in favor of First Union National Bank ("FUNB").
Ladies and Gentlemen:
The undersigned refers to the Note, the terms defined therein used herein as
defined, and hereby gives you notice irrevocably, pursuant to Section 1 of the
Note, of the borrowing of a Loan specified herein:
1. The business day of the proposed borrowing is , 199_.
2. The aggregate amount of the proposed borrowing is $ .
------
The undersigned hereby certifies that the following statements are true,
accurate and complete as of the date hereof, and will be true, accurate and
complete on the date of the proposed borrowing, before and after giving effect
thereto and to the application of the proceeds therefrom:
(a) the representations and warranties of the Borrower set
forth in Section 6 of the Note are true, accurate and complete as though made on
and as of such date (except to the extent such representations and warranties
relate to an earlier date, in which case they are true, accurate and complete as
of such date);
(b) no Event of Default or event which with the passage of
time or notice or both would become an Event of Default has occurred and is
continuing, or would result from such proposed borrowing; and
(c) the proposed borrowing will not cause the aggregate
principal amount of all outstanding Loans to exceed $5,000,000.
PLM INTERNATIONAL, INC.,
a Delaware corporation
By:
Name:
Title:
By:
Printed Name:
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,065
<SECURITIES> 0
<RECEIVABLES> 190,179
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 82,641
<DEPRECIATION> (32,056)
<TOTAL-ASSETS> 290,835
<CURRENT-LIABILITIES> 0
<BONDS> 209,761
0
0
<COMMON> 60,991
<OTHER-SE> (12,624)
<TOTAL-LIABILITY-AND-EQUITY> 290,835
<SALES> 0
<TOTAL-REVENUES> 27,852
<CGS> 0
<TOTAL-COSTS> 18,684
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,674
<INCOME-PRETAX> 3,651
<INCOME-TAX> 1,467
<INCOME-CONTINUING> 2,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,184
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.25
</TABLE>
