UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL QUARTER ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 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 26 , 1999 - 7,992,574 shares.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands ofdollars, except per share amounts)
<TABLE>
<CAPTION>
For the Three Month For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating lease income $ 7,573 $ 5,452 $ 13,670 $ 9,344
Finance lease income 2,736 3,042 5,888 5,694
Management fees 2,271 2,535 4,639 5,099
Partnership interests and other fees 26 357 316 681
Acquisition and lease negotiation fees 618 1,184 1,079 2,211
Gain on the sale or disposition of assets, net 1,317 1,533 1,630 2,295
Aircraft brokerage and services -- 362 -- 886
Other 864 843 1,790 1,642
-----------------------------------------------------------------
Total revenues 15,405 15,308 29,012 27,852
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COSTS AND EXPENSES
Operations support 4,771 4,657 8,602 8,466
Depreciation and amortization 3,663 3,497 7,062 6,047
General and administrative 2,045 2,257 3,529 4,171
----------------------------------------------------------------
Total costs and expenses 10,479 10,411 19,193 18,684
-----------------------------------------------------------------
Operating income 4,926 4,897 9,819 9,168
Interest expense (3,822) (3,604) (7,507) (6,674)
Interest income 233 299 476 694
Other (expenses) income, net (150) 469 (1,098) 463
----------------------------------------------------------------
Income before income taxes 1,187 2,061 1,690 3,651
Provision for income taxes 466 860 673 1,467
---------------------------------------------------------------
Net income before cumulative
effect of accounting change 721 1,201 1,017 2,184
Cumulative effect of accounting change,
net of tax of $165 -- -- 236 --
Net income to common shares $ 721 $ 1,201 $ 781 $ 2,184
====================================================================
Basic earnings per weighted-average
common share outstanding $ 0.09 $ 0.14 $ 0.10 $ 0.26
====================================================================
Diluted earnings per weighted-average
common share outstanding $ 0.09 $ 0.14 $ 0.09 $ 0.26
====================================================================
</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,
1999 1998
-------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 4,001 $ 8,786
Receivables (net of allowancefor doubtful
accounts of $0.7 million as of
June 30, 1999 and $0.4 million as of
December 31, 1998) 12,583 7,282
Receivables from affiliates 2,841 2,944
Investment in direct finance leases, net 127,655 145,088
Loans receivable 22,766 23,493
Equity interest in affiliates 20,602 22,588
Transportation equipment held for operating leases 87,141 63,044
Less accumulated depreciation (18,127) (15,516)
-----------------------------------------------
69,014 47,528
Commercial and industrial equipment held for operating leases 24,949 24,520
Less accumulated depreciation (10,157) (7,831)
-----------------------------------------------
14,792 16,689
Restricted cash and cash equivalents 11,840 10,349
Other, net 6,009 7,322
-----------------------------------------------
Total assets $ 292,103 $ 292,069
===============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Short-term warehouse facilities $ 33,279 $ 34,420
Senior secured notes 24,439 28,199
Senior secured loan 11,765 14,706
Other secured debt 22,249 13,142
Nonrecourse securitized debt 107,904 111,222
Payables and other liabilities 23,128 21,768
Deferred income taxes 19,336 18,415
-----------------------------------------------
Total liabilities 242,100 241,872
Shareholders' equity:
Common stock, ($.01 par value, 50,000,000 shares
authorized, 7,992,574 issued and outstanding as of
June 30, 1999 and 8,159,919 as of December 31, 1998) 112 112
Paid-in capital, in excess of par 75,222 74,947
Treasury stock (4,043,181 shares as of June 30, 1999 and
3,875,836 shares as of December 31, 1998) (16,322) (15,072)
Accumulated deficit (9,009) (9,790)
Total shareholders' equity 50,003 50,197
-----------------------------------------------
Total liabilities and shareholders' equity $ 292,103 $ 292,069
===============================================
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME For the Year Ended December 31,
1998 and the Six Months Ended June 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit &
Paid-in Accumulated
Capital in Other Total
At Excess Treasury Comprehensive Comprehensive Shareholders'
Par of Par Stock Income Income Equity
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $ 112 $ 74,650 $ (13,435) $ (14,779) $ 46,548
Compresensive income
Net income 4,857 $ 4,857 4,857
Other comprehensive income:
Foreign currency translation
income 132 132 132
Comprehensive income $ 4,989
====================
Exercise of stock options 218 211 429
Common stock repurchases (2,059) (2,059)
Reissuance of treasury stock 79 211 290
Balances, December 31, 1998 112 74,947 (15,072) (9,790) 50,197
Comprehensive income
Net income 781 $ 781 781
====================
Exercise of stock options 174 245 419
Common stock repurchases (1,604) (1,604)
Reissuance of treasury stock, net 101 109 210
----------------------------------------------------------------- -------------
Balances, June 30, 1999 $ 112 $ 75,222 $ (16,322) $ (9,009) $ 50,003
============================================================= =============
</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,
1999 1998
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 781 $ 2,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,062 6,047
Cumulative effect of accounting change, net of tax of $165 236 --
Write off of costs associated with initial public offering of AFG 975 --
Foreign currency translation -- (29)
Deferred income tax expense 921 1,641
Gain on sale or disposition of assets, net (1,630) (2,295)
Undistributed residual value interests 562 546
Minority interest in net loss of subsidiaries -- (84)
Increase (decrease) in payables and other liabilities 4,810 (1,669)
(Increase) decrease in receivables and receivables from affiliates (5,198) 2,913
Amortization of organization and offering costs 1,424 1,481
(Increase) decrease in other assets (94) 521
-----------------------------------
Net cash provided by operating activities 9,849 11,256
-----------------------------------
INVESTING ACTIVITIES
Principal payments received on finance leases 17,611 14,441
Principal payments received on loans 3,737 1,878
Investment in direct finance leases (24,488) (82,047)
Investment in loans receivable (3,010) (18,651)
Purchase of property, plant, and equipment (466) (110)
Purchase of transportation equipment and capital improvements (38,724) (32,919)
Purchase of commercial and industrial equipment held for operating lease (14,119) (14,938)
Proceeds from the sale of transportation equipment for lease 234 3,081
Proceeds from the sale of assets held for sale 13,801 19,866
Proceeds from the sale of commercial and industrial equipment 35,477 29,757
(Increase) decrease in restricted cash and restricted cash equivalents (1,491) 6,506
-----------------------------------
Net cash used in investing activities (11,438) (73,136)
FINANCING ACTIVITIES
Borrowings of short-term warehouse credit facilities 50,369 88,065
Repayment of short-term warehouse credit facilities (51,510) (64,302)
Repayment of senior secured notes (3,760) (2,510)
Repayment of senior secured loan (2,941) (2,941)
Borrowings of other secured debt 9,827 173
Repayment of other secured debt (720) (99)
Borrowings of nonrecourse debt 26,856 54,512
Repayment of nonrecourse debt (30,174) (12,323)
Reissuance of treasury stock, net 42 --
Proceeds from exercise of stock options 419 --
Purchase of stock (1,604) (626)
-----------------------------------
Net cash (used in) provided by financing activities (3,196) 59,949
-----------------------------------
Net decrease in cash and cash equivalents (4,785) (1,931)
Cash and cash equivalents at beginning of period 8,786 5,224
-----------------------------------
Cash and cash equivalents at end of period $ 4,001 $ 3,293
===================================
SUPPLEMENT INFORMATION
Net cash paid for interest $ 7,431 $ 5,754
====================================================================================
Net cash paid for income taxes $ 206 $ 1,704
====================================================================================
</TABLE>
See accompanying notes to these consolidated financial statements.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
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,
1999 and December 31, 1998, statements of income for the three and six months
ended June 30, 1999 and 1998, statements of changes in shareholders' equity and
comprehensive income for the year ended December 31, 1998 and the six months
ended June 30, 1999, and statements of cash flows for the six months ended June
30, 1999 and 1998. 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, 1998, on file with the Securities
and Exchange Commission.
2. RECLASSIFICATIONS
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
3. FINANCING TRANSACTION ACTIVITIES
American Finance Group, Inc. (AFG), a wholly-owned subsidiary of the Company,
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 sold to unaffiliated investors. The Company uses
one of its warehouse credit facilities to finance the acquisition of these
assets prior to permanent financing by nonrecourse securitized debt or sale. The
majority of these transactions are accounted for as direct finance leases, while
some transactions qualify as operating leases or loans.
During the six months ended June 30, 1999, the Company funded $24.5 million in
equipment that was placed on finance lease. Also during the six months ended
June 30, 1999, the Company sold equipment on finance lease with an original
equipment cost of $29.8 million, resulting in a net gain of $0.3 million.
During the six months ended June 30, 1999, the Company funded $3.0 million in
loans to customers.
4. EQUIPMENT
Equipment held for operating lease includes transportation equipment and
commercial and industrial equipment that is depreciated on the straight-line
method down to the equipment's estimated salvage value.
During the six months ended June 30, 1999, the Company funded $14.1 million in
commercial and industrial equipment that was placed on operating lease. During
the six months ended June 30, 1999, the Company sold commercial and industrial
equipment that was on operating lease for a net gain of $1.3 million.
During the first six months of 1999, the Company purchased trailers for $24.9
million and sold trailers with a net book value of $0.2 million for
approximately their net book value.
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
partnership. Equipment held for sale is valued at the lower of the depreciated
cost or the fair value less costs to sell. During the first six months of 1999,
the Company purchased marine containers for $13.8 million, and sold them to
affiliated programs at cost, which approximated their fair market value. As of
June 30, 1999 and December 31, 1998, the Company held no equipment for sale.
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
5. DEBT
The Company has warehouse credit facilities for PLM Financial Services, Inc.
(FSI) and AFG. FSI has a $24.5 million warehouse credit facility to be used to
acquire assets on an interim basis prior to sale to affiliated programs or
unaffiliated third parties and to purchase trailers prior to obtaining permanent
financing. FSI's facility is shared with PLM Equipment Growth Fund VI, PLM
Equipment Growth & Income Fund VII, and Professional Lease Management Income
Fund I, LLC. Borrowings under this facility by the other eligible borrowers
reduce the amount available to be borrowed by the Company. All borrowings under
this facility are guaranteed by the Company. AFG has a $60.0 million warehouse
credit facility to be used to acquire assets on an interim basis prior to
placement in the Company's nonrecourse securitization facility or sale to
unaffiliated third parties. These facilities expire December 14, 1999. The
Company believes it will be able to renew these facilities on substantially the
same terms upon expiration. As of June 30, 1999, FSI had $10.4 million in
borrowings outstanding on the $24.5 million facility and there were no other
borrowings outstanding on the facility by any of the other eligible borrowers.
As of June 30, 1999, AFG had $22.9 million in borrowings outstanding on its
$60.0 million facility.
The Company has available a nonrecourse securitization facility to be used to
acquire assets by AFG, secured by direct finance leases, operating leases, and
loans on commercial and industrial equipment that generally have terms from one
to seven years. The facility allows the Company to borrow up to $150.0 million
through October 12, 1999. The Company believes it will be able to extend this
facility on similar terms prior to its expiration. Repayment of the facility
matches the terms of the underlying leases. As of June 30, 1999 , there were
$101.9 million in borrowings under this facility. The Company is required to
hedge the interest rate exposure to the Company on at least 90% of the aggregate
discounted lease balance (ADLB) of those leases and loans used as collateral in
its nonrecourse securitization facility. As of June 30, 1999, 91% of the ADLB
had been hedged.
During the first six months of 1999, the Company made principal payments of $1.6
million on its nonrecourse notes payable. As of June 30, 1999, the Company had
$6.0 million in nonrecourse notes payable. Principal and interest on the notes
are due monthly beginning April 1998 through March 2001. The notes bear interest
ranging from 8.32% to 9.5% per annum and are secured by direct finance leases
for commercial and industrial equipment that have terms corresponding to the
repayment of the notes.
In April 1999, the Company entered into a $5.0 million debt agreement bearing
interest at 6.20%, with payments of $0.1 million due monthly beginning April
1999 and a final payment of $1.3 million due April 2006, secured by certain
trailer equipment. In return for favorable financing terms, this agreement gives
beneficial tax treatment in these secured trailers to the lenders.
In May 6, 1999, the Company entered into a $15.0 million credit facility loan
agreement bearing interest at LIBOR plus 1.5%. This facility allows the Company
to borrow up to $15.0 million within a one-year period. As of June 30, 1999, the
Company had borrowed $4.8 million under this facility. Payments of $0.1 million
are due quarterly beginning August 2000, with a final payment of $1.4 million
due August 2006.
During the first six months of 1999, the Company repaid $2.9 million of the
senior secured loan, $3.8 million of the senior secured notes, and $0.7 million
of the other secured debt, in accordance with the debt repayment schedules.
6. SHAREHOLDERS' EQUITY
During the first six months of 1999, the Company repurchased 264,115 shares of
the Company's common stock for $1.6 million under the $5.0 million common stock
repurchase program authorized by the Company's Board of Directors in December
1998. As of June 30, 1999, 327,415 shares had been repurchased under this plan,
for a total of $2.0 million.
During the six months ended June 30, 1999, 27,486 shares were issued from
treasury stock as part of the senior management bonus program (net of forfeited
shares), 6,784 shares were issued from treasury
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
6. SHAREHOLDERS' EQUITY (CONTINUED)
stock as a stock grant, and 62,500 shares were issued for the exercise of stock
options. Consequently, the total common shares outstanding decreased to
7,992,574 as of June 30, 1999 from the 8,159,919 outstanding as of December 31,
1998.
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, 1999 was 8,066,243, and during the three months ended June
30, 1998 was 8,337,963. The weighted-average number of shares deemed outstanding
for the basic earnings per share calculation during the six months ended June
30, 1999 was 8,115,458, and during the six months ended June 30, 1998 was
8,359,271. 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, 1999
was 8,179,429, and during the three months ended June 30, 1998 was 8,501,476.
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, 1999 was 8,239,249, and during
the six months ended June 30, 1998 was 8,525,127.
7. 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-95-2957 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
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
7. LEGAL MATTERS (CONTINUED)
theory that the purchase and sale of the preferred stock at the inception of the
ESOP was for more than adequate consideration. On September 30, 1998, plaintiff
filed a motion to certify as final, and enter judgment on, the two July 14, 1998
orders. This motion was denied. Defendants filed their answer to the second
amended complaint on September 18, 1998, denying the remaining allegations
contained in the first, second, and third claims for relief.
The parties reached an agreement to settle this matter on April 15, 1999, and
plaintiff filed a notice of voluntary dismissal of the complaint with prejudice
on June 18, 1999. The amount paid by the Company in settlement is not material
to the financial condition of the Company.
The Company and various of its wholly-owned subsidiaries are named as defendants
in a lawsuit filed as a purported class action on January 22, 1997 in the
Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch
action). Plaintiffs, who filed the complaint on their own and on behalf of all
class members similarly situated, are six individuals who invested in certain
California limited partnerships for which the Company's wholly-owned subsidiary,
PLM Financial Services, Inc. (FSI), acts as the general partner, including PLM
Equipment Growth Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM
Equipment Growth Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII
(Fund VII) (the Partnerships). The state court ex parte certified the action as
a class action (i.e., solely upon plaintiffs' request and without the Company
being given the opportunity to file an opposition). 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
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) (the court) based on the court's
diversity jurisdiction, following which plaintiffs filed a motion to remand the
action to the state court. Removal of the action automatically nullified the
state court's ex parte certification of the class. In September 1997, the court
denied plaintiffs' motion to remand the action to state court and dismissed
without prejudice the individual claims of the California plaintiff, 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 court granted
defendants' motion in December 1997.
Following various unsuccessful requests that the court reverse, or otherwise
certify for appeal, its order denying plaintiffs' motion to remand the case to
state court and dismissing the California plaintiff's claims, plaintiffs filed
with the U.S. Court of Appeals for the Eleventh Circuit a petition for a writ of
mandamus seeking to reverse the court's order. The Eleventh Circuit denied
plaintiffs' petition in November 1997, and further denied plaintiffs subsequent
motion in the Eleventh Circuit for a rehearing on this issue. Plaintiffs also
appealed the court's order granting defendants' motion to compel arbitration,
but in June 1998 voluntarily dismissed their appeal 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 Fund V, and filed the
complaint on her own behalf and on behalf of all class members similarly
situated who invested
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
7. LEGAL MATTERS (CONTINUED)
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, 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, but 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 with her
opposition to the petition to compel arbitration, 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 related to the settlement of those actions (the monetary
settlement), following which the parties agreed to an additional equitable
settlement (the equitable settlement). The terms of the monetary settlement and
the equitable settlement are contained in a Stipulation of Settlement that was
filed with the court on February 12, 1999. On June 14, 1999, the parties amended
the stipulation and revised certain exhibits, and requested that the court set a
preliminary approval hearing on the monetary settlement and equitable
settlement.
The monetary settlement provides for stipulating to a class for settlement
purposes, and a settlement and release of all claims against defendants and
third party brokers in exchange for payment for the benefit of the class of up
to $6.0 million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the class, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the court. The Company will pay up to $0.3 million
of the monetary settlement, with the remainder being funded by an insurance
policy. The equitable settlement provides, among other things: (a) for the
extension of the operating lives of Funds V, VI, and VII by judicial amendment
to each of their partnership agreements, such that FSI, the general partner of
each such partnership, be permitted to reinvest cash flow, surplus partnership
funds, or retained proceeds in additional equipment into the year 2004, and will
liquidate the partnerships' equipment in 2006; (b) that FSI is entitled to earn
front-end fees (including acquisition and lease negotiation fees) up to 20% in
excess of the compensatory limitations set forth in the North American
Securities Administrator's Association's Statement of Policy by judicial
amendment to the partnership agreements for Funds V, VI, and VII; (c) for a
one-time repurchase of up to 10% of the outstanding units of Funds V, VI, and
VII by the respective partnership at 80% of such partnership's net asset value;
and (d) for the deferral of a portion of FSI's management fees until such time
as certain performance thresholds have, if ever, been met by the partnerships.
The equitable settlement also provides for payment of the equitable class
attorneys' fees from partnership funds in the event, if ever, that distributions
paid to investors in Funds V, VI, and VII during the extension period reach a
certain internal rate of return. Defendants will continue to deny each of the
claims and contentions and admit no liability in connection with the monetary
and equitable settlements.
The preliminary approval hearing was set for and occurred on June 25, 1999. On
June 29, 1999, the court entered orders, among other things, granting
preliminary approval of the monetary and equitable settlements, conditionally
certifying the monetary and equitable settlement classes, providing for a final
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
7. LEGAL MATTERS (CONTINUED)
fairness hearing on November 16, 1999, approving the form and content of the
notices to be sent to the monetary class and the equitable class, and staying
all claims, counterclaims, and crossclaims by the monetary and equitable classes
against defendants pending the court's consideration of the fairness of the
monetary and equitable settlements at the final fairness hearing. The monetary
settlement class (the monetary class) consists of all investors, limited
partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Partnerships between May 23, 1989 and
June 29, 1999. The equitable settlement class (the equitable class) consists of
all investors, limited partners, assignees or unit holders who on June 29, 1999
held any units in Funds V, VI, and VII, and their assigns and successors in
interest. On June 29, 1999 the court also entered an order preliminarily
approving as to form and substance the form of solicitation statement that is to
be distributed to limited partners of Funds V, VI, and VII in connection with
the equitable settlement, following clearance by and with such changes necessary
to comply with the comments, if any, of the Securities and Exchange Commission
(SEC) in its review and clearance procedures. The monetary and equitable class
notices will be sent to the monetary and equitable classes, respectively,
following clearance by the SEC of the solicitation statement.
The monetary settlement remains subject to certain conditions, including but not
limited to notice to the monetary class for purposes of the monetary settlement
and final approval of the monetary settlement by the court following a final
fairness hearing. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) notice to the equitable class, (b)
review and clearance by the SEC, and dissemination to the members of the
equitable class, of solicitation statements regarding the proposed extensions,
(c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII
of the proposed amendments to the limited partnership agreements, (d) judicial
approval of the proposed amendments to the limited partnership agreements, and
(e) final approval of the equitable settlement by the court following a final
fairness hearing. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. 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 monetary 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.
8. COMMITMENTS
As of June 30, 1999, the Company had committed to purchase $38.1 million of
equipment for its commercial and industrial lease and finance receivable
portfolio.
From July 1, 1999 to July 26, 1999, the Company funded $4.2 million of the
commitments outstanding as of June 30, 1999 for its commercial and industrial
lease and finance receivable portfolio.
As of July 26, 1999, the Company had committed to purchase $25.9 million of
equipment for its commercial and industrial lease and finance receivable
portfolio.
9. OPERATING SEGMENTS
The Company operates in three operating segments: trailer leasing, commercial
and industrial equipment leasing and financing, and the management of investment
programs and other transportation equipment leasing. The trailer leasing segment
includes twenty trailer rental facilities that engage in short-term to mid-term
operating leases of refrigerated and dry van trailers to a variety of customers
and management of trailers for the investment programs. The commercial and
industrial equipment leasing and financing segment originates finance and
operating leases and loans on commercial and industrial equipment that is
financed through a securitization facility, brokers equipment, and manages
institutional programs owning commercial and industrial equipment. The
management of investment programs and
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
9. OPERATING SEGMENTS (CONTINUED)
other transportation equipment leasing segment involves managing the Company's
syndicated investment programs, from which it earns fees and equity interests,
and arranging short-term to mid-term operating leases of other transportation
equipment. The Company evaluates the performance of each segment based on profit
or loss from operations before allocating general and administrative expenses
and certain operating support expenses and before allocating income taxes. The
segments are managed separately because each operation requires different
business strategies.
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the three months ended June 30, 1999 Leasing Financing Leasing Other<F1>1 Total
- -----------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Lease income $ 4,986 $ 4,886 $ 437 $ -- $ 10,309
Fees earned 196 192 2,527 -- 2,915
Gain (loss) on sale or disposition of
assets, net (3) 1,320 -- -- 1,317
Other -- 551 313 -- 864
Total revenues 5,179 6,949 3,277 -- 15,405
COSTS AND EXPENSES
Operations support 2,490 1,601 494 186 4,771
Depreciation and amortization 1,780 1,770 113 -- 3,663
General and administrative expenses -- -- -- 2,045 2,045
Total costs and expenses 4,270 3,371 607 2,231 10,479
Operating income (loss) 909 3,578 2,670 (2,231) 4,926
Interest expense, net (634) (2,343) (612) -- (3,589)
Other expenses, net -- (26) -- (124) (150)
Income (loss) before income taxes $ 275 $ 1,209 $ 2,058 $(2,355) $ 1,187
========================================================================
Total assets as of June 30, 1999 $73,260 $175,855 $ 34,034 $ 8,954 $292,103
========================================================================
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the three months ended June 30, 1998 Leasing Financing Leasing Other<F1>1 Total
- -----------------------------------------
REVENUES
Lease income $ 1,855 $ 5,722 $ 917 $ -- $ 8,494
Fees earned 253 414 3,409 -- 4,076
Gain (loss) on sale or disposition of
assets, net (3) 882 654 -- 1,533
Other -- 332 873 -- 1,205
Total revenues 2,105 7,350 5,853 -- 15,308
COSTS AND EXPENSES
Operations support 1,089 1,061 2,120 387 4,657
Depreciation and amortization 850 2,337 310 -- 3,497
General and administrative expenses -- -- -- 2,257 2,257
Total costs and expenses 1,939 3,398 2,430 2,644 10,411
Operating income (loss) 166 3,952 3,423 (2,644) 4,897
Interest expense, net (379) (2,521) (405) -- (3,305)
Other (expenses) income, net (1) -- 470 -- 469
Income (loss) before income taxes $ (214) $1,431 $ 3,488 $(2,644) $ 2,061
========================================================================
Total assets as of June 30, 1998 $33,935 $213,744 $37,726 $ 5,430 $290,835
========================================================================
- --------
<FN>
<F1>1 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
9. Operating Segments (continued)
<TABLE>
<CAPTION>
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the six months ended June 30, 1999 Leasing Financing Leasing Other<F2>2 Total
- ---------------------------------------
<S> <C> <C> <C> <C> <C>
EVENUES
Lease income $ 8,677 $ 10,257 $ 624 $ -- $ 19,558
Fees earned 401 407 5,226 -- 6,034
Gain (loss) on sale or disposition of
assets, net (12) 1,642 -- -- 1,630
Other -- 1,113 677 -- 1,790
Total revenues 9,066 13,419 6,527 -- 29,012
COSTS AND EXPENSES
Operations support 4,389 2,681 988 544 8,602
Depreciation and amortization 3,239 3,600 223 -- 7,062
General and administrative expenses -- -- -- 3,529 3,529
Total costs and expenses 7,628 6,281 1,211 4,073 19,193
Operating income (loss) 1,438 7,138 5,316 (4,073) 9,819
Interest expense, net (1,188) (4,785) (1,058) -- (7,031)
Other expenses, net -- (974) -- (124) (1,098)
Income (loss) before income taxes $ 250 $ 1,379 $ 4,258 $ (4,197) $ 1,690
========================================================================
Cumulative effect of accounting change,
net of tax of $165 $ -- $ 236 $ -- $ -- $ 236
========================================================================
Total assets as of June 30, 1999 $73,260 $175,855 $ 34,034 $ 8,954 $292,103
========================================================================
Commercial Management
and of Investment
Industrial Programs
Equipment and Other
Leasing Transportation
Trailer and Equipment
For the six months ended June 30, 1998 Leasing Financing Leasing Other<F2>2 Total
- ---------------------------------------
REVENUES
Lease income $ 3,433 $ 9,980 $ 1,625 $ -- $ 15,038
Fees earned 515 804 6,672 -- 7,991
Gain on sale or disposition of assets, net 73 1,086 1,136 -- 2,295
Other 3 628 1,897 -- 2,528
Total revenues 4,024 12,498 11,330 -- 27,852
COSTS AND EXPENSES
Operations support 1,942 2,024 3,831 669 8,466
Depreciation and amortization 1,527 3,633 887 -- 6,047
General and administrative expenses -- -- -- 4,171 4,171
Total costs and expenses 3,469 5,657 4,718 4,840 18,684
Operating income (loss) 555 6,841 6,612 (4,840) 9,168
Interest expense, net (682) (4,548) (750) -- (5,980)
Other (expenses) income, net (1) -- 464 -- 463
Income (loss) before income taxes $ (128) $2,293 $ 6,326 $ (4,840) $ 3,651
========================================================================
Total assets as of June 30, 1998 $33,935 $213,744 $ 37,7 $ 5,430 $290,835
========================================================================
<FN>
<F2>2 Includes costs not identifiable to a particular segment such as general and
administrative and certain operations support expenses.
</FN>
</TABLE>
10. CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that an initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.2 million charge,
net of tax of $0.2 million, related to start-up costs
<PAGE>
PLM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
10. CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX (CONTINUED)
AFG. This charge had an effect of reducing basic earnings per weighted-average
common share and diluted earnings per weighted-average common share by $0.03 for
the six months ended June 30, 1999.
11. STOCK OFFERING
During 1998, AFG filed a registration statement with the U.S. Securities and
Exchange Commission for the purpose of undertaking an initial public offering of
common stock. During the first quarter of 1999, the Company's Board of Directors
determined that it was in the Company's best interest to sell AFG rather than
proceed with a stock offering. As a result of this decision, the Company wrote
off $1.0 million of costs related to the proposed initial public offering during
1999, which is included in other expenses, net, on the consolidated statements
of income. The Company has engaged an investment banking firm to pursue the sale
of AFG.
12. SUBSEQUENT EVENTS
On July 1, 1999, the Company, through its wholly-owned subsidiary, TEC Acquisub,
Inc., purchased $4.6 million in marine containers, which the Company plans to
sell to affiliated programs. TEC Acquisub, Inc. borrowed $3.6 million on its
short-term warehouse credit facility to partially fund the purchase.
On July 1, 1999, the Company borrowed $1.4 million under its $15.0 million
credit facility loan agreement, increasing the total borrowings outstanding on
the facility to $6.2 million.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TRAILER LEASING
The Company operates twenty trailer rental facilities that engage in short-term
and mid-term operating leases. Nineteen of these facilities operate
predominantly refrigerated trailers used to transport temperature-sensitive
commodities, consisting primarily of food products. One facility operates only
dry van (non-refrigerated) trailers. The Company intends to move virtually all
of its dry van trailers to this facility plus another two locations that will be
established in 1999. To date in 1999, the Company has opened three new
refrigerated trailer yards. The Company intends to continue to increase its
trailer fleet with new or late-model used refrigerated trailers which will be
placed in existing yards and new facilities to be opened in additional
geographical markets.
COMMERCIAL AND INDUSTRIAL EQUIPMENT LEASING AND FINANCING
The Company funds and manages 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 point-of-sale,
materials handling, computer and peripheral, manufacturing, general-purpose
plant and warehouse, communications, medical, and construction and mining
equipment. Through AFG, the Company is also engaged in the management of
institutional programs for which it receives management fees. In previous years,
the Company acquired equipment for the institutional programs for which it
earned acquisition fees, but the Company does not anticipate acquiring equipment
for the institutional programs in the future. The Company also earns syndication
fees for arranging purchases and sales of equipment between other unaffiliated
third parties.
During the first quarter of 1999, the Company's Board of Directors determined
that it was in the Company's best interest to sell AFG. The Company has engaged
an investment banking firm to pursue the sale of AFG.
MANAGEMENT OF INVESTMENT PROGRAMS AND OTHER TRANSPORTATION EQUIPMENT LEASING
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 for these programs 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.
The limited partnership agreements generally entitle the Company to receive a 1%
or 5% interest in the cash distributions and earnings of a partnership, 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. The Company's interest in the earnings and
distributions of Fund I will increase to 25% after the investors have received
distributions equal to their original invested capital.
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 liquidate and the
managed equipment portfolio for these programs becomes permanently reduced.
The Company will occasionally own transportation equipment prior to sale to
affiliated programs. During this period, the Company earns lease revenue and
incurs interest expense.
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1999 AND 1998
The following analysis reviews the operating results of the Company:
REVENUES
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1999 1998
-----------------------------------
(in thousands dollars)
<S> <C> <C>
Operating lease income $ 7,573 $ 5,452
Finance lease income 2,736 3,042
Management fees 2,271 2,535
Partnership interests and other fees 26 357
Acquisition and lease negotiation fees 618 1,184
Gain on the sale or disposition of assets, net 1,317 1,533
Aircraft brokerage and services -- 362
Other 864 843
---------------------------------------------------
Total revenues $ 15,405 $ 15,308
The fluctuations in revenues for the three months ended June 30, 1999, compared
to the same quarter in 1998, are summarized and explained below.
OPERATING LEASE INCOME BY TYPE:
For the Three Months
Ended June 30,
1999 1998
--------------------------------------------
(in thousands of dollars)
Refrigerated and dry van over-the-road trailers $ 4,986 $ 1,854
Commercial and industrial equipment 2,155 2,686
Lease income from assets held for sale 408 284
Intermodal trailers -- 590
Other 24 38
---------------------------------------------------
</TABLE>
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $2.1 million during the second quarter of 1999, compared to the
same quarter of 1998, due to the following:
(a) A $3.1 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment of which approximately $2.8
million was due to an increase in the amount of these types of equipment
owned and on operating lease, and approximately $0.3 million was due to
higher utilization. For the quarter ended June 30, 1999, the average
investment in refrigerated and dry van trailer equipment was $78.8 million,
compared to $39.2 million for the second quarter of 1998.
(b) A $0.1 million increase in operating lease income was generated from assets
held for sale. During the second quarter of 1999, the Company owned $6.8
million in marine containers that were sold on June 30, 1999 to affiliated
programs at cost, which approximated their fair market value. The Company
earned $0.4 million in operating lease income on these marine containers
during the second quarter of 1999. 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 operating lease income. The Company sold 85.3% of
its interest in the entity that owned the marine vessel, at cost which
approximated the fair market value, to an affiliated program during the
second quarter of 1998.
<PAGE>
These increases in operating lease income were partially offset by the
following:
(a) A $0.6 million decrease in operating lease income from intermodal trailers
resulted from the sale of all of the Company's intermodal trailers during
August 1998.
(b) A $0.5 million decrease in operating lease income from commercial and
industrial equipment was due to a decrease in the amount of these types of
equipment owned and on operating lease.
FINANCE LEASE INCOME:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties. Finance lease income decreased $0.3 million in the second quarter of
1999, compared to the same quarter in 1998, due to a decrease in commercial and
industrial assets that were on finance lease. For the quarter ended June 30,
1999, the average investment in direct finance leases was $136.4 million,
compared to $150.1 million for the second quarter of 1998.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $2.3 million for the quarter
ended June 30, 1999 and were $2.5 million for the quarter ended June 30, 1998.
The lower 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
decreasing and are expected to continue to decrease as the programs liquidate
their equipment portfolios.
The Company also earns management fees from the institutional programs managed
by the Company's AFG subsidiary. During both the quarters ended June 30, 1999
and 1998, management fees for the institutional programs were $0.2 million, and
were included in the above amounts. The Company does not expect to sell assets
in the future to the institutional programs. It will, however, continue to
manage the existing portfolios for these programs. As a result, management fees
from the institutional programs are expected to decrease in the future as
equipment is sold from the existing portfolios and not replaced.
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 $0.4 million for the quarter ended June 30, 1999 and
were $0.5 million for the quarter ended June 30, 1998. In addition, a decrease
in the Company's residual interests in the programs was recorded as $0.4 million
during the quarter ended June 30, 1999 and as $0.1 million during the quarter
ended June 30, 1998. The decrease in net earnings and distribution levels and
residual interests in 1999, compared to 1998, 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 partnerships
when the equipment is purchased. Net decreases in the recorded residual values
result when partnership assets are sold and the proceeds are less than the
original investment in the sold equipment.
<PAGE>
ACQUISITION AND LEASE NEGOTIATION FEES:
During the quarter ended June 30, 1999, the Company, on behalf of the EGF
programs, purchased transportation and other equipment for $29.9 million. The
Company did not take acquisition and lease negotiation fees on $16.6 million of
this equipment, as the Company has reached certain fee limitations for one of
its limited partnership programs per the partnership agreement. This is compared
to the Company's purchase of $17.4 million in transportation and other equipment
during the quarter ended June 30, 1998, resulting in a $0.4 million decrease in
acquisition and lease negotiation fees.
During the quarter ended June 30, 1999, no equipment was purchased by AFG for
the institutional investment programs, compared to $8.1 million for the same
quarter in 1998, resulting in a $0.2 million comparative decrease in acquisition
and lease negotiation fees. The Company does not expect to sell assets in the
future to the institutional programs. It will, however, continue to manage the
existing portfolios for these programs.
Because of the Company's decision to halt syndication of equipment leasing
programs with the close of Fund I in 1996, because Fund I has a no front-end fee
structure, and because the Company does not expect to sell assets in the future
to the institutional programs, acquisition and lease negotiation fees will be
substantially reduced in the future.
GAIN ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the quarter ended June 30, 1999, the Company recorded a $1.3 million gain
on the sale or disposition of commercial and industrial equipment. During the
quarter ended June 30, 1998, the Company recorded a $1.5 million gain on the
sale or disposition of assets. Of this gain, $0.6 million resulted from the sale
or disposition of transportation equipment and $0.9 million related to the sale
of commercial and industrial equipment.
AIRCRAFT BROKERAGE AND SERVICES:
Aircraft brokerage and services revenue decreased $0.4 million during the
quarter ended June 30, 1999, compared to the same quarter of 1998, due to the
sale of the Company's aircraft leasing and spare parts brokerage subsidiary in
August 1998.
COSTS AND EXPENSES
For the Three Months
Ended June 30,
1999 1998
---------------------------------------
(in thousands of dollars)
Operations support $ 4,771 $ 4,657
Depreciation and amortization 3,663 3,497
General and administrative 2,045 2,257
------------------------------------------
Total costs and expenses $ 10,479 $ 10,411
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 $0.1 million (2%) for the quarter ended June 30, 1999,
compared to the quarter ended June 30, 1998. Operations support expense related
to the trailer leasing segment increased $1.4 million due to the expansion of
PLM Rental, with the addition of ten rental yards and new trailers to existing
yards. Operations support expense related to the commercial and industrial
equipment leasing and financing segment increased $0.5 million due to an
increase in compensation and benefits expenses which resulted from a new bonus
program initiated in 1999 to retain AFG employees during AFG's potential sale
and increased staffing. These increases were partially offset by a $1.8 million
decrease in operations support expenses related to the management of investment
programs and other transportation equipment leasing segment, and other expenses
related mainly to the sale of the Company's aircraft leasing and spare parts
brokerage subsidiary in August 1998, and the sale of other transportation
equipment including intermodal trailers (discussed in the operating lease income
section).
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $0.2 million (5%) for the
quarter ended June 30, 1999, compared to the quarter ended June 30, 1998. The
increase resulted from an increase in refrigerated trailer equipment on
operating lease, which was partially offset by the reduction in depreciable
commercial and industrial equipment and intermodal trailers and other equipment
(discussed in the operating lease income section).
<PAGE>
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.2 million (9%) during the
quarter ended June 30, 1999, compared to the same quarter in 1998, primarily due
to a $0.1 million decrease in compensation and benefits expenses, a $0.2 million
decrease in sublease commissions, and a $0.1 million decrease in travel and
entertainment expenses, partially offset by a $0.2 million increase in legal
expenses related to the potential sale of AFG.
OTHER INCOME AND EXPENSES
For the Three Months
Ended June 30,
1999 1998
--------------------------------------
(in thousands of dollars)
Interest expense $ (3,822) $ (3,604)
Interest income 233 299
Other (expenses) income, net (150) 469
INTEREST EXPENSE:
Interest expense increased $0.2 million (6%) during the quarter ended June 30,
1999, compared to the same quarter in 1998, related to the trailer leasing
segment, due to an increase in borrowings to fund trailer purchases.
INTEREST INCOME:
Interest income decreased $0.1 million (22%) during the quarter ended June 30,
1999, compared to the same quarter of 1998, as a result of lower average cash
balances during the quarter ended June 30, 1999, compared to the same quarter of
1998.
OTHER (EXPENSES) INCOME, NET:
Other expenses of $0.2 million for the quarter ended June 30, 1999 are mainly
related to the settlement of a lawsuit. 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 an expense of $0.3
million related to a legal settlement for the Koch and Romei actions (refer to
Note 7).
PROVISION FOR INCOME TAXES:
For the three months ended June 30, 1999, the provision for income taxes was
$0.5 million, representing an effective rate of 39%. For the three months ended
June 30, 1998, the provision for income taxes was $0.9 million, representing an
effective rate of 42%.
<PAGE>
NET INCOME
As a result of the foregoing, for the three months ended June 30, 1999, net
income was $0.7 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.09. For the same quarter in
1998, net income was $1.2 million, resulting in basic and diluted earnings per
weighted-average common share outstanding of $0.14.
<PAGE>
COMPARISON OF THE COMPANY'S OPERATING RESUTLS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
The following analysis reviews the operating results of the Company:
<TABLE>
<CAPTION>
REVENUES
For the Six Months
Ended June 30,
1999 1998
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operating lease income $ 13,670 $ 9,344
Finance lease income 5,888 5,694
Management fees 4,639 5,099
Partnership interests and other fees 316 681
Acquisition and lease negotiation fees 1,079 2,211
Gain on the sale or disposition of assets, net 1,630 2,295
Aircraft brokerage and services -- 886
Other 1,790 1,642
----------------------------------------------
Total revenues $ 29,012 $ 27,852
</TABLE>
The fluctuations in revenues for the six months ended June 30, 1999, compared to
the six months ended June 30, 1998, are summarized and explained below.
OPERATING LEASE INCOME BY TYPE:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
--------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Refrigerated and dry van over-the-road trailers $ 8,677 $ 3,432
Commercial and industrial equipment 4,380 4,299
Lease income from assets held for sale 587 284
Intermodal trailers -- 1,179
Other 26 150
---------------------------------------------------
Total operating lease income $ 13,670 $ 9,344
</TABLE>
Operating lease income includes revenues generated from assets held for
operating leases and assets held for sale that are on lease. Operating lease
income increased $4.3 million during the six months ended June 30, 1999,
compared to the same period of 1998, due to the following:
(a) A $5.2 million increase in operating lease income was generated from
refrigerated and dry van trailer equipment, of which approximately $4.6
million was due to an increase in the amount of these types of equipment
owned and on operating lease, and approximately $0.6 million was due to
higher utilization. For the six months ended June 30, 1999, the average
investment in refrigerated and dry van trailer equipment was $75.0 million,
compared to $37.7 million for the same period of 1998.
(b) A $0.1 million increase in operating lease income was generated from
commercial and industrial equipment, due to an increase in the amount of
these types of equipment owned and on operating lease.
(c) A $0.3 million increase in operating lease income was generated from assets
held for sale. During the six months ended June 30, 1999, the Company owned
$13.8 million in marine containers that were sold to affiliated programs at
cost, which approximated their fair market value. The Company earned $0.6
million in operating lease income on these marine containers during the six
months ended June 30, 1999. During the six months ended June 30, 1998, the
Company owned a 100% interest in an entity owning a marine vessel that
generated $0.3 million in operating lease income. The Company sold 85.3% of
its interest in the entity that owned the marine vessel at cost, which
approximated fair market value, to an affiliated program during the second
quarter of 1998.
These increases in operating lease income were partially offset by the
following:
(a) A $1.2 million decrease in operating lease income from intermodal trailers
was due to the sale of all of the Company's intermodal trailers during
August 1998.
(b) A $0.1 million decrease in other operating lease income was due to the
Company's strategic decision to dispose of certain transportation assets
and exit certain equipment markets.
FINANCE LEASE INCOME:
The Company earns finance lease income for certain leases originated by its AFG
subsidiary that are either retained for long-term investment or sold to third
parties. Finance lease income increased $0.2 million in the six months ended
June 30, 1999, compared to the same period in 1998, due to an increase in
commercial and industrial assets that were on finance lease. For the six months
ended June 30, 1999, the average investment in direct finance leases was $137.9
million, compared to $134.4 million for the same period of 1998.
MANAGEMENT FEES:
Management fees are, for the most part, based on the gross revenues generated by
equipment under management. Management fees were $4.6 million and $5.1 million
for the six months ended June 30, 1999 and 1998, respectively. 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 decreasing and
are expected to continue to decrease as the programs liquidate their equipment
portfolios.
The Company also earns management fees from the institutional programs managed
by the Company's AFG subsidiary. During both the six months ended June 30, 1999
and 1998, management fees for the institutional programs were $0.4 million, and
were included in the above amounts. The Company does not expect to sell assets
in the future to the institutional programs. It will, however, continue to
manage the existing portfolios for these programs. As a result, management fees
from the institutional programs are expected to decrease in the future as
equipment is sold from the existing portfolios and not replaced.
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 $0.8 million for the six months ended June 30, 1999 and
$1.0 million for the six months ended June 30, 1998. In addition, a decrease in
the Company's residual interests in the programs was recorded as $0.5 million
during the six months ended June 30, 1999 and $0.3 million during the six months
ended June 30, 1998. The decrease in net earnings and distribution levels and
residual interests in 1999, compared to 1998, resulted mainly from the
disposition of equipment in certain of the EGF programs. Residual income is
<PAGE>
based on the general partner's share of the present value of the estimated
disposition proceeds of the equipment portfolios of the affiliated partnerships
when the equipment is purchased. Net decreases in the recorded residual values
result when partnership assets are sold and the proceeds are less than the
original investment in the sold equipment.
ACQUISITION AND LEASE NEGOTIATION FEES:
During the six months ended June 30, 1999, the Company, on behalf of the EGF
programs, purchased transportation and other equipment for approximately $37.1
million. The Company did not take acquisition and lease negotiation fees on
$16.6 million of this equipment, as the Company has reached certain fee
limitations for one of its limited partnership programs per the partnership
agreement. This is compared to the Company's purchase of $32.9 million in
transportation and other equipment during the six months ended June 30, 1998,
resulting in a $0.7 million decrease in acquisition and lease negotiation fees.
<PAGE>
During the six months ended June 30, 1999, no equipment was purchased by AFG for
the institutional investment programs, compared to $14.1 million for the same
period in 1998, resulting in a $0.4 million decrease in acquisition and lease
negotiation fees. The Company does not expect to sell assets in the future to
the institutional programs. It will, however, continue to manage the existing
portfolios for these programs.
Because of the Company's decision to halt syndication of equipment leasing
programs with the close of Fund I in 1996, because Fund I has a no front-end fee
structure, and because the Company does not expect to sell assets in the future
to the institutional programs, acquisition and lease negotiation fees will be
substantially reduced in the future.
GAIN ON THE SALE OR DISPOSITION OF ASSETS, NET:
During the six months ended June 30, 1999, the Company recorded a $1.6 million
gain on the sale or disposition of commercial and industrial equipment. During
the six months ended June 30, 1998, the Company recorded a $2.3 million gain on
the sale or disposition of assets. Of this gain, $0.8 million resulted from the
sale or disposition of previously leased transportation equipment 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.
AIRCRAFT BROKERAGE AND SERVICES:
Aircraft brokerage and services revenue decreased $0.9 million during the six
months ended June 30, 1999, compared to the same period of 1998, due to the sale
of the Company's aircraft leasing and spare parts brokerage subsidiary in August
1998.
OTHER REVENUE:
Other revenue increased $0.1 million during the six months ended June 30, 1999,
compared to the same period of 1998, due to a $0.5 million increase in financing
income earned on loans made by AFG. The increase in revenue was partially offset
by a $0.2 million decrease in brokerage fees earned by AFG and a $0.2 million
decrease in other revenues.
COSTS AND EXPENSES
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
----------------------------------------
(in thousands of dollars)
<S> <C> <C>
Operations support $ 8,602 $ 8,466
Depreciation and amortization 7,062 6,047
General and administrative 3,529 4,171
---------------------------------------------------
Total costs and expenses $ 19,193 $ 18,684
</TABLE>
<PAGE>
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 $0.1 million (2%) for the six months ended June 30, 1999,
compared to the six months ended June 30, 1998. Operations support expense
related to the trailer leasing segment increased $2.4 million due to the
expansion of PLM Rental, with the addition of ten rental yards and new trailers
to existing yards. Operations support expense related to the commercial and
industrial equipment leasing and financing segment increased $0.7 million due to
an increase in compensation and benefits expenses resulting from the expansion
of the commercial and industrial equipment lease portfolio, and a new bonus
program initiated in 1999 to retain AFG employees during AFG's potential sale.
These increases were partially offset by a $3.0 million decrease in operations
support expenses related to the management of investment programs and other
transportation
<PAGE>
equipment leasing segment, and other expenses related mainly to the sale of the
Company's aircraft leasing and spare parts brokerage subsidiary in August 1998,
and the sale of other transportation equipment including intermodal trailers
(discussed in the operating lease income section).
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $1.0 million (17%) for the six
months ended June 30, 1999, compared to the six months ended June 30, 1998. The
increase resulted from an increase in refrigerated trailer equipment on
operating lease, which was partially offset by a reduction in depreciable
intermodal trailers and other equipment (discussed in the operating lease income
section).
GENERAL AND ADMINISTRATIVE:
General and administrative expenses decreased $0.6 million (15%) during the six
months ended June 30, 1999, compared to the same period in 1998, primarily due
to a $0.3 million decrease in compensation and benefits expenses; a $0.2 million
decrease in rent and office-related expenses; a $0.1 million decrease in travel
and entertainment expenses; and a $0.2 million decrease in sublease commissions.
This decrease in expenses was partially offset by a $0.2 million increase in
legal expenses related to the potential sale of AFG.
OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
-------------------------------------------
(in thousands of dollars)
<S> <C> <C>
Interest expense $ (7,507) $ (6,674)
Interest income 476 694
Other (expenses) income, net (1,098) 463
</TABLE>
INTEREST EXPENSE:
Interest expense increased $0.8 million (12%) during the six months ended June
30, 1999, compared to the same period in 1998. Interest expense related to the
trailer leasing segment increased $0.5 million due to an increase in borrowings
to fund trailer purchases. Interest expense related to the commercial and
industrial equipment leasing and financing segment increased $0.3 due to an
increase in borrowings to fund commercial and industrial equipment purchases.
INTEREST INCOME:
Interest income decreased $0.2 million (31%) during the six months ended June
30, 1999, compared to the same period of 1998, as a result of lower average cash
balances during the six months ended June 30, 1999, compared to the same period
of 1998.
<PAGE>
OTHER (EXPENSES) INCOME, NET:
Other expenses of $1.1 million for the six months ended June 30, 1999 represent
$1.0 million in expense related to the proposed initial public offering of the
Company's AFG subsidiary (during the first quarter of 1999, the Company's Board
of Directors determined that it was in the Company's best interest to sell AFG
rather than proceed with a stock offering, and therefore wrote off all
associated offering costs), and $0.1 million in expense related to the
settlement of a lawsuit. During the six months ended June 30, 1998, the Company
recorded other 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 7).
<PAGE>
PROVISION FOR INCOME TAXES:
For the six months ended June 30, 1999, the provision for income taxes was $0.7
million, representing an effective rate of 40%. For the six months ended June
30, 1998, the provision for income taxes was $1.5 million, representing an
effective rate of 40%.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, MET OF TAX:
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which requires costs related to start-up activities to be expensed as incurred.
The statement requires that an initial application be reported as a cumulative
effect of a change in accounting principle. The Company adopted this statement
during the first quarter of 1999, at which time it took a $0.2 million charge,
net of tax of $0.2 million, related to start-up costs of AFG.
NET INCOME
As a result of the foregoing, for the six months ended June 30, 1999, net income
was $0.8 million, resulting in basic and diluted earnings per weighted-average
common share outstanding of $0.10 and $0.09, respectively. For the same period
in 1998, net income was $2.2 million, resulting in basic and diluted earnings
per weighted-average common share outstanding of $0.26.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements have historically been satisfied through cash flow from
operations, borrowings, and the sale of equipment.
Liquidity in 1999 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 and trailer equipment
leasing transactions, additional borrowings, and the potential proceeds from the
sale of AFG. Management believes the Company can accomplish the preceding and
that it will have sufficient liquidity and capital resources for the next twelve
months. Future liquidity is influenced by the factors summarized below.
DEBT FINANCING:
NONRECOURSE SECURITIZED DEBT: The Company has available a nonrecourse debt
facility for up to $150.0 million, secured by direct finance leases, operating
leases, and loans on commercial and industrial equipment that generally have
terms of one to seven years. The facility is available for a one-year period
expiring October 12, 1999. 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, 1999, $101.9 million in borrowings
was outstanding under this facility. As of July 26 , 1999, $99.4 million in
borrowings was outstanding under this facility.
<PAGE>
In addition to the $150.0 million nonrecourse debt facility discussed above, as
of June 30, 1999 and July 26, 1999, the Company had $6.0 million in nonrecourse
notes payable, secured by direct finance leases on commercial and industrial
equipment at AFG, which have terms corresponding to the note repayment schedule
that began April 1998 and ends March 2001. The notes bear interest from 8.32% to
9.5% per annum.
FSI WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by
FSI for sale to affiliated programs or third parties have, from time to time,
been partially funded by this warehouse credit facility. This facility is also
used to temporarily finance the purchase of trailers prior to permanent
financing being obtained. This facility expires on December 14, 1999. The
Company believes it will be able to renew this facility on substantially the
same terms upon its expiration.
This facility is shared with EGF VI, PLM Equipment Growth & Income Fund VII (EGF
VII), and Fund I. Borrowings under this facility by the other eligible borrowers
reduce the amount available to be borrowed by the Company. All borrowings under
this facility are guaranteed by the Company. This facility provides 80%
financing for transportation assets purchased by the Company. The Company can
hold assets under this facility for up to 150 days. Interest accrues at prime or
LIBOR plus 162.5 basis points, at the option of the Company. As of June 30,
1999, the Company had $10.4 million of outstanding borrowings under this
facility, and there were no borrowings outstanding under this facility by any
other eligible borrowers. As of July 26, 1999, the Company had $15.5 million of
outstanding borrowings under this facility, and there were no borrowings
outstanding under this facility by any other eligible borrowers.
AFG WAREHOUSE CREDIT FACILITY: Assets acquired and held on an interim basis by
AFG for placement in the Company's securitization facility or for sale to
unaffiliated third parties have, from time to time, been partially funded by a
$60.0 million warehouse credit facility. The facility expires December 14, 1999;
however, the Company believes it will be able to renew this facility on
substantially the same terms upon its expiration.
This facility provides for financing of 100% of the present value of the lease
stream of commercial and industrial equipment for up to 90% of original
equipment cost of the assets held on this facility.
Borrowings secured by investment-grade lessees can be held under this facility
until the facility's expiration. Borrowings secured by noninvestment-grade
lessees may by outstanding for 120 days. Interest accrues at prime or LIBOR plus
137.5 basis points, at the option of the Company. As of June 30, 1999, the
Company had $22.9 million outstanding under this facility. As of July 26 , 1999,
the Company had $23.1 million outstanding under this facility.
SENIOR SECURED NOTES: The Company's senior secured notes agreement, which had an
outstanding balance of $24.4 million as of June 30, 1999 and July 26 , 1999,
bears interest at LIBOR plus 240 basis points. The Company has pledged
substantially all of its future management fees, acquisition and lease
negotiation fees, data processing fees, and partnership distributions as
collateral to the facility. The facility required quarterly interest-only
payments through August 15, 1997, with principal plus interest payments
beginning November 15, 1997. Principal payments of $1.9 million are payable
quarterly through termination of the loan on August 15, 2002.
SENIOR SECURED LOAN: The Company's senior loan with a syndicate of insurance
companies, which had an outstanding balance of $11.8 million as of June 30, 1999
and July 26, 1999, provides that equipment sale proceeds from pledged equipment
or cash deposits be placed into a collateral account or used to purchase
additional equipment to the extent required to meet certain debt covenants.
Pledged equipment for this loan consists of the storage equipment and virtually
all trailer equipment purchased prior to August 1998. As of June 30, 1999, the
cash collateral balance for this loan was $49,000 and is included in restricted
cash and cash equivalents on the Company's balance sheet. The facility bears
interest at 9.78% and required quarterly interest payments through June 30,
1997, with quarterly principal payments of $1.5 million plus interest charges
beginning June 30, 1997 and continuing until termination of the loan in June
2001.
<PAGE>
OTHER SECURED DEBT: As of June 30, 1999, the Company had $12.5 million in other
secured debt, bearing interest from 5.35% to 5.55%, with payments of $0.2
million due monthly in advance, beginning December 1998, and a final payment of
$3.3 million due November 2005. The debt is secured by certain trailer
equipment.
In April 1999, the Company entered into a $5.0 million secured debt agreement
bearing interest at 6.20%, with payments of $0.1 million due monthly beginning
April 1999, and a final payment of $1.3 million due April 2006. As of June 30,
1999, the Company had $4.9 million in borrowings under this debt agreement. The
debt is secured by certain trailer equipment. The Company intends to use this
type of debt to finance the purchase of new trailers in the future, as this
financing provides for favorable financing terms in exchange for beneficial tax
treatment in these secured trailers to the lenders.
In May 6, 1999, the Company entered into a $15.0 million credit facility loan
agreement bearing interest at LIBOR plus 1.5%. This facility allows the Company
to borrow up to $15.0 million within a one-year period. As of June 30, 1999, the
Company had borrowed $4.8 million under this facility. Payments of $0.1 million
are due quarterly beginning August 2000, with a final payment of $1.4 million
due August 2006. The facility is secured by certain trailer equipment.
INYRTRDY-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, 1999, the swap agreements had a
weighted-average duration of 1.43 years, corresponding to the terms of the
related debt. As of June 30, 1999, a notional amount of $98.4 million of
interest-rate swap agreements effectively fixed interest rates at an average of
6.47% on such obligations. For the six months ended June 30, 1999, interest
expense increased by $0.5 million due to these arrangements.
TRAILER LEASING:
The Company operates twenty trailer rental facilities that engage in short-term
and mid-term operating leases. Nineteen of these facilities operate
predominantly refrigerated trailers used to transport temperature-sensitive
commodities, consisting primarily of food products. One facility operates only
dry van (non-refrigerated) trailers. The Company intends to move virtually all
of its dry van trailers to this facility plus another two locations that will be
established in 1999. To date in 1999, the Company has opened three new
refrigerated trailer yards. The Company intends to continue to increase its
trailer fleet with new or late-model used refrigerated trailers which will be
placed in existing yards and new facilities to be opened in additional
geographical markets. During the six months ended June 30, 1999, the Company
purchased $24.9 million of primarily refrigerated trailers and sold refrigerated
and dry van trailers with a net book value of $0.2 million for proceeds of $0.2
million. The net proceeds from the sale of assets that were collateralized as
part of the senior loan facility were placed in a collateral account.
COMMERCIAL AND INDUSTRIAL EQUIPMENT LEASING AND FINANCING:
The Company earns finance lease or operating lease income for leases originated
and retained by its AFG subsidiary. 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 financed. During the six months ended June 30, 1999, the
Company funded lease and loan transactions for commercial and industrial
equipment with an original equipment cost of $41.6 million. During the six
months ended June 30, 1999, the Company sold commercial and industrial equipment
with a net book value of $33.9 million for proceeds of $35.5 million. The
majority of these transactions was financed, on an interim basis, through the
Company's warehouse credit facility.
In previous years, the Company acquired and serviced equipment for the
institutional programs for which it earned acquisition and management fees. The
Company does not believe it will be selling assets in the future to the
institutional programs. It will, however, continue to manage the existing
portfolios for these programs.
As of June 30, 1999, the Company had committed to purchase $38.1 million of
equipment for its commercial and industrial lease and finance receivables
portfolio, to be held by the Company or sold to third parties, of which $5.5
million had been received by lessees and accrued for as of June 30, 1999.
<PAGE>
From July 1, 1999 through July 26, 1999, the Company funded $4.2 million of
commitments outstanding as of June 30, 1999 for its commercial and industrial
lease and finance receivables portfolio.
As of July 26, 1999, the Company had committed to purchase $25.9 million of
equipment for its commercial and industrial lease and finance receivables
portfolio.
During the first quarter of 1999, the Company's Board of Directors determined
that it was in the Company's best interest to sell AFG. The Company has engaged
an investment banking firm to pursue the sale of AFG.
OTHER TRANSPORTATION EQUIPMENT LEASING AND OTHER:
During the first six months of 1999, the Company purchased marine containers for
$13.8 million, and sold them to affiliated programs at cost, which approximated
their fair market value.
STOCK REPURCHASE PROGRAM:
In December 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to $5.0 million of the Company's common stock.
As of July 26 , 1999, 327,415 shares had been repurchased under this plan for a
total of $2.0 million.
Management believes that, through debt and equity financing, possible sales of
equipment, proceeds from the potential sale of AFG, and cash flows from
operations, the Company will have sufficient liquidity and capital resources to
meet its projected future operating needs over the next twelve months.
EFFECTS OF THE YEAR 2000:
It is possible that the Company's currently installed computer systems, software
products, and other business systems, or those of the Company's vendors, service
providers, and customers, working either alone or in conjunction with other
software or systems, may not accept input of, store, manipulate, and output
dates on or after January 1, 2000 without error or interruption, a possibility
commonly known as the "Year 2000" or "Y2K" problem.
The Company has established a special Year 2000 oversight committee to review
the impact of Year 2000 issues on its business systems in order to determine
whether such systems will retain functionality after December 31, 1999. As of
June 30, 1999, the Company has completed inventory, assessment, remediation and
testing stages of its Year 2000 review of its core business information systems.
Specifically, the Company (a) has integrated Year 2000-compliant programming
code into its existing internally customized and internally developed
transaction processing software systems and (b) the Company's accounting and
asset management software systems have been made Year 2000 compliant. In
addition, numerous other software systems provided by vendors and service
providers have been replaced with systems represented by the vendor or service
provider to be Year 2000 functional. These systems will be fully tested by
September 30, 1999 and are expected to be compliant.
As of June 30, 1999, the Company has spent approximately $0.1 million to become
Year 2000 compliant and does not anticipate any additional Year 2000-compliant
expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Company to control, including the extent to which third parties can address the
Year 2000 problem. The Company is communicating with vendors, services
providers, and customers in order to assess the Year 2000 compliance readiness
of such parties and the extent to which the Company is vulnerable to any
third-party Year 2000 issues. As part of this process, vendors and service
providers were ranked in terms of the relative importance of the service or
product provided. All service providers and vendors who were identified as
medium to high relative importance were surveyed to determine Year 2000 status.
The Company has received satisfactory responses to Year 2000 readiness inquiries
from surveyed service providers and vendors.
It is possible that certain of the Company's equipment lease portfolio may not
be Year 2000 compliant. The Company has contacted equipment manufacturers of the
portion of the Company's leased equipment portfolio identified as date sensitive
to assure Year 2000 compliance or to develop remediation strategies. The Company
does not expect that non-Year 2000 compliance of its leased equipment portfolio
will have an adverse material impact on its financial statements. The Company
has surveyed the majority of its lessees and the majority of those surveyed have
responded satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. Any failure by such
other parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position, and results of
operations of the Company. The Company has made and will continue an ongoing
effort to recognize and evaluate potential exposure relating to third-party Year
2000 noncompliance. The Company will implement a contingency plan if the Company
determines that third-party noncompliance would have a material adverse effect
on the Company's business, financial position, or results of operation.
<PAGE>
The Company is currently developing a contingency plan to address the possible
failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenario primarily anticipates an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed. The Company is evaluating whether there are
additional scenarios which have not been identified. Contingency planning will
encompass strategies up to an including manual processes. The Company
anticipates that these plans will be completed by September 30, 1999.
ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board (FASB) 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.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
June 30, 1999, the Company is reviewing the effect SFAS No. 133 will have on the
Company's consolidated financial statements.
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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of interest rate risk. A
change in the U.S. prime interest rate, LIBOR rate, or lender's cost of funds
based on commercial paper market rates would affect the rate at which the
Company could borrow funds under its various borrowing facilities. Increases in
interest rates to the Company, which may cause the Company to raise the implicit
rates charged to its customers, could in turn result in a reduction in demand
for the Company's lease financing. The Company's warehouse credit facilities,
$4.8 million of other secured debt, and the senior secured notes are variable
rate debt. The Company estimates that a 1 percent increase or decrease in the
Company's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $0.2 million in 1999, $0.2 million in 2000,
$0.1 million in 2001, $0.1 million in 2002, $31,000 in 2003, and $50,000
thereafter. The Company estimates that a 2 percent increase or decrease in the
Company's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $0.4 million in 1999, $0.4 million in 2000,
$0.3 million in 2001, $0.1 million in 2002, $0.1 million in 2003, and $0.1
million thereafter.
The Company hedges borrowings under the nonrecourse securitization facility,
effectively fixing the rate of these borrowings. The Company is currently
required to hedge against the risk of interest rate increases for 90% of the
aggregate discounted lease balance of those leases and loans used as collateral
for its nonrecourse securitization facility, but the Company generally does not
enter into hedges for leases designated for syndication or for leases of
transportation equipment. Such hedging activities may limit the Company's
ability to participate in the benefits of any decrease in interest rates with
respect to the hedged portfolio of leases, but may also protect the Company from
increases in interest rates for the hedged portfolio. All of the Company's other
financial assets and liabilities are at fixed rates.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7 to the consolidated financial statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held May 27, 1999, one proposal was
submitted to a vote of the Company's security holders.
Warren G. Lichtenstein and Howard M. Lorber were re-elected to the Board of
Directors of the Company. The votes cast in the election were as follows:
Nominee For Votes Withheld
Warren G. Lichtenstein 6,328,238 212,597
Howard M. Lorber 6,324,746 216,089
Directors whose terms continued after the Annual Meeting of Stockholders held on
May 27, 1999 are as follows:
Class I (Terms Expire in 2000)
Robert N. Tidball
Robert L. Witt
Class II (Terms Expire in 2001)
Randall L.-W. Caudill
Douglas P. Goodrich
Harold R. Somerset
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10.1 $15,000,000 Facility Agreement among PLM International, Inc. and
Meespierson N.V., dated May 6, 1999.
10.2 Second Amendment to PLM International, Inc. 1998 Management Stock
Compensation Plan, dated May 29, 1999.
10.3 Employment Agreement among American Finance Group, Inc. and certain
employees, dated January 1, 1999.
10.4 Retention Agreement among American Finance Group, Inc. and certain
employees, dated April 1999.
(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 Brock
--------------------------------
Richard K Brock
Vice President and
Corporate Controller
Date: July 26, 1999
<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 26, 1999
-30-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,841
<SECURITIES> 0
<RECEIVABLES> 165,845
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 112,090
<DEPRECIATION> 28,284
<TOTAL-ASSETS> 292,103
<CURRENT-LIABILITIES> 0
<BONDS> 199,636
0
0
<COMMON> 59,012
<OTHER-SE> (9,009)
<TOTAL-LIABILITY-AND-EQUITY> 292,103
<SALES> 0
<TOTAL-REVENUES> 29,012
<CGS> 0
<TOTAL-COSTS> 19,193
<OTHER-EXPENSES> 1,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,507
<INCOME-PRETAX> 1,690
<INCOME-TAX> 673
<INCOME-CONTINUING> 1,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 236
<NET-INCOME> 781
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.09
</TABLE>
FACILITY AGREEMENT
PLM INTERNATIONAL, INC.,
Borrower
and
MEESPIERSON N.V.,
Lender
Dated: May 6, 1999
<PAGE>
INDEX
SECTION No./SUBJECT MATTER
PAGE NO.
1. DEFINITIONS.................................................... 1
2. REPRESENTATIONS AND WARRANTIES.................................17
3. CONDITIONS PRECEDENT...........................................20
4. THE FACILITY...................................................23
5. DRAWDOWN.......................................................23
6. PAYMENTS.......................................................24
7. INTEREST, RATE AND DEFAULT RATE................................24
8. PREPAYMENT/REPAYMENT/TERMINATION...............................25
9. EVENT OF LOSS OR SALE OF EQUIPMENT; MANDATORY PREPAYMENT.......27
10. FINANCIAL INFORMATION..........................................29
11. COVENANTS......................................................29
12. CURRENCY OF ACCOUNT............................................31
13. ACCOUNTS AND PAYMENTS; EARNINGS ACCOUNT PLEDGE.................31
14. TAXES..........................................................33
15. INCREASED COSTS................................................34
16. EVENTS OF DEFAULT..............................................35
17. SYNDICATION....................................................37
18. BENEFIT OF AGREEMENT...........................................39
19. MISCELLANEOUS..................................................39
20. COSTS..........................................................40
21. NOTICES........................................................41
22. GOVERNING LAW, JURISDICTION, JURY WAIVER.......................41
<PAGE>
EXHIBITS CONTENTS
A FORM OF PROMISSORY NOTE
B FORM OF CHATTEL MORTGAGE AND SECURITY AGREEMENT
C FORM OF NOTICE OF ASSIGNMENT OF EARNINGS
D FORM OF CONSENT AND AGREEMENT
E FORM OF ASSET BASE CERTIFICATE
ii
<PAGE>
FACILITY AGREEMENT
THIS FACILITY AGREEMENT (this "Agreement") is made as of the 6th day of
May, 1999 by and between PLM INTERNATIONAL, INC., a corporation organized and
existing under the laws of the State of Delaware and having its chief executive
office at One Market Steuart Street Tower, Suite 800, San Francisco, California
94105 (hereinafter called "the Borrower"), and MEESPIERSON N.V., a company
organized and existing under the laws of the Netherlands, having its office
located at Coolsingel 93, 3012 AE Rotterdam, The Netherlands (hereinafter called
"the Lender").
W I T N E S S E T H T H A T:
WHEREAS:
(A) At the request of the Borrower, the Lender has agreed to provide the
Borrower with a credit facility loan in an aggregate principal amount not to
exceed FIFTEEN MILLION UNITED STATES DOLLARS (US$15,000,000), upon the terms and
subject to the conditions hereinafter contained, for the exclusive purposes of
part-financing the purchase of new and existing refrigerated food service
trailers, refrigerated over the road trailers, dry van trailers and other
moveable equipment agreed upon by the Lender.
(B) As security for the performance by the Borrower of its Obligations
hereunder, the Borrower has agreed to grant to the Lender and to procure the
provision to the Lender of the collateral as referred to herein.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS
1.1 In this Agreement the words and expressions specified below shall, except
where the context otherwise requires, have the meanings attributable to them
below:
"Accounts Receivable" the aggregate Gross Equipment Receivables due and owing as
of a certain date;
"Additional Availability Period(s)" each and every extension of the Availability
Period for a period of twelve (12) months requested by the Borrower and agreed
to in the sole discretion of the Lender pursuant to Subsection 4.2;
"Advance" the amount in United States Dollars made available pursuant to this
Agreement to the Borrower on any Drawdown Date;
"Applicable Rate" the rate of interest on the aggregate Advances from time to
time applicable pursuant to Subsection 7.1;
"Arrangement Fee" a fee of One Hundred Fifty Thousand United States Dollars (US
$150,000) to be paid by the Borrower to the Lender on the date hereof which
arrangement fee shall be non-refundable upon receipt thereof by the Lender;
"Asset Base" as of any date during the Availability Period, means an amount
equal to seventy percent (70%) of the Net Book Value of the Equipment or seventy
percent (70%) of the Purchase Price of the Equipment, whichever is the lower;
"Asset Base Certificate" means (a), if delivered during the Availability Period,
a certificate setting forth (i) the components of the Asset Base as of the last
day of the month for which such certificate is submitted, as of the Conversion
Date or as of a Drawdown Date, as the case may be (the "reference date"), (ii)
the average age of the Equipment as of the reference date and evidencing that no
Unit is more than the Maximum Age, (iii) the utilization of the Equipment as of
Equipment, (v) the Net Book Value of the Equipment as of the reference date,
(vi) the Lessee(s) of the Equipment as of the reference date, (vii) the Lease
Rates as of the reference date and (viii) the Outstanding Principal Balance as
of the reference date, and (b) if delivered during the Repayment Period, a
certificate setting forth items (ii) through (viii) above which certificate
shall be substantially in the form of Exhibit E hereto and shall be c Lender;
"Availability Period" the period from the date hereof up to and including the
Business Day preceding the first anniversary of the date of this Agreement;
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978, as amended,
as codified under Title 11 of the United States Bankruptcy Code, and the
Bankruptcy Rules promulgated thereunder;
"Business Day" shall be construed as a reference to a day on which banks are
open in Amsterdam, London, San Francisco and New York, as the case may be, for
all kinds of business herein contemplated;
"Cash Equivalents" shall mean Investments in (i) direct United States Government
or United States agency obligations; (ii) Investments in corporate obligations
of "AA" quality or better maturing within one year; (iii) Investments in
certificates of deposits issued by the Lender (or any branch thereof) or by any
United States commercial bank, the United States branch of any foreign bank, in
each case so long as such bank has capital and surplus of not less than the equi
(US$50,000,000); (iv) preferred stock Investments rated "AA" or better; and (v)
Investments in any state, local or municipal obligations rated "AA" or better,
and (vi) all cash collected by the Borrowers,
"Certificate(s) of Title" a certificate (or equivalent) issued by the relevant
authority in the State of Registration of any Unit which certificate evidences
the Borrower as the legal and registered owner of the such Unit;
"Change of Control" means either (i) any "person" (as such term is defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of more
than fifty percent (50%) of the total voting power of the voting stock of any
company or (i) the Board of Directors of any company ceases to consist of a
majority of the existing directors of such company;
"Code" the Internal Revenue Code of 1986, as amended, and any successor statute
and regulations promulgated thereunder;
"Commitment Fee" a non-refundable fee of one/eighth of one percent (0.125%) per
annum of the undrawn portion of the Facility, payable monthly in arrears during
the Availability Period, and on the Conversion Date provided if any date on
which the fee is payable is not a Business Day, the commitment fee shall be
payable on the next following Business Day or, if such Business Day falls in the
next calendar month, the commitment fee shall be payable on the preceding Busi
date;
"Consent and Agreement" that certain consent and agreement dated on or about the
date hereof executed by the Depositary substantially in the form of Exhibit D
hereto;
"Consolidated Interest Coverage Ratio" means, on a consolidated basis for the
Borrower and its Subsidiaries, measured quarterly as of the last day of each
fiscal quarter of the Borrower for the preceding four fiscal quarters, including
the fiscal quarter in which such measurement date occurs, the ratio, expressed
as a percentage, of (i) operating income plus depreciation and amortization to
(ii) net interest expense , as determined and computed in accordance with GAAP;
"Consolidated Net Income" means for any person, on a consolidated basis, as
calculated for any period as of any date of determination, the net income and
net losses for such period;
"Consolidated Net Worth" means, on a consolidated basis, as at any date of
determination, the difference between Consolidated Total Assets and Consolidated
Total Liabilities;
"Consolidated Total Assets" means, on a consolidated basis, as at any date of
determination, all assets of the Borrower and its Subsidiaries, as determined
and computed in accordance with GAAP, excluding (i) Restricted Cash and (ii) the
investment by the Borrower or any Subsidiary in any and all Joint Ventures
nonconsolidated with the Borrower and which have Indebtedness, as determined and
computed in accordance with GAAP (except to the extent the exclusion of assets
in Subsect
"Consolidated Total Liabilities" means, on a consolidated basis, as at any date
of determination, all (i) liabilities of (A) the Borrower, and (B) its
Subsidiaries, and (ii) all Indebtedness of any and all Joint Ventures
nonconsolidated with the Borrower except to the extent such liabilities are Non
Recourse Debt to the Borrower and its Subsidiaries, as determined and computed
in accordance with GAAP (except to the extent the consolidation of the
liabilities described in Subsection
"Conversion Date" the date which is (i)(a) the first anniversary of the date of
this Agreement or (b), if the Availability Period is extended pursuant to the
provisions of Section 4.2, the applicable anniversary of the date of this
Agreement or (ii) such earlier date which follows the occurrence of an Early
Amortization Event pursuant to Section 4.2, or if any such date is not a
Business Day, the Business Bay immediately preceding such date;
"Counsel to Lender" the law firm of Seward & Kissel, New York, New York, USA or
such other counsel as the Lender may designate;
"Debt" debt for borrowed monies according to GAAP;
"Debt Service to Coverage Ratio" the ratio, expressed as a percentage, of EBITDA
to scheduled payments of principal and interest in respect of the Borrower's
consolidated Indebtedness, determined on the scheduled principal and interest
(assuming that the then prevailing interest rates remain in effect for the next
twelve (12) months) payments payable over the next twelve (12) month period;
"Default" any event which is or may with the passage of time or the giving of
notice or both be one of the events specified in Section 16 hereof;
"Default Rate" has the meaning ascribed thereto in Section 7.1;
"Depositary" the Lender or any banking institution acceptable to the Lender in
its the sole discretion initially, First Union Bank of North Carolina;
"Drawdown Date(s)" a date on which an Advance is drawn pursuant to Section 4
hereof;
"Early Amortization Event" the occurrence of any one or more of the following
during the Availability Period and any Additional Availability Period, if any,
if not cured within thirty (30) days from the date of written notice given by
the Lender, or actual knowledge of the Borrower, whichever is the earlier, shall
constitute an Early Amortization Event:
(1) any Event of Default under this Agreement which has occurred and is
continuing;
(2) a Lessee, the value of whose leased Equipment exceeds forty percent (40%) of
the Asset Base, defaults under the relevant Lease or any such Lease is
terminated prior to its stated term;
(3) the average age of the Equipment as reported on the Asset Base Certificate
most recently received by the Lender is greater than six (6) years;
"Earnings Account" the account maintained by the Borrower with the Depositary,
in respect of among other earnings, the Gross Equipment Receivables;
"EBITDA" means, on a consolidated basis, the Guarantor's earnings before
interest, taxes, depreciation and amortization (calculated in accordance with
GAAP as in effect on the date hereof ) based on the preceding twelve (12) months
actual operating income;
"Equipment" the refrigerated food service trailers, refrigerated over the road
trailers, dry van trailers and other moveable equipment agreed upon by the
Lender (in type, form, price and composition of total portfolio to be specified
by the Borrower and acceptable to the Lender) manufactured or to be manufactured
by such manufacturers acceptable to the Lender, which Equipment is to be used as
security for the obligations of the Borrower hereunder;
"ERISA" the Employment Retirement Income Security Act of 1974, as amended;
"ERISA Affiliate" a trade or business (whether or not incorporated) which is
under common control with the Borrower within the meaning of Sections 414(b),
(c), (m) or (o) of the Code;
"Event of Default" any event specified in Section 16 hereof;
"Existing Equipment" shall mean any and all items of transportation related
tangible personal property (including parts) (i) owned directly by the Borrower
or pursuant to Subsection (ii)(B) or (ii)(C) of the definition of Collateral
Coverage Ratio, or (ii) owned as of June 28, 1996 by PLM Rental, Inc. a
wholly-owned Subsidiary of the Borrower; in each case held for sale, lease or
rental to third parties;
"Existing Equipment Assets" means any item of the Existing Equipment and any
other item of tangible personal property acquired by the Borrower or any
Subsidiary for the purpose of lease or sale in connection with the business of
the Borrower or such Subsidiary;
"Facility" the loan facility in a maximum aggregate principal amount of up to
FIFTEEN MILLION UNITED STATES DOLLARS (US$15,000,000) to be made available to
the Borrower by the Lender pursuant to the terms hereof;
"Facility Period" the period from the date of this Agreement to the date upon
which (i) no further Advances may be drawn hereunder and (ii) the outstanding
Advances and all other amounts due to the Lender pursuant to this Agreement, the
Promissory Note and the Security Documents become repayable and are repaid in
full or prepaid in full in accordance with the terms of this Agreement;
"Final Repayment Date" the day which falls on the sixth anniversary of the
Conversion Date, or, in the event such date is not a Business Day, the next
following Business Day shall be considered as being the Final Repayment Date,
unless such next following Business Day falls in the next calendar month, in
which case the last preceding Business Day shall be considered as being the
Final Repayment Date;
"First Drawdown Date" the date on which the first Advance is drawn under this
Agreement;
"Funded Debt" of any person shall mean all Indebtedness of such person excluding
(i) Short-Term Warehouse Debt, (ii) Non Recourse Secured Debt and (iii)
additional Non Recourse Debt to finance commissions and brokerage fees for a
no-load partnership fund secured only by a lien on the management and
administrative fees payable to the Borrower and its Subsidiaries by such
partnership and the partnership interests of the general partner in such
partnership;
"GAAP" generally accepted accounting principles of the United States of America
consistently applied, as reflected in pronouncements and practices of the
American Institute of Certified Public Accountants;
"Governmental Authority" (a) any federal, state, county, municipal or foreign
government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any person, any arbitration tribunal or other non-governmental
authority to whose jurisdiction that person has consented;
"Gross Equipment Receivables" the aggregate of all rents and other amounts which
are payable by any person to the Borrower or the Leasing Agent, in connection
with the purchase, use or insuring of the Equipment or otherwise in respect of
the Equipment;
"Growth Funds" means, collectively, PLM Equipment Growth Fund, a California
limited partnership, PLM Equipment Growth Fund II, a California limited
partnership, PLM Equipment Growth Fund III, a California limited partnership,
PLM Equipment Growth Fund IV, a California limited partnership, PLM Equipment
Growth Fund V, a California limited partnership, PLM Equipment Growth Fund VI, a
California limited partnership, PLM Equipment Growth & Income Fund VII,
Professional Lease Management Income Fund I, LLC, a Delaware limited liability
company and any other similar California limited partnership hereafter formed
for the purpose of owning and holding for lease transportation related
equipment, of which PLM Financial Services, Inc., a wholly-owned Subsidiary of
the Borrower, shall be the general partner;
"Indebtedness" of any person shall mean without duplication (i) all Debt of such
person for borrowed money or which has been incurred by such person in
connection with the acquisition of assets, (ii) all capitalized rentals of such
person, (iii) all guarantees by such person of Indebtedness for borrowed money
of others, and (iv) all obligations and liabilities secured by a security lien
(excluding security liens arising by operation of law) on any asset owned by su
liability is assumed, to the extent of the lesser of such obligation or
liability or the fair market value of such asset;
"Initial Repayment Date" the day falling three (3) months after the Conversion
Date, or, in the event such date is not a Business Day, the next following
Business Day shall be considered as being the Initial Repayment Date, unless
such next following Business Day falls in the next calendar month, in which case
the last preceding Business Day shall be considered as being the Initial
Repayment Date;
"Interest Notice" a notice delivered to the Lender pursuant to Section 7
specifying the duration of any relevant Interest Period;
"Interest Period(s)" period(s) of one (1), three (3) or six (6) months selected
by the Borrower or such other period(s) as may be agreed between the Borrower
and the Lender;
"Investment" means, when used in connection with any person, any investment by
or of that person, whether by means of purchase or other acquisition of
securities of any other person or by means of loan, advance, capital
contribution, guaranty or other debt or equity participation or interest, or
otherwise, in any other person, including any partnership and joint venture
interests of such person in any other person. The amount of any Investment shall
be the origin of principal or equity thereon (and without adjustment by reason
of the financial condition of such other person) and shall, if made by the
transfer or exchange of property other than cash, be deemed to have been made in
an original principal or capital amount equal to the fair market value of such
property;
"Joint Venture" means a corporation, partnership, joint venture or other similar
legal arrangement (whether created pursuant to contract or conducted through a
separate legal entity) now or hereafter formed by the Borrower or any of its
Subsidiaries with another person in order to conduct a common venture or
enterprise with such person; provided, however, that "Joint Venture" shall not
include any Growth Fund or similar syndicated investment funds sponsored by the
Borrower;
"Lease(s)" means each and every item of chattel paper, installment sales
agreement, equipment lease or rental agreement (including progress payment
authorizations) relating to an item of Equipment of which the Borrower or the
Leasing Agent is the lessor; the term "Lease" includes (a) all payments to be
made thereunder, (b) all rights of the Borrower or the Leasing Agent therein,
and (c) any and all amendments, renewals, extensions or guaranties thereof;
"Leasing Agent" PLM Rental, Inc., a corporation organized and existing under the
laws of the State of Delaware and a wholly owned Subsidiary of the Borrower;
"Lease Rate(s)" in relation to any Unit, the amount per day payable by the
related Lessee to the Borrower or the Leasing Agent pursuant to the terms of the
related Lease;
"Lessee(s)" any person who is a party to a Lease as the lessee or the
equivalent.
"LIBOR" the rate per annum for the applicable Interest Period (rounded upwards
to the nearest one eighth of one percent (1/8%) if necessary) at which the
Lender is offered deposits in United States Dollars in an amount equal to the
applicable portion of the Outstanding Principal Balance at the beginning of that
Interest Period by prime banks in the London Interbank Market at or about 11:00
a.m. London time on the Quotation Date; If no such offering of depos the Lender,
then LIBOR shall be the rate per annum which the Lender shall determine to be
the arithmetic mean (rounded off as aforesaid) of the offered quotations for
such deposits which leading banks in New York City selected by the Lender are
quoting in the New York Interbank Market on the Quotation Date (or, if the
Quotation Date is not a New York Business Day on the next succeeding New York
Business Day) to leading European banks;
"Margin" the rate per annum of one and one half of one percent (11/2%) per
annum;
"Material Adverse Change" means as to any person, any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse change whatsoever upon the validity or enforceability of this Agreement,
the Promissory Note, or any of the Security Documents to which such person is a
party, (b) is or could reasonably be expected to be material and adverse to the
condition (financial or otherwise) or business operations of such person, (c)
materiall impair the ability of such person to perform its Obligations under
this Agreement, the Promissory Note, or any of the Security Documents to which
it is a party, or (d) materially impairs or could reasonably be expected to
materially impair the ability of the Lender to enforce any of its legal remedies
pursuant to this Agreement, the Promissory Note or any of the Security
Documents;
"Maximum Age" the maximum age of any refrigerated trailer shall be ten (10)
years and the maximum age of any dry van trailer shall be twelve (12) years;
"Maximum Available Amount" the maximum amount of the Facility which may be
outstanding at any time and made available to the Borrower pursuant to Section 4
hereof;
"Net Book Value" the book value of the Equipment, calculated in accordance with
GAAP and determined using (a) for refrigerated trailers, a 10-year straight line
depreciation period and (b) for dry van trailers, a 12-year straight line
depreciation period, in each case assuming a 20% salvage value;
"Non Recourse Debt" means Debt with respect to which the Borrower or any
Restricted Subsidiary has or will have under any circumstances (except fraud in
the making), no personal liability or obligation and has granted no security
lien on its property;
"Non Recourse Secured Debt" means Debt with respect to which (i) neither the
Borrower nor any Subsidiary has or will have under any circumstances (except
fraud in the making), any personal or recourse liability for the repayment of
such Debt (either directly as the primary obligor or indirectly as a guarantor)
and (b) the proceeds of such Debt are used to pay the acquisition price for the
Existing Equipment Assets and the repayment thereof is secured by a security
lien on the E such of the Existing Equipment Assets;
"Note Agreements" that certain Note Agreement dated as of June 30, 1994 (the
"Note Agreement 1994"), together with that certain Note Agreement dated as of
June 28, 1996 (the "Note Agreement 1996"), in each case entered into between the
Borrower, et alia, and the Lenders specified respectively therein, as amended
from time to time;
"Notice of Assignment of Earnings Account" that certain notice of assignment of
the Earnings Account dated on or about the date hereof, executed by the
Borrower, substantially in the form of Exhibit C hereto;
"Notice of Assignment of Insurances" that certain notice(s) of assignment of
insurances executed by the Borrower or the Leasing Agent, substantially in the
form of Exhibit B to the Security Agreement.
"Notice of Assignment of Lease" that certain notice(s) of assignment of lease
executed by the Borrower or the Leasing Agent, substantially in the form of
Exhibit C to the Security Agreement.
"Obligations" means all loans, advances, debts, liabilities and obligations, for
monetary amounts owing by the Borrower to the Lender, whether due or to become
due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instruments, arising under this Agreement, the Promissory Note or any of
the Security Documents; this term incluces, without limitation, all principal,
interest (including interest that accrues after the commencement by or against
the Borrower of any action under the Bankruptcy Code), fees, including, without
limitation, any and all arrangement fees, loan fees, commitment fees, agent fees
and any and all other fees, expenses, costs or other sums (including attorney
costs) chargeable to the Borrower under any of this Agreement, the Promissory
Note or any of the Security Documents;
"Operating Expenses" means all expenses (on an accrual basis) and costs
reasonably incurred in connection with the ownership, use and/or management of
the Equipment including, without limitation, maintenance, repairs, marking of
the Equipment, storage costs and expenses, accounting fees, legal fees incurred
in connection with enforcing rights under the Leases, insurance and ad valorem,
gross receipts and other property taxes which are levied against the Equipment;
"Outstanding Principal Balance" means the aggregate principal amount of the
Advances, outstanding from time to time hereunder and under the Promissory Note;
"Plan" any employee benefit plan covered by Title IV of ERISA;
"Promissory Note" that certain promissory note dated on or about the date
hereof, executed by the Borrower, evidencing the Facility, substantially in the
form of Exhibit A hereto and any amendments or supplements thereto approved in
writing by the Lender;
"Purchase Agreements" the purchase agreements, to be reasonably satisfactory in
form and substance to the Lender, entered into or to be entered into between the
Borrower, or an affiliate of either thereof and such manufacturer acceptable to
the Lender, pertaining to the Equipment, together with any amendments or
supplements thereto;
"Purchase Price" the total amount paid in cash by the Borrower for the purchase
of each Unit;
"Quotation Date" in relation to any Interest Period, (i) the day which is two
(2) Business Days prior to the first day of such Interest Period or, if
different, the day on which quotations would ordinarily be given in the London
Interbank Eurocurrency Market for deposits in United States Dollars or in New
York City, if quotations in London cannot be obtained, for delivery on the first
day of that period or (ii) if on such date the banks in London or New York City,
as business, the last preceding day on which banks in London or New York, as the
case may be, are open for international business;
"Repayment Amount" each amount which, in accordance with the provisions hereof,
falls due for repayment on each Repayment Date;
"Repayment Date(s)" the Initial Repayment Date; and thereafter, each of the
dates which fall respectively at three (3) month intervals commencing on the
date three months after the Initial Repayment Date and ending on the Final
Repayment Date, or, in the event such date is not a Business Day, the next
following Business Day shall be considered as being the Repayment Date, unless
such next following Business Day falls in the next calendar month, in which case
the last preceding Business Day shall be considered as being the Repayment Date;
"Repayment Period" the period commencing on the Conversion Date and terminating
on the Final Repayment Date, unless the Facility is repaid earlier pursuant to
the terms hereof;
"Restricted Cash" means cash or Cash Equivalents maintained in a segregated cash
collateral account over which the Borrower has no dominion or control and which
is solely for the repayment of Indebtedness for borrowed money, provided
however, "Restricted Cash" shall not include cash held (i) by Bankers Trust
Company, as collateral agent, pursuant to the Note Agreement 1994, or (ii) by
Sun America Life Insurance Company, as collateral agent pursuant the Note
Agreement 1996;
"Security Agreement" the security agreement in respect of the Equipment to be
executed and delivered by the Borrower and the Leasing Agent to the Lender
(together with all Supplements (as defined therein and required thereunder)
pursuant to which the Borrower shall grant the Lender a first priority security
interest in the Equipment, an assignment of the Leases and an assignment of the
insurances of the Equipment substantially in the form attached hereto as Exhibit
B, and any amendments or supplements thereto;
"Security Documents" the Security Agreement, the Consent and Agreement, and any
amendments or supplements thereto or any other documents executed in relation to
the Borrower's obligations under this Agreement or the Security Documents and
"Security Document" means any of them;
"Short-Term Warehouse Debt" shall mean the Indebtedness for borrowed money under
the warehousing credit agreement dated June 30, 1993 among TEC Acquisub, Inc., a
wholly-owned Subsidiary of the Borrower, the named Lenders thereunder and First
Union National Bank of North Carolina, as agent (the "Existing Short-Term
Warehouse Debt") and any amendments thereto or refinancings thereof up to
$30,000,000 for all such Debt, in the aggregate, which amendments or
refinancings (i) shall be substantially similar to the terms of the Existing
Short-Term Warehouse Debt and (ii) shall not contain any terms more onerous to
the Guarantor, the Bankers Trust Company, as collateral agent under the Note
Agreement 1994 or the noteholders under the Note Agreement 1994 than under the
existing Short-Term Warehouse Debt;
"State of Registration" the relevant State of the United States in which the
Borrower's title to, and ownership of, a Unit is maintained;
"Subsidiary" means, with respect to any Person, any corporation, associated,
partnership (other than the Growth Funds) or other business entity (i) of which
an aggregate of more than fifty percent (50%) of the outstanding stock or other
voting interest having ordinary voting power to elect a majority of the
directors, managers or trustees of such Person (irrespective of whether, at the
time, Stock or other voting interest of any other class or classes of such Per
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person or one or more Subsidiaries of such
Person or (ii) that is otherwise consolidated with the Borrower in accordance
with GAAP;
"Unit" each individual trailer or other item of moveable equipment comprising
the Equipment;
"United States Dollars", "US$" and "$" the lawful currency of the United States
of America; and
"Unrestricted Subsidiary" shall mean any Subsidiary formed or acquired by the
Borrower as of June 30, 1994 and designated as such by the Borrower in writing
to Bankers Trust Company, as collateral agent under the Note Agreement 1994, and
the holders of the then outstanding notes under the Note Agreement 1994 and all
the capital stock of which has been pledged to Bankers Trust Company, as
collateral agent under the Note Agreement 1994, free and clear of all liens
except applicable securities law.
1.2 Any reference herein to the following words and phrases shall have the
respective meaning herein specified:
(a) an "encumbrance" shall be construed as a reference to a mortgage,
charge, pledge, lien, security interest or other encumbrance securing any
obligation in favor of any person;
(b) a "month" is a reference to a period starting on one day in a calendar
month and ending the day immediately preceding the numerically
corresponding day in the next calendar month (and references to "months"
shall be construed accordingly);
(c) "person" shall include references to an individual, firm, corporation
or association; and
(d) "tax" shall be construed so as to include any tax, levy, impost, duty
or other charge of a similar nature excluding any net income taxes of the
Lender.
1.3 The winding-up or dissolution of a company shall be construed so as to
include any equivalent or analogous proceedings under the law of the
jurisdiction in which such company is incorporated or any jurisdiction in which
it carries on business.
1.4 Words and definitions importing the plural shall include the singular and
vice versa; words importing persons shall include companies, firms, corporations
and their respective successors and assigns.
1.5 All accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
2. REPRESENTATIONS AND WARRANTIES
2.1 In order to induce the Lender to enter into this Agreement and to make the
Facility available, each of the Borrower and by its execution of the consent and
agreement provided below, the Leasing Agent represents and warrants to the
Lender that:
(a) the Borrower is a corporation duly incorporated and validly existing
under the laws of the State of Delaware and the Leasing Agent is a
corporation duly incorporated and validly existing under the laws of the
State of Delaware;
(b) each of the Borrower and the Leasing Agent has the
corporate power to enter into and perform this Agreement, the Promissory
Note, and each of the Security Documents, insofar as each is a party
thereto and each of this Agreement, the Promissory Note and the Security
Documents when executed and delivered will constitute, legally binding
obligations of each of the Borrower and the Leasing Agent, insofar as each
is a party thereto and, insofar as aforesaid are enforceable in accordance
with their respective terms;
(c) each of the Borrower and the Leasing Agent has taken all necessary
corporate or other action required to authorize the execution and delivery
of, and the performance of, its respective Obligations under this
Agreement, the Promissory Note and each of the Security Documents insofar
as each is a party thereto;
(d) it is not necessary to ensure (i) the legality, validity or
enforceability of this Agreement, the Promissory Note or any of the
Security Documents that any of them be filed, recorded, registered or
enrolled with any governmental, state or local authority or agency (other
than (x) such Uniform Commercial Code filings as the Lender shall require
to be submitted for filing to the relevant state and local authorities and
(y) the registration of each Unit with the relevant authority in the State
of Registration, in the name of the Borrower and duly noting the first
priority security interest of the Lender) or, that this Agreement, the
Promissory Note or any Security Document be stamped with any stamp or
similar transaction tax or (ii) the admissibility in evidence of this
Agreement, the Promissory Note or any of the Security Documents in the
courts of the State of New York or the State of California, that any of
them be filed, recorded, registered or enrolled with any governmental,
state or local authority or agency (other than usual and customary filings
and submissions in the courts of such jurisdictions);
(e) all consents, licenses, approvals or authorizations of, or declarations
to, governmental authorities and agencies required to make this Agreement,
the Promissory Note and each of the Security Documents valid, enforceable
or admissible in evidence in the State of New York and the State of
California or required to enable each of the Borrower and the Leasing
Agent, as the case may be, to perform its Obligations hereunder and under
the Promissory Note and each of the Security Documents, to which it is a
party, either have been obtained or made and are in full force and effect
or, at the time of the drawdown of each Advance, will have been obtained or
made and will be in full force and effect;
(f) the execution and delivery of this Agreement, the Promissory Note and
each of the Security Documents to which it is a party and the performance
of its obligations under each thereof according to its respective terms do
not violate (i) the Certificate of Incorporation or By-laws (or equivalent
constitutional documents) of either the Borrower or the Leasing Agent, (ii)
any law, regulation, order or decree applicable to either the Borrower or
the Leasing Agent or (iii) any mortgage, deed or agreement which is binding
upon either the Borrower or the Leasing Agent or any of their assets;
(g) neither the Borrower nor the Leasing Agent is in breach of or default
under any mortgage, deed or agreement which is binding on it or on any of
its assets (except for those defaults which have been made known to the
Lender and have been waived in writing by the Lender);
(h) the execution and delivery by the Borrower and the Leasing Agent of
this Agreement, the Promissory Note and the Security Documents insofar as
each is a party thereto have been duly consented to by the holders of the
Notes pursuant to the Note Agreements;
(i) the covenants set forth in Subsections 11.1 (g), (h), (i) and (j)of
this Agreement are identical in all material respects to the corresponding
financial covenants set forth in the Note Agreements;
(j) no litigation or administrative proceeding of or before any court or
governmental authority or agency is pending or, to the knowledge of either
the Borrower or the Leasing Agent , threatened the result of which would or
would be likely to have a material adverse effect on the business, assets
or financial condition of either the Borrower or the Leasing Agent;
(k) no steps have been taken by either the Borrower or by the Leasing Agent
or by their respective shareholders or any court or government agency, nor
have any legal proceedings been started or, to the best of the knowledge
and belief of either the Borrower or the Leasing Agent, threatened for the
dissolution, bankruptcy, winding-up, liquidation or reorganization of the
Borrower or the Leasing Agent or for the appointment of a receiver, trustee
or similar officer of them or their undertaking, or assets;
(l) the Borrower is or will be the sole, lawful and registered owner of the
Equipment, lawfully possessed of the same free from all liens and
encumbrances whatsoever, except for the first priority lien of the Lender
pursuant to the Security Agreement and except for liens arising in the
ordinary course of business and by operation of law in respect of Debts
which are not yet due and payable or, if they are so due and payable, are
being contested in good faith and by appropriate proceedings and for which
adequate reserves are maintained;
(m) neither the Borrower nor the Leasing Agent will be required to make any
deduction or withholding from any payment it may make under this Agreement,
the Promissory Note or any of the Security Documents to which it is a
party;
(n) each of the Borrower and the Leasing Agent maintains its registered
office, principal place of business, chief executive office at, and the
place where substantially all records respecting the transactions
contemplated hereby are kept is, One Market Steuart Street Tower, Suite
800, San Francisco, California 94105. The Borrower will promptly notify the
Lender in writing of any change in the location of its or the Leasing
Agent's registered office or chief executive office or the establishment of
any new place of business in the United States of America;
(o) the Leasing Agent is a direct wholly-owned subsidiary of the Borrower;
(p) all historical financial statements, information and other data
furnished by the Borrower to the Lender are complete and correct, and such
financial statements have been prepared in accordance with GAAP and
accurately and fairly present the financial condition of the Borrower as of
the respective dates thereof and the results of the operations thereof for
the period or respective period covered by such financial statements,
subject, insofar as all interim financial statements are concerned, to
changes resulting from audits and year end adjustments; since such date or
dates there has been no Material Adverse Change in the financial condition
or results of the operations of the Borrower and it does not have any
contingent obligations, liabilities for taxes or other outstanding
financial obligations which are material in the aggregate except as
disclosed in such statements, information and data; and
(q) the execution and delivery any of this Agreement, the Promissory Note
and each of the Security Documents and the consummation of the transactions
hereunder and thereunder will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Code. No condition exists or
event or transaction has occurred in connection with any Plan maintained or
contributed to by the Borrower or any ERISA Affiliate resulting from the
failure of any thereof to comply with ERISA insofar as ERISA applies
thereto which is reasonably likely to result in the Borrower or any ERISA
Affiliate incurring any liability, fine or penalty which individually or in
the aggregate would have a material adverse effect on the Borrower.
3. CONDITIONS PRECEDENT
3.1 The Lender shall not be obliged to make the first Advance available to the
Borrower hereunder until (x) the Arrangement Fee has been paid, (y) the
Commitment Fee payable up to the date of the relevant Advance has been paid and
(z) each of the following documents has been delivered to the Lender in form and
substance acceptable to it and Counsel to the Lender:
(a) a copy certified as true and complete by the Secretary of each of the
Borrower and the Leasing Agent of its respective Certificate of
Incorporation and By-laws (or equivalent constitutional documents);
(b) copies certified as true and complete by the Secretary of the Borrower
of such Purchase Agreements, invoices, inspection certificates, acceptance
certificates and/or Certificates of Title as shall be satisfactory to the
Lender to establish the existence of the Equipment and its ownership by the
Borrower and the duly executed Purchase Agreements which are in existence
as of the date of this Agreement;
(c) information satisfactory to the Lender pertaining to any subleases,
master lease agreements and any depot agreements in any way relating to the
Equipment which are in existence as of the date of this Agreement;
(d) board resolutions certified as true and complete by the Secretary of
the Borrower, approving this Agreement, the Promissory Note, each of the
Security Documents and any other documents whose execution is contemplated
hereby and the transactions contemplated hereby and authorizing the
execution thereof by a director of the Borrower or any other authorized
person, as the case may be;
(e) board resolutions certified as true and complete by the Secretary of
the Leasing Agent, approving this Agreement, the Security Agreement and
authorizing the execution thereof by an officer of the Leasing Agent any
other authorized person, as the case may be;
(f) copies of all governmental or other consents, if any, as may, in the
opinion of Counsel to the Lender, be required for the execution and
performance of this Agreement, the Promissory Note or any of the Security
Documents and the transactions contemplated hereby and thereby;
(g) the Promissory Note duly executed by the Borrower;
(h) the Security Agreement duly executed by the Borrower and the Leasing
Agent, together with a Supplement (as defined in and required pursuant to
the terms of the Security Agreement) identifying the particular Equipment
in respect of which the particular Advance is being made;
(i) the Notice(s) of Assignment of Lease (if appropriate, in blank) duly
executed by the Borrower or the Leasing Agent pursuant to the Security
Agreement (and if appropriate, executed acknowledgments thereto);
(j) the Notice(s) of
Assignment of Insurances duly executed by the Borrower or the Leasing Agent
pursuant to the Security Agreement and executed acknowledgments thereto;
(k) the Notice of Assignment of the Earnings Account duly executed by the
Borrower pursuant to this Agreement.
(l) the Consent and Agreement duly executed by the Depositary;
(m) Legal opinions from (i) Counsel to the Lender, (ii) U.S. counsel to the
Borrower and the Leasing Agent, and (iii) such other legal opinions as the
Lender reasonably shall require, including legal opinions in respect of the
enforceability of this Agreement, the Promissory Note and each of the
Security Documents, the security interested created by each of the Security
Documents, the matters set forth in Section 2 hereof, the authorization by
the relevant noteholders, pursuant to the terms of the Note Agreements, of
the entry in to this Agreement by the Borrower and the Leasing Agent , if
appropriate, due authorization and execution of the Leases by the Lessees,
the enforceability of the obligations of the Lessees thereunder, and such
other matters as the Lender may require, all of which are acceptable to the
Lender in form and content;
(n) such Uniform Commercial Code Financing Statements or other applicable
documents or instruments required to be filed in the State of California,
the State of Delaware or any other State with respect to the Security
Documents;
(o) such evidence as the Lender may require that the Equipment
to which the Advance relates will be:
(i) in type, form and condition as is acceptable to the Lender, and
manufactured by, or to be manufactured by such manufacturers as are
acceptable to the Lender;
(ii) delivered by the seller pursuant to the terms and conditions of
the applicable Purchase Agreement;
(iii) in the sole ownership of the Borrower and registered in the name
of the Borrower in one of the States of California, Maine, New Jersey
or such other State to which the Lender consents, such consent not to
be unreasonably withheld (such evidence to include the relevant
Certificate of Title);
(iv) free and clear of all liens and encumbrances except in favor of
the Lender;
(v) conspicuously identified by the Borrower's identification numbers;
(vi) subject to a duly perfected security interest in favor of the
Lender pursuant to the Security Agreement, such evidence to include,
but is not limited to, duly endorsed Certificates of Title, executed
applications for new Certificates of Title and appropriate Uniform
Commercial Code financing statements; and
(vii) insured in accordance with this Agreement and the Security
Documents; (p) the presented financial statements of the Borrower have
been reviewed and approved by the Lender; and (q) a good standing
certificate of each of the Borrower and the Leasing Agent or the
equivalent thereof issued by the appropriate governmental authorities
of the Borrower's and Leasing Agent's jurisdiction of incorporation.
3.2 The Lender shall not be obliged to make any Advance subsequent to the
initial Advance available to the Borrower hereunder until (a) the Commitment Fee
payable up to the date of the relevant Advance has been paid, (b) the Lender
shall have received evidence to its satisfaction that no Default has occurred
and is continuing and there has been no Material Adverse Change in the financial
condition of the Borrower (subject always to compliance with the provisions of
Subsections (g), (h), (i) and (j) of Subsection 11.1) since the date of the next
preceding Advance, (c) the Borrower shall have executed and delivered to the
Lender a Supplement (as defined in and required pursuant to the terms of the
Security Agreement) to the Security Agreement identifying the particular
Equipment in respect of which the relevant Advance is being made and (d) the
Lender has received (x) such certifications and/or other documents, satisfactory
to it, that confirm the then current effectiveness of the relevant items set
forth in Subsection 3.1 of this Section 3; and/or (y) such supplements,
additional filings, applications, registrations and other documents, reasonably
required by it, relating to the Equipment being financed by such Advance and
evidencing adherence of such Equipment to the relevant conditions set forth in
Subsection 3.1 including, but not limited to the requirements of 3.1(o); and (z)
such legal opinions as the Lender may require.
3.3 The Borrower agrees to provide the Lender, within ninety (90) days from draw
down of each Advance, newly issued Certificates of Title for each related Unit
of the Equipment indicating the first priority lien of the Lender and no other
liens together with such legal opinions with respect thereto as the Lender shall
require.
3.4 If the Lender makes the Facility or any Advance thereunder available to the
Borrower notwithstanding the failure of the Borrower to procure the fulfillment
of any of the terms of Sections 3.1, 3.2 or 3.2 prior to drawdown of any
Advance, the Borrower will within seven (7) days after the making of such
Advance procure the fulfillment of all such relevant conditions, without
prejudice to the ability of the Lender thereafter to exercise any of its other
rights hereunder or under any of the Security Documents and declare an Event of
Default hereunder.
4. THE FACILITY
4.1 The Facility shall be made available for the exclusive purposes of
part-financing the purchase of the Equipment. The Lender hereby agrees with the
Borrower, upon the terms and subject to the conditions hereof, that the Facility
shall initially be made available to the Borrower on a revolving credit basis up
to and including the Business Day preceding the Conversion Date. Subject to the
terms and conditions of this Agreement, during the Availability Period, the
Lender shall make the Maximum Available Amount available to the Borrower.
4.2
Subject to the terms and conditions of this Agreement, during Availability
Period, the Borrower may elect, and in its sole discretion, the Lender may
agree, to extend the term of the Availability Period for an Additional
Availability Period. If the Borrower elects to so extend the term of the
Availability Period, the Borrower shall provide the Lender with a sixty (60) day
prior irrevocable written request, delivered not later than the day falling
sixty (60) days prior to the applicable anniversary hereof. Upon receipt of any
of the foregoing request, the Lender shall inform the Borrower in writing within
thirty (30) days of the Lender's decision (in its sole discretion) whether to so
extend the Availability Period. Except as specifically provided for in Section
13.5, each provision of this Agreement which is applicable to or in effect
during the Availability Period, will also be applicable to and in effect
throughout any Additional Availability Period. Anything herein to the contrary
notwithstanding, the Availability Period may be extended by not more than three
(3) Additional Availability Periods.
4.3 The Lender shall make the Advances available on the Drawdown Dates during
the Availability Period. Each Advance under the Facility shall be in the minimum
amount of One Hundred Thousand United States Dollars (US$100,000). The aggregate
principal amount of the Advances outstanding at any time shall not exceed the
lesser of (a) the Maximum Available Amount or (b) the Asset Base.
4.4 The Borrower may draw down an Advance on any Business Day during the
Availability Period.
4.5 If at any time it is unlawful or otherwise impossible for the Lender to
make, fund or allow to remain outstanding the Facility or any Advance hereunder,
the Lender shall not thereafter be obliged to hold the Facility available for
drawdown and the amount of the Facility shall be reduced to zero.
5. DRAWDOWN
5.1 The Borrower shall give the Lender, not less than three (3) Business Days
prior to each drawdown, written notice of its intention to draw an Advance, such
notice to be in a form and to contain payment instructions which are acceptable
to the Lender and to be accompanied by an Asset Base Certificate calculated for
the Drawdown Date and as though the proposed Advance had been drawndown.
5.2 Such notice shall (i) state the date, which must be a Business Day, on which
an Advance is to be drawn, (ii) state the amount of the Advance to be drawn,
(iii) specify the initial Interest Period for such Advance, (iv) be irrevocable,
and (v) constitute a representation and warranty that as at the date thereof the
representations and warranties set out in Section 2 hereof are true and that no
Default or Event of Default has occurred and is continuing.
5.3 In the event that, on any date, specified for the making of an Advance in
any Drawdown Notice, the Lenders shall not be required under this Agreement to
make such Advance available under this Agreement, the Borrower shall indemnify
and hold the Lender fully harmless against any losses which the Lender or any
thereof may sustain as a result of borrowing or agreeing to borrow funds to meet
the drawdown requirement of the Borrower and the certificate of the Lender
shall, absent manifest error, be conclusive and binding on the Borrower as to
the extent of any such losses.
6. PAYMENTS
6.1 The Borrower shall be obliged to make all payments of principal, interest or
otherwise in respect of its Obligations hereunder or any part thereof in freely
available funds in United States Dollars at the time when the relevant payment
falls due.
6.2 All risks, liabilities, costs and expenses or otherwise howsoever or
whensoever incurred in connection with or in pursuance of any payment shall be
for the account of the Borrower and any monies which may become due from the
Borrower to the Lender from time to time hereunder shall be payable to the
Lender on demand and all such amounts shall be deemed to be included in the
Obligations hereunder and secured by the Security Documents.
7. INTEREST, RATE AND DEFAULT RATE
7.1 During the Facility Period, each Advance shall bear interest at the
Applicable Rate which shall be the rate per annum which is equal to the
aggregate of (a) LIBOR for the applicable Interest Period (determined in
accordance with Subsection 7.3) plus (b) the Margin. Any principal payment with
respect to the Facility not paid when due, whether on a Repayment Date or by
acceleration, shall bear interest thereafter at a rate per annum of two percent
(2.0%) over the Applicable Rate in effect with respect to such payment at the
time of such default (the "Default Rate").
7.2 LIBOR shall be determined by the Lender on the Quotation Date falling prior
to the first day of the relevant Interest Period (as certified by the Lender,
which certification shall, absent any manifest error, be conclusive and binding
on the Borrower). The Borrower shall be promptly notified in writing of such
determination of the Applicable Rate. Absent manifest error, such determination
shall be conclusive and binding upon the Borrower.
7.3 For
purposes of funding any Advance, the Borrower may select Interest Periods of one
(1), three (3) or six (6) months (or for such other periods as the Lender may,
in its sole discretion agree), provided, however, that (a) at all times the
Borrower must select an Interest Period for a portion of each Advance so that
sufficient deposits shall mature on each Payment Date to cover the principal
installments due on such dates and (b) no more than two (2) Interest Periods may
be running simultaneously. No Interest Period may extend beyond the Final
Payment Date. The Borrower shall give the Lender an Interest Notice specifying
the Interest Period selected at least three (3) Banking Days prior to the end of
any then existing Interest Period. If at the end of any then existing Interest
Period the Borrower fails to give an Interest Notice, the relevant Interest
Period shall be three (3) months. The Borrower's right to select an Interest
Period shall be subject to the restriction that no selection of an Interest
Period shall be effective unless the Lender is satisfied that the necessary
funds will be available to the Lender for such period and that no Event of
Default or event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default shall have occurred and be continuing.
7.4 The Borrower agrees to pay interest on each Advance on the last day of each
Interest Period and on the Repayment Date applicable to such Advance and at such
other times as interest is required to be paid by Lender on the deposits
acquired thereby to fund the relevant Advance, or any portion thereof; and
7.5 If interest would, under Subsection 7.4, be payable on a day which is not a
Banking Day, it shall then be payable on the next following Banking Day, unless
such next following Banking Day falls in the following month in which case it
shall be payable on the Banking Day immediately preceding the day on which such
interest would otherwise be payable.
7.6 All interest shall accrue and be calculated on the actual number of days
elapsed and on the basis of a three hundred sixty (360) day year.
8. PREPAYMENT/REPAYMENT/TERMINATION
8.1 During the Availability Period, the Borrower may prepay any Advance on any
Business Day, in whole or in part, without penalty or premium (in Dollars in
freely available same-day funds equal to or exceeding One Hundred Thousand
Dollars ($100,000)), by giving the Lender not less than three (3) Business Days
prior written notice (which notice shall be irrevocable and shall specify the
date and amount of prepayment). During the Availability Period the Borrower may
from time to time borrow and reborrow Advances pursuant to Section 4 and repay,
on the last day of an Interest Period applicable thereto, Advances pursuant to
this Section 8.
8.2 The Borrower may terminate the Facility in whole, but not in part, on a
Business Day falling prior to the Conversion Date by giving the Lender sixty
(60) days irrevocable prior written notice of such termination; such notice to
specify the effective date of termination, which date may not fall later than
the Business Day immediately preceding the Conversion Date. If the Facility is
so terminated by the Borrower, the Borrower agrees to pay to the Lender a
termination fee of One Hundred Fifty Thousand United States Dollars (US$150,000)
on the effective date of termination.
8.3 If on the Conversion Date the Outstanding Principal Balance is equal to less
than sixty six percent (66%) of the Maximum Available Amount of the Facility,
the Borrower shall pay a supplemental fee to the Lender equal to one percent
(1%) of the difference between (i) the Maximum Available Amount and (ii) the
Outstanding Principal Balance on the Conversion Date, however, the Lender may,
in its sole discretion elect to waive such requirement, any such waiver to be in
writing.
8.4 If at any time during the Availability Period and on the Conversion Date,
the Outstanding Principal Balance of the Facility exceeds the Asset Base as
evidenced by the Asset Base Certificate most recently received by the Lender,
the Borrower shall immediately prepay a portion of the Outstanding Principal
Balance in an amount equal to such excess. Any mandatory prepayment of the
Outstanding Principal Balance made pursuant to this Subsection 8.4 shall be
accompanied by all amounts equal to accrued and unpaid fees and interest payable
to the Lender under this Agreement, and shall be applied: first, to accrued and
unpaid fees; second, to accrued and unpaid interest; and third, to the unpaid
Outstanding Principal Balance of the Facility.
8.5 The Borrower shall repay the Facility in twenty-four (24) consecutive
installments on the Repayment Dates. The principle amount of each installment
shall be equal to two percent (2%) of the Purchase Price of the Equipment owned
by the Borrower as of the Conversion Date. In addition, on the Final Repayment
Date, the Borrower shall repay to the Lender the twenty-fourth installment
together with (a) a balloon payment equal to the then Outstanding Principal
Balance and (b) such other amounts necessary to repay in full all Obligations
under this Agreement, the Promissory Note and the Security Documents.
8.6 If the Borrower prepays any amounts of the Outstanding Principal Balance
either voluntarily or pursuant to Section 9.7 during the Repayment Period, the
Borrower shall pay a prepayment penalty as follows:
(a) If the Facility is prepaid in whole or in part during the first
year of the Repayment Period, one percent (1%) of the Outstanding
Principal Balance which has been prepaid;
(b) If the Facility is prepaid in whole or in part during the second
year of the Repayment Period, three quarters of one percent (.75%) of
the Outstanding Principal Balance which has been prepaid;
(c) If the Facility is prepaid in whole or in part during the third
year of the Repayment Period, one half of one percent (.5%) of the
Outstanding Principal Balance which has been prepaid; and
(d) If the Facility is prepaid in whole or in part during the fourth
year of the Repayment Period, one quarter of one percent (.25%) of the
Outstanding Principal Balance which has been prepaid.
8.7 Any prepayments made pursuant to Subsection 8.6 shall be in an amount equal
to or exceeding Five Hundred Thousand United States Dollars (US$500,000) and in
integral multiples of Fifty Thousand United States Dollars (US$50,000). Any
prepayment made pursuant to Subsection 8.6 shall be made on the last day of any
Interest Period, upon giving to the Lender not less than ten (10) Business Days
prior written notice (which notice shall be irrevocable) specifying the amount
and date of prepayment.
8.8 With respect to any early termination of the Facility, or any whole or
partial prepayment of the Facility during the Availability Period or the
Repayment Period, the Borrower shall indemnify and hold the Lender fully
harmless against any losses including without limitation breakfunding losses
which the Lender may sustain as a result of the Borrower's prepayment and the
certificates of the Lender shall, absent manifest error, be conclusive and
binding on the Borrower as to the extent of any losses sustained by the Lender.
8.9 Any prepayment of the Facility during the Repayment Period shall be applied
in or towards satisfaction of the repayment installments of the Facility in
inverse order of maturity
9. EVENT OF LOSS OR SALE OF EQUIPMENT; MANDATORY PREPAYMENT
9.1 In the event that prior to repayment of all of the Borrower's Obligations
hereunder, one or more Units:
(a) shall suffer an actual or constructive total loss;
(b) shall exceed the Maximum Age;
(c) shall suffer destruction or damage, which makes repair uneconomic
or renders such Unit unfit for commercial use; or
(d) shall have title thereto taken or appropriated, or the use taken
or requisitioned by any governmental authority under the power of
eminent domain or otherwise for a period extending beyond the earlier
of (a) three (3) months after the date of such taking or requisition,
or (b) the Final Repayment Date,
any such occurrence, being hereinafter called an "Event of Loss", the Borrower
shall promptly and fully inform the Lender of such Event of Loss.
9.2 During the Facility Period, not later than thirty (30) days following the
date of occurrence (the "Loss Date") of an Event(s) of Loss in respect of any
Unit, the Borrower shall notify as to its election either to prepay the
Outstanding Principal Balance in respect of such Unit or to replace such Unit,
however, the Lender may, in its sole discretion, elect to waive such requirement
for prepayment or replacement, any such waiver to be in writing. If the Borrower
elects to replace such Unit, it shall have ninety (90) days from the date of its
said notice to the Lender to replace such Unit with new or other Unit(s) which
are of similar age, value and product characteristics, failing which, the
Borrower shall become obligated to pay to the Lender, in prepayment of the
Outstanding Principal Balance an amount equal to the Loan Value (as hereinafter
defined) of such Unit plus interest accrued and unpaid thereon according to the
Agreement. Any prepayment made pursuant to this Subsection 9.2 shall be made not
later than the day falling one hundred twenty (120) days following the Loss Date
or the Final Repayment Date (whichever falls earlier) and shall accompanied by
(a) the prepayment fee applicable under Subsection 8.6 together with the break
funding costs, if any, for the Lender incurred by such prepayment and (b)
evidence of (i) the type and extent of the Event of Loss, (ii) the insurance
claim by the Borrower and (iii) any other document or materials reasonably
requested by the Lender.
9.3 For purposes of this Section, the "Loan Value" in respect of any Unit shall
be an amount equal to the product of (i) a fraction, the numerator of which is
an amount equal to the original equipment cost of such Unit which has suffered
an Event of Loss, and the denominator of which is the total original equipment
cost of the Equipment then subject to the Security Agreement, times (ii) the
Outstanding Principal Balance immediately prior to the payment provided for by
this Section 9.
9.4 Any and all amounts received by the Lender in connection with an Event of
Loss which exceed the amount required to be paid to the Lender pursuant to
Subsection 9.2 shall be paid to the Borrower or to whomever is entitled thereto.
9.5 With respect to any replacements of Units pursuant to this Section 9, the
Borrower shall execute and file, as the case may be, such supplements,
amendments and other documents and make such registrations as may be necessary
or desirable to create and perfect the Lender's interest in such replacements
pursuant to the Security Documents, including without limitation supplements to
each of the Security Documents; and for purposes of this Agreement and the
Security Documents, such replacements shall be deemed "Equipment" as herein and
therein defined and used. With respect to any prepayments pursuant to this
Agreement, including without limitation this Section 9, the Lender shall execute
and deliver such supplements, amendments, forms and other documents as may be
necessary or desirable to remove and release the Unit(s) with respect to which
such prepayment is being made from the terms and effect of this Agreement and
from the terms, effect, security interest, and lien of the Security Documents.
9.6 In the event that during the Availability Period, and prior to repayment of
all of the Borrower's Obligations hereunder, one or more Units is sold,
transferred or otherwise disposed of by the Borrower, as the case may be, the
Borrower shall notify the Lender within thirty (30) days of such sale, transfer
or other disposal as to its election either to prepay the Outstanding Principal
Balance in respect of such Units or to replace such Units, however, the Lender
may, in its sole discretion, elect to waive such requirement for prepayment or
replacement, any such waiver to be in writing. If the Borrower elects to replace
such Units, it shall have ninety (90) days from the date of its said notice to
the Lender to replace such Units with new or other Unit(s) which are of similar
age, value and product characteristics, failing which, the Borrower shall become
obligated to pay to the Lender, in prepayment of the Outstanding Principal
Balance an amount equal to the Loan Value of such Units plus interest accrued
and unpaid thereon according to the Agreement. Any prepayment made pursuant to
this Subsection 9.6 shall be made not later than the day falling one hundred
twenty (120) days following the date of sale, transfer or disposal or the Final
Repayment Date (whichever falls earlier) and shall accompanied by the prepayment
fee equal to one percent (1.0%) of the amount so prepaid together with the break
funding costs, if any, for the Lender incurred by such prepayment. Such
prepayment shall be made on the next succeeding date on which interest is to
scheduled be paid.
9.7 In the event that during the Repayment Period, and prior to repayment of all
of the Borrower's Obligations hereunder, one or more Units is sold, transferred
or otherwise disposed of by the Borrower, as the case may be, the Borrower shall
become obligated to pay to the Lender, in prepayment of the Outstanding
Principal Balance, an amount equal to one hundred (100) percent of the cash (and
non-cash) proceeds of the sale plus interest accrued and unpaid on the Loan
Value of the Unit(s) sold, transferred or otherwise disposed of. Any prepayment
made pursuant to this Subsection 9.7 shall be made not later than the day
falling one hundred twenty (120) days following the date of sale, transfer or
disposal or the Final Repayment Date (whichever falls earlier) and shall
accompanied by the prepayment fee applicable under Subsection 8.6 together with
the break funding costs, if any, for the Lender incurred by such prepayment.
Such prepayment shall be made on the next succeeding Repayment Date during each
year that this Agreement is in effect.
10. FINANCIAL INFORMATION
10.1 So long as any amounts remain outstanding hereunder, the Borrower will
cause to be delivered to the Lender:
(a) within sixty (60) days after each calendar quarter the unaudited
quarterly financial statements of the Borrower certified as to their
correctness by a duly authorized officer of the Borrower;
(b) within one hundred twenty (120) days after each fiscal year the
audited annual financial statements of the Borrower; and
(c) all such other information as the Lender may from time to time
reasonably request about the business, assets and financial condition
of the Borrower, the Leasing Agent and the Lessees and about the
operation and condition of the Equipment.
11. COVENANTS
11.1 So long as any amounts remain outstanding hereunder, each of the Borrower
and, by its execution of the consent and agreement below, the Leasing Agent
covenant with the Lender that, unless the Lender has otherwise waived such
covenants in writing, the Borrower and Leasing Agent will:
(a) duly perform all of their obligations under this Agreement, the
Promissory Note, the Security Documents and the Leases to which it is
a party;
(b) not, without the prior written consent of the Lender, permit any
change in the ownership or management of the Equipment;
(c) neither permit any debt or contingent liability of the Borrower or
any other person to be secured by means of a security interest or
other encumbrance over the Equipment except for (i) the security
interest over the Equipment pursuant to the Security Agreement and
(ii) liens arising in the ordinary course of business and by operation
of law as regards debts not yet due or payable, or if they are due or
payable, are being contested in good faith and by appropriate
proceedings and for which adequate reserves are being maintained;
(d) notify the Lender promptly of the occurrence of any event of
default under any loan, debt, guarantee or other obligation
constituting Indebtedness incurred by the Borrower or the Leasing Agent
or any affiliate of either thereof and of the steps being taken to
nullify or mitigate the effect of any such event of default or default;
(e) ensure that the Equipment is maintained and insured as required
pursuant to the terms of the Security Agreement;
(f) not later than thirty (30) days following the end of each quarter
during the Facility Period provide the Lender with an Asset Base
Certificate for such quarter;
(g) procure that the Borrower maintains a Debt Service to Coverage
Ratio of not less than 150%;
(h) procure that the Borrower maintains at all times a Consolidated
Net Worth of not less than $40,000,000 plus the sum of 50% of
Consolidated Net Income for all periods commencing on and after July
1, 1996;
(i) procure that the Borrower maintains a Consolidated Interest
Coverage Ratio, as at the last day of any of the Borrower's fiscal
quarters, of not less than 225%;
(j) procure that the Borrower maintains at all times a Funded Debt to
Consolidated Net Worth Ratio of not more than 200%;
(k) not later than sixty (60) days following the end of each fiscal
quarter during the Facility Period, provide the Lender with a
certificate of the controller or chief financial officer of the
Borrower, evidencing compliance with the provision of Subsections (g),
(h), (i) and (j) of this Subsection 11.1 during such fiscal quarter.
(l) procure that the Borrower will not incur any loan, debt, guarantee
or other obligation constituting Indebtedness relating to the
Equipment, other than the Obligations, without the previous written
consent of the Lender;
(m) neither the Borrower nor the Leasing Agent shall merge or
consolidate with any other entity or sell all or substantially all of
its assets unless the merged company assumes all of the guarantees and
obligations of the Borrower or Leasing Agent, as the case may be, to
the Lender and, further, the merged company shall not be in default
after the consolidation without the Lender's approval; and
(n) neither the Borrower nor the Leasing Agent shall undergo a Change
of Control unless such Change of Control shall not cause the Borrower
or the Leasing Agent to be in default after the Change of Control,
without the Lender's approval.
It is hereby agreed that if either the Borrower or the Leasing Agent fails
to take out or maintain the insurance on the Equipment required to be taken out
and maintained pursuant to this Section, the Lender may (but shall not be bound
to) effect such insurance (without prejudice to any other right of the Lender
arising hereunder or under the Security Agreement by reason of such default) and
the Borrower will on demand pay to the Lender the amount of any expenditure made
in connection therewith, together with interest thereon at the Default Rate
specified in Section 7 from the date such expenditure was incurred to the date
of reimbursement thereof.
11.2 At any time during the Facility Period, the Borrower may request to amend
the covenants set forth in Subsections 11.1 (g), (h), (i) and (j) above in order
to ensure that such covenants remain, in all material respects, identical to the
corresponding covenants set forth in the Note Agreements. The Borrower shall
notify the Lender of its request in a written notice stating the amendments
requested and certifying that such amendments are required in order to ensure
that such covenants remain, in all material respects, identical to the
corresponding covenants set forth in the Note Agreements. Upon receipt of any of
the foregoing request, the Lender shall inform the Borrower in writing within
thirty (30) days of the Lender's decision (in its reasonable discretion) whether
to agree to such amendments. Lender's consent to such request is not to be
unreasonably withheld. Covenants set forth in Subsections 11.1 (g), (h), (i) and
(j) may be amended pursuant to this Subsection 11.2, on only one occasion during
the Facility Period.
12. CURRENCY OF ACCOUNT
12.1 If for the purpose of obtaining or enforcing a judgment in any court in any
country it becomes necessary to convert into any other currency (the "judgment
currency") an amount due in Dollars under this Agreement or any of the Security
Documents then the conversion shall be made, at the discretion of the Lender, at
the rate of exchange prevailing either on the date of default or on the day
before the day on which the judgment is given or the order for enforcement is
made, as the case may be (the "conversion date") provided that the Lender shall
not be entitled to recover under this Section any amount in the judgment
currency which exceeds at the conversion date the amount in Dollars due under
this Agreement or any of the Security Documents.
12.2 If there is a change in the rate of exchange prevailing between the
conversion date and the date of actual payment of the amount due, the Borrower
shall pay such additional amounts (if any, but in any event not a lesser amount)
as may be necessary to ensure that the amount paid in the judgment currency when
converted at the rate of exchange prevailing on the date of payment will produce
the amount then due under this Agreement, the Promissory Note or any of the
Security Documents in Dollars; any excess over the amount due received or
collected by the Lender shall be remitted to the Borrower.
12.3 Any amount due from the Borrower under Subsection 12.2 shall be due as a
separate debt and shall not be affected by judgment being obtained for any other
sums due under or in respect of this Agreement or any of the Security Documents.
12.4 The term "rate of exchange" in this Section 12 means the rate at which the
Lender in accordance with its normal practices is able on the relevant date to
purchase Dollars with the judgment currency and includes any premium and costs
of exchange payable in connection with such purchase.
13. ACCOUNTS AND PAYMENTS; EARNINGS ACCOUNT PLEDGE
13.1 The Lender shall open and maintain a booking account reflecting all sums
falling due from the Borrower and all payments made by the Borrower hereunder.
The booking account opened and maintained pursuant to this Section shall be
prima facie evidence of the sums from time to time due from the Borrower to the
Lender.
13.2 The Borrower shall effect all payments of principal, interest, fees,
charges and so forth to the Lender without setoff and counterclaim, without
imposing any restrictions or conditions, and free of any deductions or
withholdings whatsoever. Should the Borrower be at any time required to deduct
any sum from such payment, the amount due shall be increased by such sum in
order that the net amount received by the Lender following the deduction shall
be the same as that which it would have received had no such deduction been
required. The Borrower hereby covenants that it will, at the request of the
Lender, indemnify the Lender against any losses attributable to such deduction
or withholding.
13.3 All payments to be made by the Borrower hereunder will be made in
immediately available and freely transferable funds, to the Lender's designated
account in The Netherlands through the Lender's clearing bank in New York, New
York, U.S.A. and shall be transferred by no later than 3:00 p.m. (New York
time).
13.4 The Borrower shall open the Earnings Account on or prior to the date
hereof. The Borrower shall pay all Gross Equipment Receivables less accrued
Operating Expenses, into the Earnings Account not later than seven (7) days
following receipt thereof by the Leasing Agent or the Borrower, whichever is the
earlier. All Gross Equipment Receivables on deposit in the Earnings Account
shall be collateral security for the payment and performance by the Borrower of
its Obligations hereunder, under the Promissory Note, and the Security Documents
and the Borrower hereby pledges, assigns and grants to the Lender a security
interest in such monies.
13.5 Subject to the Lender's right to apply any collateral, proceeds of
collateral or any other amounts against the Obligations of the Borrower as
provided in Subsection 16.3, any Gross Equipment Receivables deposited in the
Earnings Account shall be applied by the Borrower or the Depository (as directed
by the Borrower or the Lender):
(a) if an Early Amortization Event has not occurred and is not
continuing:
First:
in payment of all costs and expenses for the time being unpaid
related to enforcement or preservation of any rights of the
Lender under this Agreement, the Promissory Note and the Security
Documents;
Secondly:
in payment of any interest including default interest due under
this Agreement and the Promissory Note for the time being unpaid;
Thirdly:
in payment of any amount of principal of the Facility outstanding
and then due under this Agreement and the Promissory Note;
Fourthly:
in payment of all other sums of whatever nature due or to become
due to the Lender under this Agreement, the Promissory Note and
the Security Documents; and
Fifthly:
the balance (if any) shall be payable to the Borrower or to
whomsoever may be entitled thereto.
(b) If an Early Amortization Event has occurred and is continuing:
First:
in payment of all costs and expenses for the time being unpaid
related to enforcement or preservation of any rights of the
Lender under this Agreement and the Security Documents;
Secondly:
in payment of all direct Operating Expenses then due;
Thirdly:
in payment of any interest (including default interest) due under
this Agreement for the time being unpaid;
Fourthly:
in payment of all amounts of principal of the Facility then
outstanding and due;
Fifthly:
in payment of all other sums of whatever nature due or to become
due to the Lender under this Agreement and the Security
Documents; Sixthly: the balance (if any) shall be payable to the
Borrower or to whomsoever may be entitled thereto.
13.6 The Borrower shall procure that upon the occurrence of an Event of Default
and, at the request of the Lender, Gross Equipment Receivables shall be paid by
the Lessees (or other applicable parties) directly to an account chosen by the
Lender.
13.7 Each determination of a rate of interest by the Lender made by the Lender
under the provisions of this Agreement shall be conclusive and binding on the
Borrower for all purposes of this Agreement except in the case of manifest
error.
14. TAXES
4.1 All payments (whether of principal, interest or otherwise) to be made by the
Borrower hereunder shall be made free and clear of and without deduction for or
on account of any taxes, fees, deductions, withholdings, restrictions or
conditions of any nature and exclusive of any value added tax which may be
applicable thereto. If at any time any applicable law requires the Borrower to
make any such deduction or withholding from any such payment, the sum due from
the Borrower in respect of such payment shall be increased to the extent
necessary to ensure that, after the making of such deduction or withholding, the
Lender receives a net sum equal to the sum which it would have received had no
such deduction or withholding been required to be made. In any such event, and
without prejudice to the Borrower's Obligations hereunder, the Borrower and the
Lender shall negotiate in good faith with a view towards agreeing on terms for
making the Loan available from another jurisdiction or otherwise restructuring
the Facility on a basis which would reduce the Borrower's liability for such
taxes and fees.
14.2 The Borrower shall deliver to the Lender within thirty (30) days after it
has made any payment from which it is required by law to make any deduction or
withholding, a receipt or other document issued by the applicable taxing or
other authorities evidencing the deduction or withholding of all amounts
required to be deducted or withheld from such payment. Upon reasonable request
of the Borrower, the Lender from time to time shall complete, file and/or
deliver to the Borrower as appropriate, such forms and documents as are required
or desirable to be completed by it in connection with any taxes, fees,
deductions, withholdings, restrictions or conditions referred to in this
Subsection 14.2 or elsewhere in this Agreement, including without limitation,
those referred to in Subsection 17.1 hereof.
14.3 Should there be any change in the applicable law, including the
availability to the Borrower, Lender or the Additional Banks (as such term is
defined in Subsection 17.1) of the Income Tax Treaties that currently exempt
payments under this Agreement from withholding taxes, the result of which would
be to require the Borrower to make deductions or withholdings on such payments,
the Borrower may voluntarily prepay all or part of the Outstanding Principal
Balance without the imposition of a pre-payment premium so long as the Borrower,
with such prepayment, pays to, or reimburses the Lender for, the Lender's cost
of liquidating and redeploying fixed deposits which the Lender may have made or
obtained in connection with its making of the Facility.
15. INCREASED COSTS
15.1 If by reason of (i) the introduction of or a change in the interpretation
of any applicable law or regulation or (ii) compliance by the Lender with any
request or requirement of any governmental agency or regulatory authority
(whether or not having the force of law) either (a) the cost to the Lender of
making an Advance hereunder is increased or (b) the Lender is or becomes liable
to pay any tax (other than any tax on any net income of the Lender) on or
calculated by reference to the amount of any Advance made, funded or maintained
by it hereunder or of any sum received or receivable by the Lender on or in
relation to this Agreement, the Borrower shall and hereby covenants that it
will, at the request of the Lender, indemnify the Lender against (x) such
increased cost or (y) such liability.
15.2 The Lender will as soon as practicable give the Borrower notice of any
event which would result in the Borrower being obliged to pay any additional
sums as contemplated in Subsection 15.1. The statement of the Lender as to the
amount of any additional sums payable pursuant to Subsection 15.1 duly signed by
officers of the Lender shall be conclusive and binding on the Borrower and shall
oblige it to pay to the Lender the additional sums therein requested on the date
specified therein. Should any event result in an increased cost equal to or
exceeding one hundred (100) basis points (one percent per annum), the Borrower
may within ninety (90) days of receipt of such notice voluntarily prepay all or
part of the Outstanding Principal Balance without the imposition of a prepayment
premium so long as the Borrower with such prepayment, pays to, or reimburses the
Lender for, the Lender's cost of liquidating and redeploying fixed deposits
which the Lender may have made or obtained in connection with its making of the
Facility.
16. EVENTS OF DEFAULT
16.1 If
(a) the Borrower shall fail to pay within seven (7) days of the due
date or the date of demand, as the case may be, any sum due
hereunder or under the Promissory Note or any Security Document
to which it is a party; or
(b) any representation or warranty made by either the Borrower or the
Leasing Agent in this Agreement or in any Security Document or
any certificate or statement made or delivered hereunder or
thereunder is or proves to have been incorrect in any material
respect when made, or if repeated or deemed repeated at any time
during the continuance of this Agreement, would no longer be
correct and accurate in all material respects; or
(c) any default in the due compliance with the provisions of
Subsection 11.1 of this Agreement; or
(d) either the Borrower or the Leasing Agent defaults in the due
performance and observance of any of the terms, covenants or
conditions of this Agreement or any Security Document to which it
is a party (other than any such term otherwise subject of this
Section 16) and, if and only if such default is capable of
remedy, such default is not remedied within thirty (30) days
after notice thereof is given by the Lender; or
(e) any loan, debt, guarantee or other obligation in excess of
$500,000 constituting Indebtedness of either the Borrower or the
Leasing Agent, becomes due prior to its specified maturity by
reason of default or is not paid when due unless the same is
being contested in good faith and by appropriate proceedings and
adequate reserves are being maintained therefor, and the Lender
has not waived in writing the Event of Default constituted by
such default or non-payment (such waiver subject to any
conditions contained therein); or
(f) pursuant to the terms of the Note Agreements, or any document
executed in connection therewith, any person(s) becomes entitled
to enforce their rights or remedies against the Borrower or any
Subsidiary thereof;
(g) either the Borrower or the Leasing Agent suspends or threatens to
suspend its operations or transfers or disposes of all or a
substantial part of its undertaking or assets; or
(h) either the Borrower or the Leasing Agent (i) is unable or admits
in writing its inability to pay its lawful debts as they mature,
or (ii) makes a general assignment for the benefit of, or a
composition with, its creditors; or
(i) any proceedings are commenced in, or any order or judgment is
given by, any court for the liquidation, winding-up, bankruptcy,
reorganization or reconstruction of either the Borrower or the
Leasing Agent or for the appointment of a receiver or liquidator
or similar officer of either the Borrower or the Leasing Agent or
of all or any part of its assets and is not vacated or stayed
within forty-five (45) days; or
(j) any authorization, approval, consent, license, exemption,
registration, notification or other requirement of any
governmental, state or local authority or public body necessary
for the validity, enforceability or legality of this Agreement or
any Security Document or the performance thereof ceases for any
reason to be in full force and effect; or
(k) there is, after the date hereof, any change in the ownership of
the Equipment; or
(l) any of the Lender's material rights or powers of enforcement
against or in respect of the Equipment under the Security
Documents becomes unenforceable; or
(m) the due performance in accordance with the terms of this
Agreement or any Security Document becomes illegal under the law
of the country of incorporation of any party thereto or under the
laws of the State of New York; or
THEN, and in any such event and at any time thereafter the Lender may take any
or all of the following actions:
(i) by written notice to the Borrower declare the Outstanding
Principal Balance to be immediately due and payable,
whereupon the total of the Obligations shall become so
payable, provided that upon the happening of an Event of
Default specified in Subsection (e), (g) or (h) of this
Subsection 16.1, the total of the Obligations shall be
immediately due and payable without any declaration to the
Borrower being required, and/or
(ii) take all such steps as may be open to it to protect and
enforce the security held by the Lender in respect of the
Borrower's Obligations and the Leasing Agent's obligations
hereunder, under the Promissory Note and under the Security
Documents to ensure compliance by the Borrower and Leasing
Agent with all such obligations, including without
limitation those specified in Subsection (i) above;
and, further, the Borrower will provide the Lender with:
(i) access to the information system (providing the equipment
management and tracking logistics) related to all equipment
owned by the Borrower, the Leasing Agent or any of the
Borrower's Subsidiaries; and
(ii) any and all reasonable assistance, co-operation and
information which in the opinion of the Lender is necessary
in order to ascertain the location and condition of all
equipment owned by the Borrower, the Leasing Agent or any of
the Borrower's Subsidiaries.
16.2 The Borrower agrees to, and shall, indemnify and hold the Lender harmless
against any loss (excluding any consequential damages), as well as against any
reasonable costs or expenses (including reasonable legal fees and expenses),
which the Lender sustains or incurs as a consequence of any default in payment
of the principal amount of the Facility, interest accrued thereon or any other
amount payable under the Promissory Note or any Security Document, including,
but not limited to, all actual losses incurred in liquidating or re-employing
fixed deposits made by third parties or funds acquired to effect or maintain the
Facility and/or any portion thereof. The certification of the Lender of such
costs and expenses shall, absent any manifest error, be conclusive and binding
on the Borrower.
16.3 Except as otherwise provided in any Security Document, all moneys received
by the Lender under or pursuant to this Agreement, the Promissory Note or any of
the Security Documents after the occurrence and continuation of any Event of
Default (unless cured to the satisfaction of the Lender) shall be applied by the
Lender in the following manner:
(a) First, in or towards the payment or reimbursement of any expenses or
liabilities incurred by the Lender in connection with the
ascertainment, protection or enforcement of its rights and remedies
under this Agreement, the Promissory Note or any of the Security
Documents;
(b) Secondly, in or towards payment of any interest owing on the Facility;
(c) Thirdly, in or towards repayment of principal owing in respect of the
Facility;
(d) Fourthly, in or towards payment of all other sums which may be owing
to the Lender under this Agreement, the Promissory Note or any of the
Security Documents; and
(e) Fifthly, the surplus (if any) shall be paid to the Borrower or to
whosoever else may be entitled thereto.
16.4 If the proceeds received by the Lender under this Agreement, the Promissory
Note or any of the Security Documents shall be insufficient to pay the amounts
then due and payable to the Lender as set forth above in this Subsection 16.3,
the Borrower shall forthwith pay any balance of such amounts remaining unpaid to
the Lender or as the Lender directs, and any deficiencies remaining thereafter
may be entered as a judgment against the Borrower in any court of competent
jurisdiction
17. SYNDICATION
17.1 The Lender has the right to syndicate the Facility or any part thereof to a
third party or parties (hereinafter, "Additional Banks"). If and to the extent
the Facility is syndicated, the Lender shall have the right to act as agent or
to appoint a successor as agent (the "Agent") for the Additional Banks under
this Agreement, the Promissory Note and the Security Documents and any and all
documents, certificates and other papers contemplated by, or executed and/or
delivered pursuant to this Agreement, the Promissory Note and any of the
Security Documents. The appointment of any Agent, other than the Lender, shall
be subject to the prior written consent of the Borrower, such consent not to be
unreasonably withheld. All communications under this Agreement, the Promissory
Note or under any Security Document shall be made between the Borrower on the
one hand and the Agent, on the other hand. Additionally, the Borrower shall be
entitled to rely conclusively upon any communication received from the Agent as
having been authorized and sent by and on behalf of the Additional Banks. The
Additional Banks shall be bound by any waiver or modification of this Agreement
made by the Lender and shall be bound if the Lender excuses performance of any
provision set forth in this Agreement, the Promissory Note, the Security
Documents, or any other documents referred to herein or therein. No Additional
Bank shall be entitled to make a demand upon or begin an action against the
Borrower.
All costs of syndication, including legal fees, shall be paid by the
Lender.
As a prerequisite to syndication to an Additional Bank which is organized
under the laws of a jurisdiction outside of the United States of America, the
potential Additional Bank shall agree as follows:
(a) To complete and deliver to the Borrower on or before the date of
the first Advance (or, in the case of a transfer of an interest
in the Facility, on or before the effective date of the transfer)
the following;
(i) United States Internal Revenue Service Form W-8 (certifying
that it is organized in a jurisdiction outside of the United
States of America),
(ii) if it is entitled to benefits under an income tax convention
to which the United States of America is a party
(withbenefits comparable to those contained in the United
States Tax Convention with the Netherlands) and if the
income receivable pursuant to this Agreement is not
effectively connected with the conduct by the Additional
Bank of a trade or business in the United States of America,
Internal Revenue Service Form 1001,
(iii)if the income receivable pursuant to this Agreement is
effectively connected with the conduct by the Additional
Bank of a trade or business in the United States of America,
Internal Revenue Service Form 4224; and
(b) to complete and deliver to the Borrower any successor or
additional forms required to secure an exemption from, or
reduction in the rate of, income tax withholding imposed by the
United States of America, and amend or supplement such forms as
necessary.
17.2 Upon the request of the Lender the Borrower shall agree to participate in
the negotiation and entering into of an agency agreement relating to the
Lender's syndication of the Facility, the form and substance of which agreement
shall be consistent with the terms of this Agreement, including without
limitation Subsection 18.1, and otherwise mutually acceptable to the Borrower,
the Agent and the Lender.
17.3 The Lender agrees to take normal and reasonable precautions and exercise
due care to maintain the confidentiality of all information identified as
"confidential" by the Borrower or the Leasing Agent and provided to it by the
Borrower or the Leasing Agent, in connection with this Agreement or any Security
Document, and neither it nor any of its affiliates shall use any such
information for any purpose or in any manner other than pursuant to the terms
contemplated by this Agreement or any Security Document; except to the extent
such information (i) was or becomes generally available to the public other than
as a result of a disclosure by the Lender or (ii) was or becomes available on a
non-confidential basis from a source other than the Borrower or the Leasing
Agent, provided that such source is not bound by a confidentiality agreement
with the Borrower or the Leasing Agent known to the Lender; provided, however,
that the Lender may disclose such information (A) at the request or pursuant to
any requirement of any Governmental Authority to which the Lender is subject or
in connection with an examination of the Lender by any such authority; (B)
pursuant to subpoena or other court process; (C) when required to do so in
accordance with the provisions of any applicable law or requirement of law; (D)
to the Lender's independent auditors and other professional advisors; and (E) in
connection with any enforcement proceedings under or in connection with this
Agreement, the Promissory Note or any Security Document. Notwithstanding the
foregoing, the Borrower and the Leasing Agent authorize the Lender to disclose
to any Additional Bank, transferee of assignee of the Lender and to any
prospective Additional Bank, transferee or assignee of the Lender, such
financial and other information in the Lender's possession concerning the
Borrower and the Leasing Agent which has been delivered to the Lender pursuant
to this Agreement or which has been delivered to the Lender by the Borrower or
the Leasing Agent in connection with the Lender's credit evaluation of the
Borrower or the Leasing Agent prior to entering into this Agreement; provided
that, unless otherwise agreed by the Borrower or the Leasing Agent, such
Additional Bank, transferee or assignee of the Lender, agrees in writing to the
Lender to keep such information confidential to the same extent required of the
Lender hereunder.
18. BENEFIT OF AGREEMENT
This Agreement shall be binding on and enure to the benefit of the Borrower
and the Lender and their successors and assigns. The Lender may assign the whole
or part of its rights hereunder, under the Promissory Note or under the Security
Documents for syndication purposes subject to and in accordance with the terms
and conditions of Section 17 hereof. Neither the Borrower nor the Leasing Agent
may assign any of its rights or obligations hereunder or under the Promissory
Note or any of the Security Documents without the prior written consent of the
Lender.
19. MISCELLANEOUS
19.1 Whenever any sum falls due hereunder on a
non-Business Day it shall, unless stated otherwise, be paid on the next
succeeding Business Day (unless such next Business Day fall in the next
succeeding calendar month in which event the due date for such sums shall be the
immediately preceding Business Day), and any such delay shall be taken into
account in computing any interest or commission payable on such date.
19.2 If the Lender chooses to waive delivery of any document whose delivery is
called for hereunder by a certain date, the Borrower shall procure the delivery
thereof within seven days after that date.
19.3 If at any time any provision hereof is or becomes invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired.
19.4 No failure to exercise nor any delay in exercising on the part of the
Lender of any right or remedy hereunder or under the Promissory Note or under
any Security Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy prevent any further or other exercise
thereof or of the exercise of any other right or remedy. The rights and remedies
provided herein and in the Promissory Note and the Security Documents are
cumulative and not exclusive of any rights or remedies provided by law.
19.5 This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which shall
constitute an original, but all the counterparts together shall constitute but
one and the same instrument.
20. COSTS
20.1 The Borrower shall reimburse the Lender for all reasonable fees and
out-of-pocket expenses (including legal fees to a maximum of $40,000, not
including disbursements or filing agent's fees) incurred by the Lender in
connection with the negotiation, preparation and execution of this Agreement,
the Promissory Note and the Security Documents whether this transaction is
completed or not, unless the transaction fails to close because of the willful
misconduct of the Lender and shall further reimburse the Lender for all fees and
costs incurred by the Lender in the preservation or enforcement of any right
against any of the Borrower hereunder or under the Promissory Note or any
Security Document or in connection with any proposed restructuring in lieu
thereof (except for syndication fees).
20.2 The Borrower shall pay all stamp duty and other duties or taxes to which
any document referred to in Subsection 20.1 is or at any time may be subject and
shall indemnify the Lender against any liabilities, costs, claims and expenses
resulting from any omission to pay or delay in paying any such duty or tax.
20.3 As conclusive proof of the extent of the Borrower's indebtedness arising
out of Sections 20.1 and 20.2 above the Lender shall provide a copy of an entry
in the Lender's books, produced by the Lender and certified by the Lender as
being in agreement with the original.
21. NOTICES
Save as otherwise provided herein, each notice, request or other
communication to be given or made hereunder or under the Promissory Note or the
Security Documents shall be given, unless stated otherwise, in writing or by
telex or telefax number addressed to:
the Borrower:
PLM International Inc.
One Market
Steuart Street Tower, Suite 800
San Francisco, California 94105-1301
Telephone Number: (415) 905 7325
Telefax Number: (415) 905 7326
Attention: Richard Brock
the Lender:
MEESPIERSON N.V.
Coolsingel 93
3012 AE Rotterdam - The Netherlands
Telephone Number: 31.10 401 6160
Telefax Number: 31.10 401 6343
Attention: Hans Hanegraaf
or in either case, to the last published telex number or telefax or address of
such party.
Any notice, request, demand or other communication to be given or
made to the Borrower shall be deemed to have been delivered forty-eight hours
after having been dispatched in an envelope addressed as aforesaid by express
courier, or in the case of notice given by telex, telefax or cable upon
dispatch, or if left at the address of the Borrower aforesaid, at the time it
was delivered.
22. GOVERNING LAW, JURISDICTION, JURY WAIVER
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
The Borrower agrees that any legal action or proceeding arising out
or in pursuance of this Agreement, the Promissory Note or any of the Security
Documents may be brought in the Courts of the State of New York, U.S.A. or in
the United States District Court of the Southern District of New York, which
courts shall have jurisdiction to hear and determine any such legal action or
proceeding. Such submission shall not (and shall not be construed as to) limit
the right of the Lender to commence any proceedings relating to this Agreement,
the Promissory Note or any of the Security Documents in whatsoever jurisdiction
it shall deem fit. The Borrower agrees that any writ, notice, order or judgment
or other legal process or documents in connection with such proceedings may be
served upon the Borrower by delivering the same by mail (airmail, if
international) to the Borrower at the address indicated for notices in Section
21 hereof and that such service shall be deemed good service on the Borrower for
all purposes.
IT IS MUTUALLY AGREED BY AND BETWEEN THE BORROWER AND THE LENDER THAT
EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY
HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT, THE NOTE OR THE SECURITY DOCUMENTS.
IN WITNESS WHEREOF the parties hereto have caused their duly authorized
representatives to execute deliver this Agreement on the day and year first
above written.
PLM INTERNATIONAL, INC.
By:________________________
Name:
Title:
MEESPIERSON N.V.
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
<PAGE>
CONSENT AND AGREEMENT
The undersigned, referred to in the foregoing Agreement as the "Leasing
Agent", hereby consents and agrees to said Agreement and to the documents
contemplated thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed by the undersigned
pursuant to or in connection with said Agreement and particularly agree to be
bound by the representations, warranties and covenants relating to the
undersigned contained in Sections 2, 3, 11 and 17 of said Agreement to the same
extent as if the undersigned were a party to said Agreement.
PLM RENTAL, INC,
as Leasing Agent
By:_________________________
Name:
Title:
<PAGE>
Second Amendment to
PLM International, Inc.
1998 Management Stock Compensation Plan
This Second Amendment to PLM International, Inc. 1998 Management Stock
Compensation Plan (the "Amendment") is made as of May 28, 1999, as authorized
and approved by the Board of Directors of PLM International, Inc. (the
"Company"). All capitalized terms used herein that are not otherwise defined
shall have the same meaning as set forth in the 1998 Management Stock
Compensation Plan, as amended on April 29, 1999 (the "Plan").
WHEREAS, Section 12 of the Plan provides that, upon the occurrence of a
Change in Control (as defined in the Plan), the Board may in its absolute
discretion, and among other things, 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.
WHEREAS, the Board has determined to amend the Plan to provide that
upon the occurrence of a Change in Control, the vesting of Awards granted under
the Plan shall automatically accelerate and any restrictions on such Common
Shares acquired by a participant pursuant to the grant, vesting or exercise of
an Award shall fully lapse.
WHEREAS, Section 17 of the Plan allows the Board to take action to
amend the Plan as described above.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Automatic Acceleration. The first paragraph of Section 12
(Acquisitions and Other Transactions) of the Plan is hereby deleted and replaced
in its entirety as follows:
"Upon the occurrence of a Change in Control (as defined below),
any vesting schedule to which an Award is subject shall automatically
accelerate so that such Award shall be fully vested as of the
occurrence of the Change in Control; and 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
shall automatically lapse.
2. Express Amendment. Except as specifically amended herein, the Plan
shall remain unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be
executed as of the date first written above.
PLM INTERNATIONAL, INC.
By: ___________________________
Title: ___________________________
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
this 1st day of January, 1999, by and between American Finance Group, Inc. (the
"Company") and ____________________ ("Employee").
WHEREAS, Employee currently holds the position(s) of _________________ of
the Company; and
WHEREAS, the Company's sole shareholder, PLM International, Inc.
("PLMI") recently announced publicly that its Board of Directors has engaged
Legg Mason Wood Walker, Incorporated to explore strategic alternatives for the
Company; and
WHEREAS, such announcement has led to uncertainty regarding the future
path of the Company and the long-term prospects for executive employment with
the Company; and
WHEREAS, Employee is an "employee at will", and as such the Company is
not legally obligated to continue his/her employment for any fixed period of
time; and
WHEREAS, the Company's Board of Directors ("Board") believes it is
important to the enhancement of shareholder value that, notwithstanding such
uncertainty, Employee continue his/her employment with the Company in order that
the Company can benefit from the continued availability of Employee's services
for a period continuing until after PLMI has completed its evaluation of
strategic alternatives regarding the Company and, should PLMI engage in any form
of transaction involving the Company to increase shareholder value, continuing
for a period of time after such transaction has been consummated; and
consequently, the Board intends to provide the incentives set forth herein for
Employee to remain in the Company's employ during such period; and
WHEREAS, as an additional inducement for Employee to remain in the
employ of the Company both before and after a change in control transaction,
this Agreement provides that certain severance benefits will be paid to Employee
in the event Employee's employment is terminated by the Company without cause or
by Employee for good reason following the execution of this Agreement through
June 30, 2000;
NOW, THEREFORE, in consideration of the above premises and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee agree as follows:
1. Services. The Company hereby engages the exclusive services of Employee
as [title] with the powers and duties in that capacity consistent with the
powers and duties exercised by Employee as [ title ] as of the date hereof, and
as determined by the Board from time to time. Employee hereby agrees to perform
such services on the terms and conditions herein contained and to abide by all
rules and regulations for conduct that are now or may hereafter be reasonably
established by the Company. Employee shall be based at the principal executive
offices of the Company, except for required travel on the Company's business to
an extent substantially consistent with present business travel obligations.
2. Agreement Term. The term of this Agreement shall be from January 1, 1999
through June 30, 2000. Employee's employment under this Agreement shall continue
during the term of this Agreement unless terminated sooner pursuant to Sections
10 or 11 of this Agreement, and after the term of this Agreement, Employee's
employment shall continue at-will.
3. Compensation. The Company shall pay to Employee as full compensation for
all services performed for the Company, the sum of [amount] Dollars ($ ) per
year, or such higher amount as may be agreed to by the Company and Employee from
time to time (the original amount or the adjusted amount, if applicable, being
the "Base Salary"), payable in equal semi-monthly installments. Employee's
compensation may be adjusted from time to time, but it may not be reduced below
the Base Salary without Employee's prior written consent. The Company may deduct
and withhold from all payments to be made to Employee hereunder amounts required
or, with Employee's written consent, permitted to be deducted or withheld
pursuant to any provisions of any applicable law or regulation, together with
the right and authority to pay any such deductions or withholdings over to any
party entitled to the same pursuant to the provisions of any such law or
regulation.
4. Bonus.
A. Incentive Bonus. Employee shall be eligible to participate
in any bonus or incentive compensation plan in effect from time to time for
senior executives of the Company generally (each, an "Incentive Compensation
Plan"). To the extent not otherwise determined pursuant to the terms of any
Incentive Compensation Plan, (a) the Board shall have the sole discretion to
determine the amount of bonus or incentive compensation ("Incentive Bonus")
payable under such Incentive Compensation Plan, if any, and (b) Employee shall
not be entitled to payment of any Incentive Bonus unless he/she is employed by
the Company on the date such bonus is paid. Notwithstanding the foregoing, the
Company shall within thirty (30) days following a Change in Control (as defined
in Section 12 hereof), pay to Employee the amount, if any, of any Incentive
Bonus which the Board determines in its sole discretion has been earned by
Employee during the performance period ending as of the date the Change in
Control occurs, so long as Employee is employed by the Company as of the date
the Change in Control occurs.
B. Retention Bonus. The Company agrees to pay to Employee a
retention bonus under either of the following circumstances:
(i) In the absence of a Change in Control, during the
period of one (1) year following the date of this
Agreement, Employee shall have remained employed by
the Company continuously throughout such period; or
(ii) In the event a Change in Control does occur within
one (1) year following the date of this Agreement,
Employee shall have remained employed by the Company
or its successor continuously throughout the period
of six (6) consecutive months from the date of the
Change of Control.
The amount of the retention bonus payable under this Section 4(B)
shall be Dollars ($ ) [see amount for each employee on attached summary]. The
retention bonus shall be paid to Employee in cash within thirty (30) days after
the date on which Employee satisfies the conditions of either Section 4(B)(i) or
Section 4(B)(ii) above, whichever is applicable. No amount paid to Employee as a
retention bonus hereunder shall be deemed to be in lieu of a bonus or incentive
compensation, if any, payable to Employee pursuant to any Incentive Compensation
Plan.
5. Other Benefits. During the term of this Agreement, the Company shall
maintain, and Employee shall be entitled to continue to participate in, all of
the Company's employee benefit plans and arrangements in effect on the date
hereof in which Employee participates; or such other plans or arrangements that
would provide Employee with substantially equivalent benefits thereunder
(including without limitation each pension and retirement plan and arrangement,
life insurance plan and arrangement, health and accident plan and arrangement,
medical insurance plan and arrangement, disability plan and arrangement and
vacation plan) (the "Employee Benefit Plans"); provided, however, that this
Section 5 shall not apply to any of the Company's Incentive Compensation
Plan(s), the terms of which shall prevail. The Company shall not make any
changes in such plans or arrangements which would adversely affect Employee's
rights or benefits thereunder, unless such change occurs pursuant to a program
applicable to all employees or executives of the Company and does not result in
a proportionately greater reduction in the rights of or benefits to Employee as
compared with any other employee or executive of the Employer. Employee shall be
entitled to participate in and receive benefits under any Employee Benefit Plan
or arrangement made available by the Company in the future to its employees,
executives or key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements. Nothing paid to Employee under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
Base Salary payable to Employee pursuant to Section 3 hereof or any amount
payable to Employee pursuant to an Incentive Compensation Plan or retention
bonus as provided in Section 4 hereof.
6. Other Interests. Employee shall devote his/her full business time
and attention solely to the business and interests of the Company, and the
Company shall be entitled to all the benefits arising from or incident to
Employee's services. During the term of Employee's employment hereunder,
Employee shall not, without the Company's written consent, have any interest in
any business which competes either directly or indirectly with the Company's or
PLMI's business, except that Employee may hold an interest not exceeding five
percent (5%) in any corporation whose stock is publicly traded.
7. Confidentiality. It is specifically understood and agreed that some
of the Company's business activities are secret in nature and constitute trade
secrets, including but not limited to the Company's, PLMI's or any of their
subsidiaries' (the "Subsidiaries") "know-how," methods of production and
manufacturing, ideas and results of research and development, specifications of
equipment and materials, profit margins, planning information, projections,
customer and supplier information, reports, analyses, agreements, as well as
financial data and reports (collectively, the "Confidential Information"). All
Confidential Information is and shall be the property of the Company and/or PLMI
for each of their own exclusive use and benefit, and Employee agrees that he/she
will hold the same in strictest confidence and will not at any time, either
during or after his/her employment by the Company, communicate or divulge any
such Confidential Information to anyone other than the Company and those
designated by it, or use or permit the use of the same for his/her own benefit
or for the benefit of others unless authorized to do so by the Company's prior
written consent or by a contract or agreement to which the Company is a party or
by which it is bound. Employee's undertakings set forth in this Section 7 are in
addition to, and not in substitution of, any other obligation the Employee have,
whether by other agreement or imposed by law, regarding confidentiality and
disclosure of information, knowledge or data relating to the Company, PLMI and
their Subsidiaries.
8. Services Furnished. During the term of Employee's employment with
the Company, the Company shall furnish Employee with office space, secretarial
assistance and such other facilities and service as have heretofore been
furnished to Employee.
9. Other Positions. Employee agrees to serve without additional
compensation if elected or appointed a director of the Company or any of its
subsidiaries, provided that Employee is indemnified for serving in any and all
such capacities on a basis no less favorable than is currently provided other
directors of the Company and its subsidiaries.
10. Termination by the Company. Employee's employment hereunder may be
terminated by the Company without any breach of this Agreement under the
following circumstances:
10.1 Death or Disability. The Company may terminate Employee's
employment hereunder either before or following a Change in Control under the
following circumstances:
A. Death. Employee's employment hereunder shall
automatically terminate upon his/her death.
B. Disability. If, as a result of Employee's incapacity due
to physical or mental illness, Employee shall have been absent or substantially
absent from his/her duties hereunder for a period of six (6) consecutive months,
and within thirty (30) days after a Notice of Termination (as hereinafter
defined) is given, which Notice of Termination may be given before or after the
end of such six month period, Employee shall not have returned to the
performance of his/her duties hereunder on a full-time basis, Employee's
employment shall terminate upon the expiration of such thirty (30) days.
Employee's absence or substantial absence from his/her duties will be treated as
resulting from incapacity due to physical or mental illness if Employee is
"totally disabled from his/her own occupation." Total disability from Employee's
own occupation will exist where (1) because of sickness or injury, Employee
cannot perform the important duties of his/her occupation, (2) Employee is
either receiving Doctor's Care or has furnished written proof acceptable to the
Company that further Doctor's Care would be of no benefit, and (3) Employee does
not work at all. Doctor's Care means regular and personal care of a Doctor
which, under prevailing medical standards, is appropriate for the condition
causing the disability.
10.2 Without Cause. The Company may terminate Employee's employment
during the term of this Agreement without cause, either before or following a
Change in Control, in the sole, absolute and unreviewable discretion of the
Company, by a Notice of Termination given by the Chairman of the Board stating
that the Board has determined that it is in the best interests of the Company or
its shareholders to terminate Employee's employment hereunder.
10.3 For Cause.
A. The Company may terminate Employee's employment during
the term of this Agreement for Cause, either before or following a Change in
Control, by a Notice of Termination given by the Chairman of the Board setting
forth one of the reasons specified in Section 10.3(B), below.
B. For purposes of this Agreement, "Cause" shall mean:
(i) The willful and continued failure by Employee to
perform his/her duties hereunder (other than any
failure resulting from Employee's incapacity due to
physical or mental illness), which has not been cured
within ten (10) days after written demand for
substantial performance is delivered by the Company to
Employee, which demand specifically identifies the
manner in which Employee has not substantially
performed his/her duties;
(ii) A willful and intentional act or omission by Employee
which is, in the reasonable determination of the
Company, materially injurious to the Company,
monetarily or otherwise. For purposes of subsection (i)
above and this subsection (ii), no act or omission on
Employee's part shall be considered willful and
intentional unless done, or omitted to be done, by
him/her not in good faith and without the reasonable
belief that his/her action(s) or omission(s) was in the
best interests of the Company;
(iii)The conviction of Employee of, or his/her admission or
plea of nolo contendere to, a crime involving an act of
moral turpitude which is a felony or which results or
is intended to result, directly or indirectly, in gain
or personal enrichment of Employee, relatives of
Employee, or their affiliates at the expense of the
Company; or
(iv) The breach by Employee of any material covenant of this
Agreement which has not been cured within ten (10) days
after written notice detailing such breach is given by
the Company to Employee;
provided, however, that, notwithstanding anything to the contrary contained in
clauses (i) and (ii) of this Section 10.3(B), "Cause" shall be deemed not to
include a refusal by Employee to execute any certificate or document that
Employee in good faith determines contains any untrue statement of a material
fact.
11. Termination by Employee.
A. Employee may terminate his/her employment during the term of this
Agreement upon thirty (30) days' Notice of Termination to the Company for any
reason. If Employee terminates his/her employment hereunder and such termination
is made for any of the reasons listed in Section 11(B) (such reason(s) to be
detailed in the Notice of Termination), such termination shall be deemed to have
been done for good reason ("(Good Reason").
B. Reasons constituting "Good Reason" shall be limited to:
(i) Any breach by the Company of any material provision of this
Agreement which has not been cured within ten (10) days
after written notice detailing such non-compliance is given
by Employee to the Company;
(ii) Any demonstrable and material diminution of the base
compensation, duties, responsibilities, authority or powers
of Employee as they relate to any positions or offices held
by Employee during the term of this Agreement; provided that
Employee provides a reasonable description of any such
diminution(s) and a statement that Employee finds, in good
faith, such diminution to be a material diminution and that,
as such, he/she elects to terminate his/her employment
hereunder for Good Reason;
(iii)The failure of the Company to include Employee in any
Employee Benefit Plan or Incentive Compensation Plan for
which Employee is properly eligible, including the failure
to pay Employee the amount, if any, due and owing Employee
pursuant to any such Employee Benefit Plan or Incentive
Compensation Plan;
(iv) Any requirement by the Company that Employee relocate
his/her primary business office to a geographical area
greater than fifty (50) miles from the Company 's principal
executive offices as existing on January 1, 1999, or if
Employee is based in an office other than the Company's
principal executive offices, fifty (50) miles from the
Company's office where Employee is based as of January 1,
1999.
12. Definitions. The following definitions shall apply for purposes of
this Agreement:
A. Notice of Termination. Any purported termination by the
Company or by Employee shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon. Any purported termination of Employee's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of this paragraph shall not be effective.
B. Date of Termination. "Date of Termination" shall mean, as
applicable, (a) if Employee's employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (provided that Employee shall not
have returned to the performance of his/her duties on a full-time basis during
such thirty (30) day period), (b) the date specified in the Notice of
Termination in compliance with the terms of this Agreement, or (c) if no date is
specified, the date on which a of Termination is given.
C. Change in Control. The term "Change in Control" shall mean
the occurrence of any one of the following events:
(i) Any person or group (a "Person"), within the meaning of
Sections 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), acquiring "beneficial
ownership" ("Beneficial Ownership"), as defined in Rule
13d-3 under the Exchange Act, of securities of the Company
representing more than fifty percent (50%) of the combined
voting power of the Company's then outstanding securities;
provided, however, in determining whether a Change in
Control has occurred, voting securities which are acquired
in a "Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (a) an employee benefit plan (or trust
forming a part thereof) maintained by (1) PLMI, (2) the
Company or (3) any corporation or other Person of which a
majority of its voting power or its voting equity securities
or equity interests is owned, directly or indirectly, by
PLMI or the Company (for purposes of this definition, a
"Subsidiary"), (b) the Company or its Subsidiaries, or (c)
any Person in connection with a Non-Control Transaction" (as
hereinafter defined);
(ii) A merger, consolidation or reorganization (collectively, a
"Transaction") involving the Company unless such Transaction
is a "Non-Control Transaction." A "Non-Control Transaction"
shall mean a Transaction involving the Company where:
(a) The stockholders of the Company immediately before such
Transaction own, directly or indirectly, immediately
following such Transaction, at least fifty percent (50%) of
the combined voting power of the outstanding voting
securities of the corporation resulting from such
Transaction (the "Surviving Corporation") in substantially
the same proportion as their ownership of the voting
securities of the Company immediately before such
Transaction, or
(b) No Person, other than (1) the Company, (2) PLMI, (3) any
Subsidiary, or (4) any employee benefit plan (or any trust
forming a part thereof) maintained the Company, PLMI, or any
Subsidiary, has Beneficial Ownership of more than fifty
percent (50%) of the combined voting power of the Surviving
Corporation's then outstanding voting securities; or
(iii)The sale or other disposition of all or substantially all
of the assets of the Company or PLMI to any Person or
Persons (other than a transfer to PLMI or a Subsidiary of
the Company or PLMI).
For purposes of this Agreement, an event constituting a Change in Control shall
be deemed to have occurred upon the closing or consummation of such event.
Notwithstanding the foregoing provisions of this Section 12(C), a Change in
Control will not be deemed to have occurred with respect to Employee as a result
of an event specified in this Section 12(C) if Employee has a financial interest
in the Change in Control transaction other than as an employee of any successor
to the Company or any Person who purchases all or substantially all of the
Company's assets.
13. Compensation Upon Termination.
13.1 Death. If Employee's employment is terminated by his/her death,
the Company shall pay to Employee's spouse or, if Employee leaves no spouse, to
his/her estate, Employee's full Base Salary through the date of death and,
commencing on the next succeeding day which is the last day of the month, and
monthly thereafter on the last day of each month until a total of three payments
have been made, an amount equal to one twelfth of the Base Salary in effect
immediately prior to Employee's death. The Company shall also pay to Employee's
spouse or, if Employee leaves no spouse, to his/her estate, any accrued but
unused vacation and personal days.
13.2 Termination for Disability. If Employee's employment is
terminated pursuant to Section 10.1(B), the Company shall pay to Employee
his/her full Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given. The Company shall also pay to
Employee any accrued but unused vacation and personal days, and the Company
shall also provide benefits to Employee pursuant to the standard policy of the
Company with respect to terminated disabled employees.
13.3 Termination For Cause. If Employee's employment is terminated for
Cause, either before or after a Change in Control, the Company shall pay
Employee his/her full Base Salary (and any accrued but unused vacation and
personal days) through the Date of Termination at the rate in effect at the time
Notice of Termination is given, and the Company shall have no further
obligations to Employee under this Agreement.
13.4 Termination Without Cause or Termination by Employee For Good
Reason. If, during the term of this Agreement, the Company terminates Employee's
employment hereunder other than for Cause under Section 10.2, Death or
Disability, or (b) Employee terminates his/her employment for Good Reason, the
Company shall pay to Employee the severance benefits described below so long as,
upon the Company's request, Employee enters into a Release (the "Release")
substantially in the form attached hereto as Exhibit A, and such Release is not
revoked before the "Effective Date," as defined in the Release. If the Company
does not request the Release within fifteen (15) days of the Notice of
Termination, this condition shall be deemed waived by the Company.
The severance benefits payable to Employee under this Section
13.4 shall be as follows:
(i) The Company shall pay to Employee his/her full Base Salary
through the Date of Termination at the rate in effect at the
time the Notice of Termination is given and shall pay any
accrued but unused vacation and personal days;
(ii) The Company shall also pay to Employee on the Effective Date
a lump sum amount equal to ( ) months [see time frame for
each employee on attached summary] of Employee's Base Salary
at the highest rate in effect during the twelve (12) months
immediately preceding the Date of Termination, less
customary payroll deductions;
(iii)The Company shall also pay to Employee on the Effective
Date the amount payable as a retention bonus as set forth in
Section 4(B), so long as the Company has not yet paid such
retention bonus to Employee; and
(iv) Employee shall continue to participate in all life
insurance, medical, health, dental and disability plans,
programs or arrangements ("Insurance Plans") in which
Employee participated immediately prior to the Date of
Termination on the same terms as Employee participated
immediately prior to the Date of Termination for the shorter
period of (a) months [same time as severance payments] from
the Date of Termination or (b) Employee's commencement of
full time employment with a new company; provided that
Employee's continued participation is possible under the
general terms and provisions of such plans and programs and
Employee will continue to be obligated to pay the same
employee portion of any premium and any deductible and/or
co-payments associated with such insurance Plans as was
required immediately prior to the Date of Termination.
Employee's right to continued group benefits after any
period covered by the Company will be determined in
accordance with federal and state law.
13.5 Other Termination by Employee. If Employee terminates his/her
employment pursuant to Section 11 hereof for any reason other than Good Reason,
the Company shall pay to Employee his/her full Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given and
any accrued but unused vacation and personal days.
13.6 Mitigation. Employee shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and, except as otherwise provided in Section 13.4(iv), no payment
provided for in this Agreement shall be reduced by any compensation earned by
Employee as the result of employment by another employer after the termination
of his/her employment with the Company.
14. Covenant Not to Compete. In consideration of the mutual terms and
agreements set forth herein, Employee hereby agrees that until the first
anniversary of Employee's Date of Termination, (i) Employee will not recruit any
employee of the Company or its subsidiaries or solicit or induce, or attempt to
solicit or induce, any employee of the Company or its subsidiaries, provided
that nothing herein shall preclude Employee from hiring any person who contacts
Employee for employment and who has not been employed by the Company or its
subsidiaries at any time during the preceding six months, and (ii) provided that
Employee has received (or the Company has committed in writing to pay to
Employee) the severance benefits described in Section 13.4 hereof, Employee will
not solicit, divert or take away, or attempt to solicit, divert or take away,
the business or patronage of any of existing clients, customers or accounts of
the Company or its Subsidiaries. For purposes of this Section 14, a client,
customer or account of the Company shall be deemed to be an existing client,
customer or account if such client, customer or account is a party to a Master
Lease with the Company or is being invoiced on a regular basis by the Company as
of the Date of Termination. Notwithstanding anything in this Section 14 to the
contrary, the confidentiality provisions of Section 7 hereof shall continue to
apply in all circumstances arising under this Section 14.
15. Remedies. If Employee violates Section 14 or the confidentiality
provisions of Section 7, and continues to do so after the Company has notified
Employee of such violation, the Company shall have the right to seek equitable
restraint of Employee from such activities in contravention of the provisions of
this Agreement, including seeking and obtaining a temporary restraining order
and/or injunction against Employee.
16. Arbitration. Except as provided in Section 15, if a dispute arises
between the Company and Employee concerning any of the terms of this Agreement,
the disputed matter shall be submitted to arbitration. Any disputed matter shall
be settled by arbitration in the City of Boston, Massachusetts in accordance
with the labor arbitration rules of the American Arbitration Association ("AAA
Rules"). Any judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The arbitrators shall have the
authority to grant any equitable and legal remedies that would be available in
any judicial proceeding instituted to resolve the disputed matter. The
arbitrators shall apply the law of the Commonwealth of Massachusetts in making
any determination hereunder. Notwithstanding anything to the contrary which may
now or hereafter be contained in the AAA Rules, the parties agree any such
arbitration shall be conducted before a panel of three arbitrators who shall be
compensated for their services at a rate to be determined by the American
Arbitration Association in the event the parties are not able to agree upon
their rate of compensation. Each party shall have the right to appoint one
arbitrator (to be appointed within twenty days of the notice of a dispute to be
resolved by arbitration hereunder) and the two arbitrators so chosen shall
mutually agree upon the selection of the third impartial arbitrator. The
majority decision of the arbitrators will be final and conclusive upon the
parties hereto. Employee specifically consents to such arbitration and hereby
represents such consent is willfully and voluntarily given without influence by
coercion or threatening statements from the Company.
17. Taxes. Notwithstanding anything herein to the contrary, the Company
shall not be obligated to pay any portion of any amount otherwise payable to
Employee hereunder if the Company is not reasonably able to deduct such portion
(the "Excess Amount") solely by operation of Section 28OG (or such other
provision(s) as may from time to time be enacted governing the deductibility of
so-called "Golden Parachute Payments") of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company shall be deemed able reasonably to deduct such
Excess Amount, and all amounts accruing hereunder, including the Excess Amount,
shall be paid to Employee, in the event Employee delivers to the Company an
opinion of an attorney that is reasonably acceptable to the Company stating such
Excess Amount is reasonably deductible by the Company by operation of Section
28OG (or such other provisions as may from time to time be enacted governing the
deductibility of so-called "Golden Parachute Payments") of the Code.
18. Review by Counsel. The Company and Employee do hereby acknowledge
and agree that they have each been represented by independent counsel of their
own choice throughout all negotiations which preceded the execution of this
Employment Agreement and that they fully understand and voluntarily accept this
Employment Agreement and have executed this Employment Agreement after seeking
the advice of said independent counsel.
19. Indemnification. During the period of his/her employment
hereunder, the Company agrees to indemnify Employee in his/her capacity as an
officer of the Company and, if applicable, as a member of the Board of Directors
of the Company or any Subsidiary, all to the maximum extent permitted by law.
20. Legal Fees. Each party to this Agreement shall bear its own
attorneys' fees, costs and expenses in connection with any action or proceeding
brought to enforce any term or provision of this Agreement.
21. Successors; Binding Agreement.
A. The Company shall require any successors or assigns (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place, and this Agreement shall inure to the benefit of any such
successor or assign. Failure of the Company to obtain such agreement upon the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Company in the same amount and
on the same terms as Employee would be entitled hereunder if Employee terminated
his/her employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination
B. This Agreement shall inure to the benefit of and be
enforceable by Employee's executors, administrators, successors, heirs,
distributees, devisees and legatees. If Employee should die after a Notice of
Termination has been delivered by Employee or while any amount would still be
payable to Employee hereunder if Employee had continued to live, all amounts due
to Employee under this Agreement, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee or other designee or, if there be no such designee, to Employee's
estate.
22. Miscellaneous.
22.1 Written notices required by this Agreement shall be delivered to
the Company or Employee in person or sent by overnight courier or certified
mail, with a return receipt requested, to the Company's registered address and
to Employee's last shown address on the Company's records, respectively. Notice
sent by certified mail shall be deemed to be delivered two days after mailing,
and all other notices shall be deemed to be delivered when received.
22.2 This Agreement contains the full and complete understanding of
the parties regarding the subject matter contained herein and supersedes all
prior representations, promises, agreements and warranties, whether oral or
written.
22.3 This Agreement shall be governed by and interpreted according to
the laws of the Commonwealth of Massachusetts.
22.4 The captions of the various sections of this Agreement are
inserted only for convenience and shall not be considered in construing this
Agreement.
22.5 This Agreement can be modified, amended or any of its terms
waived only by a writing signed by both parties.
22.6 If any provision of this Agreement shall be held invalid, illegal
or unenforceable, the remaining provisions of the Agreement shall remain in full
force and effect and the invalid, illegal or unenforceable provision shall be
limited or eliminated only to the extent necessary to remove such invalidity,
illegality or unenforceability in accordance with the applicable law at that
time. Notwithstanding the foregoing provision, in the event that a payment is
made pursuant to Section 13.4 and Employee has entered into a Release and such
Release is determined to be invalid, illegal or unenforceable, Employee and the
Company shall negotiate in good faith to enter into a new release covering the
released claims.
22.7 No remedy made available to either party by any of the provisions
of this Agreement is intended to be exclusive of any other remedy. Each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder as well as those remedies existing at law, in equity, by statute
or otherwise.
22.8 Notwithstanding the expiration or termination of this Agreement
for any reason whatsoever, the provisions of Sections 7, 14, 15, 16 and 19 shall
expressly survive expiration or termination of the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this document under seal
as of the date specified above.
THE COMPANY:
AMERICAN FINANCE GROUP, INC.
By:
Its:___________________________
ATTEST:_________________________
EMPLOYEE:
-----------------------------------
ATTEST:___________________________
2
<PAGE>
RETENTION AGREEMENT
This RETENTION AGREEMENT ("Agreement") is made and entered into on
this ______ day of April, 1999, by and between American Finance Group, Inc. (the
"Company") and ("Employee"). --------------------------------------------------
WHEREAS, the Company's sole shareholder, PLM International, Inc.
("PLMI"), recently announced publicly that its Board of Directors has engaged
Legg Mason Wood Walker, Incorporated to explore strategic alternatives for the
Company; and
WHEREAS, Employee is an "employee at will", and as such the Company is
not legally obligated to continue his/her employment for any fixed period of
time; and
WHEREAS, the Company desires to assure itself of the services of
Employee while such alternatives are explored and, if a change in control of the
Company should occur, for a period of time after such transfer has been
consummated; and
WHEREAS, as an additional inducement for Employee to remain in the
employ of the Company both before and after a change in control transaction,
this Agreement provides certain incentives for Employee to remain in the
Company's employ during such period and for severance benefits in the event
Employee's employment is terminated by the Company without cause following a
change in control transaction;
NOW, THEREFORE, in consideration of the above premises and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Employee agree as follows:
1. Retention Bonus. The Company agrees to pay to Employee a retention
bonus under either of the following circumstances:
(a) In the absence of a Change in Control, as hereinafter defined,
during the period beginning on the date hereof and ending January
3, 2000, Employee shall have remained employed by the Company
continuously throughout such period; or
(b) In the event a Change in Control does occur during the period
beginning on the date hereof and ending January 3, 2000, Employee
shall have remained employed by the Company or its successor
continuously throughout the period of six consecutive months
beginning on the date of the Change in Control.
The amount of the retention bonus payable under this Section 1 shall
be _____________ Dollars ($ ). The retention bonus shall be paid to Employee in
cash within thirty (30) days after the date on which Employee satisfies the
conditions of either Section 1(a) or Section 1(b) above, whichever is
applicable. No amount paid to Employee as a retention bonus hereunder shall be
deemed to be in lieu of a bonus or incentive compensation, if any, payable to
Employee pursuant to any other incentive compensation plan in which Employee
participates.
2. Severance Benefits.
2.1 Termination by the Company Other Than for Cause. If the Company
terminates Employee's employment hereunder other than for Cause, death or
disability at any time within six (6) months following a Change in Control
occurring during the term of this Agreement, the Company shall pay to Employee
the following severance benefits so long as, upon the Company's request,
Employee enters into a Release (the "Release") substantially in the form
attached hereto as Exhibit A, and such Release is not revoked before the
"Effective Date," as defined in the Release:
(a) The Company shall pay to Employee on the Effective Date a
lump sum amount equal to ( ) months of Employee's Base
Salary [or draw] at the time the notice of termination is
given, less customary payroll deductions; and
(b) Employee shall continue to participate in all life
insurance, medical, health, dental and disability plans,
programs or arrangements ("Insurance Plans") in which
Employee participated immediately prior to the date of
termination on the same terms as Employee participated
immediately prior to the date of termination for the shorter
period of (i) months from the date of termination or (ii)
Employee's commencement of full time employment with a new
company; provided that Employee's continued participation is
possible under the general terms and provisions of such
plans and programs and Employee will continue to be
obligated to pay the same employee portion of any premium
and any deductible and/or co-payments associated with such
Insurance Plans as was required immediately prior to the
date of termination, with Employee's right to continued
group benefits after any period covered by the Company to be
determined in accordance with federal and state law.
2.2 Other Termination. If Employee's employment is terminated by the
Company for Cause, death or disability or is voluntarily terminated by Employee,
no benefits will be payable under this Section 2.
3. Definitions. As used in this Agreement:
3.1 "Cause" shall mean: (a) the continued failure by Employee to
perform his/her job functions or to abide by the Company's policies (other than
any failure resulting from Employee's incapacity due to physical or mental
illness), which has not been cured within ten (10) days after written demand for
substantial performance is delivered by the Company to Employee, which demand
specifically identifies the manner in which Employee has not substantially
performed his/her job functions or followed the Company's policies; (b) an
intentional act or omission by Employee which is, in the reasonable
determination of the Company, materially injurious to the Company, monetarily or
otherwise; (c) the conviction of Employee of, or his /her admission or plea of
nolo contendere to, a crime involving an act of moral turpitude which is a
felony or which results or is intended to result, directly or indirectly, in
gain or personal enrichment of Employee, relatives of Employee, or their
affiliates at the expense of the Company; or (d) the breach by Employee of any
material covenant of this Agreement which has not been cured within ten (10)
days after written notice detailing such breach is given by the Company to
Employee.
3.2 "Change in Control" shall mean the occurrence of any one of the
following events: (a) any person or group (a "Person"), within the meaning of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), acquiring "beneficial ownership" ("Beneficial Ownership"), as
defined in Rule 13d-3 under the Exchange Act, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the
Company's then outstanding securities; provided, however, in determining whether
a Change in Control has occurred, voting securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control Acquisition"
shall mean an acquisition by (i) an employee benefit plan (or trust forming a
part thereof) maintained by (1) PLMI, (2) the Company or (3) any corporation or
other Person of which a majority of its voting power or its voting equity
securities or equity interests is owned, directly or indirectly, by PLMI or the
Company (for purposes of this definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in connection with a Non-Control
Transaction" (as hereinafter defined); (b) a merger, consolidation or
reorganization (collectively, a "Transaction") involving the Company , unless
such Transaction is a "Non-Control Transaction." A "Non-Control Transaction"
shall mean a Transaction involving the Company where: (i) the stockholders of
the Company immediately before such Transaction own, directly or indirectly,
immediately following such Transaction, at least fifty percent (50%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such Transaction (the "Surviving Corporation") in substantially
the same proportion as their ownership of the voting securities of the Company
immediately before such Transaction, or (ii) no Person, other than (1) the
Company, (2) PLMI, (3 any Subsidiary, or (4) any employee benefit plan (or any
trust forming a part thereof) maintained the Company, PLMI, or any Subsidiary,
has Beneficial Ownership of more than fifty percent (50%) of the combined voting
power of the Surviving Corporation's then outstanding voting securities; or (c)
the sale or other disposition of all or substantially all of the assets of the
Company to any Person or Persons (other than a transfer to PLMI or a Subsidiary
of the Company or PLMI For purposes of this Agreement, an event constituting a
Change in Control shall be deemed to have occurred upon the closing or
consummation of such event.
4. Successors; Binding Agreement.
(a) The Company shall require any successors or assigns (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place, and this Agreement shall inure to the benefit of any such
successor or assign.
(b) This Agreement shall inure to the benefit of and be
enforceable by Employee's executors, administrators, successors, heirs,
distributes, devisees and legatees.
5. Term. This Agreement shall have a term beginning on the date first
written above and ending on June 30, 2000.
6. Miscellaneous.
6.1 The Company and Employee hereby acknowledge and agree that they
have each been represented by independent counsel of their own choice throughout
all negotiations which preceded the execution of this Agreement. -
6.2 Written notices required by this Agreement shall be delivered to
the Company or Employee in person or sent by overnight courier or certified
mail, with a return receipt requested, to the Company's registered address and
to Employee's last shown address on the Company's records, respectively. Notice
sent by certified mail shall be deemed to be delivered two days after mailing,
and all other notices shall be deemed to be delivered when received.
6.3 This Agreement contains the full and complete understanding of the
parties regarding the subject matter contained herein and supersedes all prior
representations, promises, agreements and warranties, whether oral or written.
6.4 This Agreement shall be governed by and interpreted according to
the laws of the Commonwealth of Massachusetts.
6.5 The captions of the various sections of this Agreement are
inserted only for convenience and shall not he considered in construing this
Agreement.
6.6 This Agreement can be modified, amended or any of its terms waived
only writing signed by both parties.
6.7 If any provision of this Agreement shall be held invalid, illegal
or unenforceable, the remaining provisions of the Agreement shall remain in full
force and effect and the invalid, illegal or unenforceable provision shall be
limited or eliminated only to the extent necessary to remove such invalidity,
illegality or unenforceability in accordance with the applicable law at that
time. Notwithstanding the foregoing provision, in the event that a payment is
made pursuant to Section 2.1 and Employee has entered into a Release and such
Release is determined to be invalid, illegal or unenforceable, Employee and the
Company shall negotiate in good faith and enter into a new release covering the
released claims.
6.8 No remedy made available to either party by any of the provisions
of this Agreement is intended to be exclusive of any other remedy. Each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder as well as those remedies existing at law, in equity, by statute
or otherwise.
6.9 Except for the subject matter contained herein, the terms and
conditions of Employee's employment with the Company remain unchanged. Nothing
contained in this Agreement shall give Employee the right to be retained in the
employ of the Company or any affiliate of the Company or to interfere with the
right of the Company to terminate Employee at any time for any reason.
IN WITNESS WHEREOF, the parties have executed this document under seal
as of the date specified above.
THE COMPANY:
AMERICAN FINANCE GROUP, INC.
By:
Its:
ATTEST:
EMPLOYEE:
ATTEST:
<PAGE>
