-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MDipYskQMzjC4jz2gCsqQoJxxgXzdkbAWNqx1WZhepfTYQJlkrYjpDRR+x1gtZpc HhyU3mLx7dOuXUG8g4uLnw== 0000857645-97-000001.txt : 19990811 0000857645-97-000001.hdr.sgml : 19990811 ACCESSION NUMBER: 0000857645-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM EQUIPMENT GROWTH FUND V CENTRAL INDEX KEY: 0000857645 STANDARD INDUSTRIAL CLASSIFICATION: 7359 IRS NUMBER: 943104548 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19203 FILM NUMBER: 97558535 BUSINESS ADDRESS: STREET 1: STEUART ST TOWER STE 900 STREET 2: C/O ONE MARKET PLAZA CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1301 BUSINESS PHONE: 4159741399 MAIL ADDRESS: STREET 1: ONE MARKET STREET 2: STEUART STREET TOWER STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1301 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996. [ ] 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 33-32258 ----------------------- PLM EQUIPMENT GROWTH FUND V (Exact name of registrant as specified in its charter) California 94-3104548 (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 (Zip code) executive offices) 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 ______ Aggregate Market Value of Voting Stock: N/A An index of exhibits filed with this Form 10-K is located at page 44. Total number of pages in this report: 47. PART I ITEM 1. BUSINESS (A) Background In November 1989, PLM Financial Services, Inc. (FSI or the General Partner), a wholly-owned subsidiary of PLM International, Inc. (PLM International), filed a Registration Statement on Form S-1 with the Securities and Exchange Commission with respect to a proposed offering of 10,000,000 Depositary Units (including 2,500,000 option units) (the Units) in PLM Equipment Growth Fund V, a California limited partnership (the "Partnership", the "Registrant" or "EGF V"). The Registration Statement also proposed offering an additional 1,250,000 Class B units through a reinvestment plan. The General Partner has determined that it will not adopt this reinvestment plan for the Partnership. The Partnership's offering became effective on April 11, 1990. FSI, as General Partner, owns a 5% interest in the Partnership. The Partnership engages in the business of owning and leasing transportation equipment to various commodity shippers and transportation companies. The Partnership was formed to engage in the business of owning and managing a diversified pool of used and new transportation-related equipment and certain other items of equipment. The Partnership's primary objectives are: (i) to acquire a diversified portfolio of low obsolescence equipment with long lives and high residual values with the net proceeds of the initial partnership offering, supplemented by debt financing if deemed appropriate by the General Partner. The General Partner intends to acquire the equipment at what it believes to be below inherent values and to place the equipment on lease or under other contractual arrangements with creditworthy lessees and operators of equipment; (ii)to generate sufficient net operating cash flow from lease operations to meet liquidity requirements and to generate cash distributions to the Limited Partners until such time as the General Partner commences the orderly liquidation of the Partnership assets or unless the Partnership is terminated earlier upon sale of all Partnership property or by certain other events; (iii) to selectively sell and purchase other equipment to add to the Partnership's initial equipment portfolio. The General Partner intends to sell equipment when it believes that, due to market conditions, market prices for equipment exceed inherent equipment values or expected future benefits from continual ownership of a particular asset will not equal or exceed other equipment investment opportunities. Proceeds from these sales, together with excess net operating cash flow from operations that remains after cash distributions have been made to the partners, will be used to acquire additional equipment throughout the six year reinvestment phase of the Partnership; (iv)to preserve and protect the value of the portfolio through quality management, maintaining diversity and constantly monitoring equipment markets. The offering of the Units of the Partnership closed on December 23, 1991. As of December 31, 1996, there were 9,169,019 Units outstanding. The General Partner contributed $100 for its 5% general partner interest in the Partnership. Beginning in the Partnership's seventh year of operations, which commences January 1, 1999, the General Partner will stop reinvesting cash flow and surplus funds, all of which, if any, less reasonable reserves, will be distributed to the partners. In the ninth year of operations of the Partnership, the General Partner will begin to liquidate the assets of the Partnership in an orderly fashion, unless the Partnership is terminated earlier upon sale of all of the Partnership's equipment or by certain other events. It is anticipated that the liquidation will be completed by the end of the tenth year of operations of the Partnership. Table 1, below, lists the equipment and the cost of the equipment in the Partnership portfolio as of December 31, 1996 (in thousands of dollars): TABLE 1
Units Type Manufacturer Cost --------------------------------------------------------------------------------------------------------------- Owned equipment held for operating leases: 1 Product tanker KK Uwajima Zosen $ 17,254 1 Product tanker Kaldnes M/V 16,276 1 Panamax bulk carrier China S.B. Corp. 18,729 5 737-200 Stage II commercial aircraft Boeing 26,405 2 Metro III commuter aircraft Fairchild 1,515 2 DHC-8-102 commuter aircraft DeHavilland 7,629 1 DHC-8-300 commuter aircraft DeHavilland 5,748 1 DC-9-32 commercial aircraft McDonnell Douglas 10,056 1 Stage III aircraft engine RB-211-535E4 Rolls Royce 5,852 752 Refrigerated marine containers Various 13,208 3,236 Various marine containers Various 11,243 126 Covered hopper cars Various 2,972 106 Anhydrous ammonia tank cars GATX 2,483 44 Mill gondola cars Bethlehem Steel 1,248 85 Sulphur tank cars ACF/RTC 2,786 73 Tank cars Various 1,917 183 Refrigerated trailers Various 5,529 154 Dry trailers Various 1,878 149 Piggyback refrigerated trailers Oshkosh 2,276 ----------- Total equipment held for operating leases $ 155,004 =========== Investment in equipment owned by unconsolidated special purpose entities: 0.5 Bulk carrier Nipponkai and Toyama $ 9,705 0.5 Product tanker Kaldnes M/V 8,249 0.17 Two Trusts comprised of: Three 737-200 Stage II commercial aircraft Boeing 4,706 Two aircraft engines Pratt Whitney 195 Portfolio of aircraft rotables Various 325 0.25 Equipment on direct finance lease: Two DC-9 commercial aircraft McDonnell Douglas 3,004 ----------- Total investments $ 26,184 =========== Owned equipment on direct finance lease: 1 Stage III hushkit installed on B727-200 $ 2,525 =========== Includes proceeds from capital contributions, undistributed cash flow from operations, and partnership borrowings invested in equipment. Includes costs capitalzied subsequent to the date of acquisition, and equipment acquisition fees paid to PLM Transportation Equipment Corporation (TEC), a wholly-owned subsidiary of FSI, or PLM Worldwide Management Services (WMS), a wholly-owned subsidiary of PLM International. All equipment was used equipment at the time of purchase, except 125 dry van trailers and 150 piggyback refrigerated trailers. Jointly owned: EGF V and an affiliated partnership. Jointly owned: EGF V (17%) and three affiliated partnerships. Jointly owned: EGF V (25%) and two affiliated partnerships.
The equipment is generally leased under operating leases with terms of one to six years. Some of the Partnership's marine containers are leased to operators of utilization-type leasing pools with equipment owned by unaffiliated parties. In such instances, revenues received by the Partnership consist of a specified percentage of revenues generated by leasing the pooled equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. At December 31, 1996, approximately 69% of the Partnership's trailer equipment operated in rental yards owned and maintained by PLM Rental, Inc., the short-term trailer rental subsidiary of PLM International. Revenues collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expenses associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. The lessees of the equipment include, but are not limited to: America West Airlines, Inc., Chevron USA, Mobil Oil Corporation, Chembulk Trading, Inc., Halla Merchant Marine Company, Ltd., Scanports Shipping Ltd., E.I. Dupont,.Transamerica Leasing, Marfort Shipping, Inc., and Continental Airlines, Inc. (B) Management of Partnership Equipment The Partnership has entered into an equipment management agreement with PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of the equipment. IMI has agreed to perform all services necessary to manage the transportation equipment on behalf of the Partnership and to perform or contract for the performance of all obligations of the lessor under the Partnership's leases. In consideration for its services and pursuant to the Partnership Agreement, IMI is entitled to a monthly management fee (see Financial Statements notes 1 and 3). (C) Competition (1) Operating Leases vs. Full Payout Leases Generally, the equipment owned or invested in by the Partnership is leased out on an operating lease basis wherein the rents owed during the initial noncancelable term of the lease are insufficient to recover the Partnership's purchase price of the equipment. The short to mid-term nature of operating leases generally commands a higher rental rate than the longer term, full payout leases and offers lessees relative flexibility in their equipment commitment. In addition, the rental obligation under an operating lease need not be capitalized on the lessee's balance sheet. The Partnership encounters considerable competition from lessors utilizing full payout leases on new equipment, i.e., leases which have terms equal to the expected economic life of the equipment. Full payout leases are written for longer terms and for lower monthly rates than the Partnership offers. While some lessees prefer the flexibility offered by a shorter term operating lease, other lessees prefer the rate advantages possible with a full payout lease. Competitors of the Partnership may write full payout leases at considerably lower rates, or larger competitors with a lower cost of capital may offer operating leases at lower rates, and as a result, the Partnership may be at a competitive disadvantage. (2) Manufacturers and Equipment Lessors The Partnership also competes with equipment manufacturers who offer operating leases and full payout leases. Manufacturers may provide ancillary services which the Partnership cannot offer, such as specialized maintenance service (including possible substitution of equipment), training, warranty services, and trade-in privileges. The Partnership competes with many equipment lessors including ACF Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services Corporation, Greenbrier Leasing Company, General Electric Capital Aviation Services Corporation, and other limited partnerships which lease the same types of equipment. (D) Demand The Partnership invests in transportation-related capital equipment and in "relocatable environments." "Relocatable environments" refers to capital equipment constructed to be self-contained in function but transportable, examples of which include mobile offshore drilling units, storage units, and relocatable buildings. A general distinction can be drawn between equipment used for the transport of either materials and commodities or people. With the exception of aircraft leased to passenger air carriers, the Partnership's equipment is used primarily for the transport of materials and commodities. The following describe the markets for the Partnership's equipment: (1) Commercial Aircraft The market for commercial aircraft continued to improve in 1996 representing two consecutive years of growth and profits in the airline industry. The $5.7 billion in net profits recorded by the world's top 100 airlines in 1995 grew to over $6 billion in 1996. The profits are a result of the continued management emphasis on costs. The demand for ever-lower unit costs by airline management has caused a significant reduction of surplus used Stage II and Stage III commercial aircraft. The result is a return to supply/demand equilibrium. On the demand side, passenger traffic is improving, cargo movement is up, and load factors are generally higher across the major markets. These changes are reflected in the performance of the world's 62 major airlines that operate 60% of the world airline fleet but handle 78% of world passenger traffic. Focusing on the supply/demand for Partnership-type narrowbody commercial aircraft, there were 213 used narrowbody aircraft available at year end 1995. In the first 10 months of 1996, this supply was reduced to 119 narrowbody aircraft available for sale or lease. Forecasts for 1997 see a continuing supply/demand equilibrium due to air travel growth and balanced aircraft supply. The Partnership's narrowbody fleet is primarily late-model (post 1974) Boeing 737-200 Advanced aircraft. There are a total of 939 Boeing 737-200 aircraft in service, with 219 built prior to 1974. Independent forecasts estimate that 250 total 737-200s will be retired, leaving approximately 700 aircraft in service after 2003. The forecasts regarding hushkits estimate that half of the 700 Boeing 737-200's, will be hushed to meet Stage III noise levels. The Partnership's aircraft are all prospects for Stage III hushkits due to their age, hours, cycles, engine configurations, and operating weights. Independent projections for the Boeing 727-200 aircraft indicate there are 1,050 in service, with 299 built prior to 1974. The Partnership's aircraft are all 1974 or earlier model 727-100/200s and are expected to be retired prior to 2003. The current strategy is to optimize their remaining value based on the present value of lease cash flows and projected residuals. The Partnership's Douglas DC-9-32s are late model aircraft. There are 663 DC-9-30/40/50 series aircraft in-service, 437 built prior to 1974. Independent forecasts estimate that 300 older DC-9 aircraft will be retired by the year 2003. The remaining fleet will total approximately 350 aircraft and most of these aircraft will be hushed to Stage III. The aircraft will remain in active airline service. The lessees are likely to be secondary airlines operating in markets outside the United States. (2) Commuter/Regional Aircraft Independent forecasts show the regional aircraft market is growing at a rate of 5.5% per year through 2013. This is slightly higher than the comparable growth rate in commercial aircraft of 4.7% over the same period. Currently there are 4,390 regional aircraft in service in the 15 to 70 seat class. Independent forecasts show this will grow to over 5,000 aircraft during the next 17 years. The highest growth markets are the 30 to 50 seat turboprops. The emphasis on the larger aircraft in the future is a result of growing passenger numbers, airport congestion and the extension of regional airline route networks requiring longer range aircraft. These events will continue the current trend of the major airlines to hand down the operations of their marginal shorthaul routes to affiliated regional carriers. The Partnership leases regional aircraft that are in the 19 seat, 36 seat and 50 seat categories. The 19 seat aircraft are in North America and New Zealand. We expect to sell all 19 seat class aircraft in 1997. The Partnership's 30 to 50 seat regional aircraft are in North America, which is the highest growth market for this class. The 30 seat market is growing at the expense of the smaller 19 seat aircraft. The 50 seat market is growing as a result of the major airlines taking +100 seat jets off "thin" routes which are more economically served by the large turboprop powered aircraft. (3) Aircraft Engines The demand for spare engines has increased as a result of the air travel industry's expansion over the last two years. The most significant area of increase is in the Pratt & Whitney Stage II JT8D engine which powers many of the Partnership's Stage II commercial aircraft. Today there are over 3000 Stage II commercial jets in service. In December 1993 there were 288 Stage II narrowbody aircraft available for sale or lease. As of October 1996, the number of available Stage II narrowbody's was only 107 aircraft. The increase in the Stage II fleet has placed over 450 engines back into service. This level of demand has placed a premium on spare JT8D engines and resulted in a good leasing market for available engines. The Partnership's spare engines will all be re-leased or sold over the next two years during this market cycle. The demand for spare Stage III engines has also risen due to the growth in Stage III aircraft. The Partnership leases one Stage III spare engine manufactured by Rolls Royce (RR). This engine is an RB211-535E4 and powers the Boeing 757 series aircraft. Today, there are 257 B757's operating the RB211 engine with 52 different airlines. The engine fleet is approximately 600 engines operating over 3000 hours per year. Approximately every three years each engine on wing requires removal for overhaul. This results in the need for a spare engine to allow the aircraft to operate during this interim period. The Partnership's engine will be available for sale or lease during 1997. (4) Aircraft Rotables Aircraft rotables are replacement spare parts held by an airline in inventory. These parts are components that are removable from an aircraft or engine, undergo overhaul, and are recertified and refit to the aircraft in an "as new" condition. Components or rotables, carry specific identification numbers allowing each part to be individually tracked. The types of rotables owned and leased by the Partnership include landing gear, certain engine components, avionics, auxiliary power units (APU's), replacement doors, control surfaces, pumps, valves and other comparable equipment. Generally a rotable has a useful life that is either measured in terms of time in service or number of cycles (takeoffs and landings). While there are no specific guidelines that apply to the time or cycles between overhauls for rotable equipment, there is no limitation on the number of times a rotable may be overhauled and recertified. The component will be overhauled until the cost of such overhaul becomes uneconomic relative to the units' replacement cost. The Partnership's rotable parts will be available for sale or lease in 1997. Rotables generally reflect the market conditions of the aircraft they support. The Partnership's rotables support primarily Boeing 737-300/400/500 and the Boeing 737-200 Advanced aircraft. Independent forecasts for 1997 indicate a supply-demand equilibrium for these aircraft types. (5) Marine Containers At the end of 1995, the consensus of industry sources was that 1996 would see both higher container utilization and strengthening per diem lease rates. Such was not the case as there was no appreciable cyclical improvement in the container market following the traditional winter slow down. Industry utilization continues to be under pressure with per diem rates being impacted as well. A substantial portion of the Partnership's containers are on long-term utilization leases which were entered into with Trans Ocean Leasing as lessee. The industry has seen a major consolidation as Transamerica Leasing late in the fourth quarter of 1996, acquired Trans Ocean Leasing. Transamerica Leasing is the second largest container leasing company in the world. Transamerica Leasing is the substitute lessee for Trans Ocean Leasing. Long term, such industry consolidation should bring more rationalization to the market and result in higher utilization and per diem rates. (6) Railcars Pressurized Tank Cars These cars are used primarily in the petro-chemical and fertilizer industries. They transport liquefied petroleum gas ("LPG") and anhydrous ammonia. The utilization rate on the Partnership's fleet of pressurized tank cars was over 98% during 1996. Independent forecasts show the demand for natural gas to grow during 1997 to 1999, as the developing world, former Communist countries and the industrialized world all increase their demand for energy. The fertilizer industry was undergoing a rapid restructuring toward the end of 1996 after a string of major mergers, which began in 1995. These mergers reduce the number of companies that use pressurized tank cars for fertilizer service. Whether or not the economies of the mergers allow the total fleet size to be reduced remains to be seen. Non-Pressurized Tank Cars General purpose or non-pressurized tank cars are used to transport a wide variety of bulk liquid commodities such as petroleum fuels, lubricating oils, vegetable oils, molten sulphur, corn syrup, asphalt, and specialty chemicals. Demand for general purpose tank cars in the Partnership's fleet has remained healthy over the last two years with utilization remaining above 98%. The demand for petroleum is anticipated to grow during 1997 to 1999, as the developing world, former communist countries and the industrialized world all increase their demand for energy. Chemical carloadings for the first 40 weeks of 1996 are up one tenth of one percent (0.1%) as compared to the same period in 1995. Covered Hopper Cars Through October 5, 1996, grain car loadings were down 13% compared to the same period for 1995. Even with the greatly reduced loadings, the on-lease rate during 1996 for the Partnership grain cars remained at 100%. Industry-wide, the covered hopper is one car type that has increased in number over the last ten years, going from a total of 299,172 cars in 1985 to 325,882 cars in 1995. It is possible that another poor crop year, combined with more available cars, could place downward pressure on grain car rental rates during 1997. Mill Gondola Cars The Partnership's net per diem rental income remained high during 1996, as the demand for mill gondolas remained strong. Quoting from the December, 1996 issue of Railway Age magazine: "Significant building programs have lessened shortages somewhat, as have changes in rules on railroad cars and car assignments. However, gondolas are still in short supply in many places..." The November, 1996 WEFA Group report indicates that they anticipate scrap metal demands to grow as electric furnace process gain share. Also, they anticipate demand for steel mill products to expand by 2.5 - 3%, on average, from 1997 to 2000. (7) Marine Vessels The Partnership owns or has investments in small to medium-sized dry bulk vessels and product tankers, which are traded in worldwide markets, carrying commodity cargoes. The freight rates in the dry bulk shipping market are dependent on the balance of supply and demand for shipping commodities and trading patterns for such dry bulk commodities. In 1995, dry bulk shipping demand was robust (growing at 5%t over 1994) and there was a significant infusion of new vessel tonnage especially late in the year, causing some decline in freight rates after a peak in mid-year. The slide in freight rates continued in the first half of 1996, as new tonnage was delivered and shipping demand slipped from the high growth rates of 1995. In the third quarter of 1996, there was a significant acceleration in the drop of freight rates, primarily caused by the lack of significant grain shipment volumes and the infusion of new tonnage. The low freight rates induced many ship owners to scrap older tonnage and to defer or cancel new building orders. In the fourth quarter, a strong grain harvest worldwide gave the market new strength and freight rates recovered to the levels experienced in early 1996, but not to 1995 levels. Overall 1996 was a soft year for shipping with dry bulk demand growing only 1.8% and the dry bulk fleet growing 3% in tonnage. The outlook for 1997 shows an expected improvement in demand with growth at 2.4%, but a high orderbook remains. 1997 is expected to be a soft year with relatively low freight rates; however, prospects may be strengthened by continued scrapping of older vessels in the face of soft rates and deferment or canceling of orders. Demand for commodity shipping closely tracks worldwide economic growth; however, economic development may alter demand patterns from time to time. The general partner operates its funds' vessels in spot charters, period charters and pooled vessel operations. This operating approach provides the flexibility to adapt to changing demand patterns. Independent forecasts show the longer term outlook (past 1997) should bring improvement in freight rates earned by vessels; however, this is dependent on the supply/demand balance and stability in growth levels. The newbuilding orderbook currently is slightly lower than at the end of 1995 in tonnage. Shipyard capacity is booked through late 1998; however, it remains to be seen how many of these orders will actually be fulfilled. Historically, demand has averaged approximately 3 percent annual growth, fluctuating between flat growth and 6 percent annually. With predictable long term demand growth, the long term outlook depends on the supply side, which is affected by interest rates, governmental shipbuilding subsidy programs, and prospects for reasonable capital returns in shipping. (8) Trailers Intermodal Trailers The robust intermodal trailer market that began 4 years ago began to soften in 1995 and reduced demand continued in 1996. Intermodal trailer loadings were flat in 1996 versus 1995's depressed levels. This lack of growth has been the result of many factors ranging from truckload firms aggressively recapturing market share from the railroads through aggressive pricing, to the continuing consolidation activities and asset efficiency improvements of the major U.S. railroads. All of these factors helped make 1996 a year of equalizing equipment supply as railroads and lessors were pressured to retire older and less efficient trailers. The two largest suppliers of railroad trailers reduced the available fleet in 1996 by over 15%. Overall utilization for intermodal trailers, including the Partnership's fleet , was lower in 1996 than in previous years. Over-the-Road Dry Trailers The over-the-road dry trailer market was weak in 1996 with utilization down 15%. The trailer industry experienced a record year in 1994 for new production and 1995 production levels were similar to 1994. However, in 1996 , the truck freight recession, along with an over building situation, contributed to 1996's poor performance. 1996 had too little freight and too much equipment. Over-the-Road Refrigerated Trailers The Partnership experienced fairly strong demand levels in 1996 for its refrigerated trailers. With over 37% of the fleet in over the road refrigerated trailers, the Partnership, PLM and affiliated partnerships combined, is the largest supplier of short-term rental refrigerated trailers in the U.S.. (E) Government Regulations The use, maintenance, and ownership of equipment is regulated by federal, state, local, and/or foreign governmental authorities. Such regulations may impose restrictions and financial burdens on the Partnership's ownership and operation of equipment. Changes in government regulations, industry standards, or deregulation may also affect the ownership, operation, and resale of the equipment. Substantial portions of the Partnership's equipment portfolio are either registered or operated internationally. Such equipment may be subject to adverse political, government, or legal actions, including the risk of expropriation or loss arising from hostilities. Certain of the Partnership's equipment is subject to extensive safety and operating regulations which may require the removal from service or extensive modification of such equipment to meet these regulations at considerable cost to the Partnership. Such regulations include (but are not limited to): (1) the U.S. Oil Pollution Act of 1990 (which established liability for operators and owners of vessels, mobile offshore drilling units, etc. that create environmental pollution); (2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990 (which limits or eliminates the operation of commercial aircraft in the U.S. that do not meet certain noise, aging, and cor- rosion criteria); (3) the Montreal Protocol on Substances that Deplete the Ozone Layer and the U.S. Clean Air Act Amendments of 1990 (which call for the control and eventual replacement of substances that have been found to cause or contribute significantly to harmful effects on the stratospheric ozone layer and which are used extensively as refrigerants in refrigerated marine cargo containers, over-the-road trailers, etc.); (4) the U.S. Department of Transportation's Hazardous Materials Regulations (which regulate the classification of and packaging requirements for hazardous materials and which apply particularly to the Partnership's tank cars). ITEM 2. PROPERTIES The Partnership neither owns nor leases any properties other than the equipment it has purchased for leasing purposes. At December 31, 1996, the Partnership owned a portfolio of transportation equipment and investments in equipment owned by special purpose entities as described in Part I, Table 1. The Partnership acquired equipment with the proceeds of the Partnership offering through approximately the first quarter of 1992. The Partnership maintains its principal office at One Market, Steuart Street Tower, Suite 800, San Francisco, California 94105-1301. All office facilities are provided by FSI without reimbursement by the Partnership. ITEM 3. LEGAL PROCEEDINGS PLM International (PLMI) along with FSI, IMI, TEC and PLM Securities Corp (PLM Securities), and collectively with PLMI, FSI, IMI, TEC and PLM Securities, (the "PLM Entities"), were named as defendants in a class action lawsuit filed in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251. The PLM Entities received service of the complaint on February 10, 1997, and pursuant to an extension of time granted by plaintiffs' attorneys, have sixty days to respond to the complaint. PLM International is currently reviewing the substance of the allegations with its counsel, and believes the allegations to be completely without merit and intends to defend this matter vigorously. The plaintiffs, who filed the complaint on their own and on behalf of all class members similarly situated, are six individuals who allegedly invested in certain California limited partnerships sponsored by PLM Securities, for which FSI acts as the general partner, including the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund VI, and PLM Equipment Growth and Income Fund VII (the "PLM Growth Funds"). The complaint purports 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 for breach of third party beneficiary contracts against and in violation of the National Association of Securities Dealers (NASD) rules of fair practice by PLM Securities alone. Plaintiffs allege that each defendant owed plaintiffs and the class certain duties due to their status as fiduciaries, financial advisors, agents, general partner, and control persons. Based on these duties, plaintiffs assert liability against the PLM Entities for improper sales and marketing practices, mismanagement of the PLM Growth Funds, and concealing such mismanagement from investors in the PLM Growth Funds. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Partnership's limited partners during the fourth quarter of its fiscal year ended December 31, 1996. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS Pursuant to the terms of the Partnership Agreement, the General Partner is generally entitled to a 5% interest in the profits and losses and distributions of the Partnership. The General Partner is the sole holder of such interests. Gross income in each year of the Partnership is specially allocated to the General Partner to the extent, if any, necessary to cause the capital account balance of the General Partner to be zero as of the close of such year. The remaining interests in the profits and losses and distributions of the Partnership are owned, as of December 31, 1996, by the approximately 10,000 holders of Units in the Partnership. There are several secondary exchanges which will facilitate sales and purchases of limited partnership units. Secondary markets are characterized as having few buyers for limited partnership interests and, therefore, generally are viewed as inefficient vehicles for the sale of partnership units. There is presently no public market for the Units and none is likely to develop. To prevent the Units from being considered "publicly traded" and, thereby, to avoid taxation of the Partnership as an association treated as a corporation under the Internal Revenue Code, the Units will not be transferred without the consent of the General Partner, which may be withheld in its absolute discretion. The General Partner intends to monitor transfers of Units in an effort to ensure that they do not exceed the number permitted by certain safe harbors promulgated by the Internal Revenue Service. A transfer may be prohibited if the intended transferee is not a U.S. Citizen or if the transfer would cause any portion of the Units to be treated as "plan assets". The Partnership may also be obligated to redeem a certain number of Units each year beginning January 1, 1994. At December 31, 1996, the Partnership agreed to purchase approximately 120,000 Units for an aggregate price of approximately $1,171,000. The General Partner anticipates that these Units will be repurchased in the first and second quarters of 1997. ITEM 6. SELECTED FINANCIAL DATA Table 2, below, lists selected financial data for the Partnership: TABLE 2 For the years ended December 31, 1996, 1995, 1994, 1993, and 1992, (In thousands of dollars except per unit amounts)
1996 1995 1994 1993 1992 -------------------------------------------------------------------------- Operating results: Total revenues $ 44,322 $ 39,142 $ 44,291 $ 38,476 $ 38,497 Net gain (loss) on disposition of equipment 14,199 3,835 4,920 (584 ) (273 ) Loss on revaluation of equipment -- -- -- (4,125 ) -- Equity in net loss of unconsolidated special purpose entities (116 ) -- -- -- -- Net income (loss) 12,441 2,045 3,193 (8,443 ) (4,119 ) At year-end: Total assets $ 98,419 $ 102,109 $ 120,114 $ 135,582 $ 162,111 Total liabilities 46,123 44,092 44,221 43,462 42,117 Notes payable 40,463 38,000 38,000 38,000 38,000 Cash distributions $ 18,083 $ 19,342 $ 19,420 $ 19,430 $ 19,180 Cash distributions which represent a return of capital $ 5,642 $ 17,297 $ 16,227 $ 18,460 $ 18,228 Per weighted average of Limited Partnership Depositary Unit: Net income (loss) $ 1.26 $ 0.12 $ 0.24 $ (1.02 ) $ (0.55 ) Cash distributions $ 1.87 $ 2.00 $ 2.00 $ 2.00 $ 200 Cash distributions which represent a return of capital $ 0.61 $ 1.89 $ 1.76 $ 2.00 $ 2.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the Financial Statements of the Partnership. The following discussion and analysis of operations focuses on the performance of the Partnership's equipment in various sectors of the transportation industry, and its effect on the Partnership's overall financial condition. Results of Operations - Factors Affecting Performance (A) Re-leasing and Repricing Activity The exposure of the Partnership's equipment portfolio to repricing risk occurs whenever the leases for the equipment expire or are otherwise terminated and the equipment must be remarketed. Major factors influencing the current market rate for transportation equipment include supply and demand for similar or comparable types or kinds of transport capacity, desirability of the equipment in the lease market, market conditions for the particular industry segment in which the equipment is to be leased, various regulations concerning the use of the equipment, and others. Equipment that is idle or out of service between the expiration of one lease and the assumption of a subsequent lease can result in a reduction of contribution to the Partnership. The Partnership experienced re-leasing or repricing activity in 1996 primarily in its trailer, marine vessel and marine container portfolios. (1) Trailers: The majority of the Partnership's trailer portfolio operates in short-term rental facilities or short-line railroad systems. The relatively short duration of most leases in these operations exposes the trailers to considerable re-leasing activity. Contributions from the Partnership's trailers increased during 1996 due to the expiration of various term leases and the transfer of these trailers to the PLM short-term rental facilities which started earning a higher lease; (2) Marine Vessels: Certain of the Partnership's marine vessels transferred to the voyage charter market from the time charter market during 1996. Voyage charters are usually short in duration and reflect the short-term demand and pricing trends in the vessel market. The Partnership experienced an increase in marine vessel contribution due to higher average rates for these short-term charters in 1996; (3) Marine Containers: All of the Partnership's marine containers are leased to operators of utilization-type leasing pools and, as such, are highly exposed to repricing activity. The decline in marine containers contributions was due to soft market conditions that caused a decline in repricing activity. (4) While market conditions and other factors may have had some impact on lease rates in markets in which the Partnership owns the remainder of its equipment portfolio, the majority of this equipment was unaffected. (B) Equipment Liquidations and Nonperforming Lessees Liquidation of Partnership equipment, unless accompanied by an immediate replacement of additional equipment earning similar rates (see below in "Reinvestment Risk"), represents a reduction in the size of the equipment portfolio, and may result in a reduction of contribution to the Partnership. Lessees not performing under the terms of their leases, either by not paying rent, not maintaining or operating the equipment in accordance with the conditions of the leases, or other possible departures from the leases can result not only in reductions in contribution, but also may require the Partnership to assume additional costs to protect its interests under the leases, such as repossession, legal fees, etc. (1) Liquidations: During the year, the Partnership received proceeds of approximately $30.0 million from the sale of a mobile offshore drilling unit (rig), 926 marine containers, 2 aircraft engines, 1 commuter aircraft, 1 trailer, and 4 railcars. The sales proceeds represented approximately 81% of the original cost of the assets. By year end, the Partnership had reinvested approximately all of the $30.0 million received. (2) Nonperforming Lessees: At December 31, 1996, the lessee of the Partnership's hushkit and a small number of other lessees were delinquent in making their lease payments. The Partnership established reserves against these receivables and the General Partner is in the process of taking the necessary steps to repossess the huskit and certain other collateral from the lessee. (C) Reinvestment Risk Reinvestment risk occurs when 1) the Partnership cannot generate sufficient surplus cash after fulfillment of operating obligations and distributions to reinvest in additional equipment during the reinvestment phase of Partnership operations; 2) equipment is sold or liquidated for less than threshold amounts; 3) proceeds from sales, losses, or surplus cash available for reinvestment cannot be reinvested at threshold lease rates; or 4) proceeds from sales or surplus cash available for reinvestment cannot be deployed in a timely manner. During the first six years of operations, the Partnership intends to increase its equipment portfolio by investing surplus cash available in additional equipment after fulfilling operating requirements and payments of distributions to the partners. Subsequent to the end of the reinvestment period, the Partnership will continue to operate for another two years and then begin an orderly liquidation over an anticipated two-year period. The operating lease income generated, together with the proceeds from sales of this equipment, are intended to enhance financial returns to the partners. Other nonoperating funds for reinvestment are generated from the sale of equipment, the receipt of funds realized from the payment of stipulated loss values on equipment lost or disposed of during the time it is subject to lease agreements, or the exercise of purchase options written into certain lease agreements. Equipment sales generally result from evaluations by the General Partner that continued ownership of certain equipment is either inadequate to meet Partnership performance goals, or that market conditions, market values, and other considerations indicate it is the appropriate time to sell certain equipment. During 1996, the Partnership purchased four 737-200 Boeing stage II commercial aircraft for $21.9 million, $5.7 million was used to purchase a DHC-8-300 commuter aircraft, and $3.0 million was used to purchase a partial interest in an entity which owns two DC-9 commercial aircraft on a direct finance lease. The deployment of the majority of funds occurred in a timely manner; consequently, Partnership performance was largely unaffected by any lack of reinvestment of available funds. (D) Equipment Valuation In March 1995, the Financial Accounting Standards Board (FASB) issued statement No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Partnership was consistent with SFAS 121. In accordance with SFAS 121, the General Partner reviews the carrying value of the Partnership's equipment portfolio at least annually in relation to expected future market conditions for the purpose of assessing the recoverability of the recorded amounts. If the projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. There were no reductions required to the carrying value of equipment during 1996. As of December 31, 1996, the General Partner estimated the current fair market value of the Partnership's equipment portfolio, including equipment owned by unconsolidated special purpose entities (USPE's), to be approximately $124.6 million. Financial Condition - Capital Resources, Liquidity, and Unit Redemption Plan The General Partner purchased the Partnership's initial equipment portfolio with capital raised from its initial equity offering, borrowings from the Committed Bridge Facility of $2.5 million, and permanent debt financing of $38 million. No further capital contributions from original partners are permitted under the terms of the Partnership's Limited Partnership Agreement, while the Partnership's total outstanding debt, currently $40.5 million, can only be increased by a maximum of $4.5 million subject to specific covenants in existing debt agreements. The Partnership relies on operating cash flow to meet its operating obligations, make cash distributions to Limited Partners, and increase the Partnership's equipment portfolio with any remaining available surplus cash. For the year ended December 31, 1996, the Partnership generated sufficient operating cash to meet its operating obligations and pay distributions, but used undistributed available cash from prior periods of approximately $2.0 million to maintain the current level of distributions (total 1996 of approximately $18.1 million) to the partners On September 26, 1996, the existing senior loan agreement was amended and restated to reduce the interest rate, to grant increased flexibility in allowable collateral, to pledge additional equipment to the lenders and to amend the loan repayment schedule from 16 consecutive equal quarterly installments to 20 consecutive quarterly installments with lower principle payments for the first four payments. The Partnership incurred a loan amendment fee of $133,000 to the lender in connection with the restatement of this loan. Pursuant to the terms of the loan agreement the Partnership must comply with certain financial covenants and maintain certain financial ratios. The General Partner believes that the book value of the note payable approximates fair value due to its variable interest rate. Pursuant to the terms of the Limited Partnership agreement, beginning January 1, 1994, the Partnership can become obligated under certain conditions to redeem up to 2% of the outstanding Depositary Units each year. The purchase price to be offered for such outstanding units will be equal to 110% of the unrecovered principal attributed to the units - where unrecovered principal is defined as the excess of the capital contribution attributable to a unit over the distributions from any source paid with respect to that Unit. At December 31, 1996, the Partnership agreed to purchase approximately 120,000 Units for an aggregate price of approximately $1,171,000. The General Partner anticipates that these Units will be repurchased in the first and second quarters of 1997. The General Partner has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and Professional Lease Management Income Fund I ("Fund I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and American Finance Group, Inc. (AFG), a subsidiary of PLM International Inc., which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Partnership , plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated on October 31, 1996, to expire on October 31, 1997 and increased the available borrowings for AFG to $50 million. The Partnership, TECAI, Fund I and the other partnerships collectively may borrow up to $35 million of the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM Equipment Growth Funds IV through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of December 31, 1996, the Partnership had borrowings of $2.5 million, PLM Equipment Growth Fund VI had $1.3 million, PLM Equipment Growth and Income Fund VII had $2.0 million, AFG had $26.9 million, and TECAI had $4.1 million in outstanding borrowings. Neither PLM Equipment Growth Fund IV nor Fund I had any outstanding borrowings. The General Partner has not planned any expenditures, nor is it aware of any contingencies that would cause it to require any additional capital to that mentioned above. Results of Operations - Year to Year Detailed Comparison Comparison of the Partnership's Operating Results for the Years Ended December 31, 1996 and 1995 (A) Owned equipment operations Lease revenues less direct expenses (defined as repairs and maintenance, equipment operating, and asset specific insurance expenses) on owned equipment decreased during the year ended December 31, 1996, when compared to the same period of 1995. The following table presents lease revenues less direct expenses by owned equipment type (in thousands):
For the years ended December 31, 1996 1995 ---------------------------- Aircraft and aircraft engines $ 6,348 $ 4,727 Marine vessels 4,910 3,542 Trailers 1,567 1,436 Rail equipment 1,532 1,797 Marine containers 2,790 3,939 Mobile offshore drilling unit 1,062 2,553
Aircraft: Aircraft lease revenues and direct expenses were $6.5 million and $0.1 million, respectively, for the year ended December 31, 1996, compared to $4.7 million and $35,000, respectively during the same period of 1995. The increase in aircraft contribution was due to the purchase of five aircraft during the later half of the second quarter 1995. This equipment was on lease for the entire year of 1996, compared to being on lease for only seven months of 1995. In addition, lease revenues from owned equipment in 1996 reflects a transfer of 2 aircraft from USPE's to comply with the credit agreement (See Note 2). The increase in aircraft contribution was offset, in part, by the sale of two aircraft engines during the third quarter of 1996; Marine vessels: Marine vessel lease revenues and direct expenses were $14.0 million and $9.1 million, respectively, for the year ended December 31, 1996, compared to $13.5 and $10.0 million, respectively during the same period of 1995. The increase in marine vessel contribution was due primarily to two marine vessels which were operating under a voyage charter during the first six months of 1996, transferring to a time charter during the third quarter of 1996 compared to operating under a time charter during all of 1995. Marine vessels typically earn a higher lease rate while under a voyage charter when compared to a time charter. Marine vessel direct expenses remained relatively constant for both periods except dry docking expenses which decreased significantly during 1996 due to an increase in the number of months between required dry docking; Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.5 million, respectively, for the year ended December 31, 1996, compared to $1.5 and $0.1 million, respectively during the same period of 1995. The trailer fleet remained virtually constant for both periods, however, over the past twelve months the number of trailers in the PLM affiliated short-term rental yards has increased due to expiration of term leases. These trailers are now earning a higher utilization rate while in the rental yards compared to the fixed term leases. Due to the increase of trailers in the PLM affiliated short-term rental yards, repairs to maintain these trailers in running condition has also increased; Rail equipment: Rail equipment lease revenues and direct expenses were $2.4 million and $0.9 million, respectively, for the year ended December 31, 1996, compared to $2.5 million and $0.7 million, respectively during the same period of 1995. The decrease in railcar contribution is due to the sale of 98 railcars in May of 1995. Marine containers: Marine container lease revenues and direct expenses were $2.8 million and $25,000, respectively, for the year ended December 31, 1996, compared to $4.1 million and $123,000, respectively during the same period of 1995. The number of marine containers owned by the Partnership has been declining over the past twelve months due to sales and dispositions. The result of this declining fleet has resulted in a decrease in marine container net contribution. In addition, the container fleet is experiencing a decline in the utilization rate during 1996 compared to 1995. Mobile offshore drilling unit: Rig lease revenues and direct expenses were $1.1 million and $3,000, respectively, for the year ended December 31, 1996, compared to $2.6 million and $3,000, respectively during the same quarter of 1995. The decrease in the rig contribution was due to the sale of this equipment during the later part of the second quarter of 1996; (B) Indirect expenses related to owned equipment operations Total indirect expenses of $21.1 million for the year ended December 31, 1996, increased from $20.8 million for the same period in 1995. The significant variances are explained below: (1) The $0.3 million decrease in interest expense was due to a lower interest rate charged to the Partnership on the existing senior loan during 1996; (2) Depreciation and amortization expenses decreased $0.3 million from 1995 levels reflecting the double declining balance method of depreciation and the sale of certain assets during 1996 and 1995. The decrease was offset, in part, by the purchase of two commercial aircraft during 1996 ; (3) Administrative expenses increased $0.6 million due primarily to the additional costs to transfer the off-lease trailers to the PLM affiliated rental yards and the additional allocation of rental yard costs incurred due to the increased number of trailers in the rental yards. The Partnership also incurred higher professional services during 1996 when compared to the same period of 1995. Also, during 1995, the Partnership received a $0.1 million refund of services not performed, a similar refund was not received during 1996; (4) A $0.3 million increase in bad debt expenses due to an increase in uncollectable amounts due from certain lessees; (C) Net gain on disposition of owned equipment Net gain on disposition of equipment for the year ended December 31, 1996 totaled $14.2 million which resulted from the sale of a rig with a net book value of $10.7 million for proceeds of $21.3 million, 2 aircraft engines, 1 commuter aircraft, 926 marine containers, 1 trailer and 4 railcars with an aggregate net book value of $5.1 million for proceeds of $8.7 million. Net gain on disposition of equipment during the twelve months ended December 31, 1995, was realized on the disposal of 1,519 marine containers, 2 marine vessels, 1 aircraft, and 98 railcars with an aggregate net book value of $15.8 million for proceeds of $18.3 million. Included in the gain on sale of one of the marine vessels, is the unused portion of dry docking reserves and commissions in the net amount of $1.3 million. (D) Interest and other income Interest and other income increased $0.4 million during the year ended December 31, 1996 due primarily to a business interruption claim of $0.3 million which was received during 1996 and interest earned from the finance lease which was not in place during 1995. This increase was offset by a decrease in interest income earned on cash investments during 1996 due to lower cash available for investment. (E) Equity in net income (loss) of unconsolidated special purpose entities represents net income generated from the operation of jointly-owned assets accounted for under the equity method (see Note 2 to the financial statements).
For the year ended December 31, 1996 1995 ---------------------------- Aircraft, aircraft rotable, and aircraft engines $ (265 ) $ (87 ) Marine vessels 149 135
Aircraft, aircraft rotable, and aircraft engines: As of December 31 1996, the Partnership has an interest in two trusts which own 3 commercial aircraft, 2 aircraft engines and a portfolio of aircraft rotables. The Partnership also had purchased an interest in an additional trust during 1996 which was transferred into equipment held for operating lease during the later part of the third quarter of 1996 (see Note 2 and 4 to the financial statements). Revenues earned by these trusts during the year ended December 31, 1996 of $3.3 million were offset by depreciation and amortization expense, management fees and administrative costs of $3.5 million. As of December 31 1995, the Partnership has an interest in three trusts which own 4 commercial aircraft, 2 aircraft engines and a portfolio of aircraft rotables which was purchased at the end of the last two quarters of 1995. Revenues earned by these trusts during the same period of 1995 of $0.7 million were offset by depreciation and amortization expense, and management fees of $0.8 million. Marine vessels: As of December 31, 1996, the Partnership owns a 50%-interest in two entities which own marine vessels. The revenues generated by this equipment decreased $0.9 million when compared to the same period of 1995 due to one of the marine vessels transferring to a time charter during 1996 from a voyage charter during the same period of 1995. The $0.6 million decrease in 1996 marine operating expenses when compare to the same period of 1995 was also due to the one marine vessel which was transferred to a time charter during 1996 from a voyage charter during the same period of 1995. Depreciation expense decreased $0.2 million due to the double-declining balance method of depreciation. (F) Net Income As a result of the foregoing, the Partnership's net income of $12.4 million for the year ended December 30, 1996, increased from net income of $2.0 million during the same period in 1995. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors and the Partnership's performance in the twelve months ended December 31. 1996 is not necessarily indicative of future periods. In the twelve months ended December 31, 1996, the Partnership distributed $17.2 million to the Limited Partners, or $1.87 per weighted average Depositary Unit. Comparison of the Partnership's Operating Results for the Years Ended December 31, 1995 and 1994 - - ----------------------------------------------------------------------- (A) Revenues Total revenues for the years ended December 31, 1995 and 1994, were $39.1 million and $44.3 million, respectively. This decrease in 1995 revenues was primarily attributable to lower lease revenues and a lower gain recorded on the sale of equipment, offset partially by increased interest and other income. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership is subject to many factors, therefore, the Partnership's performance in 1995 or 1994 in this regard is not necessarily indicative of future periods. (1) The Partnership's lease revenue decreased to $34.3 million in the year ended December 31, 1995, from $38.8 million during the same period in 1994. The following table presents lease revenues earned by equipment type (in thousands):
For the year ended December 31, 1995 1994 ------------------------------- Marine vessels $ 18,194 $ 21,501 Mobile offshore drilling units 2,556 5,167 Marine containers 4,061 4,646 Aircraft 5,471 3,265 Rail equipment 2,475 2,945 Trailers 1,541 1,233 ============================== $ 34,298 $ 38,757 ==============================
Significant revenue component changes resulted primarily from: (a) An increase of $2.2 million in aircraft revenues due primarily to the acquisition and lease of five commuter aircraft and an interest in three trusts containing commercial aircraft during 1995; (b) An increase of $0.3 million in trailer revenues due primarily to the acquisition and lease of 150 trailers during the first quarter of 1995; (c) The net decline of $3.3 million in marine vessel revenues is due to a number of factors: (c-1) Revenues declined $2.1 million during the year ended December 31, 1995, due to the sale of two marine vessels during the first and second quarters of 1995 which were on lease during 1994; (c-2) Revenues declined $2.5 million due to one marine vessel which was on voyage charter (see below) for all of 1994, switching to a time charter arrangement during most of the first two quarters of 1995 before switching back to voyage charter. This marine vessel was also off-hire for 41 days for drydocking during the later part of 1995; (c-3) These declines were partially offset by an increase of $1.3 million in revenues earned by three marine vessels which are currently operating under time charter and voyage charter. Although two of these marine vessels went into drydocking for an aggregate of 50 days during 1995, increases in the time charter rates earned during the last two quarters of 1995 plus profit sharing from the time charter, gave these marine vessels the increased earnings when compared to 1994; Voyage charters are short-term leases lasting the duration of specific voyages, typically 30 to 45 days. Voyage charters have higher revenues associated with them since the owner pays for costs, such as bunkers and port costs, normally borne by the lessees under time or bareboat charters. To position the Partnership's marine vessel fleet for a potential upturn in the marine vessel market, the Partnership has entered some of its marine vessels into voyage charters and plans to enter into longer-term contracts as the market improves; (d) Declines of $2.6 million in revenues earned by the mobile offshore drilling unit (rig) were primarily due to the sale of a rig during the later part of December 1994, which was on lease during 1994 and to a lower re-lease rate earned on the remaining rig; (e) Declines of $0.6 million in marine container revenues due primarily to the disposal of 1,519 marine containers in service between the 1995 and 1994 periods offset, in part, by higher utilization and rents earned during 1995; (f) Declines of $0.4 million in rail equipment revenues was due primarily to the sale of 98 railcars during 1995 which were on lease during 1994. (2) Interest and other income increased $0.4 million when compared to 1994 due primarily to higher cash balances available for investment and an increase in the interest rate earned on cash equivalents. (3) Net gain on disposition of equipment during the year ended December 31, 1995, was realized on the disposal of 1,519 marine containers, 2 marine vessels, 1 commuter aircraft, and 98 railcars with an aggregate net book value of $15.8 million for proceeds of $18.3 million. Included in the gain on sale of one of the marine vessels is the unused portion of drydocking reserves and commissions in the net amount of $1.3 million. During the year ended December 31, 1994, the Partnership disposed of 1 mobile offshore drilling unit with a net book value of $7.9 for proceeds of $12.6 million, and 1,086 marine containers and 26 railcars with an aggregate net book value of $2.0 million for aggregate proceeds of $2.2 million. (B) Expenses Total expenses of $37.1 million for the year ended December 31, 1995, decreased from $41.1 million for the same period in 1994. The decrease in 1995 expenses was attributable to lower depreciation expense, management fees to affiliate, and equipment operating expenses, partially offset by increases in repairs and maintenance, interest expense, insurance expense, and administrative expenses. (1) Direct operating expenses (defined as repairs and maintenance, insurance expenses, and equipment operating expenses) decreased to $13.8 million in the year ending December 31, 1995, from $15.6 million in the same period in 1994. This change resulted from: (a) A decrease of $2.4 million in marine equipment operating costs is due primarily to two of the Partnership's marine vessels switching from short-term voyage charters, in which the Partnership pays all marine vessel operating costs, such as crew costs and stores, as well as certain additional costs, such as bunkers and port costs, to a longer-term time charter. When the marine vessel is operating under a time charter, a portion of the above expenses are paid by the charterer and not the Partnership. During the same period in 1994, two marine vessels operated on a short-term voyage charter and the lessee of the remaining marine vessels paid for the majority of the above mentioned costs compared to one marine vessel on voyage charter in 1995; (b) An increase of $0.3 million in repairs and maintenance costs from 1994 levels was due primarily to additional repairs charged to two of the Partnership's marine vessels during their drydocking in the fourth quarter 1995 which were not anticipated and additional upgrades required to another marine vessel during 1995. The increase to marine vessel repairs and maintenance was offset, in part, by a reduction to repairs and maintenance caused by the sale of two marine vessels during 1995; (c) An increase of $0.3 million in insurance expense during the year ended December 31, 1995, when compared to the same period in 1994, is due to overall escalating insurance premiums charged to the marine vessels. Also, during 1994, the Partnership received a refund of $131,000 from an insurance company due to lower loss of hire claims; a similar refund was not received in 1995; (2) Indirect operating expenses (defined as depreciation and amortization expense, management fees, interest expense, and general and administrative expenses) decreased to $23.3 million in the year ended December 31, 1995 from $25.5 million in the year ended December 31, 1994. This change resulted primarily from: (a) A decrease in depreciation and amortization expense of $2.9 million from 1994 levels reflecting the Partnership's double-declining depreciation method and the sale of a rig during December of 1994 and two marine vessels and other equipment during 1995. The decrease was offset in part by the purchase of six additional aircraft and a partial beneficial interest in two trusts owning aircraft during 1995; (b) An increase of $0.8 million in interest expenses due to a rise in the base rate of interest charged on the Partnership's debt; (c) A decrease of $0.3 million in management fees due to a decrease in lease revenues; (d) An increase of $0.2 million in administrative expenses due to higher bank charges to the Partnership, an increase in professional services needed, and a loan fee charged the Partnership. (C) Net Income The Partnership's net income of $2.0 million in the year ended December 31, 1995, decreased from a net income of $3.2 million in the year ended December 31, 1994. The Partnership's ability to acquire, operate, or liquidate assets, secure leases, and re-lease those assets whose leases expire during the duration of the Partnership, is subject to many factors and the Partnership's performance in the year ended December 31, 1995, is not necessarily indicative of future periods. In the year ended December 31, 1995, the Partnership distributed $18.4 million to the Limited Partners, or $2.00 per weighted average Depositary Unit. Geographic Information The Partnership operates its equipment in international markets. Although these operations expose the Partnership to certain currency, political, credit and economic risks, the Manager believes these risks are minimal or has implemented strategies to control the risks as follows: Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in U.S. dollars. Political risks are minimized generally through the avoidance of operations in countries that do not have a stable judicial system and established commercial business laws. Credit support strategies for lessees range from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allow the Partnership to maintain its lease yield, there are risks associated with slow-to-respond judicial systems when legal remedies are required to secure payment or repossess equipment. Economic risks are inherent in all international markets and the Manager strives to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to the Financial Statements, Note 4 for information on the revenues, income, and assets in various geographic regions. Revenues and net operating income by geographic region are impacted by the time period the asset is owned and the useful life ascribed to the asset for depreciation purposes. Net income (loss) from equipment is significantly impacted by depreciation charges which are greatest in the early years due to the use of 200% declining balance method of depreciation. The relationships of geographic revenues, net income (loss) and net book value are expected to significantly change in the future as assets come off lease and decisions are made to redeploy the assets in the most advantageous geographic location or sell the assets. The Partnership's equipment on lease to U.S. domiciled lessees consists of trailers, railcars and aircraft. During 1996, U.S. lease revenues accounted for 22% of the total lease revenues while net income accounted for 12% of the net income for the Partnership. The primary reason for this relationship is that there was a large gain realized from the sale of an asset in another geographic region and the Partnership depreciates its rail equipment over a fifteen year period versus twelve years for other equipment types owned and leased in other geographic regions. The Partnership's owned equipment and investments in equipment owned by USPE's on lease to Canadian domiciled lessees consists of aircraft and railcars. During 1996, Canadian lease revenues accounted for 9% of the total lease revenues and recorded a net loss of $1.3 million when compared to the net income for the Partnership of $12.4 million. The primary reason for this relationship is that there was a large gain realized from the sale of an asset in another geographic region. The Partnership's owned aircraft on lease to a South American domiciled lessee during 1996, accounted for 2% of the total lease revenues and recorded a net loss of $1.4 million when compared to the net income for the Partnership of $12.4 million. The primary reason for this relationship is that there was a large gain realized from the sale of an asset in another geographic region. The Partnership owned a rig which was on lease to a lessee domiciled in Asia. Lease revenues in this region accounted for 3% of the total lease revenues while net income accounted for 86% of the net income for the Partnership. The primary reason for this relationship is that during 1996, the Partnership sold this rig for a gain which accounted for 85% of total net income for the Partnership. At December 31, 1996. the Partnership did not have any remaining assets in the region surrounding Asia. The Partnership's owned equipment and investments in equipment owned by USPE's on lease to lessees in Europe consisted of aircraft which accounted for 6% of lease revenues while net income accounted for 30% of the net income for the Partnership. The primary reason for this relationship is that the Partnership sold some of the aircraft equipment and realized a gain on the sales The Partnership's owned equipment and investments in USPE's on lease to lessees in the rest of the world consists of marine vessels and marine containers. During 1996, lease revenues for these lessees accounted for 58% of the total lease revenues and recorded a net income of 21% when compared to the net income for the Partnership. The primary reason for this relationship is that there was a large gain realized from the sale of an asset in another geographic region. Inflation There was no significant impact on the Partnership's operations as a result of inflation during 1996, 1995 or 1994. Forward Looking Information Except for historical information contained herein, the discussion in this Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-K should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. The Partnership's actual results could differ materially from those discussed here. Outlook for the Future Several factors may affect the Partnership's operating performance in 1997 and beyond, including changes in the markets for the Partnership's equipment and changes in the regulatory environment in which that equipment operates. The Partnership's operation of a diversified equipment portfolio in a broad base of markets is intended to reduce its exposure to volatility in individual equipment sectors. In 1996, market conditions, supply and demand equilibrium, and other factors varied in several markets. In the container and refrigerated over-the-road trailer markets, oversupply conditions, industry consolidations, and other factors resulted in falling rates and lower returns. In the dry over-the-road trailer markets, strong demand and a backlog of new equipment deliveries produced high utilization and returns. The marine vessel, rail, and mobile offshore drilling unit markets could be generally categorized by increasing rates as the demand for equipment is increasing faster than new additions net of retirements. Finally, demand for narrowbody stage II aircraft, such as those owned by the Partnership, has increased as expected savings from newer narrowbody aircraft have not materialized and deliveries of the newer aircraft have slowed down. These different markets have had individual effects on the performance of Partnership equipment - in some cases resulting in declining performance, and in others, in improved performance. The ability of the Partnership to realize acceptable lease rates on its equipment in the different equipment markets is contingent on many factors, such as specific market conditions and economic activity, technological obsolescence, governmental or other regulations, and others. The unpredictability of some of these factors, or of their occurrence, makes it difficult for the General Partner to clearly define trends or influences that may impact the performance of the Partnership's equipment. The General Partner continuously monitors both the equipment markets and the performance of the Partnership's equipment in these markets. The General Partner may make an evaluation to reduce the Partnership's exposure to equipment markets in which it determines that it cannot operate equipment and achieve acceptable rates of return. Alternatively, the General Partner may make a determination to enter equipment markets in which it perceives opportunities to profit from supply-demand instabilities or other market imperfections. The Partnership intends to use excess cash flow, if any, after payment of expenses, loan principal, and cash distributions to acquire additional equipment during the first seven years of Partnership operations. The General Partner believes these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. (A) Repricing and Reinvestment Risk Certain portions of the Partnership's marine container, marine vessel, and trailer portfolios will be remarketed in 1997 as existing leases expire, exposing the Partnership to considerable repricing risk/opportunity. Additionally, the General Partner may select to sell certain underperforming equipment, or equipment whose continued operation may become prohibitively expensive, and thus faces reinvestment risk. In either case, the General Partner intends to re-lease or sell equipment at prevailing market rates; however, the General Partner cannot predict these future rates with any certainty at this time and cannot accurately assess the effect of such activity on future Partnership performance. (B) Impact of Government Regulations on Future Operations The General Partner operates the Partnership's equipment in accordance with current applicable regulations (see Item 1, Section E, Government Regulations). However, the continuing implementation of new or modified regulations by some of the authorities mentioned previously, or others, may adversely affect the Partnership's ability to continue to own or operate equipment in its portfolio. Additionally, regulatory systems vary from country to country, which may increase the burden to the Partnership of meeting regulatory compliance for the same equipment operated between countries. Currently, the General Partner has observed rising insurance costs to operate certain vessels into U.S. ports resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both in the U.S. and internationally, cannot be predicted with any accuracy, and preclude the General Partner from determining the impact of such changes on Partnership operations, purchases, or sale of equipment. (C) Distributions Pursuant to the Limited Partnership Agreement, the Partnership will cease to reinvest in additional equipment beginning in its seventh year of operations which commences on January 1, 1998. The General Partner intends to continue its strategy of selectively redeploying equipment to achieve competitive returns. By the end of the reinvestment period, the General Partner intends to have assembled an equipment portfolio capable of achieving a level of operating cash flow for the remaining life of the Partnership sufficient to meet its obligations and sustain a predictable level of distributions to the partners. The General Partner believes the current level of distributions to the partners can be maintained throughout 1997 using cash from operations, undistributed available cash from prior periods, and proceeds from sales or dispositions of equipment if necessary. Subsequent to this period, the General Partner will evaluate the level of distributions the Partnership can sustain over extended periods of time, and together with other considerations, may adjust the level of distributions accordingly. In the long term, the difficulty in predicting market conditions and the availability of suitable equipment acquisitions preclude the General Partner from accurately determining the impact of its redeployment strategy on liquidity or future distribution levels. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements for the Partnership are listed on the Index to Financial Statements included in Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. (this space intentionally left blank) PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP As of the date of this Annual Report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) are as follows:
Name Age Position -------------------------------------- ------------------ ------------------------------------------------------- J. Alec Merriam 61 Director, Chairman of the Board, PLM International, Inc.; Director, PLM Financial Services, Inc. Douglas P. Goodrich 50 Director and Senior Vice President, PLM International; Director and President, PLM Financial Services, Inc.; Senior Vice President, PLM Transportation Equipment Corporation; President, PLM Railcar Management Services, Inc. Walter E. Hoadley 80 Director, PLM International, Inc. Robert L. Pagel 60 Director, Chairman of the Executive Committee, PLM International, Inc.; Director, PLM Financial Services, Inc. Harold R. Somerset 62 Director, PLM International, Inc. Robert N. Tidball 58 Director, President and Chief Executive Officer, PLM International, Inc. J. Michael Allgood 48 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 50 President, PLM Investment Management, Inc.; President, PLM Securities Corp.; Vice President, PLM Financial Services, Inc. David J. Davis 40 Vice President and Corporate Controller, PLM International and PLM Financial Services, Inc. Frank Diodati 42 President, PLM Railcar Management Services Canada Limited. Steven O. Layne 42 Vice President, PLM Transportation Equipment Corporation; Vice President and Director, PLM Worldwide Management Services, Ltd. Stephen Peary 48 Senior Vice President, General Counsel and Secretary, PLM International, Inc.; Vice President, General Counsel and Secretary, PLM Financial Services, Inc., PLM Investment Management, Inc., PLM Transportation Equipment Corporation; Vice President, PLM Securities, Corp. Thomas L. Wilmore 54 Vice President, PLM Transportation Equipment Corporation; Vice President, PLM Railcar Management Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988, he became a member of the Executive Committee of the Board of Directors of PLM International. From 1972 to 1988, Mr. Merriam was Executive Vice President and Chief Financial Officer of Crowley Maritime Corporation, a San Francisco area-based company engaged in maritime shipping and transportation services. Previously, he was Chairman of the Board and Treasurer of LOA Corporation of Omaha, Nebraska and served in various financial positions with Northern Natural Gas Company, also of Omaha. Douglas P. Goodrich was elected to the Board of Directors in July 1996, and appointed Director and President of PLM Financial Services in June 1996, and appointed Senior Vice President of PLM International in March 1994. Mr. Goodrich has also served as Senior Vice President of PLM Transportation Equipment Corporation since July 1989, and as President of PLM Railcar Management Services, Inc. since September 1992 having been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice President of G.I.C. Financial Services Corporation, a subsidiary of Guardian Industries Corp. of Chicago, Illinois from December 1980 to September 1985. Dr. Hoadley joined PLM International's Board of Directors and its Executive Committee in September, 1989. He served as a Director of PLM, Inc. from November 1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988. Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since 1981. He was Executive Vice President and Chief Economist for the Bank of America from 1968 to 1981, and Chairman of the Federal Reserve Bank of Philadelphia from 1962 to 1966. Dr. Hoadley served as a Director of Transcisco Industries, Inc. from 1988 through August of 1995. Robert L. Pagel was appointed Chairman of the Executive Committee of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988, he became a member of the Executive Committee of the Board of Directors of PLM International. From June 1990 to April 1991, Mr. Pagel was President and Co-Chief Executive Officer of The Diana Corporation, a holding company traded on the New York Stock Exchange. He is the former President and Chief Executive Officer of FanFair Corporation which specializes in sports fans' gift shops. He previously served as President and Chief Executive Officer of Super Sky International, Inc., a publicly traded company, located in Mequon, Wisconsin, engaged in the manufacture of skylight systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis & Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt, Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the brokerage and financial industries. Mr. Pagel has also served on the Board of Governors of the Midwest Stock Exchange. Harold R. Somerset was elected to the Board of Directors of PLM International in July 1994. From February 1988 to December 1993, Mr. Somerset was President and Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H), a recently-acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating Officer, having served on its Board of Directors since 1978, a position in which he continues to serve. Between 1972 and 1984, Mr. Somerset served in various capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture company headquartered in Honolulu, Hawaii, including Executive Vice President - Agricultures, Vice President, General Counsel and Secretary. In addition to a law degree from Harvard Law School, Mr. Somerset also holds degrees in civil engineering from the Rensselaer Polytechnic Institute and in marine engineering from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors for various other companies and organizations, including Longs Drug Stores, Inc., a publicly-held company. Robert N. Tidball was appointed President and Chief Executive Officer of PLM International in March 1989. At the time of his appointment, he was Executive Vice President of PLM International. Mr. Tidball became a director of PLM International in April 1989 and a member of the Executive Committee of the Board of Directors of PLM International in September 1990. Mr. Tidball was elected President of PLM Railcar Management Services, Inc. in January 1986. Mr. Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith, Inc., he was Vice President, a General Manager and a Director of North American Car Corporation, and a Director of the American Railcar Institute and the Railway Supply Association. J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public sector companies and institutions specializing in financial operational systems development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding company, Aviation Holdings Plc of London where he served as Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served as a First Vice President with American Express Bank, Ltd. In February 1978, Mr. Allgood founded and until June 1981, served as a director of Trade Projects International/Philadelphia Overseas Finance Company, a joint venture with Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served in various capacities with Citibank, N.A. Stephen M. Bess was appointed President of PLM Securities, Corp. in June 1996 and President of PLM Investment Management, Inc. in August 1989, having served as Senior Vice President of PLM Investment Management, Inc. beginning in February 1984 and as Corporate Controller of PLM Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate Controller of PLM, Inc., beginning in December 1982. Mr. Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a container leasing company, from November 1978 to November 1982, and Group Finance Manager with the Field Operations Group of Memorex Corp., a manufacturer of computer peripheral equipment, from October 1975 to November 1978. David J. Davis was appointed Vice President and Controller of PLM International in January 1994. From March 1993 through January 1994, Mr. Davis was engaged as a consultant for various firms, including PLM. Prior to that Mr. Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice President and Controller for ITEL Containers International Corporation which was located in San Francisco. Between May 1978 and April 1989, Mr. Davis held various positions with Transamerica Leasing Inc., in New York, including that of Assistant Controller for their rail leasing division. Frank Diodati was appointed President of PLM Railcar Management Services Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for G.E. Railcar Services Canada Limited. Steven O. Layne was appointed Vice President, PLM Transportation Equipment Corporation's Air Group in November 1992, and was appointed Vice President and Director of PLM Worldwide Management Services, Ltd. in September 1995. Mr. Layne was PLM Transportation Equipment Corporation's Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint venture of General Electric Corporation and the Government Development Bank of Puerto Rico. Mr. Layne is a Major in the United States Air Force Reserves and senior pilot with 13 years of accumulated service. Stephen Peary became Vice President, Secretary, and General Counsel of PLM International in February 1988 and Senior Vice President in March 1994. Mr. Peary was Assistant General Counsel of PLM Financial Services, Inc. from August 1987 through January 1988. Previously, Mr. Peary was engaged in the private practice of law in San Francisco. Mr. Peary is a graduate of the University of Illinois, Georgetown University Law Center, and Boston University (Masters of Taxation Program). Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation Equipment Corporation, in March 1994 and has served as Vice President, Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp. in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and Co-Owner of Guardian Industries Corp., Chicago, Illinois, and between December 1980 and July 1985, Mr. Wilmore was an Executive Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr. Wilmore also served as Vice President of Sales for Gould Financial Services located in Rolling Meadows, Illinois from June 1978 to December 1980. The directors of the General Partner are elected for a one-year term or until their successors are elected and qualified. There are no family relationships between any director or any executive officer of the General Partner. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors, officers, or employees. The Partnership has no pension, profit sharing, retirement, or similar benefit plan in effect as of December 31, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The General Partner is generally entitled to 5% interest in the profits and losses and distributions of the Partnership. At December 31, 1996, no investor was known by the General Partner to beneficially own more than 5% of the Units of the Partnership. (b) Security Ownership of Management Neither the General Partner and its affiliates nor any officer or director of the General Partner and its affiliates own any Units of the Partnership as of December 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others During 1996, the Partnership paid or accrued the following fees to FSI or its affiliates: management fees - $1,458,000; equipment acquisition fees - $936,000 and lease negotiation fees - $214,000. The Partnership reimbursed FSI or its affiliates $838,000 for administrative and data processing services performed on behalf of the Partnership. The Partnership paid Transportation Equipment Indemnity Company Ltd. (TEI), a wholly-owned, Bermuda-based subsidiary of PLM International $768,000 for insurance coverages during 1996, which amounts were paid substantially to third party reinsurance underwriters or placed in risk pools managed by TEI on behalf of affiliated partnerships and PLM International which provide threshold coverages on marine vessel loss of hire and hull and machinery damage. All pooling arrangement funds are either paid out to cover applicable losses or refunded pro rata by TEI. During 1996, the USPE's paid or accrued the following fees to FSI or its affiliates (based on the Partnership's proportional share of ownership): management fees - $304,000; administrative and data processing services - $73,000; equipment acquisition fees - $382,000 and lease negotiation fees - $85,000. The USPE's also paid TEI $231,000 for insurance coverages during 1996 (b) Certain Business Relationships None. (c) Indebtedness of Management None. (d) Transactions With Promoters None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report. (b) Reports on Form 8-K None. (c) Exhibits 4. Limited Partnership Agreement of Partnership. Incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 33-32258) which became effective with the Securities and Exchange Commission on April 11, 1990. 10.1 Management Agreement between Partnership and PLM Investment Management, Inc. Incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 33-32258) which became effective with the Securities and Exchange Commission on April 11, 1990. 10.2 Loan Agreement, amended and restated as of September 26, 1996 regarding Senior Notes due November 8, 1999. Incorporated by reference to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 1992. 10.4 Second Amended and restated Warehousing Credit Agreement, dated as of May 31, 1996 with First Union National Bank of North Carolina. 10.5 Amendment No. 1 to Second Amended and restated Warehousing Credit Agreement, dated as of November 5, 1996 with First Union National Bank of North Carolina. 24. Powers of Attorney. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Partnership has no directors or officers. The General Partner has signed on behalf of the Partnership by duly authorized officers. Dated: March 11, 1997 PLM EQUIPMENT GROWTH FUND V PARTNERSHIP By: PLM Financial Services, Inc. General Partner By: /s/ Douglas P. Goodrich ------------------------ Douglas P. Goodrich President and Director By: /s/ David J. Davis ------------------------ David J. Davis Vice President and Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Partnership's General Partner on the dates indicated. Name Capacity Date *_______________________ J. Alec Merriam Director - FSI March 11, 1997 *_______________________ Robert L. Pagel Director - FSI March 11, 1997 * Stephen Peary, by signing his name hereto, does sign this document on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. /s/ Stephen Peary - - ---------------------- Stephen Peary Attorney-in-Fact PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) Page Report of Independent Auditors 29 Balance sheets as of December 31, 1996 and 1995 30 Statements of income for the years ended December 31, 1996, 1995, and 1994 31 Statements of changes in partners' capital for the years ended December 31, 1996, 1995, and 1994 32 Statements of cash flows for the years ended December 31, 1996, 1995, and 1994 33 Notes to financial statements 34 - 43 All other financial statement schedules have been omitted as the required information is not pertinent to the Registrant or is not material, or because the information required is included in the financial statements and notes thereto. REPORT OF INDEPENDENT AUDITORS The Partners PLM Equipment Growth Fund V: We have audited the accompanying financial statements of PLM Equipment Growth Fund V as listed in the accompanying index. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PLM Equipment Growth Fund V as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP - - -------------------------------- SAN FRANCISCO, CALIFORNIA February 28, 1997 PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) BALANCE SHEETS December 31, (Dollars in thousands) ASSETS
1996 1995 ----------------------------------- Equipment held for operating leases, at cost $ 155,004 $ 159,314 Less accumulated depreciation (81,541 ) (85,564 ) --------------------------------- Net equipment 73,463 73,750 Cash and cash equivalents 4,662 5,583 Restricted cash 553 223 Investments in unconsolidated special purpose entities 12,673 16,158 Accounts receivable, net of allowance for doubtful accounts of $236 in 1996 and $54 in 1995 3,481 2,731 Net investment in direct finance lease 2,282 2,637 Notes receivable 27 322 Lease negotiation fees to affiliate, net of accumulated amortization of $184 in 1996 and $805 in 1995 319 143 Debt issuance and loan costs, net of accumulated amortization of $255 in 1996 and $199 in 1995 268 187 Debt placement fees to affiliate, net of accumulated amortization of $245 in 1996 and $198 in 1995 134 182 Prepaid expenses and other assets 557 193 --------------------------------- Total assets $ 98,419 $ 102,109 ================================= LIABILITIES AND PARTNERS' CAPITAL Liabilities: Due to affiliates $ 699 $ 1,116 Accounts payable and accrued expenses 1,060 1,360 Lessee deposits and reserve for repairs 3,901 3,616 Short term note payable 2,463 -- Note payable 38,000 38,000 --------------------------------- Total liabilities 46,123 44,092 Partners' capital: Limited Partners (9,169,019 Depositary Units in 1996 and 9,175,944 Depositary Units in 1995) 52,296 58,017 General Partner -- -- --------------------------------- Total partners' capital 52,296 58,017 --------------------------------- Total liabilities and partners' capital $ 98,419 $ 102,109 =================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) STATEMENTS OF INCOME For the years ended December 31, (In thousands of dollars, except per unit amounts)
1996 1995 1994 ------------------------------------------ Revenues: Lease revenue $ 28,763 $ 34,298 $ 38,757 Interest and other income 1,360 1,009 614 Net gain on disposition of equipment 14,199 3,835 4,920 ----------------------------------------- Total revenues 44,322 39,142 44,291 Expenses: Depreciation and amortization 14,941 17,321 20,266 Management fees to affiliate 1,458 1,767 2,097 Repairs and maintenance 2,843 4,004 3,657 Interest expense 2,789 3,048 2,235 Equipment operating expenses 6,016 7,736 10,089 Insurance expense to affiliate 768 1,015 841 Other insurance expense 985 1,080 996 General and administrative expenses to affiliates 838 612 436 Other general and administrative expenses 903 514 481 Provision for bad debts 224 -- -- ----------------------------------------- Total expenses 31,765 37,097 41,098 ----------------------------------------- Equity in net loss of unconsolidated special purpose entities (116 ) -- -- ----------------------------------------- Net income $ 12,441 $ 2,045 $ 3,193 ========================================= Partners' share of net income: Limited Partners $ 11,524 $ 1,077 $ 2,222 General Partner 917 968 971 ========================================= Total $ 12,441 $ 2,045 $ 3,193 ========================================= Net income per weighted average Depositary Unit (9,181,074 Units at December 31, 1996, 9,175,460 Units at December 31, 1995; 9,219,932 Units at December 31, 1994) $ 1.26 $ 0.12 $ 0.24 ========================================= Cash distributions $ 18,083 $ 19,342 $ 19,420 ========================================= Cash distribution per Depositary Unit $ 1.87 $ 2.00 $ 2.00 =========================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the years ended December 31, 1996, 1995, and 1994 (In thousands)
Limited General Partners Partner Total -------------------------------------------------- Partners' capital at December 31, 1993 $ 92,120 $ -- $ 92,120 Net income 2,222 971 3,193 Cash distributions (18,449 ) (971 ) (19,420 ) ------------------------------------------------ Partners' capital at December 31, 1994 75,893 -- 75,893 Net income 1,077 968 2,045 Repurchase of Depositary Units (579 ) -- (579 ) Cash distributions (18,374 ) (968 ) (19,342 ) ------------------------------------------------ Partners' capital at December 31, 1995 58,017 -- 58,017 Net income 11,524 917 12,441 Repurchase of Depositary Units (79 ) -- (79 ) Cash distributions (17,166 ) (917 ) (18,083 ) ------------------------------------------------ Partners' capital at December 31, 1996 $ 52,296 $ -- $ 52,296 ================================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) STATEMENTS OF CASH FLOWS for the years ended December 31, (In thousands)
1996 1995 1994 --------------------------------------------- Operating activities: Net income $ 12,441 $ 2,045 $ 3,193 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,941 17,321 20,266 Net gain on disposition of equipment (14,199 ) (3,835 ) (4,920 ) Equity in net loss of unconsolidated special purpose entities 116 -- -- Changes in operating assets and liabilities, net: (Increase) decrease in accounts receivable, net (750 ) 1,532 (1,010 ) Collections on notes receivable 295 441 396 Increase in prepaid expenses and other assets (364 ) (152 ) (24 ) (Decrease) increase in due to affiliates (414 ) 785 296 (Decrease) increase in accounts payable and accrued expenses (294 ) 7 368 Increase in lessee deposits and reserve for repairs 285 620 74 Increase in restricted cash (330 ) (36 ) -- -------------------------------------------- Net cash provided by operating activities 11,727 18,728 18,639 -------------------------------------------- Investing activities: Proceeds from disposition of equipment 29,992 18,375 14,827 Payments for purchase of equipment (21,378 ) (27,128 ) (654 ) Investment in direct finance lease, net (2,639 ) -- Principal payments received on direct finance lease 327 -- -- Investment in and equipment purchased and placed in unconsolidated special purpose entities (8,952 ) -- -- Distributions from unconsolidated special purpose entities 4,348 -- -- Payments of acquisition fees to affiliate (936 ) (1,198 ) -- Payments of lease negotiation fees to affiliate (214 ) (266 ) -- -------------------------------------------- Net cash provided by (used in) investing activities 3,187 (12,856 ) 14,173 -------------------------------------------- Financing activities: Proceeds from short-term note payable 8,073 -- -- Payments of short-term note payable (5,610 ) -- -- Cash distributions paid to an affiliate (917 ) (968 ) (971 ) Cash distributions paid to the limited partners (17,166 ) (18,374 ) (18,449 ) Payment for loan costs (136 ) Repurchase of Depositary Units (79 ) (579 ) -- -------------------------------------------- Net cash used in financing activities (15,835 ) (19,921 ) (19,420 ) -------------------------------------------- Net (decrease) increase in cash and cash equivalents (921 ) (14,049 ) 13,392 Cash and cash equivalents at beginning of year (See Note 2) 5,583 20,200 6,808 -------------------------------------------- Cash and cash equivalents at end of year $ 4,662 $ 6,151 $ 20,200 ============================================ Supplemental information: Non-cash transfer of equipment at net book value from unconsolidated special purpose entities $ 7,901 -- $ -- ============================================ Interest paid $ 2,815 $ 2,970 1,808 ============================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation Organization PLM Equipment Growth Fund V, a California limited partnership (the Partnership), was formed on November 14, 1989. The Partnership offering became effective April 11, 1990. The Partnership commenced significant operations in May 1990. PLM Financial Services, Inc. (FSI) is the General Partner. FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM International). The Partnership engages in the business of owning and leasing primarily used transportation equipment. The Partnership will terminate on December 31, 2010, unless terminated earlier upon sale of all equipment or by certain other events. Beginning in the Partnership's seventh year of operations, which commences on January 1, 1999, the General Partner will stop reinvesting excess cash if any, which, less reasonable reserves, will be distributed to the Partners. Beginning in the Partnership's ninth year of operations, the General Partner intends to begin an orderly liquidation of the Partnership's assets. The General Partner anticipates that the liquidation of the assets will be completed by the end of the Partnership's tenth year of operations. FSI manages the affairs of the Partnership. The net income (loss) and distributions of the Partnership are generally allocated 95% to the Limited Partners and 5% to the General Partner (see Net Income (Loss) and Distributions per Depositary Unit, below). The General Partner is entitled to a subordinated incentive fee equal to 5% of Cash Available for Distribution and of Net Disposition Proceeds (as defined in the Partnership Agreement) which are distributed by the Partnership after the Limited Partners have received a certain minimum rate of return. The General Partner has determined that it will not adopt a reinvestment plan for the Partnership. Based on this decision, beginning January 1, 1994, the Partnership may be obligated to redeem up to 2% of the outstanding units each year, subject to the General Partner's good faith determination that such redemption's should not (i) cause the Partnership to be taxed as a corporation under Section 7704 of the IRS Code or (ii) impair the capital or operations of the Partnership. The purchase price to be offered by the Partnership for the outstanding units will be equal to 110% of the unrecovered principal attributable to the units. The unrecovered principal for any unit will be equal to the excess of (i) the capital contribution attributable to the unit over (ii) the distributions from any source paid with respect to the units. For the years ended December 31, 1996 and 1995, the Partnership had repurchased 6,925 and 43,988 Depositary Units, for $79,000 and $579,000, respectively. At December 31, 1996, the Partnership agreed to repurchase approximately 120,000 Units for an aggregate price of approximately $1,171,000. The General Partner anticipates that these Units will be repurchased in the first and second quarters of 1997. These financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operations The equipment of the Partnership is managed, under a continuing management agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI. IMI receives a monthly management fee from the Partnership for managing the equipment (see Note 3). FSI, in conjunction with its subsidiaries, syndicates investor programs, sells transportation equipment to investor programs and third parties, manages pools of transportation equipment under agreements with the investor programs, and is a General Partner of other Limited Partnerships. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued) Accounting for Leases The Partnership's leasing operations generally consist of operating leases. Under the operating lease method of accounting, the leased asset is recorded at cost and depreciated over its estimated useful life. Rental payments are recorded as revenue over the lease term. Lease origination costs are capitalized and amortized over the term of the lease. Periodically, the Partnership leases equipment with lease terms that qualify for direct finance lease classification as required by Statement of Financial Accounting Standards No. 13 (SFAS 13). Depreciation and Amortization Depreciation of transportation equipment, held for operating leases, is computed on the 200% declining balance method, taking a full month's depreciation in the month of acquisition, based upon estimated useful lives of 15 years for railcars and 12 years for all other types of equipment. The depreciation method changes to straight line when annual depreciation expense using the straight line method exceeds that calculated by the 200% declining balance method. Acquisition fees and certain acquisition costs have been capitalized as part of the cost of the equipment. Lease negotiation fees are amortized over the initial equipment lease term. Debt issuance costs are amortized over the term of the loan for which they were paid. Major expenditures which are expected to extend the useful lives or reduce operating expenses for equipment are capitalized. Transportation Equipment In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Partnership was consistent with SFAS 121. In accordance with SFAS 121, the General Partner reviews the carrying value of the Partnership's equipment at least annually in relation to expected future market conditions for the purpose of assessing recoverability of the recorded amounts. If projected future lease revenue plus residual values are less than the carrying value of the equipment, a loss on revaluation is recorded. There were no reductions to the carrying value of equipment required during 1996. Investments in Unconsolidated Special Purpose Entities The Partnership has interests in unconsolidated special purpose entities which own transportation equipment. These interests are accounted for using the equity method. The Partnership's investment in unconsolidated special purpose entities includes acquisition and lease negotiation fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC). The Partnership's equity interest in net income of unconsolidated special purpose entities (USPE) is reflected net of management fees paid or payable to IMI and the amortization of acquisition and lease negotiation fees paid to TEC. Repairs and Maintenance Maintenance costs are usually the obligation of the lessee. If they are not covered by the lessee they are charged against operations as incurred. Estimated costs associated with marine vessel drydockings are accrued and charged to income ratably over the period prior to such drydocking. The reserve accounts are included in the balance sheet as lessee deposits and reserve for repairs. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued) Net Income (Loss) and Distributions per Depositary Unit The net income (loss) and distributions of the Partnership are generally allocated 95% to the Limited Partners and 5% to the General Partner. Gross income in each year is specially allocated to the General Partner to the extent, if any, necessary to cause the capital account balance of the General Partner to be zero as of the close of such year. The Limited Partners' net income (loss) and distributions are allocated among the Limited Partners based on the number of Depositary Units owned by each Limited Partner and on the number of days of the year each Limited Partner is in the Partnership. Cash distributions are recorded when paid. Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to the Limited Partners of $5,642,000, $17,297,000 and $16,227,000 in 1996, 1995, and 1994, respectively, were deemed to be a return of capital. Cash distributions of $2,785,000, $3,493,000, and $3,511,000 related to the fourth quarter of 1996, 1995 and 1994, respectively, were paid or are payable during January and February 1997, 1996, or 1995, depending on whether the individual Unitholder elected to receive a monthly or quarterly distribution check. Cash and Cash Equivalents The Partnership considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents. The carrying amount of cash equivalents approximates fair market value due to the short-term nature of the investments. Lessee security deposits held by the Partnership are considered restricted cash. 2. Investments in Unconsolidated Special Purpose Entities (USPE) During the second half of 1995, the Partnership began to increase the level of its participation in the ownership of large-ticket transportation assets to be owned and operated jointly with affiliated programs. This trend continued during 1996. Prior to 1996, the Partnership accounted for operating activities associated with joint ownership of transportation equipment as undivided interests, including its proportionate share of each asset with similar wholly-owned assets in its financial statements. Under generally accepted accounting principles, the effects of such activities, if material, should be reported using the equity method of accounting. Therefore, effective January 1, 1996, the Partnership adopted the equity method to account for its investment in such jointly-held assets. The principle differences between the previous accounting method and the equity method relate to the presentation of activities relating to these assets in the statement of operations. Whereas, under the equity method of accounting the Partnership's proportionate share is presented as a single net amount, equity in net income (loss) of USPE's, under the previous method, the Partnership's statement of operations reflected its proportionate share of each individual item of revenue and expense. Accordingly, the effect of adopting the equity method of accounting has no cumulative effect on previously reported partner's capital or on the Partnership's net income (loss) for the period of adoption. Because the effects on previously issued financial statements of applying the equity method of accounting to investments in jointly-owned assets are not considered to be material to such financial statements taken as a whole, previously issued financial statements have not been restated. However, certain items have been reclassified in the previously issued balance sheet to conform to the current period presentation. The beginning cash and cash equivalent for 1996 is different from the ending cash and cash equivalent for 1995 on the statement of cash flows due to PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. Investments in Unconsolidated Special Purpose Entities (continued) this reclassification. During 1996, the Partnership purchased an interest in a trust owning five commercial aircraft for $5.6 million and an interest in an entity owning two commercial aircraft on a direct finance lease for $2.9 million and incurred acquisition and lease negotiation fees of $0.3 million to PLM Worldwide Management Services (WMS), an affiliate of the General Partner. The following summarizes the financial information for the special purpose entities and the Partnership's interest therein as of and for the year ended December 31, 1996 (in thousands):
Net Total Interest of USPE Partnership ------------------------------ Net Investments $ 48,660 $ 12,673 Revenues 30,337 7,054 Net loss (1,692 ) (116 )
The net investments in USPE's include the following jointly-owned equipment (and related assets and liabilities) at December 31 1996 and 1995, (in thousands):
1996 1995 -------------------------------- 50% interest in an entity owning a bulk carrier $ 3,196 $ 3,778 50% interest in an entity owning a product tanker 2,144 2,841 25% interest in two commercial aircraft on direct finance lease 2,768 -- 17% interest in two trusts owning three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables 4,565 5,334 14% interest in a Trust that owns seven commercial aircraft (see below note) -- 4,205 ---------------------------- Net investments $ 12,673 $ 16,158 ============================
The Partnership had beneficial interests in two USPE's that own multiple aircraft (the "Trusts"). These Trusts contained certain provisions, under certain circumstances, for allowing the removal of specific aircraft to the beneficial owners. A renegotiation of the Partnership's senior loan agreement during the third quarter of 1996 (see note 6), required the Partnership to remove from the Trusts the aircraft designated to the Partnership for loan collateral purposes. As of December 31, 1996, the two Boeing 737 aircraft, one of which was purchased during 1995 and the other which was purchased during 1996, are now reported as owned equipment by the Partnership. 3. General Partner and Transactions with Affiliates An officer of PLM Securities Corp. (PLM Securities) contributed $100 of the Partnership's initial capital. Under the equipment management agreement, IMI receives a monthly management fee attributable to either owned equipment or interests in equipment owned by the USPE's equal to the lesser of (i) the fees which would be charged by an independent third party for similar services for similar equipment or (ii) the sum of (A) 5% of the Gross Lease Revenues attributable to equipment which is subject to operating leases, (B) 2% of the Gross Lease Revenues, as defined in the agreement which is subject to full payout net leases, and (C) 7% of the Gross Lease Revenues attributable to Equipment, if any, which is subject to per diem leasing arrangements and thus is operated by the Partnership. Partnership management fees of $952,000, and $1,459,000 were payable as of December 31, 1996 and 1995, respectively. The Partnership's proportional share of USPE's management fees of $26,000, and $0 were payable as of December 31, 1996 and 1995, respectively. The Partnership's proportional share of USPE's management fees expense during 1996 PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. General Partner and Transactions with Affiliates (continued) was $304,000. An affiliate of the General Partner was reimbursed for data processing and administrative expenses directly attributable to the Partnership, in the amount of $838,000, $612,000, and $436,000, during 1996, 1995, and 1994, respectively. The Partnership's proportional share of USPE's data processing and administrative expenses was $73,000 during 1996. Debt placement fees are paid to FSI in an amount equal to 1% of the Partnership's long-term borrowings. The Partnership and USPE's paid or accrued lease negotiation and equipment acquisition fees of $1,617,000 and $1,603,000 to TEC and WMS in 1996 and 1995, respectively. During 1994, the Partnership did not purchase any equipment; therefore, neither of these fees were required to be accrued or paid. TEC is a wholly-owned subsidiary of FSI. WMS is a wholly-owned subsidiary of PLM International. The Partnership paid $768,000, $1,015,000, and $841,000 in 1996, 1995, and 1994, respectively, to Transportation Equipment Indemnity Company, Ltd. (TEI) which provides marine insurance coverage and other insurance brokerage services. The Partnership's proportional share of USPE's marine insurance coverage paid to TEI was $231,000 during 1996. TEI is an affiliate of the General Partner. A substantial portion of this amount was paid to third-party reinsurance underwriters or placed in risk pools managed by TEI on behalf of affiliated partnerships and PLM International which provide threshold coverages on marine vessel loss of hire and hull and machinery damage. All pooling arrangement funds are either paid out to cover applicable losses or refunded pro rata by TEI. As of December 31, 1996, approximately 69% of the Partnership's trailer equipment is in rental facilities operated by an affiliate of the General Partner. Revenues collected under short-term rental agreements with the rental yards' customers are credited to the owners of the related equipment as received. Direct expense associated with the equipment are charged directly to the Partnership. An allocation of other direct expenses of the rental yard operations are billed to the Partnership monthly. The Partnership owns certain equipment in conjunction with affiliated partnerships. At December 31, 1996, this equipment included an interest in two entities owning marine vessels, an interest in two trusts comprised of three aircraft, two aircraft engines, and a package of aircraft rotables, and an interest in a trust comprised of two commercial aircraft on a direct finance lease. At December 31, 1995, this equipment included an interest in two entities owning marine vessels, an interest in two trusts comprised of three aircraft, two aircraft engines, and a package of aircraft rotables, and an interest in a trust comprised of seven commercial aircraft. The balance due to affiliates at December 31, 1996, includes $0.9 million due to FSI and its affiliates and $0.3 million due from affiliated investments in USPE's. The balance due to affiliates at December 31, 1995, includes $1.3 million due to FSI and its affiliates and $0.3 million due from affiliated investments in USPE's. 4. Equipment The components of equipment at December 31, 1996 and 1995, are as follows (in thousands):
Equipment held for operating leases: 1996 1995 ------------------------------------- Marine vessels $ 52,259 $ 52,259 Mobile offshore drilling units -- 25,204 Marine containers 24,451 28,278 Aircraft 57,205 32,903 Rail equipment 11,406 11,041 Trailers 9,683 9,629 ------------------------------------ 155,004 159,314 Less accumulated depreciation (81,541 ) (85,564 ) ------------------------------------ ==================================== Net equipment $ 73,463 $ 73,750 ====================================
PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 4. Equipment (continued) Revenues are earned by placing the equipment under operating leases which are billed monthly or quarterly. Some of the Partnership's marine containers and marine vessels are leased to operators of utilization-type leasing pools which include equipment owned by unaffiliated parties. Insuch instances revenues received by the Partnership consist of a specified percentage of revenues generated by leasing the pooled equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. Rents for other equipment are based on fixed rates. As of December 31, 1996, all equipment was on lease or operating in PLM-affiliated short-term trailer rental yards except 14 railcars with a net book value of $0.2 million. As of December 31, 1995, all equipment was on lease or operating in PLM-affiliated short-term trailer rental yards. One commercial aircraft is on lease to Continental Airlines Inc. (Continental). Continental filed for protection under Chapter 11 of the U.S. Bankruptcy code in December 1990. Unpaid past due rent payments totaling $1.4 million were converted into 2 promissory notes by the Bankruptcy Court with terms of 42 and 48 equal monthly installments, with interest accruing at the rate of 8.64% and 12% per annum. As of December 31, 1996, $27,000 was outstanding under these notes ($322,000 outstanding as of December 31, 1995). Continental remains current on all payments due under the promissory notes. During 1996, the Partnership disposed of a rig with a net book value of $10.7 million for proceeds of $21.3 million, 2 aircraft engines, 1 commuter aircraft, 926 marine containers, 1 trailer and 4 railcars with an aggregate net book value of $5.1 million for proceeds of $8.7 million. During 1995, the Partnership disposed of 1,519 marine containers, 1 commuter aircraft, 1 railcar, and 1 marine vessel with an aggregate net book value of $10.0 million for proceeds of $10.6 million. The Partnership also sold 97 railcars, which were held for sale as of December 31, 1994, with a net book value of $1.9 million at the date of sale for proceeds of $2.6 million and 1 marine vessel, which was also held for sale, with a net book value of $4.0 million at the date of sale for proceeds of $5.1 million. Included in the gain of $2.9 million from sale of the marine vessels, is the unused portion of accrued drydocking of $1.3 million and commissions related to the sale. Periodically, PLM International will purchase groups of assets whose ownership may be allocated among affiliated partnerships and PLM International. Generally in these cases, only assets that are on lease will be purchased by the affiliated partnerships. PLM International will generally assume the ownership and remarketing risks associated with off-lease equipment. Allocation of the purchase price will be determined by a combination of third party industry sources, and recent transactions or published fair market value references. During 1996, PLM International realized $0.7 million of gains on the sale of 69 off-lease railcars purchased by PLM International as part of a group of assets in 1994 which had been allocated to PLM Equipment Growth Funds IV, VI, VII, Professional Lease Management Income Fund I, L.L.C. (Fund I) and PLM International. At December 31, 1995, PLM International included these assets as held for sale. During 1995, PLM International realized $1.3 million in gains on sales of railcars and aircraft purchased by PLM International in 1994 and 1995 as part of a group of assets which had been allocated to the Partnership, PLM Equipment Growth Funds IV, VI, VII, Fund I, and PLM International. All leases are being accounted for as operating leases except one finance lease. Future minimum rentals receivable under noncancelable operating leases at December 31, 1996, for owned and partially owned equipment during each of the next five years are approximately $14,900,000 - 1997; $11,200,000 - 1998; $9,200,000 - 1999; $7,900,000 -2000; and $8,100,000 - thereafter. Contingent rentals based upon utilization were approximately $3,107,000, $4,785,000, and $6,431,000 in 1996, 1995, and 1994, respectively. The Partnership owns certain equipment which is leased and operated internationally. A limited number of the Partnership's transactions are denominated in a foreign currency. Gains or losses PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 4. Equipment (continued) resulting from foreign currency transactions are included in the results of operations and are not material. The Partnership leases or leased its aircraft, railcars, mobile offshore drilling unit and trailers to lessees domiciled in five geographic regions: North America, South America, Europe, Asia, and Australia. Marine vessels and marine containers are leased to multiple lessees in different regions who operate the marine vessels and marine containers worldwide. The tables below set forth geographic information about the Partnership's owned equipment and investments in USPE's grouped by domicile of the lessee as of and for the years ended December 31, 1996, 1995 and 1994 (in thousands):
Investments in U.S.P.E. Owned Equipment ---------------- -------------------------------------- Region 1996 1996 1995 1994 ------------------------- ------------ --------------------------------------- Revenues: United States $ -- $ 7,806 $ 6,666 $ 7,734 Canada 1,509 1,821 892 713 South America -- 763 -- -- Asia -- 1,062 2,556 3,080 Australia -- -- 258 -- Europe 1,765 493 1,671 1,083 Rest of the world 3,780 16,818 22,255 26,147 ============ ========================================= Total revenues $ 7,054 $ 28,763 $ 34,298 $ 38,757 ============ =========================================
The following table sets forth identifiable net income (loss) information by region for the owned equipment and investments in USPE for the years ended December 31, 1996, 1995 and 1994 (in thousands):
Investments in U.S.P.E. Owned Equipment ---------------- -------------------------------------- Region 1996 1996 1995 1994 ------------------------------------------ ----------- ----------------------------------------- Net income (loss): United States $ -- $ 1,543 $ 2,142 $ 1,680 Canada (753 ) (555 ) (75 ) 125 South America -- (1,419 ) -- -- Asia -- 10,715 114 58 Australia -- -- 646 -- Europe 490 3,190 410 284 Mexico (2 ) -- -- 5,152 Rest of the world 149 2,500 2,085 (1,143 ) ----------- ----------------------------------------- Total identifiable income (loss) (116 ) 15,974 5,322 6,156 Administrative and other -- (3,417 ) (3,277 ) (2,963 ) =========== ========================================= Total net income (loss): $ (116 ) $ 12,557 $ 2,045 $ 3,193 =========== =========================================
PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 4. Equipment (continued) The net book value of these assets at December 31, 1996, 1995 and 1994 are as follows (in thousands): Investments in U.S.P.E. Owned Equipment ------------------ ------------------------------------------------------ Region 1996 1995 1996 1995 1994 ------------------------------ ----------------------------- --------------------------------------------- Net book value: United States $ -- $ -- $ 20,465 $ 24,971 $ 15,355 Canada -- 4,205 14,065 2,187 2,106 South America -- -- 13,909 -- -- Mexico 2,768 -- -- -- -- Asia -- -- -- 11,540 13,849 Europe 4,565 5,334 -- 3,377 4,052 Rest of the world 5,340 6,619 25,024 31,675 52,528 ----------------------------- --------------------------------------------- 12,673 16,158 73,463 73,750 87,890 Equipment held for sale -- -- -- -- 6,082 ============================= ============================================= $ 12,673 $ 16,158 $ 73,463 $ 73,750 $ 93,972 ============================= =============================================
The lessees accounting for 10% or more of the total revenues during 1996 and 1995 were Halla Merchant Marine Company, Ltd. (11.6% in 1995), Chembulk Trading, Inc. (12.2% in 1996; 11.1% in 1995), During 1994, there were no lessees which accounted for 10% or more of the total revenues. 5. Net Investment in Direct Finance Lease During December 1995, the Partnership entered into a direct finance lease related to the installation of a Stage III hushkit on an advanced B727-200 aircraft for $2.5 million. The Partnership incurred acquisition and lease negotiation fees of $139,000 to TEC related to this transaction. Gross lease payments of $3.8 million are to be received over a five-year period, which commenced in December of 1995. The components of the net investment in direct finance lease at December 31, 1996 and 1995 are as follows:
1996 1995 --------------------------------- Total minimum lease payments $ 2,978,000 $ 3,738,000 Residual value 125,000 125,000 Less: Unearned income (821,000 ) (1,226,000 ) ================================= $ 2,282,000 $ 2,637,000 =================================
Future minimum rentals receivable under the direct finance lease at December 31, 1996, for the next five years are approximately $760,000 - 1997; $760,000 - 1998; $760,000 - 1999; and $698,000 -2000. 6. Notes Payable In November 1991, the Partnership borrowed $38,000,000 under a nonrecourse loan agreement. The loan was secured by certain marine containers, five marine vessels, and one mobile offshore drilling unit owned by the Partnership. During 1996, the Partnership sold some of the assets in which the lender had a secured interest. On September 26, 1996, the existing senior loan agreement was amended and restated to reduce the interest rate, to grant increased flexibility in allowable collateral, to pledge additional equipment PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 6. Notes Payable (continued) to the lenders and to amend the loan repayment schedule from 16 consecutive equal quarterly installments to 20 consecutive quarterly installments with lower principle payments for the first four payments. The Partnership incurred a loan amendment fee of $133,000 to the lender in connection with the restatement of this loan. Pursuant to the terms of the loan agreement the Partnership must comply with certain financial covenants and maintain certain financial ratios During 1996, the loan required interest-only quarterly payments at a rate of approximately LIBOR plus 1.2 percent per annum (6.825% at December 31, 1996). During 1995, the loan required interest-only quarterly payments at a rate of approximately LIBOR plus 1.5 percent per annum (7.4375% at December 31, 1995). The General Partner believes that the book value of the note payable approximates fair value due to its variable interest rate. The General Partner has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII and Professional Lease Management Income Fund I ("Fund I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and American Finance Group, Inc. (AFG), a subsidiary of PLM International Inc., which may be used to provide interim financing of up to (i) 70% of the aggregate book value or 50% of the aggregate net fair market value of eligible equipment owned by the Partnership , plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and was amended and restated on October 31, 1996, to expire on October 31, 1997 and increased the available borrowings for AFG to $50 million. The Partnership, TECAI, Fund I and the other partnerships collectively may borrow up to $35 million of the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM Equipment Growth Funds IV through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Partnership from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of funds. Borrowings by the Partnership are guaranteed by the General Partner. As of December 31, 1996, the Partnership had borrowings of $2.5 million, PLM Equipment Growth Fund VI had $1.3 million, PLM Equipment Growth and Income Fund VII had $2.0 million, AFG had $26.9 million, and TECAI had $4.1 million in outstanding borrowings. Neither PLM Equipment Growth Fund IV nor Fund I had any outstanding borrowings. 7. Income Taxes The Partnership is not subject to income taxes as any income or loss is included in the tax returns of the individual Partners. Accordingly, no provision for income taxes has been made in the accounts of the Partnership. At December 31, 1996, there were temporary differences of approximately $15,426,000 between the financial statement carrying values of assets and liabilities and the federal income tax bases of such assets and liabilities, principally due to the differences in depreciation methods. 8. Subsequent Event PLM International (PLMI) along with FSI, IMI, TEC and PLM Securities, and collectively with PLMI, FSI, IMI, TEC and PLM Securities, (the "PLM Entities"), were named as defendants in a class action lawsuit filed in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251. The PLM Entities received service of the complaint on February 10, 1997, and pursuant to an extension of time granted by plaintiffs' attorneys, have sixty days to respond to the complaint. PLM PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 8. Subsequent Event continued) International is currently reviewing the substance of the allegations with its counsel, and believes the allegations to be completely without merit and intends to defend this matter vigorously. The plaintiffs, who filed the complaint on their own and on behalf of all class members similarly situated, are six individuals who allegedly invested in certain California limited partnerships sponsored by PLM Securities, for which FSI acts as the general partner, including the Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund VI, and PLM Equipment Growth and Income Fund VII (the "PLM Growth Funds"). The complaint purports 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 for breach of third party beneficiary contracts against and in violation of the National Association of Securities Dealers (NASD) rules of fair practice by PLM Securities alone. Plaintiffs allege that each defendant owed plaintiffs and the class certain duties due to their status as fiduciaries, financial advisors, agents, general partner, and control persons. Based on these duties, plaintiffs assert liability against the PLM Entities for improper sales and marketing practices, mismanagement of the PLM Growth Funds, and concealing such mismanagement from investors in the PLM Growth Funds. 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. (this space intentionally left blank) PLM EQUIPMENT GROWTH FUND V INDEX OF EXHIBITS Exhibit Page 4. Limited Partnership Agreement of Partnership. * 10.1 Management Agreement between the Partnership and * PLM Investment Management, Inc. 10.2 Amended and restated $38,000,000 Loan Agreement, dated as of September 26, 1996 * 10.4 Second Amended and restated Warehousing Credit Agreement, dated as of May 31, 1996 with First Union National Bank of North Carolina * 10.5 Amendment No. 1 to Second Amended and restated Warehousing Credit Agreement, dated as of November 5, 1996 with First Union National Bank of North Carolina * 24. Powers of Attorney. * * Incorporated by reference. See page 23 of this report. EX-10 2 AMENDED AND RESTATED LOAN AGREEMENT Dated as of September 26, 1996 respecting a loan of up to $38,000,000 among PLM EQUIPMENT GROWTH FUND V TRADER VESSEL LIMITED PARTNERSHIP TRADER VESSEL INC. CALIFORNIA VESSEL LIMITED PARTNERSHIP CALIFORNIA VESSEL INC. COLUMBUS VESSEL LIMITED PARTNERSHIP COLUMBUS VESSEL INC. REDCAR INVESTMENTS LIMITED as Companies and CHRISTIANIA BANK OG KREDITKASSE INTERNATIONALE NEDERLANDEN LEASE STRUCTURED FINANCE B.V. AND SUCH OTHER BANKS AND FINANCIAL INSTITUTIONS AS MAY HEREAFTER BE NAMED HEREIN as Lenders and CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH as Agent and Security Trustee Watson, Farley & Williams 380 Madison Avenue New York, New York 10017 INDEX CLAUSE PAGE 1 LOAN, PURPOSE 2 2 DEFINITIONS AND INTERPRETATION 2 3 INTEREST AND INTEREST PERIODS 10 4 REPAYMENT AND PREPAYMENT 11 5 CONDITIONS PRECEDENT 12 6 REPRESENTATIONS AND WARRANTIES 16 7 COVENANTS 19 8 SECURITY TRUSTEE 27 9 EVENTS OF DEFAULT 41 10 FEES AND EXPENSES 46 11 PAYMENTS AND CALCULATIONS 46 12 NO COUNTERCLAIM, TAXATION 47 13 CHANGES IN CIRCUMSTANCES 47 14 FUNDING LOSSES 49 15 SECURITY 50 16 COMMUNICATIONS 50 17 ASSIGNMENTS 51 18 MISCELLANEOUS 51 19 LAW AND JURISDICTION 52 20 RIGHTS OF CONTRIBUTION 53 21 NONRECOURSE 53 22 RELEASE OF CERTAIN COMPANIES 54 (ii) SCHEDULE 1 THE LENDERS SCHEDULE 2 LIENS SCHEDULE 3 APPROVED LIST OF APPRAISERS APPENDIX A FORM OF PROMISSORY NOTE APPENDIX B FORM OF LIBERIAN MORTGAGE APPENDIX C FORM OF DEED OF COVENANTS APPENDIX D [Intentionally omitted.] APPENDIX E FORM OF SECURITY AGREEMENT APPENDIX F FORM OF ASSIGNMENT OF CHARTER APPENDIX G FORM OF PLEDGE AGREEMENT APPENDIX H FORM OF AIRCRAFT MORTGAGE APPENDIX I FORM OF BENEFICIAL INTEREST SECURITY AGREEMENT APPENDIX J FORM OF COMPLIANCE CERTIFICATE APPENDIX K FORM OF ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS APPENDIX L FORM OF NOTICE AND ACKNOWLEDGMENT OF MORTGAGE -1- THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") dated as of September 26, 1996 BY AND AMONG (1) PLM EQUIPMENT GROWTH FUND V, a California limited partnership (hereinafter called "EGF V"); (2) TRADER VESSEL LIMITED PARTNERSHIP, a California limited partnership (hereinafter called "Trader"); (3) TRADER VESSEL INC., a California corporation (hereinafter called "TVI"); (4) CALIFORNIA VESSEL LIMITED PARTNERSHIP, a California limited partnership (hereinafter called "California"); (5) CALIFORNIA VESSEL INC., a Wyoming corporation (hereinafter called "CVI"); (6) COLUMBUS VESSEL LIMITED PARTNERSHIP, a California limited partnership (hereinafter called "Columbus"); (7) COLUMBUS VESSEL INC., a Wyoming corporation (hereinafter called "COVI"); (8) REDCAR INVESTMENTS LIMITED, a Hong Kong company (hereinafter called "Redcar", and together with EGF V, Trader, TVI, California, CVI, Columbus and COVI, as joint and several borrowers, hereinafter called the "Companies"); (9) The LENDERS listed on Schedule 1 hereto (hereinafter called the "Lenders"); and ------- (10) CHRISTIANIA BANK OG KREDITKASSE, New York Branch ("CBK"), as agent and security trustee (hereinafter called "Agent" or "Security Trustee"). RECITALS (A) The Lenders made available to the Companies a loan facility of up to Thirty Eight Million Dollars ($38,000,000) pursuant to, upon and subject to the terms and conditions of the Loan Agreement dated as of November 8, 1991, as amended by an Addendum No. 1 dated as of April 27, 1992 (as so amended, the "Original Loan") as evidenced by a Secured Joint and Several Promissory Note of the Companies dated November 14, 1991 as endorsed by Endorsement to Secured Promissory Note dated as of April 27, 1992 executed by Redcar Investments Limited. (B) Pursuant to an Assignment of Cash Collateral dated May 30, 1996 executed by EGF V in favor of the Agent, the Lenders released their first preferred mortgage on DUAL RIG 86, and EGF V granted to the Agent a security interest in a $10,750,000 cash collateral deposit. (C) The parties hereto desire to amend certain covenants and other provisions contained in the Original Loan Agreement; to add certain additional obligors; to pledge additional equipment (which is owned by the Owner Trustee for the benefit of EGF V pursuant to the Trust Agreement) to the Agent and the Lenders to secure the repayment of the Loan and the obligation of the Companies under this Agreement, the Note and the Security Documents; to release Balboa Marine Limited Partnership, a California limited partnership ("Balboa"), Balboa Marine Inc., a California corporation ("BMI"), Divisadero ------ --- Vessel Limited Partnership, a California limited partnership ("Divisadero"), Divisadero Vessel Inc., a ---------- California corporation ("DVI"), Ashbury Street Limited Partnership, a California limited partnership --- ("Ashbury") and Ashbury Street Inc., a California corporation ("ASI") from the obligations under the --------- --- Original Loan Agreement; and to restate the Original Loan Agreement as set forth herein. NOW THEREFORE the parties hereto agree that, upon satisfaction of the conditions set forth in Section 5, the Original Loan Agreement shall be amended and restated to read in its entirety as follows: 1. LOAN, PURPOSE 1.01 Subject to the terms of this Agreement and in reliance on the representations and warranties of the Companies set out in Clause 6.01 of the Original Loan Agreement, the Lenders made available to the Companies on a joint and several basis a loan facility having an aggregate principal amount of up to $38,000,000 for the purposes of financing the acquisition of additional equipment for EGF V's equipment portfolio and to provide working capital for the Companies, the entire principal amount of which is outstanding on the date hereof. 2. DEFINITIONS AND INTERPRETATION 2.01 In this Agreement, the words, expressions and other provisions specified below shall, except where the context otherwise requires, have the meanings and effect prescribed below. "Act" has the meaning specified in Clause 8.04 hereof; "Agent" means Christiania Bank og Kreditkasse, New York branch, acting in its capacity as agent for the Lenders under this Agreement and includes (a) any other branch or office through which the Agent may be acting from time to time and (b) where the context so admits, the Agent's successors and assigns; "Aircraft" means (i) Aircraft 1, Aircraft 2, Aircraft 3, Aircraft 4, Aircraft 5, Aircraft 6 and (ii) such other aircraft as the Companies may hereafter mortgage as security for the obligations of the Companies under this Agreement, the Note and the Security Documents, or any of them as the context requires, as the same are further described in the respective Aircraft Mortgages; "Aircraft 1" means the Canadian registered Boeing 737-200 (msn. 22257), as the same is further described in the relevant Aircraft Mortgage; "Aircraft 2" means the Canadian registered Boeing 737-200 (msn. 22264), as the same is further described in the relevant Aircraft Mortgage; "Aircraft 3" means the Canadian registered DHC-8-102 (msn. 190), as the same is further described in the relevant Aircraft Mortgage; "Aircraft 4" means the U.S. registered McDonnel-Douglas DC-9-32 (msn. 48112), as the same is further described in the relevant Aircraft Mortgage; "Aircraft 5" means the U.S. registered De Havilland DHC-8-102 (msn. 016), as the same is further described in the relevant Aircraft Mortgage; "Aircraft 6" means the U.S. registered De Havilland DHC-8-102 (msn. 019), as the same is further described in the relevant Aircraft Mortgage; "Aircraft Mortgages" means (i) each first priority Aircraft Mortgage and Security Agreement executed by the Owner Trustee in favor of the Security Trustee in respect of Aircraft 4, Aircraft 5 and Aircraft 6, (ii) each first priority Aircraft Mortgage and Security Agreement executed by the Owner Trustee in favor of the Security Trustee in respect of Aircraft 1, Aircraft 2 and Aircraft 3 and (iii) any other aircraft mortgage in respect of Aircraft executed in favor of the Security Trustee by the owner of such Aircraft or any of them as the context requires, each in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Approved List" means the approved list of sale and purchase brokers attached hereto as Schedule 3; "Approved Manager" means IMI or any other company which the Agent may, in its reasonable discretion, approve from time to time as the manager of the Vessels or any other Equipment; "Approved Management Agreement" means the agreement between EGF V and the Approved Manager providing for the complete maintenance, operation, repair, certification and upkeep of the Vessels or any other Equipment; "Assignment of Limited Partnership Interests" means (i) the assignments executed or to be executed in favor of the Security Trustee by EGF V for the limited partnership interests in Clement and Montgomery, respectively, and (ii) such other assignment of limited partnership interests executed in favor of the Security Trustee as security for the obligations of the Companies under this Agreement, the Notes and the Security Documents, each in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Beneficial Interest Security Agreement" means the security agreement executed or to be executed by the Security Trustee, the Owner Trustee and EGF V in respect of its beneficial interest in the Aircraft pursuant to the Trust Agreement, in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Business Day" means a day on which banks are open for the transaction of business of the nature required by this Agreement in the place or places from time to time specified; "California" means California Vessel Limited Partnership, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Cash Collateral Account" means the cash collateral account no. 406-246-5001 in the name of the Companies maintained by the Security Trustee and under the dominion and control of the Security Trustee, as further described in Clause 7.04; "Cash Equivalents" means any of the following, to the extent owned by the Companies free and clear of all Security Interests and having a maturity not greater than 360 days (or such other period as is specified) from the date of issuance thereof: (a) direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States; (b) certificates of deposit or time deposits with (i) Christiania Bank og Kreditkasse or (ii) any commercial bank that (x) is organized under the laws of the United States or any State thereof or any member country of the Organization for Economic Cooperation and Development and (y) has combined capital and surplus of at least $300,000,000 and whose debt is rated A by Standard and Poors, provided such certificates of deposit or time deposits described in this clause (b) will not in the aggregate exceed $20,000,000 and do not in any individual case have a maturity in excess of 180 days, (c) commercial paper having a maturity not to exceed 180 days in an aggregate amount of not more than $20,000,000 per issuer outstanding at any time, issued by Christiania Bank og Kreditkasse or any corporation organized under the laws of any State of the United States and rated at least " Prime-1 " (or the then equivalent grade) by Moody's Investors Services, Inc. or " A- I " (or the then equivalent grade) by Standard & Poor's Ratings Group or an equivalent rating or higher from at least one nationally recognized rating agency; (d) repurchase obligations with a term of not more than 30 days for securities of the types listed in clause (a) with a bank meeting the qualification described in clause (b); or (e) shares of money market mutual or similar funds having assets in excess of $100,000,000 and which invest exclusively in assets satisfying the requirements of clauses (a) through (d) of this definition; "CBK" means Christiania Bank og Kreditkasse, New York Branch; "Classification Society" shall mean Det norske Veritas with respect to M/T STOLT TRADER, American Bureau of Shipping with respect to M/V CALIFORNIA, and Lloyd's Register of Shipping with respect to M/T COLUMBUS or such other classification society as is selected by the Companies with the consent of the Agent; "CLVI" means Clement Vessel, Inc., a Wyoming corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Clement" means Clement Vessel Limited Partnership, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Columbus" means Columbus Vessel Limited Partnership, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Companies" means each of EGF V, Trader, TVI, California, CVI, Columbus, COVI and Redcar, as such list may be from time to time amended; "Containers" means those refrigerated and dry marine containers listed in Schedule 1 to Appendix E; "COVI" means Columbus Vessel Inc., a Wyoming corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "CVI" means California Vessel Inc., a Wyoming corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Deeds of Covenants" means the Deeds of Covenants supplemental to the Mortgages executed in favor of the Security Trustee by (i) Redcar on M/V CALIFORNIA and (ii) Columbus on M/T COLUMBUS, and such other deeds of covenants supplemental to a Mortgage executed in favor of the Security Trustee by the mortgagor in respect of such Mortgage, each in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Default" means an event or occurrence that with the giving of notice or lapse of time or both would constitute an Event of Default; "Dollars" and "$" means the lawful currency for the time being of the United States of America; "Drawdown Date" means the date upon which the Companies requested the drawdown of the Loan pursuant to Clause 2 of the Original Loan Agreement, or (as the context requires) the date on which the Loan was actually drawn down thereunder; "EGF V" means PLM Equipment Growth Fund V, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA, 94105; "Equipment" means all aircraft, aircraft engines, drilling rigs, vessels, railcars, truck trailers, truck tractors, chassis and containers owned directly or beneficially by EGF V or a subsidiary or affiliate of EGF V, including any Company other than EGF V; "Estate" has the meaning specified in Clause 8.02 hereof; "Event of Default" means any one of the events listed in Clause 9.01; "FSI" means PLM Financial Services, Inc., a Delaware corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "IMI" means PLM Investment Management, Inc., a California corporation with its principal place of business at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Indebtedness" has the meaning specified in Clause 8.02, together with such other amounts as may be owing to the Security Trustee by any of the Companies under the Security Documents; "Indenture" means the trust indenture created by Clause 8 of this Agreement and the Security Documents; "Insurance Assignments" means the assignments executed or to be executed in favor of the Security Trustee by (i) Trader for the insurances of M/T TRADER; (ii) Redcar for the insurances of M/V CALIFORNIA, (iii) Columbus for the insurances of M/T COLUMBUS and (iv) EGF V for the insurances on the Containers, and such other assignment of insurances in respect of any other Vessel, Aircraft or other Equipment executed in favor of the Security Trustee by the owner of such Vessel or Aircraft, each in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Interest Period" means a period of either one (1), three (3) or six (6) months as determined pursuant to Clause 3; "Interest Rate Agreements" means any agreements entered into from time to time between any Lender and the Companies or any of them providing for the hedging of interest rate risks; provided, the Companies shall first offer to the Agent the opportunity to provide such hedging of interest rate risks; "Lenders" mean the Lenders listed on Schedule 1 hereto, as the same may be amended from time to time, and their successors and assigns; "LIBOR" means (i) the rate per annum equal to the rate quoted by the Agent as appearing on the Telerate Page 3750 at or about 11:00 A.M. (London time) for the applicable Interest Period on the second Business Day prior to the commencement of such Interest Period or (ii) if such rate does not appear on the Telerate Page 3750, the rate at which deposits in Dollars in an amount approximately equal to the Loan (or any relevant part thereof) are offered to the Agent in the London Interbank Dollar Market at or about 11:00 a.m. (London time) for the applicable Interest Period on the second Business Day prior to the commencement of such Interest Period for a period equal to such Interest Period; "Loan" means the aggregate principal amount of all borrowings by the Companies under this Agreement or (as the context requires) the aggregate principal amount thereof for the time being advanced and outstanding under this Agreement; "Majority Lenders" means the Lenders owning at least 51% of the Indebtedness; "Margin" means one and two-tenths percent (1.20%) per annum, plus any applicable margin imposed on the Companies or the Lenders as a result of the operation of Regulation D (Code of Federal Regulations, Title 12, Chapter II, Part 204) or any successor or replacement regulation as in effect from time to time; "Montgomery" means Montgomery Vessel Limited Partnership, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Mortgages" means (a) the First Preferred Liberian ship mortgages executed in favor of the Security Trustee by Trader on M/T TRADER, (b) the Statutory First Priority Bahamian mortgages executed in favor of the Security Trustee by Columbus on M/T COLUMBUS, (c) the First Priority Hong Kong Ship Mortgage executed in favor of the Security Trustee by Redcar on M/V CALIFORNIA, (d) the Aircraft Mortgages, and such other mortgage in respect of a Vessel or an Aircraft executed in favor of the Security Trustee by the owner of such Vessel or Aircraft, as the case may be, each in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "M/T COLUMBUS" means the Bahamian flag product tanker named COLUMBUS, as the same is further described in the relevant Mortgage; "M/T TRADER" means the Liberian flag chemical tanker named TRADER (formerly known as STOLT TRADER), as the same is further described in the relevant Mortgage; "M/V CALIFORNIA" means the Hong Kong flag bulk carrier named CALIFORNIA, as the same is further described in the relevant Mortgage; "M/V CLEMENT" means the Bahamian flag oil tanker named CLEMENT, duly documented under the laws and flag of the Bahamas, official number 713619; "M/V PACIFIC SPLENDOR" means the Bahamian flag bulk carrier named PACIFIC SPLENDOR, duly documented under the laws and flag of the Bahamas, official number 706810; "MVI" means Montgomery Vessel, Inc., a Wyoming corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "New Security Documents" means (i) the Aircraft Mortgages, (ii) the amendments to the Mortgage delivered or to be delivered pursuant to Clause 5.01 (c), (iii) the Pledge Agreement, (iv) the Assignment of Limited Partnership Interests, and (v) the Beneficial Interest Security Agreements; "Note" means the Secured Promissory Note evidencing the Loan, in substantially the form of Appendix A and any amended and restated Secured Promissory Note evidencing the Loan; "Owner Trustee" means First Security Bank of Utah, National Association, as owner trustee pursuant to the Trust Agreement (or any successor owner trustee); "Permitted Liens" means (i) liens in favor of the Lenders, the Agent or the Security Trustee, (ii) with respect to the Vessels and the Aircraft, the meaning for such term set forth in the respective Mortgages and (iii) with respect to all other Equipment (a) liens incident to expenses of current operations incurred in the ordinary course of business of EGF V; (b) liens set forth on Schedule 2 hereto, (c) purchase money liens in favor of the Warehousing Agent securing amounts borrowed by EGF V and outstanding under the Warehousing Agreement provided that such liens are released within 180 days of the day they were created, (d) liens imposed by any governmental authority for taxes, assessments or charges not yet due (after giving effect to any applicable grace period) or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Companies in accordance with generally accepted accounting principals, (e) liens securing claims which are completely covered by insurance and the deductible applicable thereto, so long as there has not been any action by the lienholder to enforce such lien and (f) judgment or other similar liens provided that there shall be no period of more than 20 consecutive days (or such longer appeal period as may be provided by local court procedural rules) during which a stay of enforcement of the related judgment shall not be in effect; "Person" means any individual, corporation (including a business trust), company, voluntary association, partnership, joint venture or other entity, trust, incorporated organization or government (or any agency, instrumentality or political subdivision thereof); "Pledge Agreement" means the pledge agreements executed or to be executed in favor of the Security Trustee by EGF V in respect of the shares of each of the CLVI and MVI; "Pledged Equipment" means Equipment that is subject to a first priority lien in favor of the Security Trustee, the Agent or the Lenders and which secures the obligations of the Companies under this Agreement, the Note and the Security Documents; "Pledged Shares" means the shares of CLVI and MVI, respectively, pledged by EGF V to the Security Trustee for the benefit of the Lenders pursuant to the Pledge Agreement; "Qualified Assets" means the three (3) Boeing model 737-200 aircraft msns. 21003, 21008 and 21009 and registration marks "PP-VMH", "PP-VMM" and "PP-VMN", respectively; "Redcar" means Redcar Investments Limited, a Hong Kong company having its principal offices at 702 Tower One Admiralty Centre, 18 Harcourt Road, Hong Kong; "Repayment Date" means each of the dates determined pursuant to Clause 4.01; "Repurchase Units" means each unit representing a limited partnership interest in EGF V which has been repurchased by EGF V from the holder thereof; "Request" means a request set forth in a written instrument signed by an officer or attorney-in-fact of EGF V on behalf of the Companies; "Security Agreement" means the security agreement executed in favor of the Security Trustee by EGF V with respect to the Containers and related collateral, in form and substance satisfactory to the Agent, as the same may be amended, supplemented or modified from time to time; "Security Documents" means (a) the Mortgages, the Deed of Covenants, the Insurance Assignments, the Security Agreement, the Pledge Agreement, the Assignment of Limited Partnership Interests, the Beneficial Interest Security Agreements, any Interest Rate Agreements, any assignments of charters, leases or accounts entered into pursuant hereto and (where the context so permits) this Agreement and (b) any other agreement or document that may be executed at any time by the Companies or any other person as security for all or any part of the Loan, interest thereon or any other moneys payable to the Lenders under or in connection with this Agreement, the Note and/or any of the documents to which these definitions refer; "Security Interest" means a mortgage, pledge, lien, hypothecation, encumbrance, assignment, trust arrangement, title retention or other security interest or other arrangement of any kind having the effect of conferring security; "Security Period" means the period commencing on the Drawdown Date and terminating on the date upon which all moneys payable or to become payable at any time and from time to time pursuant to the terms of this Agreement, the Note and/or any of the Security Documents shall have been paid and discharged in full; "Security Trustee" means CBK in its capacity as trustee hereunder until a successor Security Trustee shall have become such under the applicable provisions of Clause 8 hereof, and thereafter such successor Security Trustee; "Taxes" includes all present and future income, corporation or value-added taxes and all stamp and other taxes and levies, imposts, deductions, duties, charges and withholdings whatsoever together with interest thereon and penalties with respect thereto, if any, and charges, fees or other amounts made on or in respect thereof other than (and references to "Taxation" shall be construed accordingly); (i) taxes on, based on or measured by the net income of the Lenders imposed by the United States of America or the State of New York or any political subdivision of either thereof; (ii) any withholding of United States federal income tax which would not have been imposed had the payee been entitled to provide and had it timely provided to the Companies a duly completed and signed Form 4224 of the United States Internal Revenue Service (the "IRS") --- entitling the payee to a complete exemption from such withholding or a certification that the payee is a corporation or partnership established under the laws of the United States or a State thereof and having its principal office located in the United States (or such successor form(s) as shall be adopted from time to time by the relevant United States taxing authorities); (iii) any withholding of any tax to the extent such withholding would not have been imposed had the payee been entitled to provide and had it timely provided to the Companies a duly completed and signed Form 1001 of the IRS (or such successor form(s) as shall be adopted from time to time by the relevant United States taxing authorities) entitling the payee to an exemption from or reduction of the rate of such withholding; and (iv) any tax which would not have been so imposed but for the failure of the Agent or any Lender, as applicable, to comply with any certification, identification or other similar requirement under United States income tax laws or regulations (including backup withholding) to establish entitlement to exemption from such tax; "Trader" means Trader Vessel Limited Partnership, a California limited partnership having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Trust Agreement" means the Trust Agreement dated as of October 16, 1989, as amended by a First Amendment to Trust Agreement dated as of May 11, 1990, a Trust Agreement Amendment dated as of May 8, 1995, and a Trust Agreement Amendment dated as of September 26, 1996, between the Owner Trustee and EGF V, as the same may be amended, supplemented or modified from time to time); "TVI" means Trader Vessel Inc., a California corporation having its principal offices at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105; "Total Loss", in relation to any of the Vessels or any of the Aircraft, shall have the meaning ascribed to such term in the respective Mortgages; "Valuation" means the market value of each of the Vessels, the Aircraft and Containers determined at the relevant time by means of a valuation made pursuant to Clause 7.03. Valuation shall be made with or without physical inspection of the Vessels, the Aircraft and Containers (as the Agent may require), on the basis of a sale for prompt delivery for cash at arm's length on normal commercial terms as between a willing seller and a willing buyer, and shall be with charter lease or existing contract of employment for Vessels or Aircraft, as the case may be, as to which sale is subject to a charter or lease, otherwise free of any existing charter, lease or other contract of employment. The Companies agree to supply to the Agent, and to any such brokers, such information concerning the Vessels, the Aircraft or the Containers, as the case may be, and their condition as such brokers may require for the purpose of making such valuation; "Vessels" means (a)(i) the Liberian flag chemical tanker M/T TRADER, (ii) the Hong Kong flag bulk carrier M/V CALIFORNIA and (iii) the Bahamian flag product tanker M/T COLUMBUS and (b) such other vessels as the Companies may hereafter mortgage as security for the obligations of the Companies under this Agreement, the Note and the Security Documents, or any of them as the context requires, as the same are further described in the Mortgages; "Warehousing Agent" means First Union National Bank of North Carolina, as agent under the Warehousing Agreement (or any successor agent); "Warehousing Agreement" means the Second Amended and Restated Warehousing Credit Agreement dated May 31, 1996 among PLM Equipment Growth Fund III, PLM Equipment Growth Fund IV, EGF V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, Professional Lease Management Income Fund I, L.L.C., FSI, First Union National Bank of North Carolina and the other lenders party thereto and the Warehousing Agent (as the same may be amended, supplemented or modified from time to time). Words importing the singular number only shall include the plural and vice versa. Words importing persons shall include companies, firms, corporations and their respective successors and assigns. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted U.S. accounting principles consistently applied and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 3. INTEREST AND INTEREST PERIODS 3.01 Subject to the terms of this Agreement, the Companies shall specify which Interest Period they choose to apply to the Loan. 3.02 The Companies shall jointly and severally pay accrued interest on the outstanding amount of the Loan at a rate per annum equal to LIBOR plus the Margin in arrears on the last day of such Interest Period, provided that in the case of Interest Periods of six (6) months, accrued interest shall be paid at the end of three (3) months and at the last day of such Interest Period. 3.03 The duration of each Interest Period shall be one (1) month, three (3) months or six (6) months as notified by the Companies to the Agent in writing by 11:00 A.M. New York time at least three (3) Business Days prior to the commencement of such Interest Period, provided that: (a) if the Companies fail to select an Interest Period as provided in this Clause 3.03, the Borrowers shall be deemed to have selected an Interest Period of three months; (b) the selection of Interest Periods under this Clause 3.03 shall be made in such manner as to ensure that an Interest Period expires on each Repayment Date in respect of an amount of the Loan at least equal to the repayment installment which is then due to be repaid under Clauses 4.01 or 4.02 on such Repayment Date; and (c) the Agent, in its sole and absolute discretion, is satisfied that deposits in Dollars for a period equal to such Interest Period will be available to the Agent in the London Interbank Dollar Market at the commencement of such Interest Period and, if the Agent is not so satisfied, such Interest Period shall be of such duration as the Agent and the Companies shall agree (or, in the absence of such agreement, as the Agent shall specify). 3.04 In the event that the Agent does not receive on the due date any sum due under this Agreement, the Note or any of the Security Documents to which any of the Companies is a party (or any agreement entered into by the Companies in connection herewith or therewith), the Companies shall jointly and severally pay to the Agent on demand interest on such sum from and including the due date therefor to the date of actual payment (as well after as before judgment) at the rate per annum determined by the Agent to be: (a) if such sum is principal of the Loan or interest thereon calculated on the basis of two percent (2%) above the higher of the rates set out at (i) and (ii) below and (b) if such sum is other than such principal, two percent (2%) above the rate set out in (ii) below: (i) the rate (inclusive of the Margin) applicable to such overdue principal immediately prior to the due date (and in any event only for the unexpired part of any Interest Period relative to such overdue principal); and (ii) the Margin plus the rate per annum at which deposits in Dollars in an amount equal to such overdue amount are offered to the Agent by leading banks in the London Interbank Dollar Market on call or for successive periods of any duration up to three months, as the Agent may determine from time to time. Such interest rate shall be determined on the commencement of each such period. If the Agent determines that Dollar deposits are not being made available to it by leading banks in the London Interbank Dollar Market in the ordinary course of business, such interest rate shall be determined by reference to the cost of funds to the Agent from such other sources as the Agent may from time to time determine. Any such interest which is not paid when due shall be compounded at the end of each such Interest Period or other period as the case may be (both before and after any notice of demand by the Agent under Clause 9.02). 4. REPAYMENT AND PREPAYMENT 4.01 The Companies shall jointly and severally repay the Loan in twenty consecutive quarterly installments commencing on February 12, 1997 whereof the first four installments shall be in the amount of $1,500,000 and the remaining sixteen installments shall be in the amount of $2,000,000. In no event shall the Loan be repaid later than December 12, 2001. 4.02 The Companies may prepay without penalty the whole or any part of the Loan on the last day of any Interest Period relating thereto, provided that: (a) the Agent shall have received from the Companies not less than five (5) days' prior irrevocable written notice of its intention to make such prepayment which specifies the amount and date on which such prepayment is to be made; (b) the amount of any such partial prepayment shall be not less than $1,000,000. Should the Companies wish to make a prepayment in an amount in excess of $1,000,000, such additional prepayment shall be made in increments of $1,000,000; (c) no amount prepaid under this Clause 4.02 may be reborrowed; (d) each prepayment under this Clause 4.02 shall be made together with accrued interest on the amount prepaid and all other sums payable thereon under the terms of this Agreement; and (e) each partial prepayment of the Loan shall be applied pro rata against the remaining installments of the Loan. 4.03 After December 31, 1997, the Companies shall prepay the Loan as follows: (a) In respect of each fiscal quarter of EGF V, the Companies shall prepay the Loan in an amount equal to the sum of (i) the excess of the aggregate cash balances of the Companies (not including amounts on deposit in the Cash Collateral Account) over $20,000,000 (as measured at the end of each such fiscal quarter and disclosed on the reports delivered to the Agent pursuant to Clause 7.01(a)(ii) of this Agreement) plus (ii) an amount equal to 60% of the aggregate proceeds from the sale of any Equipment during such fiscal quarter; (b) After December 31, 1997, any and all amounts on deposit in the Cash Collateral Account shall be applied on the next succeeding Repayment Date as a prepayment of the Loan; (c) no amount prepaid under this Clause 4.03 may be reborrowed; (d) each prepayment under this Clause 4.03 shall be made on the Repayment Date next succeeding the end of the fiscal quarter for which the prepayment was calculated together with accrued interest on the amount prepaid and all other sums payable thereon under the terms of this Agreement; (e) each partial prepayment of the Loan shall be applied pro rata against the remaining installments of the Loan. 5. CONDITIONS 5.01 Conditions Precedent. The effectiveness of this Agreement is expressly conditioned upon receipt by the Agent of the following documents and evidence, in all respects in form and substance satisfactory to the Agent and its legal advisers: (a) the Notes, substantially in the form of Appendix A; (b) the first priority Aircraft Mortgages on each of the Aircraft, in form and substance satisfactory to the Agent (and notice in the form of APPENDIX L shall have been given to each of the lessees thereunder); (c) an amendment to the First Preferred Liberian Mortgage on M/T TRADER, in form and substance satisfactory to the Agent; (d) an Assignment of Charter relating to the Time Charter Party between Trader and Chembulk Trading Inc. in respect of M/T TRADER, with notice to Chembulk Trading Inc., in form and substance satisfactory to the Agent; (e) [Intentionally omitted]; (f) [Intentionally omitted]; (g) Letter from relevant Companies reaffirming the first priority Insurance Assignment for the insurances on each of the Vessels and on the Containers, in form and substance satisfactory to the Agent; (h) the Pledge Agreement in respect of (i) the shares of CLVI and MVI, respectively, together with certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and an irrevocable proxy to vote the Pledged Shares, in form and substance satisfactory to the Agent; (i) the Assignment of Limited Partnership Interests in respect of EGF V's limited partnership interest in Clement and Montgomery, respectively, in form and substance satisfactory to the Agent; (j) copies of the Agreement and Articles of Limited Partnership, as amended, and forms LP-1 and as applicable, LP-2 issued by the appropriate authority of the State of California, for each of Clement and Montgomery; (k) certificates of each of FSI, TVI, CVI, COVI, each in its capacity as general partner of EGF V, Trader, California and Columbus, respectively, certifying that there have been no amendments or modifications to the Agreement and Articles of Limited Partnership, Form LP-1 or Form LP-2, as applicable, of each such limited partnership since the last date that certified copies of such documents were delivered to the Agent; (l) copies of the Certificates of Status issued by the appropriate authority of the State of California for each of EGF V, Trader, California, Columbus, Clement and Montgomery; (m) Certificate of the Secretary or Assistant Secretary of CLVI and MVI as to (i) Articles of Incorporation and By-Laws (and all amendments thereto) and (ii) authorized and issued share capital; (n) certificates of the Secretary or Assistant Secretary of each of FSI, TVI, CVI, COVI and Redcar certifying that there have been no amendments or modifications to the Articles of Incorporation and By-Laws of each such corporation since the last date that certified copies of such documents were delivered to the Agent; (o) certificates of good standing issued by the appropriate authority of the jurisdiction of incorporation of each of FSI, TVI, CVI, COVI, Redcar, CLVI and MVI; (p) copies of resolutions duly adopted by the board of directors and shareholders of each of TVI, CVI, COVI and Redcar evidencing approval of the making and performance of this Agreement and the New Security Documents to which each is a party and authorizing appropriate officers or attorneys to execute the same and to sign all notices required to be given hereunder or thereunder on their behalf, or other evidence of such approvals and authorizations as shall be acceptable to the Agent; (q) copies of resolutions duly adopted by the board of directors of each of FSI, TVI, CVI and COVI, each in its capacity as general partner of EGF V, Trader, California and Columbus, respectively, evidencing approval of the making and performance of this Agreement and the New Security Documents to which each such limited partnership is a party and authorizing appropriate officers or attorneys to execute the same and to sign all notices required to be given hereunder or thereunder on its behalf, or other evidence of such approvals and authorizations as shall be acceptable to the Agent; (r) the original of any power of attorney issued in favor of any person executing this Agreement, the Notes or any of the New Security Documents on behalf of the Companies; (s) a list specifying the directors and officers of each of the Companies (together with their specimen signatures) and specifying the authorized and issued share capital of each of FSI, TVI, CVI, COVI, Redcar, CLVI and MVI; (t) copies of all governmental and other consents, licenses, approvals and authorizations as may be necessary to authorize the performance by the Companies of their respective obligations under the terms of this Agreement, the Notes and the New Security Documents to which each is a party; (u) the Beneficial Interest Security Agreement, in form and substance satisfactory to the Agent; (v) a favorable opinion from an independent insurance consultant acceptable to the Lenders as to compliance of insurances with the terms of the Aircraft Mortgages on each of the Aircraft; (w) such further evidence as the Agent may require as to placement of insurances on each of the Aircraft in compliance with the terms of the Aircraft Mortgages on each of the Aircraft and of this Agreement; (x) all items and documents required to be delivered pursuant to the New Security Documents, including (but without limitation) all notices and acknowledgements pursuant to the Insurance Assignments, and UCC financing statements; (y) evidence satisfactory to the Agent that: (i) each of the Aircraft is duly permanently registered in the name of the Owner Trustee and prior to the registration of the Aircraft Mortgages is free and clear of recorded liens, mortgages and charges; (ii) each Aircraft has been issued a Certificate of Airworthiness and a Certificate of Registration, issued by the appropriate office of the U.S. Federal Aviation Administration or the Canadian Aviation Authority; (iii) each of the Aircraft Mortgages has been duly recorded against the respective Aircraft as a valid first priority aircraft mortgage in accordance with the laws of the United States and Canada, as the case may be. (z) evidence that CBK has received an amendment fee, as separately agreed between the Companies and CBK; (aa) appraisals of each of the Aircraft satisfactory to the Agent; (bb) a Certificate from an officer of each of the Companies representing that no Default or Event of Default shall have occurred and be continuing; (cc) IRS Form 1001 or 4224, as appropriate, from each of the Lenders; (dd) the opinion of Stephen Peary, General Counsel to the Companies in form and substance satisfactory to the Agent; (ee) the opinion of Messrs. Graham, Thompson & Co., Bahamian Counsel to the Lenders, in form and substance satisfactory to the Agent; (ff) the opinion of MacCleod, Dicksen, special Canadian counsel to the Lenders on matters of Canadian law regarding the Aircraft Mortgages in form and substance satisfactory to the Agent; (gg) the opinion of (i) Messrs. Ray Quinney, counsel to the Owner Trustee and (ii) Messrs. Deacons Graham & James, special Hong Kong counsel to the Lenders, in each case in form and substance satisfactory to the Agent; (hh) the opinion of Messrs. Watson, Farley & Williams, in such form as the Agent shall specify; (ii) a certificate by an officer acting on behalf of the Owner Trustee respecting any amounts due and owing under each current lease with respect to each respective Aircraft, together with a copy of each such lease and any guarantees for performance thereof, in a form satisfactory to the Agent; (jj) a consent of the charterer in respect of the M/T TRADER to the amendment of the Mortgage covering such Vessel, in a form satisfactory to the Agent; (kk) a copy of (i) the Trust Agreement (with all amendments thereto) and (ii) the Warehousing Agreement; (ll) a Certificate of an officer of FSI as general partner of EGF V certifying that (i) the equity of EGF V consists of 9,169,019 units as of September 15, 1996 and (ii) EGF V is the legal and beneficial owner of (A) the sole limited partnership interest in each of Trader, California and Columbus and (B) 50% of the limited partnership interest in each of Clement and Montgomery; (mm) a Certificate of the Owner Trustee with respect to (i) execution of the Aircraft Mortgages, the Beneficial Interest Security Agreement and the Trust Agreement and (ii) incumbency and specimen signatures of appropriate officers, in form and substance satisfactory to the Agent; Each of the documents specified in sub-clauses (j), (l), (m), (p), (q), (r), (s) with respect to the leases (ii) above, and (kk) shall be certified as a true and up-to-date copy by an officer of the relevant Company or Companies, as the case may be. 5.02 Conditions Subsequent. The effectiveness of this Agreement is expressly subject to the condition subsequent that the Agent shall have received within 30 days of the date of this Agreement a Notice and Acknowledgment of Mortgage (substantially in the form of Appendix L) duly acknowledged by each lessee of an Aircraft with respect to the respective Aircraft Mortgages, in all respects in form and substance satisfactory to the Agent and its legal advisers. 6. REPRESENTATIONS AND WARRANTIES 6.01 The Companies hereby represent and warrant to the Lenders and to each of them severally that: (a) each of FSI, TVI, CVI, COVI, Redcar, CLVI and MVI is a company duly organized and validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is qualified to do business in all jurisdictions where the conduct of its business so necessitates; (b) each of EGF V, Trader, California, Columbus, Clement and Montgomery is a limited partnership duly organized and existing and in good standing under the laws of California and is qualified to do business in all jurisdictions where the conduct of its business so necessitates; (c) each of the Companies has full power and authority to (i) own and operate its Equipment and to carry on its business as presently conducted or proposed to be conducted, (ii) execute, deliver and perform under this Agreement, the Note and the Security Documents to which it is a party, (iii) borrow under this Agreement, (iv) execute and perform under any Approved Management Agreement to which it is a party and (v) comply with the provisions of, and perform all its obligations under, this Agreement, the Note and the Security Documents to which it is a party; (d) each of the Companies has complied with all statutory, regulatory and other requirements relative to the ownership and (in all material respects) the operation of each of the Vessels, Containers, the Aircraft and other Equipment and the making and performance of this Agreement; (e) (i) the Companies have taken all necessary actions to authorize the execution, delivery and performance of this Agreement and the Security Documents to which each such Company is a party and the borrowing and giving of security contemplated hereby, and (ii) this Agreement, the Note and the Security Documents to which each such Company is a party, constitute or, as the case may be, will, upon execution and delivery thereof (and, where applicable, registration thereof as provided for in this Agreement and the Security Documents), constitute legal, valid and binding obligations of such Companies enforceable against such Companies in accordance with their respective terms except to the extent limited by applicable bankruptcy, insolvency and reorganization laws and other similar laws affecting the rights of creditors generally; and to the extent that enforcement is subject to general principles of equity (including but not limited to all matters of public policy) regardless of whether such enforceability is considered in a proceeding in equity or at law; (f) the making and performance by each of the Companies of this Agreement, the Note and the Security Documents to which the Companies are a party, do not, and will not during the Security Period, violate in any respect (i) the constitutional documents of such Companies, or in any material respect (ii) any law or regulation of any governmental or official authority or body, or (iii) any agreement, contract or other undertaking to which any of such Companies is a party or which is binding on any of such Companies or any of its assets; (g) all consents, licenses, approvals and authorizations (including, without limitation, any approvals of the Bahamian, Liberian and Canadian governmental authorities) required in connection with the entry into, performance, validity and enforceability of this Agreement and the Security Documents have been obtained and are in full force and effect; (h) save for such registrations and filings contemplated by this Agreement and the Security Documents and the filing of required extensions under the Uniform Commercial Code, it is not necessary for the legality, validity, enforceability or admissibility in evidence of this Agreement, the Note or the Security Documents that any of them or any document relating thereto be registered, filed, recorded or enrolled with any court or authority in any relevant jurisdiction or that any stamp, registration or similar Taxes be paid on or in relation to this Agreement or any of the Security Documents; (i) except as set forth in the most recent Form 10-K and Form 10-Q reports referred to in Clause 6.01(k), no action, suit, proceeding, litigation or dispute against any of the Companies is currently pending or, to the knowledge of the Companies, threatened, nor is there outstanding any judgment or award given or basis for any judgment or award against any of the Companies before any court, tribunal, board of arbitration or other body which, in either case, could or might result in any material adverse change in the business or condition (financial or otherwise) of such Companies; (j) none of the Companies or FSI is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default might have a material adverse effect on the business, properties, assets, operations or condition (financial or otherwise) of EGF V and the Companies taken as a whole or (ii) any agreement or instrument evidencing or governing indebtedness for borrowed money, and no Event of Default (or event which, with the giving of notice and/or lapse of time or other applicable condition might constitute an Event of Default) has occurred and is continuing and no such Event of Default (or such event) will result from the making and performance by the Companies of this Agreement, the Note and the Security Documents to which any of the Companies is or will be a party; (k) the Companies have made available to the Agent copies of the EGF V consolidated annual report on Form 10-K for the fiscal year ended December 31, 1995 and quarterly reports on Form 10-Q for the first and second quarters of 1996. The financial statements contained in the annual report on Form 10-K, including the schedules and notes thereto, and the condensed financial statements contained in the quarterly reports, fairly present (in the case of quarterly reports on an unaudited basis), in accordance with generally accepted accounting principles (in the case of quarterly reports, to the extent such principles have been established with respect to quarterly reporting), the financial condition and results of operations of EGF V and its consolidated subsidiaries as of the respective dates thereof and for the periods covered by such financial statements. All such financial statements have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as otherwise stated in the preceding sentence or in the notes thereto. Since June 30, 1996 there has been no material adverse change in the financial condition of EGF V and its consolidated subsidiaries and, except as otherwise disclosed to the Agent in writing, neither EGF V nor any of its consolidated subsidiaries has incurred any liabilities which are material to EGF V and its consolidated subsidiaries as a whole otherwise than in the ordinary course of business. (l) all financial and other information furnished by or on behalf of each of the Companies in connection with the negotiation of this Agreement, or in the most recent Form 10K and Form 10-Q reports filed with the Securities and Exchange Commission and referred to in Clause 6.01(k) is true and accurate in all material respects and there are no other material facts or matters the omission of which would have made any statement or information contained therein misleading; (m) all payments made or to be made by the Companies under or pursuant to this Agreement and the Security Documents to which any of the Companies is a party may be made free and clear of, and without deduction or withholding for or in account of, any Taxes; (n) the chief place of business of the Companies is located at One Market, Steuart Tower, Suite 800, San Francisco, CA USA and the corporate documents and records concerning the transactions contemplated hereby, are kept only at such offices; (o) the provisions of the Employee Retirement Income Security Act of 1974, as amended, are not applicable to any of the Companies; (p) none of the proceeds of the Loan will be used to purchase or carry margin stock within the meanings of Regulations G, T, U and X of the Board of Governors of the Federal Reserve System. None of the Companies is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock within the meaning of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System; (q) none of the Companies is an "investment company" or a company "controlled" by an "investment company" (as each of such terms is defined or used in the Investment Company Act of 1940, as amended); and (r) prior to the date hereof, none of the Companies has incurred any material indebtedness except as explicitly set forth in the most recent Form 10-K and Form 10-Q reports referred to in clause 6.01(k) or as disclosed in writing to the Agent. (s) The authorized capital stock of CLVI consists of 1000 shares of common stock, no par value, and of MVI consists of 1000 shares of common stock, no par value. All of the capital stock of each of CLVI and MVI is outstanding, has been validly issued, is fully paid and non-assessable and fifty percent (50%) of the capital stock of each such company is owned beneficially and of record by EGF V free and clear of all Liens. (t) EGF V owns, directly or indirectly, 50% of the limited partnership interests in each of Clement and Montgomery. (u) The M/V CLEMENT is duly documented in the absolute and unencumbered ownership of Clement under the laws and flag of the Bahamas. The M/V PACIFIC SPLENDOR is duly documented in the absolute and unencumbered ownership of Montgomery under the laws and flag of the Bahamas. 6.02 The Companies hereby further represent and warrant to the Lenders and to each of them severally that: (a) The Aircraft are duly documented in the absolute and unencumbered ownership of the Owner Trustee under the laws and flag of the United States and Canada, as the case may be, free and clear of all Security Interests other than Permitted Liens; (b) The Aircraft are operationally airworthy and have been issued Certificates of Airworthiness by the jurisdiction in which the Aircraft are respectively registered; (c) The Aircraft comply with all relevant laws, regulations and requirements (including environmental laws, statutory or otherwise) as are applicable to (i) aircraft documented under the laws of such flag, as applicable, and (ii) aircraft engaged in a trade similar to that performed by the Aircraft, respectively; (d) The Aircraft are insured in accordance with the provisions of this Agreement and the respective Aircraft Mortgages and the requirements herein and therein for insurances have been complied with. 7. COVENANTS 7.01 The Companies hereby covenant and agree that, as and from the date of this Agreement and throughout the Security Period, they will comply in full with the following covenants and undertakings: (a) each of the Companies will send (or procure that there is sent) to the Agent: (i) as soon as possible, but in no event later than one hundred twenty (120) days after the end of each fiscal year of EGF V, the EGF V consolidated audited annual or other published accounts of all financial statements as required by law, such financial statements to be prepared in accordance with generally accepted accounting principles consistently applied and certified as to their correctness by KPMG Peat Marwick or other independent accounting firm of national reputation; (ii) as soon as possible, but in no event later than sixty (60) days after the end of each fiscal quarter of each financial year of EGF V, the EGF V quarterly consolidated financial statements as at the end of such period and for the period then ending, such statements to be prepared in accordance with generally accepted accounting principles consistently applied and certified as to their correctness by the chief financial officer or controller of FSI, together with a certificate by an officer of each of the Companies (substantially in the form of Appendix J hereto) confirming (i) that the representations and warranties stated in Clause 6.01 and 6.02 are true and correct on and as of the date of such certificate as if made on such date, (ii) that no Default or Event of Default has occurred and is continuing and (iii) that EGF V and the other Companies have complied with all of the covenants contained in Clause 7 (setting forth in reasonable detail the calculations required to establish that such covenants were complied with on the date of such financial statements) and furnished to the Agent copies of any new charters and/or leases entered into with respect of any of the Vessels or the Aircraft, respectively with an indicated duration in excess of six months; (iii) as soon as possible but in no event later than sixty (60) days after the end of each fiscal quarter in each fiscal year of EGF V, EGF V's valuation (as set forth in the certificate referred to in sub-clause (ii) of this Clause 7.01) of the fair market value of the Vessels, Containers, Aircraft and other Equipment, together with a list of the Equipment indicating all sales of Equipment, the purchase of additional Equipment and any Equipment that has become a Total Loss and identifying each charter or lease in effect with respect to each Vessel and Aircraft, respectively; (iv) copies of all reports filed with the Securities and Exchange Commission and all other public reports furnished to the limited partners of EGF V or any of its subsidiaries; (v) promptly after the same is instituted (or, to the knowledge of the Companies, threatened), details of any litigation, arbitration or administrative proceedings against or involving any of the Companies, the Approved Manager, or any of the Vessels, Aircraft or Containers or Equipment which is likely to have a material adverse effect on the financial condition of the Companies taken as a whole, the operation of any Vessel, the operation of any Aircraft or the operation of the Equipment taken as a whole; (vi) copies of all reports relating to the Aircraft that are required to be filed by any governmental agency of the jurisdiction in which each such Aircraft is registered and/or operated. (vii) from time to time, and promptly upon demand, such additional financial or other information relating to the Companies, the Equipment and/or any relevant subsidiary or affiliate of the Companies as may be reasonably requested by the Agent. (b) each of the Companies will notify the Agent of any Event of Default (or event which, with the giving of notice and/or lapse of time or other applicable condition, would constitute an Event of Default) forthwith upon the occurrence thereof; (c) each of the Companies and FSI will maintain its corporate existence or existence as a limited partnership, as the case may be, and, in the case of Trader, its qualification as a foreign maritime entity under Liberian law, and shall remain duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as the case may be, and will obtain and promptly renew from time to time, and will promptly furnish certified copies to the Agent of, all such authorizations, approvals, consents and licenses as may be required under any applicable law or regulation to enable the Companies to perform their respective obligations under this Agreement, the Note and the Security Documents to which any such Company is a party or required for the validity or enforceability of this Agreement, the Note and the Security Documents or required to enable the relevant Companies to continue to own and operate the respective Vessels, Aircraft and Containers and the Companies shall comply with the terms of the same; (d) each of the Companies will promptly and in any event within five days notify the Agent in writing of any change or development which would materially adversely affect the assets, properties, liabilities, business results or operations or financial or other condition of the Companies taken as a whole or threaten the validity, enforceability or performance of this Agreement, the Note or the Security Documents, and the Companies will permit the Agent or its authorized representatives at reasonable times to inspect and copy the books, records, accounts, logs and discuss with the Companies their affairs, finances and business plan; (e) each of the Companies will comply in all material respects with all applicable statutes, regulations and orders of and applicable restrictions (including, without limitation, all applicable environmental laws) of any governmental authority of any jurisdiction applicable to the Companies; (f) each of the Companies will obtain and promptly renew from time to time, all authorizations, approvals, consents and licenses required under any applicable law or licenses required under any applicable law or regulation with respect to this Agreement, the Note and the Security Documents; (g) the Companies will procure that EGF V and its consolidated subsidiaries shall maintain the following financial ratios: 1. The ratio of net cash provided by operating activities (defined as net income before extraordinary items plus interest expense plus depreciation and amortization plus cash from unconsolidated special purpose entities plus loss on sale of assets or minus gains on sale of assets) to interest expenses shall at all times be at least 3:1. 2. The ratio of total liabilities (minus the balance in the Cash Collateral Account) to total value-adjusted assets (defined as unrestricted cash and Cash Equivalents plus the fair market value of all Equipment) shall be no greater than 0.4:1. 3. The combined market value of the Pledged Equipment (as determined pursuant to Clause 7.03(c)) shall at all times be equal to or greater than 135% of the excess of (x) the outstanding principal amount of the Loan over (y) the aggregate amount of cash on deposit in the Cash Collateral Account. (h) each of the Companies shall insure or cause to be insured and keep insured, with financially sound and reputable insurers, so much of the properties of each such Company and its subsidiaries in such amounts and against such risks as are usually and customarily insured against by companies in a similar business with respect to properties of a similar character; (i) each of the Companies will send (or procure that there is sent) to the Agent a survey or drydock or inspection report on each Vessel by the Approved Manager or its agent no less often than once every 2 years; (j) each of the Companies will send (or procure that there is sent) to the Agent copies of all survey or inspection reports delivered or required to be delivered pursuant to the leases in respect of each Aircraft; provided, that if any such lease does not require the periodic delivery of reports relating to the use, operation and maintenance of the Aircraft, then the Companies will send (or procure that there is sent) to the Agent (no less often than once every 2 years commencing on the Closing Date) such information relating to the use, operation and maintenance of the Aircraft as the Agent may request; (k) the Companies will procure that the sum of regular dividends paid and other regular distributions of assets or profits declared for a calendar year and payable to any partner or shareholder of the Companies plus Repurchase Units for each such calendar year shall not exceed the lower of (x) $20,000,000 and (y) the net cash provided by operating activities (defined as net income before extraordinary items plus interest expense plus depreciation and amortization plus cash from unconsolidated special purpose entities plus loss on sale of assets or minus gains on sale of assets) during such year; provided, that notwithstanding the foregoing (and subject to Clauses 4.03 and 7.03), so long as (i) no Default shall have occurred and be continuing and (ii) the Companies have made the deposit required to be made into the Cash Collateral Account pursuant to Clause 7.03(a)(iii)(A) and (B), after December 31, 1997 the Companies may pay special dividends and make other special distributions of assets or profits so long as the sum of all such special distributions for each calendar year does not exceed 40% of the aggregate proceeds from the sale of any Equipment during such fiscal year; (l) for so long as any amount remains outstanding under this Agreement, the Note or any of the Security Documents, EGF V shall maintain a diversified portfolio of Equipment; (m) EGF V shall at all times own, beneficially and of record, at least (i) 50% of the issued and outstanding stock of each of CLVI and MVI and (ii) 49.5% of the limited partnership interests in each of Clement and Montgomery. (n) If (i) any Company intends to acquire an asset for a purchase price greater than $2,000,000 or (ii) any Company intends to acquire an asset for a purchase price less than $2,000,000 while a Default shall have occurred and be continuing, the Companies shall give the Agent 5 Business Days notice of such intended acquisition and upon the request of the Agent (which request shall be made within 5 Business Days of the receipt of such notice), the Companies shall procure that such acquiring Company deliver such documents, certificates and instruments, and take all such actions, as the Agent deems necessary so as to create a fully perfected first priority lien in such acquired asset in favor of the Security Trustee; provided that with respect to the acquisition of any Qualified Assets (x) the Companies shall not be required to notify the Agent of such acquisition pursuant to sub-clause (i) hereof unless and until an Event of Default shall have occurred and (y) the Companies shall not be required to grant the Security Trustee a first priority mortgage lien on any Qualified Assets (but nothing herein shall be deemed to limit the obligation of the Companies to grant the Security Trustee a first priority lien in any other interest, beneficial or otherwise, in the Qualified Assets or in the earnings or insurances relating thereto); (o) Upon the occurrence of a Default, the Companies shall deliver all such documents, certificates and instruments, and shall take all such actions, as the Agent may request in order to create a fully perfected first priority lien in favor of the Security Trustee in any assets of the Companies that are at such time free and clear of all Security Interests and that are not Pledged Equipment; (p) The Aircraft shall not be used for any purpose or in any manner not fully covered by the insurances relating thereto, or outside any geographical limit imposed by such insurances, or for any illegal purpose or in any illegal manner. (q) The Aircraft shall be maintained in the absolute and unencumbered ownership of the Owner Trustee, free and clear of all Security Interests other than Permitted Liens; (r) Each of the Companies shall comply in all respects with all applicable statues, regulations and orders of any governmental authority of any jurisdiction applicable to the Aircraft or the operation thereof and shall at all times maintain in full force and effect all necessary certificates, licenses, permits and authorizations required for the use and operation of the Aircraft; (s) The Aircraft shall be maintained in good and efficient repair, condition and appearance consistent with first class aircraft ownership and management practices and operationally airworthy in all respects, ordinary wear and tear excepted; (t) The Companies shall cause the Warehousing Agreement to be amended (no later than the Commitment Termination Date (as defined in the Warehousing Agreement)) to reflect the amendment and restatement of the Original Loan Agreement pursuant to this Agreement and to reflect the granting of Security Interests by the Companies in the Collateral pursuant to the Security Documents. 7.02 Each of the Companies further undertakes that it will not, as and from the date of this Agreement and throughout the Security Period, without the prior written consent of the Agent: (a) conduct any business or activity other than the ownership, chartering, leasing and operation of the Equipment; or (b) if an Event of Default shall have occurred and be continuing, or if an Event of Default would occur as a consequence of the declaration or payment of a dividend or distribution, declare or pay any dividend or make any other distribution of its assets or profits to any partner or shareholder; or (c) repay any loans (other than intercompany advances in the ordinary course of business) made by any general partner or limited partner to any limited partnership or any other loans advanced to any Company by any person, or make any loans or advances to any person, except that (i) each Company may lend to and borrow from another Company, provided that such loans shall be subordinated to the Loan and any lending Company shall enter into a subordination undertaking in form and substance satisfactory to the Agent with respect to any such loan and (ii) EGF V may repay amounts outstanding under the Warehousing Agreement; or (d) except for indebtedness evidenced by this Agreement, the Note and the Security Documents, and except for any other indebtedness contemplated in this Agreement or any Security Document, incur or agree to incur or issue any indebtedness, extend any guarantees (other than for performance by another Company as owner under any charter of a Vessel or any lease of an Aircraft), or make any other commitments with respect thereto; provided that EGF V may borrow up to a maximum outstanding amount at any one time of $10,000,000 under the Warehousing Agreement so long as such borrowings are repaid within 180 days of the day such borrowings are made; or (e) create, assume or permit to exist any Security Interest or encumbrance upon any of its properties or Equipment except Permitted Liens; or (f) consolidate or amalgamate with, or merge into, any other entity other than EGF V or a subsidiary of EGF V; or (g) employ a manager of any of the Vessels or the Aircraft other than the Approved Manager; or (h) except as contemplated by this Agreement or in accordance with Clause 7.03, sell, convey, transfer, lease, or otherwise dispose of (i) Pledged Equipment or (ii) all or a substantial part of its assets (whether by one transaction or a series of transactions and whether related or not); or (i) change the location of its principal place of business on less than thirty (30) days written notice to the Agent; or (j) amend, supplement or modify, or permit the amendment, supplementation or modification of, any of the Agreement and Articles of Limited Partnership of EGF V, Trader, California, Columbus, Clement or Montgomery; (k) so long as the Pledge Agreement is in effect, amend, supplement or modify, or permit the amendment, supplementation or modification of, the Articles of Incorporation and By-laws of CLVI and MVI; (l) except under terms agreed to by the Agent, enter into any charter, contract of affreightment, lease or similar agreement with respect to any of the Vessels or Aircraft which contains any prohibition on Vessel or Aircraft sale without the prior consent of the charterer or lessee, as the case may be, unless such sale provision is subject to rights which the Security Trustee has in the event of default under the relevant Mortgage; or (m) enter into any charter, contract of affreightment, lease or similar agreement with respect to any Vessel or Aircraft which (i) has an indicated duration in excess of six (6) months or (ii) at the time such contract is entered into materially adversely affects the collateral value of any Vessel or Aircraft or the legal position of the Lenders; provided, that the Companies may enter into any such charter, contract of affreightment, lease or similar agreement which is on substantially the same terms (including relevant assignments and consents), with rates subject to market conditions, as those previously accepted by the Agent. 7.03 (a) The Companies shall be entitled to dispose of any portion of the Pledged Equipment provided that (i) prior to such disposition no Default or Event of Default shall have occurred and be then continuing, (ii) the disposition occurs in an arm's-length transaction at fair market value for cash consideration and (iii) with respect to the disposition of: (A) Pledged Equipment other than Containers, (I) the Agent shall have received prior written notice of the intention of the Companies to effect such disposition and (II) after December 31, 1997, 60% of the proceeds of such disposition (or 100% of the proceeds in the event that a Default or an Event of Default would occur as a consequence of such disposition) are deposited into the Cash Collateral Account within 5 days of such disposition; and (B) Containers, the Companies shall deliver to the Agent within 45 days of the end of each fiscal quarter of each financial year of EGF V a report showing (x) the details of the disposition of any Containers for such quarterly period and (y) after December 31, 1997, confirmation of the deposit into the Cash Collateral Account of 60% of the proceeds (or 100% of the proceeds in the event that a Default or Event of Default would occur as a consequence of such disposition) within 45 days of the end of such quarterly period. (b) Notwithstanding anything to the contrary in the Security Documents, should the Companies be entitled to dispose of any Pledged Equipment in accordance with Clause 7.03(a), the Agent shall release the security interest in such assets and shall release the corresponding Company from its obligations under the relevant Security Documents. (c) Each of the Companies jointly and severally agrees that if, and so often as, the Companies are not in compliance with Clause 7.01(g)(3), they will, within (x) sixty (60) days, in the case of subclause (i) below, and (y) thirty (30) days, in the case of subclause (ii) below, of being notified by the Agent of such requirement (which notification shall be conclusive and binding on the Companies) or becoming aware of such non-compliance: (i) provide the Lenders with, or procure the provision to the Lenders of, such additional Pledged Equipment as shall be acceptable to the Lenders to bring the Companies into compliance with Clause 7.01(g)(3), which additional Pledged Equipment shall consist of such assets, and be mortgaged to the Agent by such documentation and be entered into between such parties as the Agent may approve or require (and, if the Companies do not make proposals satisfactory to the Agent in relation to such additional Pledged Equipment within ten (10) days of the date of the notification by the Agent to the Companies as aforesaid, shall be deemed to have elected to prepay in accordance with (ii) below); or (ii) prepay (in accordance with Clauses 4.02 except that such prepayment shall be made on the next succeeding Repayment Date) such part of the Loan (together with accrued interest thereon) as will ensure that the Companies comply with Clause 7.01(g)(3). If the prepayment shall not occur on the last day of an Interest Period, the Companies will pay to the Agent for the account of the Lenders such amounts as the Agent may certify as necessary to compensate the Lenders for any loss or expense on account of funds borrowed, contracted for or utilized in order to fund the Loan. (d) On or prior to December 31, 1997, the Companies may request that amounts held on deposit in the Cash Collateral Account be released to them to be applied towards the purchase of additional Pledged Equipment provided that (x) such additional Pledged Equipment takes such form, is constituted by such documentation and is entered into between such parties as the Agent may approve or require and is otherwise satisfactory to the Agent and (y) after the purchase of such additional Pledged Equipment, the Companies are either in compliance with Clause 7.01(g)(3) or they comply with Clause 7.03(c); (e) For the purposes of Clause 7.01(g)(3) and 7.03(a), the market value of the Vessels, Aircraft and Containers shall be determined as follows: (1) EGF V shall provide to the Agent its internal Valuations at the intervals provided herein and at such additional times as the Agent may reasonably request. (2) At any such time as the Agent may reasonably request, the Companies shall furnish to the Agent a Valuation made by the appraisers in respect of each category of Equipment appointed by the Agent from the Approved List (which Valuation shall be at the expense of the Companies with respect to the first such Valuation and thereafter shall be for the account of the party specified in subclause (c)(4) below). The Agent and the Companies agree to accept any Valuation made by such appraisers appointed as aforesaid as conclusive evidence of the market value of the Vessels, Aircraft or Containers, as the case may be, at the date of such Valuation. (3) If an independent Valuation is obtained as provided in subclause (2) above, the cost of such Valuation shall be for the account of the Agent if the Valuation provided by the appraisers establishes that the Companies are in compliance with Clause 7.01(g)(3). If, however, the appraisers' Valuation establishes that the Companies are not in compliance with Clause 7.01(g)(3), the cost of such appraisers' Valuation shall be for the account of the Companies. (f) For the purpose of Clause 7.03 (c) and (d), the market value of any additional security provided or to be provided to the Lenders shall be reasonably determined by the Agent through reference to well established and generally accepted markets, indexes and exchanges for such additional security. (g) In connection with any additional security provided in accordance with Clause 7.03 (c) or (d), the Lenders shall be entitled to receive certified copies of such documents of the kinds to which sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n) and (u) (inclusive) of Clause 5.01 refer which apply to the type of security provided and such favorable legal opinions as the Agent shall reasonably require. 7.04 The Companies shall at all times maintain at the offices of CBK the Cash Collateral Account in the name of the Companies and under the sole dominion and control of the Security Trustee, which account shall be a special interest-bearing account and the accrued interest shall be payable to the Companies. Each of the Companies hereby grants to the Security Trustee a security interest in all monies and property from time to time in the Cash Collateral Account and the proceeds thereof. The balance from time to time in the Cash Collateral Account shall constitute part of the collateral hereunder and shall not constitute payment of the Loan until applied as provided in Clause 4.03. 8. SECURITY TRUSTEE AND AGENT 8.01 Recital. Each of the Companies has authorized the execution and delivery of this Clause 8 pursuant to which the Security Trustee will act as the Mortgagee of each of the Vessels and Aircraft, as Security Trustee and secured party with respect to the Containers, as Assignee and secured party with respect to the insurances of the Vessels, Aircraft and Containers, as Pledgee, Assignee and secured party with respect to the Pledged Shares and the limited partnership interests in Clement and Montgomery, as secured party with respect to the beneficial interest in the Trust Agreement, and as secured party with respect to any proceeds thereof. 8.02 Granting Clause. To secure the payment of all sums of money from time to time owing to the Lenders under this Agreement, the Note and the Security Documents in the maximum principal amount of $38,000,000 plus any amounts due under the Interest Rate Agreements and accrued interest thereon and all other amounts owing to the Lenders or the Security Trustee pursuant to this Agreement, the Note and the Security Documents ("Indebtedness"), and the performance of the covenants of the Companies herein and therein contained, and in consideration of the premises and of the covenants herein contained and of the extensions of credit by the Lenders, and of the sum of One Dollar paid to the Companies by the Security Trustee at or before the delivery hereof, the receipt whereof is hereby acknowledged, the Security Trustee does hereby declare that it will hold as such trustee in trust for the benefit of the Lenders, from and after the execution and delivery thereof, all of its right, title and interest as mortgagee in, to and under each of the Mortgages, its right, title and interest as Assignee and secured party under the Insurance Assignment, its right, title and interest as Pledgee, Assignee and secured party under the Pledge Agreement, the Assignment of Limited Partnership Interests and the Beneficial Interest Security Agreement and its right, title and interest as Security Trustee and secured party under the Security Agreement. The right, title and interest of the Security Trustee in and to the property, rights and privileges described above, from and after the execution and delivery thereof, and all property hereafter specifically subjected to the lien of the indenture created hereby and by the Security Documents by any amendment hereto or thereto are herein collectively called the "Estate". TO HAVE AND TO HOLD the Estate unto the Security Trustee and its successors and assigns forever. BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Lenders and their respective successors and assigns without any priority of any one over any other. UPON CONDITION that, unless and until an Event of Default under this Agreement shall have occurred and be continuing, the respective Company having title to each Vessel and Aircraft shall be permitted, to the exclusion of the Security Trustee, to possess and use each Vessel and Aircraft and EGF V shall be permitted to possess and use the Containers. IT IS HEREBY COVENANTED, DECLARED AND AGREED that all property subject or to become subject hereto is to be held, subject to the further covenants, conditions, uses and trusts hereinafter set forth, and each of the Companies, for itself and its successors and assigns, hereby covenants and agrees to and with the Security Trustee and its successors in said trust, for the equal and proportionate benefit and security of the Lenders as hereinafter set forth. 8.03 Appointment of Agent. Each Lender hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the Security Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto (including, without limitation, the power to determine whether the Companies will be required to grant a Security Interest in any of their assets where the provisions of this Agreement provide for the Agent to make such determination). As to any matters not expressly provided for by this Agreement, the Notes or the Security Documents (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or applicable law. The Agent agrees to give to each Lender prompt notice of each notice and other report given to it by the Companies pursuant to the terms of this Agreement. 8.04. Acts of Lenders. Any request, demand, direction, consent, notice, waiver or other action provided by this Agreement to be given or taken by Lenders may be embodied in and evidenced by one or any number of concurrent written instruments of substantially similar tenor signed by such Lenders in person or by an agent duly appointed in writing, and such action shall become effective when such instrument or instruments are delivered to the Security Trustee. Such a written instrument (and the action embodied therein and evidenced thereby) is herein sometimes referred to as the "Act" of the Lenders party to such instrument or instruments. Proof of the execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement and shall be conclusive in favor of the Security Trustee or of the Companies if made in the manner provided in this Clause 8.04. The fact and date of the execution by any person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the person signing such instrument or writing acknowledged to him the execution thereof. Any request, demand, authorization, direction, notice, consent, waiver or other action by a Lender shall bind any subsequent assignee of such Lender. 8.05. Notices, etc., to Agent, Security Trustee and the Companies. Any request, demand, authorization, direction, notice, consent, waiver or Act of Lenders or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with, (1) the Agent or the Security Trustee by any Lender or by the Companies shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Security Trustee as provided in Clause 16 hereof, (2) the Companies by any Lender or by the Security Trustee shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Companies as provided in Clause 16 hereof. 8.06 Notice to Lenders; Waiver. Where this Indenture provides for notice to Lenders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, postage prepaid, by certified or registered mail, return receipt requested, telexed or telefaxed to each Lender in care of the Agent, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Lenders shall be filed with the Security Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 8.07 Satisfaction and Discharge of Indenture; Release of Estate. When all payments to the Lenders in respect of the Loan or otherwise due under this Agreement, the Note and any Security Documents shall have been made, the Security Trustee shall release the Estate from the lien of the indenture created by this Clause 8 and the Security Documents and neither the Security Trustee nor the Lenders shall have any further interest in or other right with respect to the Estate. Notwithstanding the satisfaction and discharge of the indenture created by this Clause 8 and the Security Documents, the obligations of the Companies to the Security Trustee under Clause 8.23 hereof shall survive. 8.08 Power of Sale; Suits for Enforcement. (a) In case one or more Events of Default under this Agreement or the Security Documents shall have occurred and shall not have been remedied, the Security Trustee and/or the Agent (as the case may be), personally or by agents, with or without entry, upon the written instructions of the Majority Lenders, exercise such rights and remedies as are provided in the Agreement and the Security Documents. 8.09 Security Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any of the Companies or the property of any of them, the Security Trustee (irrespective of whether the sums owing to the Lenders under this Agreement, the Note and the Security Documents shall then be due and payable in accordance with this Agreement, the Note or the Security Documents or otherwise) shall be entitled and empowered to intervene in such proceeding or otherwise and shall be entitled, upon the written instructions of the Majority Lenders, (a) to file and prove a claim for the whole amount of the sums owing and unpaid under the Agreement, the Note and the Security Documents and interest thereon and to file such other papers or documents as may be necessary or advisable to have the claims of the Security Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Security Trustee, its agents and counsel) and of the Lenders allowed in such judicial proceeding; any claim filed by the Security Trustee shall expressly preserve all rights and remedies of each Lender in the Estate, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Security Trustee, and if the Security Trustee shall consent to the making of such payments directly to such Lender, to pay to the Security Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Security Trustee, its agents and counsel, and any other amounts due the Security Trustee under Clause 8.23 hereof. Nothing herein contained shall be deemed to authorize the Security Trustee to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the sums owing under the Agreement or the Note or the rights of any Lender, or to authorize the Security Trustee to vote in respect of the claim of any Lender in any such proceeding, except upon the written instructions of such Lender. 8.10 Indenture Trustee May Enforce Claims. All rights of action and claims under this Agreement, the Note, the Mortgages, the Beneficial Interest Security Agreement, the Insurance Assignments, the Pledge Agreement, the Assignment of Limited Partnership Interests, the Security Agreement or any other Security Document, may be prosecuted and enforced by the Security Trustee in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Security Trustee, its agents and counsel, be for the ratable benefit of the Lenders. 8.11 Restoration of Rights and Remedies. If the Security Trustee or any Lender has instituted any proceeding to enforce any right or remedy or in the exercise of any power under this Clause 8 or any of the Security Documents by foreclosure, entry or otherwise and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Security Trustee or to such Lender, then and in every such case the relevant Company or Companies, the Security Trustee and the Lenders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions and rights hereunder, including the position and rights of the Security Trustee with respect to the Estate, and thereafter all rights, powers and remedies of the Security Trustee and the Lenders shall continue as though no such proceeding had been instituted. 8.12 Rights and Remedies Cumulative. No right, power or remedy herein conferred upon or reserved to the Security Trustee or to the Lenders is intended to be exclusive of any other right, power or remedy. Every right, power and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right, power and remedy given hereunder or now or hereafter existing at law or in equity or otherwise and may be exercised from time to time and as often and in such order as may be deemed expedient by the Security Trustee or the Lenders. The exercise of any right, power or remedy shall not be construed as a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. 8.13 Delay or Omission not Waiver. No delay or omission of the Security Trustee, the Agent or of any Lender to exercise any right, power or remedy accruing upon any Event of Default shall impair any such right, power or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right, power and remedy given by this Agreement or by law to the Security Trustee, the Agent or the Lenders may be exercised from time to time, and as often as may be deemed expedient, by the Security Trustee, the Agent or by the Lenders, as the case may be. 8.14 Control by Lenders. The Majority Lenders have the right, during the continuance of an Event of Default: (a) to require the Security Trustee to proceed to enforce this Agreement, the Note and the Security Documents either by judicial proceedings for the enforcement of the payment of such unpaid sums and the foreclosure of the Mortgages, enforcement under the Beneficial Interest Security Agreement, the Insurance Assignments, Pledge Agreement, the Assignment of Limited Partnership Interests and Security Agreement and the sale of the Estate or, at the election of the Security Trustee, by the exercise of the power of entry and/or sale conferred by the relevant Security Document, and (b) to direct the time, method and place of conducting any proceeding for any remedy available to the Security Trustee or exercising any trust or power conferred on the Security Trustee; provided that (i) such direction shall not be in conflict with any rule of law or with the provisions of the Security Documents or this Agreement, and (ii) the Security Trustee may take any other action deemed proper by the Security Trustee which is not inconsistent with such direction. 8.15 Waiver of Appraisement, etc., Laws. Each of the Companies hereby covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisement, valuation, stay, extension or redemption law wherever enacted, now or at any time hereafter in force, to prevent or hinder the enforcement of the indenture created by this Clause 8 or the Security Documents or the absolute sale of the Estate, or any part thereof, or the possession thereof by any purchaser at any sale under the Security Documents; and each such Company, for itself and all who may claim under it, so far as it now or hereafter lawfully may, hereby waives the benefit of all such laws. Each such Company, for itself and all who may claim under it, waives, to the extent lawful, all right to have the property in the Estate marshalled upon any foreclosure hereof, and agrees that any court having jurisdiction to foreclose this Indenture may order the sale of the Estate as an entirety. If any law in this Clause 8.15 referred to and now in force, of which the Owner or its successors might take advantage despite this Clause 8.15, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the application of this Clause 8.15. 8.16 Acceptance of Trusts. CBK hereby accepts the trusts imposed upon it as Security Trustee by this Agreement, and the Security Trustee covenants and agrees to perform the same as herein expressed and agrees to receive and disburse all monies constituting part of the Estate in accordance with the terms hereof. 8.17 Certain Duties and Responsibilities of the Security Trustee. (a) Except during the continuance of an Event of Default, (i) the Security Trustee undertakes to perform such duties and only such duties as are specifically set forth herein and in the Security Documents, and no implied covenants or obligations shall be read into this Agreement or the Security Documents against the Security Trustee, and the Security Trustee agrees that it will not manage, control, use, sell, dispose of or otherwise deal with the Estate, except as required by the terms of the Security Documents and as otherwise provided herein; and (ii) in the absence of bad faith on its part, the Security Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Security Trustee and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Security Trustee, the Security Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Agreement. (b) In case an Event of Default has occurred and is continuing, the Security Trustee shall exercise such of the rights and powers vested in it by this Agreement and the Security Documents, and shall use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Agreement shall be construed to relieve the Security Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that (i) this subsection (c) shall not be construed to limit the effect of subsection (a) of this Clause 8.17; (ii) the Security Trustee shall not be liable for any error of judgment made in good faith by a director, officer, agent or employee of the Security Trustee, unless it shall be proved that the Security Trustee was negligent in ascertaining the pertinent facts; (iii) the Security Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Majority Lenders relating to the time, method and place of conducting any proceeding for any remedy available to the Security Trustee, or exercising any trust or power conferred upon the Security Trustee, under this Indenture; and (iv) no provision of this Agreement shall require the Security Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (d) Whether or not therein expressly so provided, every provision of this Agreement relating to the conduct or affecting the liability of or affording protection to the Security Trustee shall be subject to the provisions of this Section 8.17. 8.18 Notice of Default. As promptly as possible after an officer of the Security Trustee shall obtain actual knowledge of any default hereunder, the Security Trustee shall transmit by mail, telefax or telex notice of such default to the Lenders, unless such default shall have been cured or waived. For the purpose of this Section 8.18, the term "default" means any event which is an Event of Default. 8.19 Certain Rights of Security Trustee and the Agent. Except as otherwise provided in Section 8.17 hereof: (a) the Security Trustee and the Agent may rely upon and shall be protected in acting or refraining from acting in reliance upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper person or persons; (b) any request or direction of the Companies mentioned herein shall be sufficiently evidenced by a certificate or request signed by an officer or director of EGF V or its general partner or a duly authorized attorney-in-fact for EGF V; (c) whenever in the administration of the indenture or the obligations created by this Agreement and the Security Documents, the Security Trustee or the Agent, as the case may be, shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Security Trustee or the Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon a certificate signed by an officer or director of any of the Companies or a duly authorized attorney-in-fact for such Company or Companies; (d) the Security Trustee and the Agent may consult with counsel and the written advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) neither the Security Trustee nor the Agent shall be under any obligation to exercise any of the rights or powers vested in it or in the Lenders by this Agreement or the Security Documents at the request or direction of any of the Lenders, unless such Lenders shall have offered to the Security Trustee or the Agent, as the case may be, reasonable security or indemnity (including the advancement of funds) against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) neither the Security Trustee nor the Agent shall be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond or other paper or document, but the Security Trustee or the Agent, as the case may be, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (g) the Security Trustee may execute any of the trusts, and the Security Trustee and the Agent may execute any of the powers hereunder or perform any duties hereunder, either directly or by or through agents or attorneys; and (h) neither the Security Trustee nor the Agent shall be personally liable, in case of entry by it upon the Estate, for debts contracted or liabilities or damages incurred in the management or operation of the Estate. 8.20 Security Trustee not Responsible for Recitals; Warranty. Neither the Security Trustee nor the Agent makes any representation as to the value or condition of the Estate or any part thereof, as to the title of any of the Companies thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any security at any time pledged or deposited with the Security Trustee or the Agent hereunder. Neither the Security Trustee nor the Agent shall have any responsibility with respect to the recording, re-recording, filing or re-filing, under the laws of any jurisdiction, of this Indenture or any other document or statement that may be required or permitted to be recorded, re-recorded, filed or re-filed under any such laws to perfect or protect the security interests created by or pursuant to Clause 8.02 of this Agreement. Neither the Security Trustee nor the Agent (i) makes any warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties, or representations (whether written or oral) made in or in connection with this Agreement, the Notes or the Security Documents; (ii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement, the Notes or the Security Documents on the part of the Companies or to inspect the property (including the books and records) of the Companies. 8.21 Capacity in Which Acting. CBK as Security Trustee and Agent, is acting hereunder not in its individual capacity but solely as trustee and agent, respectively, except as otherwise expressly provided herein, and all persons having any claim against the Security Trustee and/or the Agent by reason of the transactions contemplated hereby shall look only to the Estate for payment or satisfaction and neither the Security Trustee nor the Agent shall not be accountable under any circumstances in its individual capacity, except for its own wilful misconduct or gross negligence. With respect to the Loan and the Note issued to it, CBK shall have the same rights and powers under this Agreement, the Note and the Security Documents as any other Lender and may exercise the same as though it were not the Security Trustee and the Agent, respectively, and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include CBK hereunder in its individual capacity. CBK and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, the Companies and any of the Companies' subsidiaries and any Person who may do business with or own securities of the Companies or any such subsidiary, all as if CBK were not the Security Trustee and the Agent, respectively, and without any duty to account therefor to the Lenders. 8.22 Funds May be Held by Security Trustee. Subject to Clause 8.34 hereof, any monies held by the Security Trustee hereunder as part of the Estate may, until paid out by the Security Trustee as herein provided, be carried by the Security Trustee on deposit with itself, and neither the Security Trustee nor the Agent shall have any liability for interest upon any such monies. 8.23 Compensation and Reimbursement. The Companies hereby jointly and severally agree: (a) except as otherwise expressly provided herein, to reimburse the Security Trustee and the Agent upon its request for all reasonable expenses, disbursements and advances incurred or made by the Security Trustee or the Agent, as the case may be, in accordance with any provision of this Agreement and the Security Documents (including the reasonable expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its gross negligence or willful misconduct; and (b) to indemnify each of the Security Trustee and the Agent (in its individual capacity and as trustee or agent, respectively, and including its successors, assigns, officers, directors, agents and servants) for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the indenture or agency created by this Agreement and the Security Documents, including, but not limited to, the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, and any loss, liability, expense or claim arising out of its possession, management, control use or operation of the Estate. As security for the performance of the obligations of the Companies under this Clause 8.23, the Security Trustee and the Agent shall be secured under this Indenture and Agreement by a lien on the Estate prior to the lien thereon of the Lenders, and for the payment of such expense, reimbursements and indemnity the Security Trustee shall have the right to use and apply any moneys held by it hereunder in the Estate. The indemnity contained in this Clause 8.23 shall survive the termination of this Agreement and the Security Documents. 8.24 Corporate Trustee Required; Eligibility. There shall at all times be a Security Trustee hereunder which shall be CBK or any other corporation organized and doing business under the laws of the United States of America or of any State or of any foreign government recognized by the Securities and Exchange Commission pursuant to Sections 406-408 of the Trust Indenture Reform Act of 1990, 15 USC ss.77jjj, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $150,000, subject to supervision or examination by Federal or State authority, and any other applicable law or regulation. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Clause 8.24, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Security Trustee shall cease to be eligible in accordance with the provisions of this Clause 8.24, it shall resign immediately in the manner and with the effect hereinafter specified herein. 8.25 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Security Trustee or the Agent and no appointment of a successor Security Trustee or Agent pursuant to this Clause 8.25 shall become effective until the acceptance of appointment by the successor Security Trustee or Agent, as the case may be, under Clause 8.26 hereof. Until such acceptance the Security Trustee or Agent, as the case may be, shall continue to carry out its duties hereunder. (b) The Security Trustee and the Agent may resign at any time by giving written notice thereof to the Companies and the Lenders. If an instrument of acceptance by a successor Security Trustee or Agent shall not have been delivered to the Companies and the Security Trustee or Agent, as the case may be, within 30 days after the giving of such notice of resignation, the resigning Security Trustee or Agent may petition any court of competent jurisdiction for the appointment of a successor Security Trustee or Agent, as the case may be. (c) Each of the Security Trustee and the Agent may be removed at any time by Act of the Majority Lenders, delivered to the Security Trustee or the Agent, as the case may be, and to the Companies. (d) If at any time: (i) the Security Trustee shall cease to be eligible under Clause 8.24 hereof and shall fail to resign after written request therefor by any such Lender, or (ii) the Security Trustee or the Agent shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Security Trustee or the Agent or of their respective properties shall be appointed, or any public officer shall take charge or control of the Security Trustee or the Agent or of their respective properties or affairs for the purpose of rehabilitation, conservation or liquidation, any Lender may petition any court of competent jurisdiction for the removal of the Security Trustee or the Agent, as the case may be, and the appointment of a successor Security Trustee or Agent, as the case may be. (e) If the Security Trustee or the Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Security Trustee or the Agent for any cause, the Majority Lenders shall promptly select a successor Security Trustee or Agent, as the case may be, and the Companies shall appoint such selected person as a successor Security Trustee or Agent, as the case may be. If no successor Security Trustee or Agent shall have been so appointed by the Lenders and the Companies and accepted appointment in the manner hereinafter provided, the Security Trustee or Agent, as the case may be, or any Lender for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Security Trustee or Agent, as the case may be. (f) Each of the Security Trustee and the Agent shall give notice of each resignation and each removal of the Security Trustee or Agent, as the case may be, and each appointment of a successor Security Trustee or Agent by mailing written notice of such event to the Lenders. Each notice shall include the name of the successor Security Trustee or Agent, as the case may be, and the address of its office for purposes of Clause 8.05 hereof. 8.26 Acceptance of Appointment by Successor. Every successor Security Trustee or Agent appointed hereunder shall execute, acknowledge and deliver to the Companies and to the retiring Security Trustee or Agent, as the case may be, an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Security Trustee or Agent shall become effective and such successor Security Trustee or Agent, without any further act deed, or conveyance, shall become vested with all the estates, properties, rights, powers, trusts and duties of the retiring Security Trustee or Agent, as the case may be; but such retiring Security Trustee or Agent shall, upon payment of its charges, execute and deliver, together with the successor Security Trustee or Agent, an amendment hereto, and such amendments to the Mortgages, the Beneficial Interest Security Agreement, Insurance Assignments, Pledge Agreement, the Assignment of Limited Partnership Interests and Security Agreement, in due form, and in the required number of counterparts, as may be required for recording, conveying and transferring to such successor Security Trustee or Agent, as the case may be, upon the trusts herein expressed all the estates, properties, rights, powers and trusts of the retiring Security Trustee or Agent, as the case may be, and shall duly assign, transfer and deliver to such successor Security Trustee or Agent all property and money held by such retiring Security Trustee or Agent, as the case may be, hereunder. Upon request of any such successor Security Trustee or Agent, the Companies shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Security Trustee or Agent all such estates, properties, rights, powers and trusts. No successor Security Trustee shall accept its appointment unless at the time of such acceptance such successor Security Trustee shall be qualified and eligible under Clause 8.24. 8.27 Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Security Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Security Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Security Trustee, shall be the successor of the Security Trustee hereunder, provided such Person shall be otherwise qualified and eligible under Clause 8.24, without the execution or filing of any paper or any further act on the part of any of the parties hereto. 8.28 Amendments With Consent of the Security Trustee. The Companies and the Security Trustee, at any time and from time to time, may enter into any one or more amendments supplemental hereto or amendments to the Security Documents, all in form satisfactory to the Security Trustee, for the following purposes: (a) to correct or amplify the description of any property at any time subject to the lien of the indenture created by this Agreement and the Security Documents or to subject to the lien of this Indenture any additional property; or (b) to evidence the succession of another Person to any of the Companies, and the assumption by any such successor of the covenants of the Companies herein and in the Security Documents contained; or (c) to add to the covenants of the Companies for the benefit of the Lenders, or to surrender any right or power or in the Security Documents herein conferred upon the Companies; or (d) to correct or supplement any defective or inconsistent provision herein or to convey, transfer, assign, mortgage or pledge any property to or with the indenture created by this Agreement and the Security Documents; or (e) to cure any ambiguity or to add or modify any other provisions and agreements in this Agreement or any Security Document in any manner which will not adversely affect the interests of the Lenders; or (f) to provide for the appointment of any successor Security Trustee hereunder, in accordance with this Clause 8. 8.29 Amendments with Consent of Lenders (and Agent). With the consent of the Majority Lenders, by Act of such Lenders delivered to the Companies and the Security Trustee, the Companies may, and the Security Trustee, subject to Section 8.30 hereof, shall enter into an amendment supplemental hereto to add any provisions to or change in any manner or eliminate any of the provisions of this Agreement or the Security Documents or modify in any manner the rights of the Lenders under this Agreement or the Security Documents or to release property from the lien of this Indenture pursuant to this Agreement and the Security Documents; provided that no such amendment or waiver shall, without the consent of the all the Lenders (and, if such amendment or waiver affects the rights and obligations of the Agent, the Agent), (a) change the maturity of the principal of, or any installment of interest on, the Indebtedness or any portion thereof, or reduce the principal amount thereof or the interest thereon, or change the place of payment where, or the coin or currency in which, or the interest thereon, is payable or impair the right to institute suit for the enforcement of any such payment on or after the maturity thereof, or (b) create any security interest with respect to the Estate ranking prior to, or on a parity with, the security interest created by this Agreement and the Security Documents, or deprive any Lender of the lien created by this Agreement and the Security Documents on the Estate, except as expressly permitted herein or in any Security Document, or (c) change, modify or amend the definition of Majority Lenders, whose consent is required for any such amendment or any waiver (of compliance with certain provisions of this Indenture or of certain defaults hereunder and their consequences) provided for herein or in any Security Document, or (d) modify any of the provisions of this Clause 8.29 or Clause 8.14 hereof, except to increase any percentage herein or therein or to provide that certain other provisions of this Agreement or other documents referred to herein cannot be modified or waived without the consent of the Majority Lenders. 8.30 Documents Affecting Immunity or Indemnity. If in the opinion of the Security Trustee or the Agent any document required to be executed pursuant to the terms of Clause 8.29 hereof affects any interest or right or duty or immunity or indemnity in favor of the Security Trustee or the Agent under this Agreement or any Security Document, the Security Trustee or the Agent, as the case may be, may in its discretion decline to execute such document. 8.31 Execution of Amendments. In executing, or accepting the additional trusts created by, any amendment permitted by this Clause 8 or the modifications thereby of the trusts created hereby, the Security Trustee and/or the Agent shall be entitled to receive and (subject to Clause 8.17 hereof) shall be fully protected in relying upon, an opinion of counsel satisfactory to the Security Trustee or the Agent, as the case may be, stating that the execution of such amendment is authorized or permitted by this Agreement. Promptly after the execution by the Companies and the Security Trustee of any amendment, the Companies shall duly mail or deliver otherwise a conformed copy of such amendment to the Agent (if different from the Security Trustee). The validity of any such amendment, however, shall not be impaired or affected by failure to give such notice or by any defect therein. 8.32 Effect of Amendment. Upon the execution of any amendment hereunder, this Agreement shall be modified in accordance therewith, and such amendment shall form a part of this Agreement for all purposes; and every Lender theretofore or thereafter issued and delivered hereunder shall be bound thereby. 8.33 Indemnification by the Companies. The Companies hereby jointly and severally covenant and agree that the Estate shall be free of any lien, claim or encumbrance created by any Company and not contemplated or permitted by the transactions described in this Agreement or in the Security Documents arising as a result of claims against any of the Companies not related to the ownership of the Vessels, the Aircraft or the Containers and that it will promptly take such action as may be necessary to duly discharge any such lien, claim or encumbrance. 8.34 Cash Held by Security Trustee. (a) All cash held by the Security Trustee hereunder or under any Security Document shall be held as a special deposit in trust for the purposes for which held. (b) Cash held by the Security Trustee hereunder or under any Security Document (i) need not be segregated; (ii) shall not be invested or reinvested; and (iii) shall bear interest only as may be agreed by the Companies and the Security Trustee. 8.35 Distribution of Payments Received After an Event of Default. All payments received and amounts realized by the Security Trustee after an Event of Default shall have occurred and be continuing, as well as all payments or amounts then held or thereafter received by the Security Trustee as part of the Estate while such Event of Default shall be continuing, shall be distributed by the Security Trustee in accordance with the Security Documents. 8.36 Distributions Withheld From the Companies. Anything in this Agreement to the contrary notwithstanding, after a director, officer, agent or employee of the Security Trustee shall have actual knowledge of an Event of Default, all amounts which would otherwise be distributable to the Companies shall be held by the Security Trustee as part of the Estate and, if such an Event of Default shall cease to be continuing before the time such amounts may become distributable pursuant hereto, such amounts shall be distributed to the Companies. 9. EVENTS OF DEFAULT 9.01 Each of the following events shall constitute an Event of Default (whether such event shall occur or come about voluntarily or involuntarily or by operation of law or regulation or pursuant to, or in compliance with, any judgment, decree or order of any court or other authority): (a) any of the Companies or any other party to any of the Security Documents (i) fails to pay on the due date any principal due in respect of the Loan or the Note; or (ii) default shall be made in the payment of interest due in respect of the Loan or the Note, when and as the same shall be due and payable, and such default shall continue in respect thereof for three (3) Business Days; or (iii) default shall be made in the payment of any other sum payable pursuant to this Agreement, the Note or any of the Security Documents, or any agreement entered into in connection with this Agreement, the Note or any of the Security Documents, when and as the same shall be due and payable, and such default shall continue in respect thereof for five (5) Business Days; or (b) any of the Companies breaches any of the Covenants in Clause 7.03; or (c) any of the Companies defaults under, or in the due and punctual observance and performance of, any other material provision of this Agreement and where, in the reasonable opinion of the Lenders, such default is capable of remedy, such default is not remedied or the relevant Company or Companies shall not have taken and be diligently pursuing all necessary steps to remedy such default within 15 days after written notice from the Lenders requesting action to remedy the same; provided, that notwithstanding the foregoing, any such default shall be remedied within 45 days after such written notice; or (d) an Event of Default under any of the Mortgages or any other of the Security Documents shall have occurred and be continuing; or (e) any representation or warranty made by the Companies or any other party to any of the Security Documents, in or pursuant to this Agreement or any of the Security Documents or in any notice, certificate, instrument or statement contemplated hereby or thereby or made or delivered pursuant hereto or thereto is, or proves to be, untrue or incorrect in any material respect when made or deemed to be repeated; or (f) (i) any material indebtedness of any of the Companies is not paid when due or becomes prematurely payable or capable of being prematurely declared payable as a consequence of a default with respect thereto or any Security Interest over any assets of any of the Companies is enforced or becomes capable of being enforced; or (ii) any of the Companies defaults in the payment of any obligation, whether direct or contingent, for borrowed money or the acquisition of capital equipment on a finance lease or title retention basis or in the performance or observance of the material terms of any instrument pursuant to which such obligation was created or securing such obligation or providing for any such acquisition or lease or (iii) a default occurs in respect of any such obligation of any person, firm or corporation, the payment or performance of which has been guaranteed, directly or indirectly, by any of the Companies; or (g) (i) any preparatory or other steps are taken by any person to convene a meeting of any of the Companies for the purposes of considering or passing any resolution or petition for the winding-up or dissolution of any of the Companies (other than any Company that does not at that time own, directly or indirectly, any assets), or (ii) a petition is presented or an order is made or a resolution is passed for the winding-up or dissolution of any of the Companies (other than any Company that does not at that time own, directly or indirectly, any assets), or (iii) any of the Companies becomes insolvent or is deemed unable to pay its debts within the meaning of the appropriate bankruptcy laws or any of the Companies becomes unable to pay its debts as they fall due, or (iv) any of the Companies stops or threatens to stop making payments generally or declares or threatens to declare a moratorium or suspension of payments with respect to all or any part of its debts or enters into any composition, scheme, compromise or other arrangement with its creditors generally (or any class of them), or (v) any preparatory or other steps are taken by any person to appoint an administrative or other receiver or similar official of any of the Companies or any of its assets, or (vi) any meeting of any of the Companies is convened or any other preparatory or other steps are taken for the purpose of considering an application for an administration order for any of the Companies or such an administration order is made by a court, or (vii) anything analogous to any of the foregoing events occurs in any applicable jurisdiction; or (h) a marshall, sheriff or other official takes possession of the whole or any material part of the assets of any of the Companies or a distress, execution or other process is levied or enforced upon or sued out against the whole or a material part of the assets of any of the Companies and such taking or process is not released or terminated within the time provided herein or in the Security Documents; or (i) there shall occur a material adverse change in the financial conditions, results of operations or financial position of any of the Companies taken as a whole or any event occurs which renders it unlawful or impossible for (i) any of the Companies to perform or observe, or to procure the performance or observance of, any of its material obligations or undertakings contained in this Agreement, the Note, or any of the Security Documents, or (ii) the Lenders to exercise any of the material rights and remedies conferred on the Lenders under this Agreement or any of the Security Documents; or (j) any authorization, approval, consent, license, exemption, filing or registration or other requirement necessary to enable any of the Companies to comply with any of its material obligations or undertakings contained in this Agreement, the Note or any of the Security Documents is materially modified, revoked or withheld or does not remain in full force and effect; or (k) without the prior consent of the Agent, FSI shall (i) be removed or resign from its position or otherwise fail to continue as general partner of EGF V or (ii) sell, transfer, exchange or otherwise dispose of all or any portion of its general partnership interest in EGF V; or (l) without the prior consent of the Agent, any of TVI, CVI or COVI shall (i) be removed or resign from its position or otherwise fail to continue as general partner of each of Trader, California or Columbus, respectively or (ii) sell, transfer, exchange or otherwise dispose of all or any portion of its general partnership interest in each of Trader, California or Columbus, respectively; or (m) any of the Vessels or Aircraft shall become a Total Loss and either (x) the Agent does not receive within 120 days (or such longer period as the Agent may agree) following the occurrence of such Total Loss, insurance proceeds arising from such Total Loss in an amount not less than the amount for which such Vessel or Aircraft, as the case may be, is required to be insured under the relevant Mortgage as at the date of the event or circumstances giving rise to such Total Loss or any of the insurers shall disclaim coverage with respect to such Total Loss or (y) the Companies do not provide the Lenders with, or procure the provision to the Lenders of, additional Pledged Equipment in accordance with Clause 7.03(c)(i) of this Agreement. For the purpose of this Clause 9.01(m), (i) an actual Total Loss of such Vessel or Aircraft, as the case may be, shall be deemed to have occurred at the date and time when such Vessel or Aircraft, as the case may be, was lost but if the date of the loss is unknown the actual Total Loss shall be deemed to have occurred on the date on which such Vessel or Aircraft, as the case may be, was last reported, (ii) a constructive Total Loss shall be deemed to have occurred at the date and time at which notice of abandonment of such Vessel or Aircraft, as the case may be, is given to the insurers of such Vessel or Aircraft and (iii) a compromised, agreed or arranged Total Loss shall be deemed to have occurred on the date of the relevant compromise, agreement or arrangement; or (n) for any reason whatsoever, any of the Vessels or Aircraft ceases to be managed by the Approved Manager, in either case on terms substantially in accordance with those approved by the Agent; or (o) the security constituted by any of the Security Documents is materially imperilled or jeopardised; or (p) this Agreement, the Note or any of the other Security Documents ceases at any time to be the legal, valid and binding obligations of any of the Companies or any other party thereto (other than the Lenders); or (q) any encumbrance other than one permitted hereunder or under the Security Documents shall be created over any of the assets or property of any of the Companies; or (r) a final judgment against any of the Companies in an amount greater than or equal to One Million Dollars ($1,000,000) shall be rendered and, within thirty (30) days after entry thereof, such judgment shall not have been discharged or execution stayed or, within thirty days after the expiration of any such stay, such judgment shall not have been discharged. 9.02 Upon the occurrence of any other Event of Default: (a) the Agent, by notice to the Companies, may terminate the obligations of the Lenders under this Agreement, whereupon the same shall be so terminated; and/or (b) if it is an Event of Default specified in paragraph (g)(iii)-(vi) of Clause 9.01, the Lender's obligations hereunder shall automatically terminate and the unpaid balance of the Loan and accrued interest thereon and all other amounts payable under this Agreement, the Notes and the Security Documents shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and/or (c) the Agent, by notice to the Companies, may declare the Loan, accrued interest thereon and all other amounts payable under this Agreement, the Note and the Security Documents either immediately due and payable or payable on demand, whereupon the Loan, accrued interest thereon and all other amounts payable under this Agreement, the Note and the Security Documents shall become immediately due and payable or (as the case may be) payable on demand by the Agent and in such event the Agent may also by notice to the Companies require that the Companies refrain from declaring or paying any dividend or making any other distribution of assets or profits to any partner or shareholder; and/or (d) the Agent may take any other action, exercise any other right or pursue any other remedy conferred upon the Agent by this Agreement and/or by all or any of the Security Documents or by any applicable law or regulation as a consequence of such Event of Default. 9.03 Upon the occurrence of an Event of Default, the Agent may apply all moneys received by the Agent (including proceeds realized on the sale or liquidation of any collateral security, insurance proceeds and other moneys of any of the Companies or for the account of any of the Companies the application of which has not elsewhere herein or in the Security Documents been specifically provided for) as follows: FIRST, to the payment or reimbursement of all the reasonable costs of the Agent incurred or made in the exercise, protection or pursuance by the Agent of its rights or remedies under this Agreement, the Note or any Security Document including, but not limited to, the expenses of any sale or of any taking, attorneys' fees and court costs, together with interest thereon as provided herein and to provide adequate indemnity to the Agent against security interests, liens, charges, encumbrances or rights claiming priority over or equality with the Security Interest or liens created under the Security Documents; SECOND, to the payment of accrued interest on and principal of the Loan and the Note whether due or not; THIRD, to the payment of all other sums payable by the Companies to the Lenders whether under this Agreement or otherwise, including without limitation sums payable under any Interest Rate Agreements between any of the Companies and the Lenders, whether due or not, together with interest thereon as provided herein and of all damages, liquidated or otherwise; and FOURTH, to the payment of any surplus thereafter remaining to the Borrowers or to whomsoever may be entitled thereto. 9.04 the Agent may exercise any right of counterclaim, setoff, banker's lien or otherwise which it may have with respect to moneys or other property of the Companies held by the Agent. 9.05 the Agent may to the extent permitted by applicable law bring suit at law, in equity, in admiralty or in any other appropriate proceeding or forum for any purpose including, but not limited to (i) for the specific performance of any covenant or agreement contained in any Security Document; (ii) for any injunction against a violation of any of the terms thereof; (iii) in aid of the exercise of any power granted thereby or by law; or (iv) to recover judgment for any and all amounts due on the Loan or the Note or under any Security Document. 10. FEES AND EXPENSES 10.01 The Companies shall jointly and severally pay to the Agent: (a) an amendment fee as separately agreed between the Companies and CBK upon execution and delivery by the Agent of this Agreement. (b) an annual agency fee of $40,000 per annum payable quarterly in advance. 10.02 The Companies shall reimburse the Agent promptly on demand for all reasonable costs, fees and expenses (including, but not limited to, legal fees and expenses and Valuations as provided herein) incurred by the Agent or the Lenders in connection with: (a) the negotiation, preparation and execution of this Agreement and the Security Documents; and/or (b) the maintaining, preserving or enforcing of, or attempting to preserve or enforce, any of their rights under this Agreement and the Security Documents (or any of them); and/or (c) any variation of, or amendment or supplement to, any of the terms of this Agreement, the Note and the Security Documents (or any of them); and/or (d) any consent or waiver required from the Agent or the Lenders arising from this Agreement, the Note and the Security Documents (or any of them), and in each case, regardless of whether the same is actually implemented, completed or granted, as the case may be. 10.03 The Companies shall jointly and severally pay promptly all stamp, documentary and other like duties and Taxes to which this Agreement, the Note and the Security Documents (or any of them) may be subject or give rise and shall indemnify the Agent and the Lenders on demand against any and all liabilities with respect to or resulting from any delay or omission on the part of the Companies to pay any such duties or Taxes. 11. PAYMENTS AND CALCULATIONS 11.01 All payments to be made by the Companies to the Agent for the Lenders under this Agreement, the Note and any of the Security Documents to which the Companies are a party shall be made by not later than 11.00 a.m. (New York City time) on the due date in same day Dollar funds settled through the New York Interbank Payments System (or in such other Dollar funds and/or settled in such other manner as the Agent shall specify as being customary at the time for the settlement of transactions of the type contemplated by this Agreement) to the Agent, or to such other account with such other bank as the Agent shall from time to time notify to the Companies. 11.02 If any sum payable by the Companies under this Agreement, the Note or any of the Security Documents to which any of the Companies is a party shall become due on a day which is not a Business Day, the due date therefor shall be extended to the next succeeding Business Day, unless such Business Day falls in the next calendar month, in which event such due date shall be the immediately preceding Business Day, and interest shall be payable on such sum during any such extension at the rate payable on the original due date. 11.03 The Agent shall maintain accounts showing the amounts from time to time lent by the Lenders under this Agreement, and all other sums owing by the Companies under this Agreement, the Note and the Security Documents and all payments in respect thereof made by the Companies from time to time. Such accounts, in the absence of manifest error, shall be conclusive evidence as to any amounts from time to time owing by the Companies under this Agreement, the Note and the Security Documents. 11.04 All payments of interest, commitment fees and any other payments hereunder of an annual or periodic nature shall accrue from day-to-day and shall be calculated on the basis of the actual number of days elapsed in a 360 day year. 12. NO COUNTERCLAIM, TAXATION 12.01 All payments to be made by or on behalf of the Companies to the Agent pursuant to this Agreement, the Note and any of the Security Documents to which any of the Companies is a party shall be made (a) without set-off, counterclaim or condition whatsoever and (b) free and clear of, and without deduction for or on account of, any present or future Taxes unless the Company are required by law or regulation to make any such payment subject to any Taxes. 12.02 In the event that any of the Companies is required by any law or regulation to make any deduction or withholding on account of any Taxes which arise as a consequence of any payment due under this Agreement, the Note or any of the Security Documents to which any of the Companies is a party, then: (a) the Companies shall notify the Agent promptly as soon as they become aware of such requirement; (b) the Companies shall remit promptly the amount of such Taxes to the appropriate taxation authority, and in any event prior to the date on which penalties attach thereto; (c) such payment shall be increased by such amount as may be necessary to ensure that the Agent receives a net amount which, after deducting or withholding such Taxes, is equal to the full amount which the Agent would have received had such payment not been subject to such Taxes; and (d) the Companies shall indemnify the Lenders and the Agent against any liability of the Lenders for such Taxes. 12.03 Not later than thirty days after each deduction or withholding of any such Taxes, the Companies shall forward to the Lender evidence satisfactory to the Agent that such Taxes have been remitted to the appropriate taxation authority. 13. CHANGES IN CIRCUMSTANCES 13.01 In the event that by reason of: (a) the introduction of, or any change in, any applicable law or regulation, or any change in the interpretation or application thereof; or (b) compliance by the Lenders with any directive, request or requirement (whether or not having the force of law) of any central bank, government, or analogous monetary authority, it becomes unlawful, prohibited or contrary to such directive, request or requirement for the Lenders to maintain or give effect to any of their obligations as contemplated by this Agreement, then the Agent shall notify the Borrowers thereof and, if the Loan or any portion thereof has been advanced by the Lenders, the Borrowers shall consult with Agent to determine ways to avoid the effect of such measures but if no such mechanism can be determined the Borrowers shall prepay the Loan forthwith in accordance with the terms of this Agreement and the obligations of the Lenders shall thereupon terminate. 13.02 If the Agent shall reasonably conclude and certify to the Companies that: (a) the effect of any applicable law, regulation or regulatory requirements, or the interpretation or application thereof, or any change therein (including the imposition of Taxes on payments hereunder, other than Taxes on the overall net income of the Lenders); or (b) the effect of complying with any applicable directive, request or requirement (whether or not having the force of law) of any central bank, governmental or analogous monetary authority (including any type of liquidity, stock or capital adequacy controls or other banking or monetary controls or requirements which affects the manner in which the Lenders allocate capital resources to their obligations hereunder), is to: (i) increase the cost to the Lenders of making, funding or maintaining their commitment hereunder or the Loan or being a party to this Agreement; or (ii) reduce the amount of any payment to the Agent for the Lenders under this Agreement or the effective return to the Lenders on their capital under this Agreement, then, and in any such case, the Agent shall notify the Companies as soon as practicable thereof and the Companies shall from time to time, jointly and severally, pay to the Agent on demand such amounts as the Agent shall reasonably specify to be necessary to compensate the Lenders for such increased cost or such reduction. 13.03 If and each time that prior to any Interest Period the Agent shall have determined in good faith that, by reason of circumstances (the "Circumstances") affecting the London Interbank Dollar Market, either: (a) adequate and fair means do not exist for ascertaining the rate of interest applicable to the Loan (or any part thereof) during such Interest Period pursuant to Clause 3 hereof; or (b) Dollars are not available to the Lender in order to fund the Loan (or any part thereof) during such Interest Period, then the Agent shall as soon as practicable give notice of such determination to the Companies and, if such notice shall be given prior to the advance of the Loan (or the relevant part thereof) by the Lender, the right of the Borrowers to borrow hereunder shall be suspended during the continuance of the Circumstances, provided, however, that during the thirty days following such notice, the Companies and the Agent shall negotiate in good faith in order to arrive at an alternative interest rate or (as the case may be) an alternative basis for the Lenders to fund or continue to fund the Loan (or the relevant part thereof) during such Interest Period. If within such thirty day period an alternative interest rate or (as the case may be) an alternative basis to fund or to continue to fund the Loan (or the relevant part thereof) is agreed upon, such alternative interest rate or (as the case may be) such alternative basis shall take effect in accordance with its terms. If the Companies and the Agent fail to agree on such an alternative interest rate or (as the case may be) alternative basis within such thirty day period and the Circumstances are continuing at the end of such thirty day period, then the Agent shall set an interest period and interest rate representing the cost to the Lender of funding the Loan plus the Margin in Dollars. If the Circumstances shall continue at the end of such interest period, the procedure in this Clause 13.03 shall be repeated. If the Companies shall not agree with such rate then the Companies shall give not less than 15 Business Days' irrevocable notice of prepayment to the Lender in which case the commitment of the Lenders hereunder for the Loan (or the relevant part thereof) shall thereupon be canceled and, if the Loan (or the relevant part thereof) is outstanding, the Borrowers shall, jointly and severally, prepay the Loan (or the relevant part thereof) on the first Business Day after such period in accordance with the terms of this Agreement and the obligations of the Lender shall thereupon terminate to such extent. 14. FUNDING LOSSES 14.01 The Companies shall, jointly and severally, compensate the Lenders, upon its written certification (which certification shall set forth in reasonable detail the basis for demanding such amounts and the calculation thereof and shall, absent manifest error, be final and conclusive and binding upon all parties hereto), for all reasonable costs, losses, expenses and liabilities (including, without limitation, any loss, interest, expense, penalty or other amounts paid or incurred by the Lenders arising from the liquidation or re-employment of deposits or funds required by it to make or carry the Loan), which the Lenders sustain: (a) if any repayment or prepayment (including, without limitation, payment after acceleration) of the Loan occurs on a date which is not the last day of an Interest Period applicable thereto; (b) as the result of any default by any of the Borrowers in repaying the Loan or any other amounts arising from the Loan when required by the terms of this Agreement; or (c) as the result of the occurrence and/or continuance of any Event of Default (or event which, with the giving of notice and/or lapse of time or other applicable condition, might constitute an Event of Default) and/or the acceleration of repayment of the Loan pursuant to Clause 9.02. 14.02 If, under any applicable law or regulation, and whether pursuant to a judgment being made or registered against the Companies (or any of them) or the liquidation of the Companies (or any of them) or for any other reason, any payment due under or in connection with this Agreement is made or fails to be satisfied in a currency (the "payment currency") other than the currency in which such payment is due under or in connection with this Agreement (the "contractual currency"), then to the extent that the amount of such payment actually received by the Agent, when converted into the contractual currency at the rate of exchange, falls short of the amount due under or in connection with this Agreement, the Companies, jointly and severally and as a separate and independent obligation, shall indemnify and hold harmless the Lenders against the amount of such shortfall. For the purposes of this Clause 14.02, "rate of exchange" means the rate at which the Lenders are able on or about the date of such payment to purchase the contractual currency with the payment currency and shall take into account any premium and other costs of exchange with respect thereto. 15. SECURITY 15.01 The Companies hereby undertake with the Agent and the Lenders to execute, deliver and perform the provisions of, and procure the execution, delivery and performance by the other parties thereto (other than the Agent or the Lenders) of, the Security Documents and the provisions thereof at the times and in the manner provided in this Agreement and in the Security Documents so that all such documents shall both at the date of such execution and delivery and at all times during the Security Period be valid and binding obligations of the Companies and such other parties enforceable in accordance with their respective terms. 16. COMMUNICATIONS 16.01 Except as otherwise provided for in this Agreement, all notices or other communications arising from this Agreement to any party hereto shall be in writing and shall be deemed to be duly given or made when delivered (in the case of personal delivery or letter) and when dispatched (in the case of telex or telefax) to such party addressed to it at the address appearing below (or at such address as such party may hereafter specify for such purpose to the other by notice in writing): (a) in the case of the Companies: PLM Equipment Growth Fund V c/o PLM Financial Services, Inc. One Market Steuart Tower, Suite 800 San Francisco, CA 94105 Attn: Corporate Controller and General Counsel Telex: 34430 Telefax: (415) 905-7256 (b) in the case of the Lenders: At the respective addresses set forth on Schedule 1 as from time to time amended (c) in the case of the Agent and Security Trustee: Christiania Bank og Kreditkasse, New York Branch 11 West 42nd Street, 7th Floor New York, New York 10036 Attn: Loan Administration Telex: 824-277 CBNY UF Telefax: 212-827-4888 A written notice includes a notice by telex or telefax. A notice or other communication received on a non-working day or after business hours in the place of receipt, shall be deemed to be served on the next following working day in such place. 17. ASSIGNMENTS 17.01 This Agreement shall be binding upon and inure to the benefit of the Agent, the Lenders, the Companies and their respective successors and permitted assigns. 17.02 The Companies may not assign or transfer all or any part of their rights and/or obligations under this Agreement. 17.03 The Lenders may assign, transfer, participate or syndicate (with the Agent acting as agent), at no cost to the Companies, all or any part of Lenders' rights or obligations under this Agreement, the Note and the Security Documents or change its lending office, in any such case, with the prior consent of EGF V, which consent shall not be unreasonably withheld. Each such Lender shall notify the Companies promptly following any such assignment or transfer or change of lending office. 17.04 The Agent may disclose to any potential assignee or transferee of all or any part of any Lender's rights or obligations under this Agreement, the Note and the Security Documents or to any such participant or any other person who may otherwise enter into contractual relations with the Agent or any such Lender in relation to this Agreement, the Note and the Security Documents, information about this Agreement, the Note and/or the Security Documents (or any of them) and the Companies and/or its related entities with the prior consent of EGF V, which consent shall not be unreasonably withheld, and on a confidential basis with respect to any nonpublic information. 18. MISCELLANEOUS 18.01 No delay or omission on the part of the Agent or the Lenders in exercising any right, power or remedy under this Agreement shall impair such right, power or remedy or be construed as a waiver thereof nor shall any single or partial exercise of any such right, power or remedy preclude any further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies herein provided are cumulative and not exclusive of any rights, powers and remedies provided by law and may be exercised from time to time and as often as the Agent deems expedient. 18.02 Except as provided in, and subject to Clause 8, no waiver of any provision of this Agreement or the Notes, or any consent or approval to any departure by the Companies therefrom, shall be effective unless the same shall be given in writing and signed by the Majority Lenders and then only for the purpose and upon the terms for which it is given. 18.03 If at any time any one or more of the provisions in this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law or regulation, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be in any way affected or impaired thereby. 18.04 The obligations of the Companies under this Agreement shall remain in full force and effect until the Lenders shall have received all amounts due or to become due to it hereunder and under the Security Documents in accordance with the terms hereof and thereof. Without prejudice to the foregoing, the obligations of the Companies under Clauses 10, 12, 13.02 and 14 shall survive the repayment of the Loan. 18.05 The Clause and subclause headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 19. LAW AND JURISDICTION 19.01 THIS AGREEMENT, THE NOTE AND THE SECURITY DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO, TO THE MAXIMUM EXTENT IT CAN LEGALLY DO SO, HEREBY WAIVES ITS RIGHT TO A JURY TRIAL IN CONNECTION WITH THIS AGREEMENT, THE NOTE AND THE SECURITY DOCUMENTS. 19.02 The Companies hereby irrevocably submit to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against any of them by the Lenders, the Agent or the Security Trustee under this Agreement or any instrument delivered hereunder and hereby irrevocably appoint CT Corporation System with a place of business at 1633 Broadway, New York, NY 10019, as their attorney-in-fact and agent for service of summons or other legal process thereon, which service may be made by serving a copy of any summons or other legal process in any such action or proceeding on such agent and such agent is hereby authorized and directed to accept by and on behalf of the Companies service of summons and other legal process of any such action or proceeding against the Companies. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Companies as such, and shall be legal and binding upon the Companies for all the purposes of any such action or proceeding. Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Companies to the Lenders) against the Companies in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Companies further covenant and agree that so long as the Companies shall be obligated to the Lender hereunder the Companies shall maintain a duly appointed agent for the service of summons or other legal process in New York, New York, for purposes of any legal action or proceeding brought by the Lender hereunder. The Companies will advise the Agent promptly of any change of address of the foregoing agent or of the substitution of another agent therefor. In the event that the foregoing agent or any other agent appointed by the Companies shall not be conveniently available for such service or if the Companies fail to maintain an agent as provided herein, the Companies hereby irrevocably appoint the person who then is the Secretary of State of New York as such attorney-in-fact and agent. Each Company will advise the foregoing agent of the appointment made hereby but failure so to advise shall not affect the appointment made hereby. Notwithstanding anything herein to the contrary, the Agent may bring any legal action or proceeding in any other appropriate jurisdiction. 20. RIGHTS OF CONTRIBUTION 20.01 To provide for just and equitable contribution among the Companies, the Companies hereby agree, as between themselves, that if any payment is made by a Company (a "Funding Company") under this Agreement, such Funding Company shall be entitled to a contribution from the other Companies for such payment, such contribution to be made in the manner and to the extent set forth in this Clause 20. Any amount payable as a contribution hereunder shall be determined as of the date on which the related payment is made by a Funding Company. Each other Company shall be liable to such Funding Company in an aggregate amount, subject to Clause 20.02 hereof, equal to (i) the ratio of (x) the Net Assets of such Company to (y) the aggregate Net Assets of all of the Companies multiplied by (ii) the amount of such payment made by, or on account of, such Funding Company. For purposes of any calculations pursuant to this Clause 20, "Net Assets" for any Company shall mean an amount equal to the excess of the fair saleable value of the assets of such Company as at such date (without taking into account the rights of such Company under this Clause 20), and excluding the value of any shares of stock owned by such Company in any other Company on such date over the amount that would be required to pay the probable liabilities of such Company determined as at such date (excluding the obligations of such Company under this Clause 20) on all of its debts. Any contribution hereunder may be made by adjustment to the intercompany accounts maintained by EGF V with respect to each Company. 20.02 The Companies acknowledge that the right of contribution hereunder shall constitute an asset of the party to which such contribution is owing. 21. NONRECOURSE 21.01 Notwithstanding anything to the contrary contained herein, the Lenders agree that no judgment based on each of the Note, this Agreement or the Security Documents shall be sought or obtained against FSI individually and that any judgment against the Companies, and the sole recourse of the Lenders for a default hereunder, shall be limited to the assets of the Companies. This limitation of liability shall not apply to any damages sustained by the Lenders by reason of fraud in the making of the Loan by the Companies or FSI. 22. RELEASE OF CERTAIN COMPANIES 22.01 The Lenders, the Agent and the Security Trustee hereby agree that each of Balboa, BMI, Divisadero, DVI, Ashbury and ASI is hereby released from its obligations under this Agreement, the Notes and the Security Documents to which it is a party. IN WITNESS whereof the parties hereto have entered into this Agreement on the date first above written. PLM EQUIPMENT GROWTH FUND V by its General Partner, PLM Financial Services, Inc. By:____________________________ Its: TRADER VESSEL LIMITED PARTNERSHIP by its General Partner, Trader Vessel Inc. By:____________________________ Its: TRADER VESSEL INC. By:____________________________ Its: CALIFORNIA VESSEL LIMITED PARTNERSHIP by its General Partner, California Vessel Inc. By:____________________________ Its: CALIFORNIA VESSEL INC. By:____________________________ Its: COLUMBUS VESSEL LIMITED PARTNERSHIP by its General Partner, Columbus Vessel Inc. By:____________________________ Its: COLUMBUS VESSEL INC. By:____________________________ Its: REDCAR INVESTMENTS LIMITED By:____________________________ Its: CHRISTIANIA BANK OG KREDITKASSE, as Lender By:____________________________ Its: By:____________________________ Its: ING LEASE STRUCTURED FINANCE B.V., as Lender By:____________________________ Its: CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH as Agent and Security Trustee By:____________________________ Its: By:____________________________ Its: SCHEDULE 1 The Lenders Name Commitment Christiania Bank og Kreditkasse $25,000,000 New York Branch 11 West 42nd Street, 7th Floor New York, New York 10036 ING Lease Structured Finance B.V. $13,000,000 Karspeldreef 14 Amsterdam - Zuidoost The Netherlands SCHEDULE 2 Liens 1. Liens in favor of PLM Worldwide Leasing Corp. in respect of the Qualified Assets. SCHEDULE 3 Approved Appraisers EX-10 3 SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT AMONG PLM EQUIPMENT GROWTH FUND III PLM EQUIPMENT GROWTH FUND IV PLM EQUIPMENT GROWTH FUND V PLM EQUIPMENT GROWTH FUND VI PLM EQUIPMENT GROWTH & INCOME FUND VII PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. PLM FINANCIAL SERVICES, INC. AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA AND SUCH OTHER FINANCIAL INSTITUTIONS AS SHALL BECOME LENDERS HEREUNDER AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT May 31, 1996 WAREHOUSING CREDIT AGREEMENT TABLE OF CONTENTS Page SECTION 1. DEFINITIONS..............................................2 1.1 Defined Terms............................................2 1.2 Accounting Terms........................................18 1.3 Other Terms.............................................18 1.4 Schedules And Exhibits..................................19 SECTION 2. AMOUNT AND TERMS OF CREDIT..............................19 2.1 Commitment To Lend......................................19 2.1.1 Revolving Facility...........................19 (a) Facility Commitments..................19 (b) Each Loan.............................20 2.1.2 Funding......................................21 2.1.3 Utilization Of The Loans.....................21 2.2 Repayment And Prepayment................................21 2.2.1 Repayment....................................21 2.2.2 Voluntary Prepayment.........................21 2.2.3 Mandatory Prepayments........................22 2.3 Calculation Of Interest; Post-Maturity Interest.........22 2.4 Manner Of Payments......................................23 2.5 Payment On Non-Business Days............................23 2.6 Application Of Payments.................................23 2.7 Procedure For The Borrowing Of Loans....................23 2.7.1 Notice Of Borrowing..........................23 2.7.2 Unavailability Of LIBOR Loans................24 2.8 Conversion And Continuation Elections...................24 2.8.1 Election.....................................24 2.8.2 Notice Of Conversion.........................24 2.8.3 Interest Period..............................25 2.8.4 Unavailability Of LIBOR Loans................25 2.9 Discretion Of Lenders As To Manner Of Funding...........25 2.10 Distribution Of Payments................................25 2.11 Agent's Right To Assume Funds Available For Advances....25 2.12 Agent's Right To Assume Payments Will Be Made By Borrower..26 2.13 Capital Requirements....................................26 2.14 Taxes...................................................27 2.14.1 No Deductions................................27 2.14.2 Miscellaneous Taxes..........................27 2.14.3 Indemnity....................................27 2.14.4 Required Deductions..........................27 2.14.5 Evidence of Payment..........................27 2.14.6 Foreign Persons..............................28 2.14.7 Income Taxes.................................28 2.14.8 Reimbursement Of Costs.......................29 2.14.9 Jurisdiction.................................29 2.15 Illegality..............................................29 2.15.1 LIBOR Loans..................................29 2.15.2 Prepayment...................................29 2.15.3 Prime Rate Borrowing.........................30 2.16 Increased Costs.........................................30 2.17 Inability To Determine Rates............................30 2.18 Prepayment Of LIBOR Loans...............................30 SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE MAKING OF LOANS............... 31 3.1 Effectiveness of This Agreement.........................31 3.1.1 Partnership, Company And Corporate Documents..31 3.1.2 Notes........................................31 3.1.3 Opinion Of Counsel...........................31 3.1.4 Reaffirmation of Guaranty....................31 3.1.5 TEC AcquiSub Amendment.......................31 3.1.6 AFG Agreement................................31 3.1.7 Bringdown Certificate........................31 3.1.8 Fees.........................................32 3.1.9 Other Documents..............................32 3.2 All Loans...............................................32 3.2.1 Notice Of Borrowing..........................32 3.2.2 No Event Of Default..........................32 3.2.3 Representations And Warranties...............32 3.2.4 Insurance....................................32 3.2.5 Other Instruments............................32 3.3 Further Conditions To All Loans.........................32 3.3.1 General Partner Or Manager...................32 3.3.2 Removal Of General Partner Or Manager........33 3.3.3 Purchaser....................................33 SECTION 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES.....33 4.1 General Representations And Warranties..................33 4.1.1 Existence And Power..........................33 4.1.2 Loan Documents And Notes Authorized; Binding Obligations........................... 33 4.1.3 No Conflict; Legal Compliance................34 4.1.4 Financial Condition..........................34 4.1.5 Executive Offices............................34 4.1.6 Litigation...................................34 4.1.7 Material Contracts...........................35 4.1.8 Consents And Approvals.......................35 4.1.9 Other Agreements.............................35 4.1.10 Employment And Labor Agreements..............35 4.1.11 ERISA........................................35 4.1.12 Labor Matters................................36 4.1.13 Margin Regulations...........................36 4.1.14 Taxes........................................36 4.1.15 Environmental Quality........................36 4.1.16 Trademarks, Patents, Copyrights, Franchises And Licenses........................... 37 4.1.17 Full Disclosure..............................37 4.1.18 Other Regulations............................37 4.1.19 Solvency.....................................38 4.2 Representations And Warranties At Time Of First Advance..38 4.2.1 Power And Authority..........................38 4.2.2 No Conflict..................................38 4.2.3 Consents And Approvals.......................38 4.3 Survival Of Representations And Warranties..............38 SECTION 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS..............38 5.1 Records And Reports.....................................39 5.1.1 Quarterly Statements.........................39 5.1.2 Annual Statements............................39 5.1.3 Borrowing Base Certificate...................39 5.1.4 Compliance Certificate.......................40 5.1.5 Reports......................................40 5.1.6 Insurance Reports............................40 5.1.7 Certificate Of Responsible Officer...........40 5.1.8 Employee Benefit Plans.......................40 5.1.9 ERISA Notices................................41 5.1.10 Pension Plans................................41 5.1.11 SEC Reports..................................41 5.1.12 Tax Returns..................................41 5.1.13 Additional Information.......................41 5.2 Existence; Compliance With Law..........................42 5.3 Insurance...............................................42 5.4 Taxes And Other Liabilities.............................42 5.5 Inspection Rights; Assistance...........................43 5.6 Maintenance Of Facilities; Modifications................43 5.6.1 Maintenance Of Facilities....................43 5.6.2 Certain Modifications To The Equipment.......43 5.7 Supplemental Disclosure.................................43 5.8 Further Assurances......................................43 5.9 Lockbox.................................................44 5.10 Environmental Laws......................................44 SECTION 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS.................44 6.1 Liens; Negative Pledges; And Encumbrances...............44 6.2 Acquisitions............................................45 6.3 Limitations On Indebtedness.............................45 6.4 Use Of Proceeds.........................................46 6.5 Disposition Of Assets...................................46 6.6 Restriction On Fundamental Changes......................46 6.7 Transactions With Affiliates............................47 6.8 Maintenance Of Business.................................47 6.9 No Distributions........................................47 6.10 Events Of Default.......................................47 6.11 ERISA...................................................47 6.12 No Use Of Any Lender's Name.............................47 6.13 Certain Accounting Changes..............................47 6.14 Amendments Of Limited Partnership Or Operating Agreements..48 SECTION 7. FINANCIAL COVENANTS OF BORROWER AND FSI.................48 7.1 Maximum Funded Debt Ratio...............................48 7.2 Minimum Debt Service Ratio..............................48 7.3 Minimum Consolidated Tangible Net Worth.................48 7.4 Cash Balances...........................................48 SECTION 8. EVENTS OF DEFAULT AND REMEDIES..........................48 8.1 Events Of Default.......................................48 8.1.1 Failure To Make Payments.....................48 8.1.2 Other Agreements.............................49 8.1.3 Breach Of Covenants..........................49 8.1.4 Breach Of Representations Or Warranties......49 8.1.5 Failure To Cure..............................49 8.1.6 Insolvency...................................50 8.1.7 Bankruptcy Proceedings.......................50 8.1.8 Material Adverse Effect......................50 8.1.9 Judgments, Writs And Attachments.............50 8.1.10 Legal Obligations............................51 8.1.11 TEC AcquiSub Agreement.......................51 8.1.12 AFG Agreement................................51 8.1.13 Change Of General Partner Or Manager.........51 8.1.14 Change Of Purchaser..........................51 8.1.15 Criminal Proceedings.........................51 8.1.16 Action By Governmental Authority.............52 8.1.17 Governmental Decrees.........................52 8.2 Waiver Of Default.......................................52 8.3 Remedies................................................52 8.4 Set-Off.................................................53 8.5 Rights And Remedies Cumulative..........................54 SECTION 9. AGENT...................................................54 9.1 Appointment.............................................54 9.2 Delegation Of Duties....................................54 9.3 Exculpatory Provisions..................................55 9.4 Reliance By Agent.......................................55 9.5 Notice Of Default.......................................55 9.6 Non-Reliance On Agent And Other Lenders.................56 9.7 Indemnification.........................................56 9.8 Agent In Its Individual Capacity........................56 9.9 Resignation And Appointment Of Successor Agent..........57 SECTION 10. EXPENSES AND INDEMNITIES................................57 10.1 Expenses................................................57 10.2 Indemnification.........................................58 10.2.1 General Indemnity............................58 10.2.2 Environmental Indemnity......................58 10.2.3 Survival; Defense............................59 SECTION 11. MISCELLANEOUS...........................................59 11.1 Survival................................................59 11.2 No Waiver By Agent Or Lenders...........................59 11.3 Notices.................................................59 11.4 Headings................................................60 11.5 Severability............................................60 11.6 Entire Agreement; Construction; Amendments And Waivers..60 11.7 Reliance By Lenders.....................................61 11.8 Marshalling; Payments Set Aside.........................61 11.9 No Set-Offs By Borrowers................................61 11.10 Binding Effect, Assignment..............................61 11.11 Counterparts............................................63 11.12 Equitable Relief........................................63 11.13 Written Notice Of Claims; Claims Bar....................63 11.14 Waiver Of Punitive Damages..............................63 11.15 Relationship Of Parties.................................63 11.16 Obligations Of Each Borrower............................64 11.17 Co-Borrower Waivers.....................................65 11.18 Governing Law...........................................66 11.19 Consent To Jurisdiction.................................66 11.20 No Novation.............................................66 11.21 Waiver Of Jury Trial....................................66 INDEX OF EXHIBITS Exhibit A-1 Form of Revolving Promissory Note - EGF III Exhibit A-2 Form of Revolving Promissory Note - EGF IV Exhibit A-3 Form of Revolving Promissory Note - EGF V Exhibit A-4 Form of Revolving Promissory Note - EGF VI Exhibit A-5 Form of Revolving Promissory Note - EGF VII Exhibit A-6 Form of Revolving Promissory Note - Income Fund I Exhibit B Form of Borrowing Base Certificate Exhibit C Form of Reaffirmation of Guaranty Exhibit D Form of Opinion of Counsel (Stephen Peary) Exhibit E Form of Compliance Certificate Exhibit F Form of Lockbox Agreement Exhibit G Form of Notice of Borrowing Exhibit H Form of Notice of Conversion/Continuation Exhibit I Form of Assignment and Acceptance INDEX OF SCHEDULES Schedule A Commitments Schedule 1.1 Amendments to Schedule A Schedule 4.1.5 Executive Offices and Principal Places of Business Schedule 4.1.6 Litigation Schedule 4.1.7 Material Contracts Schedule 4.1.8 Consent and Approvals Schedule 4.1.15 Environmental Disclosures Schedule 6.1 Existing Liens Schedule 6.3(a) Existing Indebtedness Schedule 6.3(b) Anticipated Indebtedness 1 SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT THIS SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into as of May 31, 1996, by and among PLM EQUIPMENT GROWTH FUND III, a California limited partnership ("EGF III"), PLM EQUIPMENT GROWTH FUND IV, a California limited partnership ("EGF IV"), PLM EQUIPMENT GROWTH FUND V, a California limited partnership ("EGF V"), PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income Fund I") (EGF III, EGF IV, EGF V, EGF VI, EGF VII and Income Fund I each individually being a "Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general partner, in the case of EGF III, EGF IV, EGF V, EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB") and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 11.10 (each individually being a "Lender," and collectively, the "Lenders"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as agent on behalf and for the benefit of the Lenders (not in its individual capacity, but solely as agent, the "Agent"). This Agreement amends, restates and supersedes the Growth Fund Agreement (as defined below). RECITALS A. Borrowers, PLM Equipment Growth Fund II, a California limited partnership ("EGF II"), Lenders and Agent have entered into that certain Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995 (the "Growth Fund Agreement"). B. Borrowers, FSI, Lenders and Agent desire to amend and restate the Growth Fund Agreement with this amended and restated Agreement and to remove EGF II as a borrower under the revolving credit facility. C. Borrowers desire, on a several but not joint basis, to obtain from Lenders a revolving credit facility with an aggregate principal availability up to but not to exceed the maximum amount set forth on Schedule A for the purpose of financing the purchase of transportation equipment for periods up to one hundred seventy-nine (179) days, all as more particularly described below. D. Lenders have agreed to make such credit available to Borrowers, but only upon the terms and subject to the conditions hereinafter set forth and in reliance on the representations and warranties set forth herein. This Agreement amends, restates and supersedes the Growth Fund Agreement in the its entirety. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows: . 1. DEFINITIONS . As used herein, the following terms have the following meanings: "Acquisition" means, with respect to any Borrower, any transaction, or any series of related transactions, by which such Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any Person or division thereof, whether through a purchase of assets, merger or otherwise, or (b) acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority of the stock of a corporation having ordinary voting power for the election of directors, or (c) acquires control of at least a majority of the ownership interests in any partnership or joint venture. "Adjusted LIBOR" means, for each Interest Period in respect of LIBOR Loans, an interest rate per annum (rounded upward to the nearest 1/16th of one percent (0.0625%)) determined pursuant to the following formula: Adjusted LIBOR = LIBOR ---------------------------------------- 1.00 - Eurodollar Reserve Percentage 1The Adjusted LIBOR shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Advance" means any Advance made or to be made by any Lender to any Borrower as set forth in Section 2.1.1. "Affiliate" means, with respect to any Person, (a) each Person that, directly or indirectly, through one or more intermediaries, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, five percent (5.0%) or more of the stock having ordinary voting power in the election of directors of such Person or of the ownership interests in any partnership or joint venture, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, or (c) each of such Person's officers, directors, joint venturers and partners; provided, however, that in no case shall any Lender or Agent be deemed to be an Affiliate of any Borrower or FSI for purposes of this Agreement. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "AFG" means American Finance Group, Inc., a Delaware corporation. "AFG Agreement" means the Warehousing Credit Agreement dated as of the date hereof, by and among AFG, and Lenders and Agent, as the same from time to time may be amended, modified, supplemented, renewed, extended or restated. "Agent" means FUNB solely when acting in its capacity as the Agent under this Agreement or any of the other Loan Documents, and any successor Agent. "Agent's Side Letter" means the side letter agreement dated as of the date hereof by and between Borrowers, TEC AcquiSub, AFG and Agent. "Agreement" means this Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, including all amendments, modifications and supplements hereto, renewals, extensions or restatements hereof, and all appendices, exhibits and schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect from time to time. "Aircraft" means any corporate, commuter, or commercial aircraft or helicopters, with modifications (as applicable) and replacement or spare parts used in connection therewith, including, without limitation, engines, rotables or propellers, and any engines, rotables and propellers used on a stand-lone basis. "Applicable Margin" means: (a) with respect to Prime Rate Loans, zero percent (0.00%); and (b) with respect to LIBOR Loans, two percent (2.00%). "Assignment and Acceptance" has the meaning set forth in Section 10.11.2. "Bank Affiliate" means a Person engaged primarily in the business of commercial banking and that is an Affiliate of a Lender or of a Person of which a Lender is an Affiliate. "Bankruptcy Code" means the Bankruptcy Code of 1978, as amended, as codified under Title 11 of the United States Code, and the Bankruptcy Rules promulgated thereunder, as the same may be in effect from time to time. "Borrowing Base" means, as calculated separately for each Borrower individually as at any date of determination, an amount not to exceed the sum of: (a) fifty percent (50.0%) of the unrestricted cash available for the purchase of Eligible Inventory by such Borrower, plus (b) an amount equal to the lesser of (i) seventy percent (70.0%) of the aggregate net book value or (ii) fifty percent (50.0%) of the aggregate net fair market value of all Eligible Inventory then owned by such Borrower or a Marine Subsidiary or owned of record by an Owner Trustee for the beneficial interest of such Borrower or any Marine Subsidiary of such Borrower (provided, however, that there shall be excluded from this clause (b) the aggregate net book value or aggregate net fair market value, as the case may be, of all items of Eligible Inventory which are either (i) off-lease or (ii) subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due, but only to the extent and in the amount that the aggregate net book value or net fair market value, as the case may be, of such otherwise excluded Eligible Inventory exceeds fifteen percent (15.0%) of the respective net book value or net fair market value of all Eligible Inventory included in this clause (b) notwithstanding this proviso), less (c) the aggregate Consolidated Funded Debt of such Borrower then outstanding, excluding the aggregate principal amounts of the Loans outstanding for such Borrower under the Facility, in each case computed, (1) with respect to any requested Loan, as of the requested Funding Date (and shall include the item(s) of Eligible Inventory to be acquired with the proceeds of the requested Loan), and (2) with respect to the delivery of any monthly Borrowing Base Certificate to be furnished pursuant to Section 5.1.3, as of the last day of the calendar month for which such Borrowing Base Certificate is furnished (provided, that for the purpose of computing the Borrowing Base, in the event that any Borrower or a Marine Subsidiary of such Borrower shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Eligible Inventory, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included only such Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Eligible Inventory). "Borrowing Base Certificate" means, with respect to any Borrower, a certificate with appropriate insertions setting forth the components of the Borrowing Base of such Borrower as of the last day of the month for which such certificate is submitted or as of a requested Funding Date, as the case may be, which certificate shall be substantially in the form set forth in Exhibit B and certified by a Responsible Officer of such Borrower. "Business Day" means any day which is not a Saturday, Sunday or a legal holiday under the laws of the States of California or North Carolina or is not a day on which banking institutions located in the States of California or North Carolina are authorized or permitted by law or other governmental action to close and, with respect to LIBOR Loans, means any day on which dealings in foreign currencies and exchanges may be carried on by Agent and Lenders in the London interbank market. "Casualty Loss" means any of the following events with respect to any item of Eligible Inventory: (a) the actual total loss or compromised total loss of such item of Eligible Inventory; (b) such item of Eligible Inventory shall become lost, stolen, destroyed, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever; (c) the seizure of such item of Eligible Inventory for a period exceeding sixty (60) days or the condemnation or confiscation of such item of Eligible Inventory; or (d) such item of Eligible Inventory shall be deemed under its lease to have suffered a casualty loss as to the entire item of Eligible Inventory. "Charges" means, with respect to any Borrower, all federal, state, county, city, municipal, local, foreign or other governmental taxes, levies, assessments, charges or claims, in each case then due and payable, upon or relating to (a) the Loans made to such Borrower hereunder, (b) such Borrower's employees, payroll, income or gross receipts, (c) such Borrower's ownership or use of any of its Properties or assets or (d) any other aspect of such Borrower's business. "Closing" means the time at which each of the conditions precedent set forth in Section 3 to the making of the first Loan hereunder shall have been duly fulfilled or satisfied by each Borrower. "Closing Date" means the date on which Closing occurs. "Code" means the Internal Revenue Code of 1986, as amended, the Treasury Regulations adopted thereunder and the Treasury Regulations proposed thereunder (to the extent Requisite Lenders, in their sole discretion, reasonably determine that such proposed regulations set forth the regulations that apply in the circumstances), as the same may be in effect from time to time. "Commitment" means with respect to each Lender the amounts set forth on Schedule A and "Commitments" means all such amounts collectively, as each may be amended from time to time upon the execution and delivery of an instrument of assignment pursuant to Section 11.10, which amendments shall be evidenced on Schedule 1.1. "Commitment Termination Date" means May 23, 1997. "Compliance Certificate" means, with respect to any Borrower, a certificate signed by a Responsible Officer of such Borrower, substantially in the form of Exhibit E, with such changes as Agent may from time to time reasonably request for the purpose of having such certificate disclose the matters certified therein and the method of computation thereof. "Consolidated EBITDA" means, for any Borrower, as measured as at any date of determination for any period on a consolidated basis, the sum of (a) the Consolidated Net Income of such Borrower, plus (b) all amounts treated as expenses for depreciation and the amortization of intangibles of any kind, plus (c) all accrued taxes on or measured by income, plus (d) Consolidated Interest Expense, and in the cases of clauses (b), (c) and (d), above, each to the extent included in the determination of Consolidated Net Income. "Consolidated Funded Debt" means, for any Borrower, as measured at any date of determination on a consolidated basis, the total amount of all interest bearing obligations (including Indebtedness for borrowed money) of such Borrower, capital lease obligations of such Borrower as a lessee and the stated amount of all outstanding undrawn letters of credit issued on behalf of such Borrower or for which such Borrower is liable. "Consolidated Intangible Assets" means, for any Person, as measured at any date of determination on a consolidated basis, all intangible assets of such Person. "Consolidated Interest Expense" means, for any Borrower, as measured at any date of determination for any period on a consolidated basis, the gross interest expense of such Borrower for the period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments), less interest income for that period. "Consolidated Net Income" means, for any Borrower, as measured at any date of determination for any period on a consolidated basis, the net income (or loss) of such Borrower for such period taken as a single accounting period. "Consolidated Net Worth" means, for any Person, as measured at any date of determination, the difference between Consolidated Total Assets and Consolidated Total Liabilities. "Consolidated Tangible Net Worth" means, for any Person, as measured at any date of determination, the difference between Consolidated Net Worth and Consolidated Intangible Assets. "Consolidated Total Assets" means, for any Person, as measured at any date of determination on a consolidated basis, all assets of such Person. "Consolidated Total Liabilities" means, for any Person, as measured at any date of determination on a consolidated basis, all liabilities of such Person. "Contingent Obligation" means, as to any Person, (a) any Guaranty Obligation of that Person and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person, (i) in respect of any letter of credit or similar instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, (ii) with respect to the Indebtedness of any partnership or joint venture of which such Person is a partner or a joint venturer, (iii) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (iv) in respect of any interest rate protection contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to the maximum reasonably anticipated liability in respect thereof, and shall, with respect to clause (b)(iv) of this definition, be marked to market on a current basis. "Debt Service Ratio" means, as measured separately for each Borrower as at any date of determination, the ratio of (a) Consolidated EBITDA to (b) the sum of (i) Consolidated Interest Expense plus (ii) an amount equal to three and one-eighths percent (3.125%) of Consolidated Funded Debt (Consolidated EBITDA and Consolidated Interest Expense to be measured on a quarterly basis for the current fiscal quarter). "Default Rate" has the meaning set forth in Section 2.3. "Designated Deposit Account" means a demand deposit account maintained by Borrowers with FUNB designated by written notice from Borrowers to Agent. "Dollars" and the sign "$" means lawful money of the United States of America. "EGF" means PLM Equipment Growth Fund, a California limited partnership. "EGF II" means PLM Equipment Growth Fund II, a California limited partnership. "EGF III" means PLM Equipment Growth Fund III, a California limited partnership. "EGF IV" has the meaning set forth in the Preamble to this Agreement. "EGF V" has the meaning set forth in the Preamble to this Agreement "EGF VI" has the meaning set forth in the Preamble to this Agreement "EGF VII" has the meaning set forth in the Preamble to this Agreement. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States, and (c) any Bank Affiliate. "Eligible Inventory" means, with respect to any Borrower, all Trailers, Aircraft and Aircraft engines, Railcars, cargo-containers, marine vessels and, if approved by Requisite Lenders, other related Equipment, in each case owned by such Borrower or a Marine Subsidiary of such Borrower (or jointly by such Borrower and one or more of the other Equipment Growth Funds) or, subject to the approval of Agent, any owner trust of which such Borrower is the sole beneficiary or owner (or is the beneficiary or owner jointly with one or more of the other Equipment Growth Funds), as applicable, or solely with respect to any marine vessel registered in Liberia, The Bahamas, Hong Kong, Singapore or other registry acceptable to Agent in its sole discretion, any nominee entity of which such Borrower or a Marine Subsidiary of such Borrower is the sole beneficiary or direct or indirect owner (or as the beneficiary or direct or indirect owner jointly with one or more of the other Equipment Growth Funds). "Employee Benefit Plan" means, with respect to any Borrower, any Pension Plan and any employee welfare benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the employees of such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower. "Environmental Claims" means, with respect to any Borrower, all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from Property, whether or not owned by such Borrower, FSI or any Subsidiary of FSI, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. "Environmental Permit" has the meaning set forth in Section 4.1.15. "Equipment" means, with respect to any Borrower, all items of transportation related equipment owned directly or beneficially by such Borrower or by any Marine Subsidiary of such Borrower and held for lease or rental, and shall include items of equipment legal or record title to which is held by any owner trust or nominee entity in which such Borrower or any Marine Subsidiary of such Borrower holds the sole beneficial interest. "Equipment Growth Funds" means any and all of EGF, EGF II, EGF III, EGF IV, EGF V, EGF VI, EGF VII and Income Fund I. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, as the same may be in effect from time to time, and any successor statute. "ERISA Affiliate" means, as applied to any Person, any trade or business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of the regulations promulgated under Section 414 of the Code. "Eurodollar Reserve Percentage" means the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of one percent (0.01%)) in effect from time to time (whether or not applicable to any Lender) under regulations issued by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency liabilities having a term comparable to such Interest Period. "Event of Default" means any of the events set forth in Section 8.1. "Facility" means the total Commitments described in Schedule A, as such Schedule A may be amended from time to time as set forth on Schedule 1.1, for the revolving credit facility described in Section 2.1.1 to be provided by Lenders to Borrowers, on a several but not joint basis, according to each Lender's Pro Rata Share. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such previous day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System and any successor thereto. "Fee Letter" means the fee letter agreement dated as of the date hereof, by and among Borrowers, TEC AcquiSub, AFG, and Agent, on behalf and for the benefit of Lenders. "Form 1001" has the meaning set forth in Section 2.14.6. "Form 4224" has the meaning set forth in Section 2.14.6. "FSI" means PLM Financial Services, Inc., a Delaware corporation. "Funded Debt Ratio" means, as measured separately for each Borrower as at any date of determination, the ratio of (a) the Consolidated Funded Debt of such Borrower to (b) the sum of (i) the aggregate net fair market value of the Equipment owned of record and beneficially by such Borrower or any Marine Subsidiary of such Borrower or owned of record by an Owner Trustee for the beneficial interest of such Borrower or any Marine Subsidiary of such Borrower plus (ii) the unrestricted cash available for the purchase of Eligible Inventory for such Borrower (provided, that for the purpose of computing the Funded Debt Ratio, in the event that any Borrower or a Marine Subsidiary of such Borrower shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Equipment, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included any such Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Equipment). "Funding Date" means with respect to any proposed borrowing hereunder, the date funds are advanced to any Borrower for any Loan requested by such Borrower. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar function of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means (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. "Guaranty" means that certain Guaranty dated as of September 27, 1995, executed by FSI in favor of Lenders and Agent. "Guaranty Obligation" means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease for capital equipment other than Equipment, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Hazardous Materials" means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "IMI" means PLM Investment Management, Inc., a California corporation and a wholly-owned Subsidiary of FSI. "Income Fund I" has the meaning set forth in the Preamble to this Agreement. "Indebtedness" means, as to any Person, (a) all indebtedness of such Person for borrowed money, (b) all leases of equipment of such Person as lessee, (c) to the extent not included in clause (b), above, all capital leases of such Person as lessee, (d) any obligation of such Person for the deferred purchase price of Property or services (other than trade or other accounts payable in the ordinary course of business and not more than ninety (90) days past due), (e) any obligation of such Person that is secured by a Lien on assets of such Person, whether or not that Person has assumed such obligation or whether or not such obligation is non-recourse to the credit of such Person, (f) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person and (g) any obligation of such Person to reimburse the issuer of any letter of credit issued for the account of such Person upon which a draw has been made. "Indemnified Liability" has the meaning set forth in Section 10.2. "Indemnified Person" has the meaning set forth in Section 10.2. "Interest Differential" means, with respect to any prepayment of a LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan matures, the difference between (a) the per annum interest rate payable with respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR Loan commencing on such date and ending on the last day of the applicable Interest Period. The determination of the Interest Differential by Agent shall be conclusive in the absence of manifest error. "Interest Payment Date" means, with respect to any LIBOR Loan, the last day of each Interest Period applicable to such Loan and, with respect to Prime Rate Loans, the first Business Day of each calendar month following the Funding Date of such Prime Rate Loan; provided, however, that if any Interest Period for a LIBOR Loan exceeds three (3) months, interest shall also be paid on the date which falls three (3) months after the beginning of such Interest Period. "Interest Period" means, with respect to any LIBOR Loan, the one-month, two-month or three-month period selected by the Requesting Borrower pursuant to Section 2, in each instance commencing on the applicable Funding Date of the Loan; provided, however, that any Interest Period which would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day except that in the instance of any LIBOR Loan, if such next succeeding Business Day falls in the next calendar month, the Interest Period shall end on the next preceding Business Day. "Investment Company Act" means the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1 et seq.), as the same may be in effect from time to time, or any successor statute thereto. "IRS" means the Internal Revenue Service and any successor thereto. "Lease" means, for any Borrower, 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 such Borrower is the record or beneficial lessor and in respect of which the lessee and lease terms (including, without limitation, as to rental rate, maturity and insurance coverage) are acceptable to Agent, in its reasonable discretion. The term "Lease" includes (a) all payments to be made thereunder, (b) all rights of such Borrower therein, and (c) any and all amendments, renewals, extensions or guaranties thereof. "Lending Office" means, with respect to any Lender, the office or offices of the Lender specified as its lending office opposite its name on the applicable signature page hereto, or such other office or offices of the Lender as it may from time to time notify Borrowers and Agent. "LIBOR" means, with respect to any Loan to be made, continued as or converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined solely by Agent), rounded upward to the nearest 1/16th of one percent (0.0625%), at which Dollar deposits are offered to Agent by major banks in the London interbank market at or about 11:00 a.m., London time, on the second Business Day prior to the first day of the related Interest Period with respect to such Loan in an aggregate amount approximately equal to the amount of such Loan and for a period of time comparable to the number of days in the applicable Interest Period. The determination of LIBOR by Agent shall be conclusive in the absence of manifest error. "LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR. "Lien" means any mortgage, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any Property, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of or agreement to file or deliver any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. "Limited Partnership Agreement" means (a) for EGF III, the Limited Partnership Agreement dated as of October 15, 1987, as amended by the First Amended and Restated Limited Partnership Agreement as of February 9, 1988, the Second Amended and Restated Limited Partnership Agreement as of March 10, 1988, a First Amendment to the Second Amended and Restated Limited Partnership Agreement as of November 18, 1991 and the Reformed First Amendment to the Second Amended and Restated Limited Partnership Agreement as of November 18, 1991, (b) for EGF IV, the Amended and Restated Limited Partnership Agreement dated as of May 22, 1989, (c) for EGF V, the Limited Partnership Agreement dated as of November 14, 1989, (d) for EGF VI, the Amended and Restated Limited Partnership Agreement dated as of December 20, 1991, and (e) for EGF VII, the Third Amended and Restated Limited Partnership Agreement of EGF VII dated as of May 10, 1993, as amended by the First Amendment to the Third Amended and Restated Limited Partnership Agreement dated May 28, 1993 and by the Second Amendment to Third Amended and Restated Limited Partnership Agreement dated as of January 21, 1994. "Loan" has the meaning set forth in Section 2.1.1. "Loan Document" when used in the singular and "Loan Documents" when used in the plural means any and all of this Agreement, the Notes, the Lockbox Agreement and the Guaranty and any and all other agreements, documents and instruments executed and delivered by or on behalf or support of any Borrower to Agent or any Lender or any of their respective authorized designees evidencing or otherwise relating to the Advances and the Liens granted to Agent, on behalf of Lenders, with respect to the Advances, as the same may from time to time be amended, modified, supplemented or renewed. "Lockbox" has the meaning set forth in Section 5.9. "Lockbox Agreement" means the Agreement of even date herewith between Borrowers, FUNB and Agent on behalf of Lenders, substantially in the form of Exhibit F, relating to the Lockbox. "Marine Subsidiary" means, for any Borrower, a Subsidiary of such Borrower (in which the remaining record or beneficial ownership interests may be held by TEC AcquiSub or any Equipment Growth Fund) organized for the purpose of holding legal record title to one or more marine vessels or to aircraft rotables and spare parts. "Material Adverse Effect" means, with respect to any Borrower, any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of such Borrower or FSI, (c) materially impairs or could reasonably be expected to materially impair the ability of such Borrower or FSI to perform its Obligations, or (d) materially impairs or could reasonably be expected to materially impair the ability of Agent or any Lender to enforce any of its or their legal remedies pursuant to the Loan Documents. "Maturity Date" means, with respect to each Loan advanced by Lenders hereunder, the date which is one hundred seventy-nine (179) days after the Funding Date of such Loan or such earlier or later date as requested by the Requesting Borrower and approved by Requisite Lenders, in their sole and absolute discretion; provided, however, in no event shall any Maturity Date be a date which is later than the Commitment Termination Date. "Maximum Availability" has the meaning set forth in Section 2.1.1. "Multiemployer Plan" means, with respect to any Borrower, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower, FSI or any of FSI's Subsidiaries is making, or is obligated to make, contributions or has made, or been obligated to make, contributions within the preceding five (5) years. "Note" has the meaning set forth in Section 2.1.1(a)(i), and any and all replacements, substitutions and renewals thereof. "Notice of Borrowing" means a notice given by any Borrower to Agent in accordance with Section 2.7, substantially in the form of Exhibit G, with appropriate insertions. "Notice of Conversion/Continuation" means a notice given by any Borrower to Agent in accordance with Section 2.8, substantially in the form of Exhibit H, with appropriate insertions. "Obligations" means, with respect to any Borrower, all loans, advances, liabilities and obligations for monetary amounts owing by such Borrower to any Lender or Agent, 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, arising under any of the Loan Documents. This term includes, without limitation, all principal, interest (including interest that accrues after the commencement of a case or proceeding against such Borrower under the Bankruptcy Code), fees, including, without limitation, any and all prepayment fees, facility fees, commitment fees, arrangement fees, agent fees and attorneys' fees and any and all other fees, expenses, costs or other sums chargeable to such Borrower under any of the Loan Documents. "Operating Agreement" means the Fifth Amended and Restated Operating Agreement of Income Fund I, entered into as of January 24, 1995. "Opinion of Counsel" means the favorable written legal opinion of Stephen Peary, general counsel of FSI on behalf of FSI for itself and as the sole general partner or managing member, as applicable, of each Borrower, substantially in the form of Exhibit D, together with copies of any officer's certificate or legal opinion of another counsel or law firm specifically identified and expressly relied upon by such counsel in its opinion. "Other Taxes" has the meaning set forth in Section 2.14.2. "Overadvance" has the meaning set forth in Sections 2.1.1(a)(iii) and (iv). "Owner Trustee" means any Person acting in the capacity of (a) a trustee for any owner trust or (b) a nominee entity, in each case holding title to any Eligible Inventory pursuant to a trust or similar agreement with any Borrower or FSI. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means, with respect to any Borrower, any employee pension benefit plan, as defined in Section 3(2) of ERISA, that is maintained for the employees of such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower, FSI or any of FSI's Subsidiaries, other than a Multiemployer Plan. "Permitted Liens" has the meaning set forth in Section 6.1. "Permitted Rights of Others" means, as to any Property in which a Person has an interest, (a) an option or right to acquire a Lien that would be a Permitted Lien, (b) the reversionary interest of a lessor under a lease of such Property and (c) an option or right of the lessee under a lease of such Property to purchase such property at fair market value. "Person" means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or Governmental Authority. "PLMI" means PLM International, Inc., a Delaware corporation. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, will constitute an Event of Default. "Prepayment Date" has the meaning set forth in Section 2.2.2. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by FUNB as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by FUNB as its Prime Rate is an index or base rate and shall not necessarily be its lowest rate charged to FUNB's customers or other banks. "Prime Rate Loan" means any borrowing which bears interest at a rate determined with reference to the Prime Rate. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. "Pro Rata Share" means, for any Lender, the proportion such Lender's Commitment with respect to the Facility has to the aggregate of all Commitments with respect to the Facility. "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.) as the same shall be in effect from time to time, and any successor statute thereto. "Railcar" means all railroad rolling stock, including, without limitation, all coal, timber, plastic pellet, tank, hopper, flat and box cars and locomotives. "Reaffirmation of Guaranty" means the Acknowledgement and Reaffirmation of Guaranty, dated as of the date hereof, executed by FSI in favor of Lenders reaffirming its obligations under the Guaranty. "Regulations G, T, U and X" means, collectively, Regulations G, T, U and X adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and 224, respectively) and any other regulation in substance substituted therefor. "Requesting Borrower" means any Borrower requesting a Loan pursuant to Section 2.1.1. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule, regulation, guideline or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Requisite Lenders" means any combination of Lenders whose combined Pro Rata Share (and voting interest with respect thereto) of all amounts outstanding under this Agreement, or, in the event there are no amounts outstanding, the Commitments, is greater than sixty percent (60.0%) of all such amounts outstanding or the total Commitments, as the case may be. "Responsible Officer" means for (i) FSI, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI having authority to request Advances or perform other duties required hereunder, and (ii) Borrowers, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI as the sole general partner of EGF III, EGF IV, EGF V, EGF VI or EGF VII, as the case may be, or sole manager of Income Fund I, in each case having authority to request Advances or perform other duties required hereunder "SEC" means the Securities and Exchange Commission and any successor thereto. "Solvent" means, as to any Person at any time, that (a) the fair value of the Property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code; (b) the present fair saleable value of the Property in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its Property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company or other business entity (other than Equipment Growth Funds) of which an aggregate of fifty percent (50.0%) or more of the beneficial interest (in the case of a partnership) or fifty percent (50%) or more of the outstanding stock, units 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, the stock, units or other voting interest of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person. "Taxes" has the meaning set forth in Section 2.14.1. "TEC" means PLM Transportation Equipment Corporation, a California corporation and a wholly-owned Subsidiary of FSI. "TEC AcquiSub" means TEC AcquiSub, Inc., a California special purpose corporation and a wholly-owned Subsidiary of TEC. "TEC AcquiSub Agreement" means the Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995, as amended by the TEC AcquiSub Amendment, by and among TEC AcquiSub, Lenders and Agent, and as the same may from time to time be further amended, modified, supplemented, renewed, extended or restated. "TEC AcquiSub Amendment" means the Amendment No. 1 to Amended and Restated Warehousing Credit Agreement dated as of the date hereof, by and among TEC AcquiSub, Lenders and Agent. "Termination Event" means, with respect to any Borrower, (a) a "reportable event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provision for 30-day notice to the PBGC under such regulations), or (b) the withdrawal of such Borrower, FSI or any of FSI's Subsidiaries or any of their ERISA Affiliates from a Pension Plan during a plan year in which any of them was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate a Pension Plan by the PBGC, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "Trailer" means (a) vehicles having a minimum length of twenty (20) feet used in trailer or freight car service and constructed for the transport of commodities or containers from point to point and (b) associated equipment. "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of North Carolina; provided, however, in the event that, by reason of mandatory provisions of law, any and all of the attachment, perfection or priority of the Lien of Agent, on behalf of Lenders, in and to any collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of North Carolina, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Utilization Leases" means Leases for Equipment held for lease in pooling or similar arrangements where the actual rental payments under such Lease is based on and for the actual period of utilization of such item of Equipment rather than the Lease term. . Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial data required to be submitted by this Agreement shall be prepared and computed, unless otherwise specifically provided herein, in accordance with GAAP. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. In the event that GAAP changes during the term of this Agreement such that the covenants contained in Section 7 would then be calculated in a different manner or with different components, (a) the parties hereto agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating each Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) each Borrower shall be deemed to be in compliance with the covenants contained in the aforesaid subsections during the sixty (60) day period following any such change in GAAP if and to the extent that each Borrower would have been in compliance therewith under GAAP as in effect immediately prior to such change. . All other undefined terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, all of which are by this reference incorporated into this Agreement, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. The term "including" shall not be limiting or exclusive, unless specifically indicated to the contrary. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter. . Any reference to a "Section," "Subsection," "Exhibit," or "Schedule" shall refer to the relevant Section or Subsection of or Exhibit or Schedule to this Agreement, unless specifically indicated to the contrary. . 2. AMOUNT AND TERMS OF CREDIT . 1 Commitment To Lend . Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers set forth herein, Lenders hereby agree to make Advances (as defined below) of immediately available funds to Borrowers, on a revolving basis, from the Closing Date until the Business Day immediately preceding the Commitment Termination Date, in the aggregate principal amount outstanding at any time not to exceed the lesser of (a) the total Commitments for the Facility less the aggregate principal amounts then outstanding under the TEC AcquiSub Agreement and under the AFG Agreement or (b) for any one Borrower, its respective Borrowing Base (such lesser amount being the "Maximum Availability"), as more fully set forth in this Section 2.1.1. The obligation of Borrowers to repay the Advances made to any Borrower shall be several but not joint. . (a) Facility Commitments (i) On the Funding Date requested by any Borrower (the "Requesting Borrower"), after such Borrower shall have satisfied all applicable conditions precedent set forth in Section 3, each Lender shall advance immediately available funds to Agent (each such advance being an "Advance") evidencing such Lender's Pro Rata Share of a loan ("Loan"). Agent shall immediately advance such immediately available funds to such Borrower at the Designated Deposit Account (or such other deposit account at FUNB or such other financial institution as to which such Borrower and Agent shall agree at least three (3) Business Days prior to the requested Funding Date) on the Funding Date with respect to such Loan. The Requesting Borrower shall pay interest accrued on the Loan at the rates and in the manner set forth in Section 2.1.1(b). Subject to the terms and conditions of this Agreement, the unpaid principal amount of each Loan and all unpaid interest accrued thereon, together with all other fees, expenses, costs and other sums chargeable to the Requesting Borrower incurred in connection therewith shall be due and payable no later than the Maturity Date of such Loan. Each Loan advanced hereunder shall be evidenced by the Requesting Borrower's revolving promissory note substantially in the form of Exhibits A-1 through A-6, as applicable (the "Notes"). (ii) The obligation of Lenders to make any Loan from time to time hereunder shall be limited to the then applicable Maximum Availability. For the purpose of determining the amount of the Borrowing Base available at any one time, the amount available shall be the total amount of the Borrowing Base as set forth in the Borrowing Base Certificate delivered to Agent pursuant to Section 3.2.1 with respect to such requested Loan. Nothing contained in this Agreement shall under any circumstance be deemed to require any Lender to make any Advance under the Facility which, in the aggregate principal amount, either (1) taking into account such Lender's portion of the principal amounts outstanding under this Agreement and the making of such Advance, exceeds the lesser of (A) such Lender's Commitment for the Facility and (B) such Lender's Pro Rata Share of the Requesting Borrower's Borrowing Base, or (2) taking into account such Lender's portion of the aggregate principal amounts outstanding under this Agreement, under the TEC AcquiSub Agreement, under the AFG Agreement and the making of such Advance, exceeds such Lender's Commitment for the Facility. (iii) If at any time and for any reason the aggregate principal amount of the Loan(s) then outstanding to any Borrower shall exceed the Maximum Availability for such Borrower (the amount of such excess, if any, being an "Overadvance"), such Borrower shall immediately repay the full amount of such Overadvance, together with all interest accrued thereon; provided, however, that if such Overadvance occurs solely as a result of a decrease in the amount of the Borrowing Base due solely to a decrease in the computation of the Borrowing Base under clause (b), as set forth on a Borrowing Base Certificate delivered to Agent pursuant to Section 5.1.3, then, to the extent of such decrease, such Borrower shall not be required under this Section 2.1.1(a)(iii) to prepay such Overadvance but Lenders shall have no obligation to make or fund any Loans hereunder so long as such Overadvance condition shall remain in effect. (iv) Amounts borrowed by Borrowers under this Facility may be repaid and, prior to the Commitment Termination Date and subject to the applicable terms and conditions precedent to borrowings hereunder, reborrowed; provided, however, that no Loan shall have a Maturity Date which is later than the Commitment Termination Date and no LIBOR Loan shall have an Interest Period ending after the Maturity Date. (v) Each request for a Loan hereunder shall constitute a reaffirmation by the Requesting Borrower and the Responsible Officer requesting the same that the representations and warranties contained in this Agreement are true, correct and complete in all material respects to the same extent as though made on and as of the date of the request, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date. . Each Loan made by Lenders hereunder shall, at the Requesting Borrower's option in accordance with the terms of this Agreement, be either in the form of a Prime Rate Loan or a LIBOR Loan. Subject to the terms and conditions of this Agreement, each Loan shall bear interest on the sum of the unpaid principal balance thereof outstanding on each day from the date when made, continued or converted until such Loan shall have been fully repaid at a rate per annum equal to the Prime Rate, as the same may fluctuate on a daily basis, or the Adjusted LIBOR, as the case may be, plus the Applicable Margin. Interest on each Loan funded hereunder shall be due and payable by the Requesting Borrower in arrears on each Interest Payment Date, with all accrued but unpaid interest on such Loan being due and payable on the date such Loan is repaid, whether by prepayment or at maturity, and with all accrued but unpaid interest being due and payable by the Requesting Borrower on the Maturity Date for such Loan. Each Advance made by a Lender as part of a Loan hereunder and all repayments of principal with respect to such Advance shall be evidenced by notations made by such Lender on the books and records of such Lender; provided, however, that the failure by such Lender to make such notations shall not limit or otherwise affect the obligations of any Borrower with respect to the repayments of principal or payments of interest on any Advance or Loan. The aggregate unpaid amount of each Advance set forth on the books and records of a Lender shall be presumptive evidence of such Lender's Pro Rata Share of the principal amount owing and unpaid by any Borrower under its Note. . Promptly following the receipt of such documents required pursuant to Section 3.2.1 and approval of a Loan by the Agent, Agent shall notify by telephone, telecopier, facsimile or telex each Lender of the (a) Requesting Borrower, (b) the principal amount (including Lender's Pro Rata Share thereof) and (c) Funding Date of the Loan requested by such Requesting Borrower. Not later than 1:00 p.m., North Carolina time, on the Funding Date for any Loan, each Lender shall make an Advance to Agent for the account of Requesting Borrower in the amount of its Pro Rata Share of the Loan being requested. Upon satisfaction of the applicable conditions precedent set forth in Section 3, all Advances shall be credited in immediately available funds to the Designated Deposit Account. . The Loans made under the Facility may be used solely for the purpose of acquiring the specific items of Equipment. . 2 Repayment And Prepayment . Unless prepaid pursuant to Section 2.2.2, the principal amount of each Loan hereunder made to a Requesting Borrower shall be repaid by the Requesting Borrower to Lenders not later than the Maturity Date of such Loan. . Subject to Section 2.18, any Borrower may in the ordinary course of such Borrower's business, upon at least three (3) Business Days' written notice, or telephonic notice promptly confirmed in writing to Agent, which notice shall be irrevocable, prepay any Loan in whole or in part. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Prime Rate Loans or LIBOR Loans, or any combination thereof. Such prepayment of Loans, together with any amounts required pursuant to Section 2.18, shall be in immediately available funds and delivered to Agent not later than 1:00 p.m., North Carolina time, on the date for prepayment stated in such notice (the "Prepayment Date"). With respect to any prepayment under this Section 2.2.2, all interest on the amount prepaid accrued up to but excluding the date of such prepayment shall be due and payable on the Prepayment Date. . .3 Mandatory Prepayments (a) In the event that any item of Eligible Inventory shall be sold or assigned by any Borrower or any Marine Subsidiary of such Borrower, or the ownership interests (whether Stock or otherwise) of any Borrower in any Marine Subsidiary of such Borrower owning record or beneficial title to any item of Eligible Inventory shall be sold or transferred, then such Borrower shall immediately prepay the Loan made with respect to such Eligible Inventory so sold or assigned or with respect to the Eligible Inventory owned by such Marine Subsidiary so sold or transferred, together with any accrued interest on such Loan to the date of prepayment and any amounts required pursuant to Section 2.18. The sale or assignment of Eligible Inventory by an Owner Trustee, or the sale or assignment of any Borrower's or any Marine Subsidiary's beneficial interest in any owner trust (or nominee entity) holding title to Eligible Inventory, shall be considered a sale or assignment, as the case may be, of such Eligible Inventory by such Borrower or such Marine Subsidiary, as the case may be. (b) In the event that any of the Eligible Inventory shall have sustained a Casualty Loss, the applicable Borrower shall promptly notify Agent and Lenders of such Casualty Loss and make arrangements reasonably acceptable to the Agent to cause any and all cash proceeds received by such Borrower to be paid to Lenders as a prepayment hereunder. To the extent not so prepaid, the Loan funded with respect to such Eligible Inventory will nevertheless be paid by such Borrower as provided in Section 2.2.1. . Interest on the Loans shall be computed on the basis of a 365/366-day year for all Prime Rate Loans and a 360-day year for all LIBOR Loans and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Loan, the date of the making of such Loan shall be included and the date of payment shall be excluded. Each change in the interest rate of Prime Rate Loans based on changes in the Prime Rate and each change in the Adjusted LIBOR based on changes in the Eurodollar Reserve Percentage shall be effective on the effective date of such change and to the extent of such change. Agent shall give Borrowers notice of any such change in the Prime Rate; provided, however, that any failure by Agent to provide Borrowers with notice hereunder shall not affect Agent's right to make changes in the interest rate of any Loan based on changes in the Prime Rate. Upon the occurrence and during the continuation of any Event of Default under this Agreement, Advances under this Agreement will, at the option of Requisite Lenders, bear interest at a rate per annum which is determined by adding two percent (2.00%) to the Applicable Margin for such Loan (the "Default Rate"). This may result in the compounding of interest. The imposition of a Default Rate will not constitute a waiver of any Event of Default. . All repayments or prepayments of principal and all payments of interest, fees, costs, expenses and other sums chargeable to Borrowers under this Agreement, the Notes or any of the other Loan Documents shall be in lawful money of the United States of America in immediately available funds and delivered to Agent, for the account of Lenders, not later than 1:00 p.m., North Carolina time, on the date due at First Union National Bank of North Carolina, One First Union Center, 301 South College Street, Charlotte, North Carolina 28288, Attention: Hannah Carmody, or such other place as shall have been designated in writing by Agent. . Whenever any payment to be made under this Agreement, the Note or any of the other Loan Documents shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of the payment of interest thereon; provided, however, that no Loan shall have remained outstanding after the Maturity Date of such Loan. . All payments to or for the benefit of Lenders hereunder shall be applied to the Obligations of any Borrower making payment in the following order: (a) then due and payable fees as set forth in Section 2.1.1(a)(i) and, at the direction of such Borrower or upon prior notice given to such Borrower by Agent, other then due and payable fees, expenses and costs; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments; provided that if an Event of Default shall have occurred and be continuing, Lenders shall have the exclusive right to apply any and all such payments against the then due and owing Obligations of such Borrower as Lenders may deem advisable. To the extent any Borrower fails to make payment required hereunder or under any of the other Loan Documents, each Lender is authorized to, and at its sole option may, make such payments on behalf of such Borrower. To the extent permitted by law, all amounts advanced by any Lender hereunder or under other provisions of the Loan Documents shall accrue interest at the same rate as Loans hereunder. . 7 Procedure For The Borrowing Of Loans . Each borrowing of Loans shall be made upon any Requesting Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Borrowing, executed by a Responsible Person of such Requesting Borrower, with appropriate insertions (which Notice of Borrowing must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, three (3) Business Days prior to the requested Funding Date) specifying: (a) the amount of the requested borrowing, which, if a LIBOR Loan is requested, shall be not less than One Million Dollars ($1,000,000); (b) the requested Funding Date, which shall be a Business Day; (c) whether the borrowing is to be comprised of one or more LIBOR Loans or Prime Rate Loans; and (d) the duration of the Interest Period applicable to any such LIBOR Loans included in such Notice of Borrowing. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any borrowing comprised of LIBOR Loans, such Interest Period shall be three (3) months. . Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrowers may not elect to have a Loan made as a LIBOR Loan. . 8 Conversion And Continuation Elections . Each Borrower may, upon irrevocable written notice to Agent: (a) elect to convert on any Business Day, any Prime Rate Loan (or any portion thereof in an amount equal to at least One Million Dollars ($1,000,000)) into a LIBOR Loan; or (b) elect to convert on any Interest Payment Date any LIBOR Loan maturing on such Interest Payment Date (or any portion thereof) into a Prime Rate Loan; or (c) elect to continue on any Interest Payment Date any LIBOR Loan maturing on such Interest Payment Date (or any portion thereof in an amount equal to at least One Million Dollars ($1,000,000)); provided, that if the aggregate amount of LIBOR Loans outstanding to such Borrower shall have been reduced, by payment, prepayment, or conversion of portion thereof, to be less than $1,000,000, such LIBOR Loans shall automatically convert into Prime Rate Loans, and on and after such date the right of such Borrower to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate. . Each conversion or continuation of Loans shall be made upon any Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Conversion/Continuation, executed by a Responsible Person of such Borrower, with appropriate insertions (which Notice of Conversion/Continuation must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, at least three (3) Business Days in advance of the proposed conversion date or continuation date specifying: (a) the proposed conversion date or continuation date; (b) the aggregate amount of Loans to be converted or continued; (c) the nature of the proposed conversion or continuation; and (d) the duration of the requested Interest Period. . If upon the expiration of any Interest Period applicable to any LIBOR Loan, the Requesting Borrower has failed to select a new Interest Period to be applicable to such LIBOR Loan, such Borrower shall be deemed to have elected to convert such LIBOR Loan into a Prime Rate Loan effective as of the last day of such current Interest Period. . Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrowers may not elect to have a Loan converted into or continued as a LIBOR Loan. . Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its LIBOR Loans in any manner it elects, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender actually funded and maintained each LIBOR Loan through the purchase of deposits having a maturity corresponding to the maturity of the LIBOR Loan and bearing an interest rate equal to the LIBOR rate (whether or not, in any instance, Lender shall have granted any participations in such Loan). Each Lender may, if it so elects, fulfill any commitment to make LIBOR Loans by causing a foreign branch or affiliate to make or continue such LIBOR Loans; provided, however, that in such event such Loans shall be deemed for the purposes of this Agreement to have been made by such Lender, and the obligation of Borrowers to repay such Loans shall nevertheless be to such Lender and shall be deemed held by such Lender, to the extent of such Loans, for the account of such branch or affiliate. . Agent shall immediately distribute to each Lender, at such address as each Lender shall designate, its respective interest in all repayments and prepayments of principal and all payments of interest and all fees, expenses and costs received by Agent on the same day and in the same type of funds as payment was received. In the event Agent does not distribute such payments on the same day received, if such payments are received by Agent by 1:00 p.m., North Carolina time, or if received after such time, on the next succeeding Business Day, such payment shall accrue interest at the Federal Funds Rate. . Unless Agent shall have been notified by any Lender no later than the Business Day prior to the respective Funding Date of a Loan that such Lender does not intend to make available to Agent an Advance in immediately available funds equal to such Lender's Pro Rata Share of the total principal amount of such Loan, Agent may assume that such Lender has made such Advance to Agent on the date of the Loan and Agent may, in reliance upon such assumption, make available to the Requesting Borrower a corresponding Advance. If Agent has made funds available to such Borrower based on such assumption and such Advance is not in fact made to Agent by such Lender, Agent shall be entitled to recover the corresponding amount of such Advance on demand from such Lender. If such Lender does not promptly pay such corresponding amount upon Agent's demand, Agent shall notify such Requesting Borrower and such Requesting Borrower shall repay such Advance to Agent. Agent also shall be entitled to recover from such Lender interest on such Advance in respect of each day from the date such Advance was made by Agent to such Requesting Borrower to the date such corresponding amount is recovered by Agent at the Federal Funds Rate. Nothing in this Section 2.11 shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which Agent or such Requesting Borrower may have against such Lender as a result of any default by such Lender under this Agreement. . Unless Agent shall have been notified by any Borrower prior to the date on which any payment to be made by such Borrower hereunder is due that such Borrower does not intend to remit such payment, Agent may, in its sole discretion, assume that such Borrower has remitted such payment when so due and Agent may, in its sole discretion and in reliance upon such assumption, make available to each Lender on such payment date an amount equal to such Lender's Pro Rata Share of such assumed payment. If such Borrower has not in fact remitted such payment to Agent, each Lender shall forthwith on demand repay to Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each date from and including the date such amount was made available by Agent to such Lender to the date such amount is repaid to Agent at the Federal Funds Rate. . If any Lender determines that compliance with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Commitment or its making or maintaining its Pro Rata Share of the Loans below the rate which such Lender or such other corporation could have achieved but for such compliance (taking into account the policies of such Lender or corporation with regard to capital), then each Borrower shall, from time to time, upon written demand by such Lender (with a copy of such demand to Agent), immediately pay to such Lender (a) such additional amounts as shall be sufficient to compensate such Lender or other corporation for such reduction resulting from such Borrower's Loans or (b) in the case where such reduction results from compliance with any such law, regulation, guideline or request affecting only the Commitments and not the Loans, such additional amounts as shall be sufficient to compensate such Lender or other corporation for such reduction based on each Borrower's percentage of average usage of the Commitments versus the total average usage by all Borrowers. A certificate submitted by such Lender to any Borrower, stating that the amounts set forth as payable to such Lender are true and correct, shall be conclusive and binding for all purposes, absent manifest error. Each Lender agrees promptly to notify effected Borrowers and Agent of any circumstances that would cause any Borrower to pay additional amounts pursuant to this section, provided that the failure to give such notice shall not affect Borrowers' obligation to pay any such additional amounts. . 14 Taxes . Subject to Subsection 2.14.7, any and all payments by each Borrower to each Lender or Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's net income (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). . In addition, Borrowers shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). . Subject to Subsection 2.14.7, each Borrower shall indemnify and hold harmless each Lender and Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or Agent in relation to any payments made by or Obligations of such Borrower and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within thirty (30) days from the date any Lender or Agent makes written demand therefor. . If any Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then, subject to Subsection 2.14.7: (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (b) such Borrower shall make such deductions, and (c) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. . Within thirty (30) days after the date of any payment by any Borrower of Taxes or Other Taxes, such Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to Agent. . Each Lender which is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) shall: (a) No later than the date upon which such Lender becomes a party hereto deliver to Borrowers through Agent two (2) accurate and complete signed originals of IRS Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete signed originals of IRS Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (b) If at any time such Lender makes any changes necessitating a new Form 4224 or Form 1001, with reasonable promptness deliver to Borrowers through Agent in replacement for, or in addition to, the forms previously delivered by it hereunder, two accurate and complete signed originals of Form 4224; or two accurate and complete signed originals of Form 1001, as appropriate, in each case indicating that the Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (c) Before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in (ii) above) requiring a change in or renewal of the most recent Form 4224 or Form 1001 previously delivered by such Lender, deliver to Borrowers through Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by the Lender; and (d) Promptly upon any Borrower's or Agent's reasonable request to that effect, deliver to such Borrower or Agent (as the case may be) such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's tax status for withholding purposes. . Borrowers will not be required to pay any additional amounts in respect of United States Federal income tax pursuant to Subsection 2.14.4 to Lender for the account of any Lending Office of such Lender: (a) If the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Subsection 2.14.6 in respect of such Lending Office; (b) If such Lender shall have delivered to Borrowers a Form 4224 in respect of such Lending Office pursuant to Subsection 2.14.6 and such Lender shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by Borrowers hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 4224; or (c) If such Lender shall have delivered to Borrowers a Form 1001 in respect of such Lending Office pursuant to Subsection 2.14.6, and such Lender shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by Borrowers hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 1001. . If, at any time, any Borrower requests any Lender to deliver any forms or other documentation pursuant to Subsection 2.14.6(a), then such Borrower shall, on demand of such Lender through Agent, reimburse such Lender for any costs and expenses (including reasonable attorney fees) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation. . If any Borrower is required to pay additional amounts to any Lender or Agent pursuant to Subsection 2.14.4, then such Lender shall use its reasonable good faith efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by such Borrower which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. . 15 Illegality . If any Lender shall determine that the introduction of any Requirement of Law, or any change in any Requirement of Law or in the interpretation or administration thereof, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for such Lender or its Lending Office to make LIBOR Loans, then, on notice thereof by Lender to the Requesting Borrower, the obligation of such Lender to make LIBOR Loans shall be suspended until such Lender shall have notified the Requesting Borrower that the circumstances giving rise to such determination no longer exists. . If a Lender shall determine that it is unlawful to maintain any LIBOR Loan, Borrowers shall prepay in full all LIBOR Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loans, together with any amounts required to be paid in connection therewith pursuant to Section 2.18. . If any Borrower is required to prepay any LIBOR Loan immediately as provided in Section 2.2.3, then concurrently with such prepayment, such Borrower shall borrow, in the amount of such prepayment, a Prime Rate Loan. . If any Lender shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) in or in the interpretation of any Requirement of Law or (b) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Loans, then Borrowers shall be liable on a joint and several basis for, and shall from time to time, upon demand therefor by such Lender, pay to such Lender such additional amounts as are sufficient to compensate such Lender for such increased costs. . If Agent shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan or that the LIBOR applicable for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to Lenders of funding such Loan, Agent will forthwith give notice of such determination to Borrowers and each Lender. Thereafter, the obligation of Lenders to make or maintain LIBOR Loans, as the case may be, hereunder shall be suspended until Agent, upon instruction from Requisite Lenders, revokes such notice in writing. Upon receipt of such notice, Borrowers may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted. If a Borrower does not revoke such notice, Lenders shall make, convert or continue the Loans, as proposed by such Borrower, in the amount specified in the applicable notice submitted by such Borrower, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans, as the case may be. . Each Borrower agrees, severally but not jointly, that in the event that such Borrower prepays or is required to prepay any LIBOR Loan by acceleration or otherwise or fails to draw down or convert to a LIBOR Loan after giving notice thereof, it shall reimburse each Lender for its funding losses due to such prepayment or failure to draw. Borrowers and Lenders hereby agree that such funding losses shall consist of the sum of the discounted monthly differences for each month during the applicable or requested Interest Period, calculated as follows for each such month: (a) Principal amount of such LIBOR Loan times (number of days between the date of prepayment and the last day in the applicable Interest Period divided by 360), times the applicable Interest Differential, plus (b) all actual out-of-pocket expenses (other than those taken into account in the calculation of the Interest Differential) incurred by Lenders and Agent (excluding allocation of any expense internal to Lenders and Agent) and reasonably attributable to such payment, prepayment or failure to draw down or convert as described above; provided that no prepayment fee shall be payable (and no credit or rebate shall be required) if the product of the foregoing formula is not a positive number. .. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE MAKING OF LOANS . The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: . Agent shall have received, in form and substance satisfactory to Lenders and their respective counsel a certified copy of the records of all actions taken by each Borrower and FSI, including all resolutions of each Borrower and corporate resolutions of FSI, authorizing or relating to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby. . Agent shall have received new Notes, in form and substance satisfactory to Lenders, and duly executed and delivered by each Borrower, which Notes shall replace and supersede the Notes issued by Borrowers to Agent pursuant to the Growth Fund Agreement. . Agent shall have received an originally executed Opinion of Counsel, in form and substance satisfactory to Lenders, dated as of the Closing Date and addressed to Lenders, together with copies of any officer's certificate or legal opinion of other counsel or law firm specifically identified and expressly relied upon by such counsel. . Agent shall have received the Reaffirmation of Guaranty, in form and substance satisfactory to Lenders, duly executed and delivered by FSI. . Agent shall have received the TEC AcquiSub Amendment, duly executed and delivered by TEC AcquiSub, and all conditions precedent to the effectiveness of the TEC AcquiSub Amendment shall have been satisfied. . Agent shall have received the AFG Agreement, duly executed and delivered by AFG, and all conditions precedent to the effectiveness of the AFG Agreement shall have been satisfied. . Separate certificates, dated as of the Closing Date, of the Chief Financial Officer or Corporate Controller of FSI, in its capacity as the sole general partner of EGF III, EGF IV, EGF V, EGF VI and EGF VII and as the sole manager of Income Fund I, to the effect that (i) the representations and warranties of each Borrower contained in Section 4 are true, accurate and complete in all material respects as of the Closing Date as though made on such date and (ii) no Event of Default or Potential Event of Default under this Agreement has occurred. . Agent shall have received the Fee Letter and the Agent's Side Letter, duly executed by Borrowers, TEC AcquiSub and AFG, and the arrangement fee and the Agent's fee described in the Fee Letter and Agent's Side Letter, respectively. . Agent shall have received such other documents, information and items from Borrowers and FSI as reasonably requested by Agent. . Unless waived in writing by Requisite Lenders, the obligation of any Lender to make any Advance is subject to the satisfaction of the following further conditions precedent: . At least three (3) Business Days before each Loan hereunder with respect to any acquisition of Equipment by any Borrower, Agent shall have received (i) Notice of Borrowing and (ii) a Borrowing Base Certificate, with appropriate insertions, executed by the Chief Financial Officer or Corporate Controller of such Borrower. . No event shall have occurred and be continuing or would result from the making of any Loan on such Funding Date which constitutes an Event of Default or Potential Event of Default under this Agreement or under (and as separately defined in) the TEC AcquiSub Agreement or under (and as separately defined in) the AFG Agreement, or which with notice or lapse of time or both would constitute an Event of Default or Potential Event of Default under this Agreement or under the TEC AcquiSub Agreement or the AFG Agreement. . All representations and warranties contained in the Loan Documents shall be true, accurate and complete in all material respects with the same effect as though such representations and warranties had been made on and as of such Funding Date (except to the extent such representations and warranties specifically relate to an earlier date, in which case they shall be true, accurate and complete in all material respects as of such earlier date). . The insurance required to be maintained by such Borrower pursuant to the Loan Documents shall be in full force and effect. . Agent shall have received such other instruments and documents as it may have reasonably requested from Borrowers in connection with the Loans to be made on such date. . Notwithstanding anything to the contrary contained in this Agreement, unless waived in writing by Requisite Lenders, no Lender shall have any obligation hereunder to make any Advance if any of the following events shall occur: . FSI shall have ceased to be the sole general partner of any of EGF III, EGF IV, EGF V, EGF VI or EGF VII or the sole manager of Income Fund I, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower. . Twenty five percent (25.0%) or more of the limited partners (measured by such partners' percentage interest) of any Equipment Growth Fund shall at any time vote to remove FSI as the general partner of such Equipment Growth Fund or a majority in interest of Class A members, as that term is defined in the Operating Agreement, of Income Fund I shall at any time vote to remove FSI as manager of Income Fund I, in each case, regardless of whether FSI is actually removed. Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries shall have ceased to be the purchaser of Eligible Inventory for such Requesting Borrower. . 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES . Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each such Borrower and as to itself, hereby warrant and represent to Agent and each Lender as follows, and agree that each of said warranties and representations shall be deemed to continue until full, complete and indefeasible payment and performance of the Obligations and shall apply anew to each borrowing hereunder: . Each Borrower is a limited partnership or, in the case of Income Fund I, a limited liability company, and FSI is a corporation, each duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified and licensed as a foreign corporation, partnership or limited liability company, as applicable, and authorized to do business in each jurisdiction within the United States where its ownership of Property and assets or conduct of business requires such qualification. Each Borrower and FSI has the power and authority, rights and franchises to own their Property and assets and to carry on their businesses as now conducted. Each Borrower and FSI has the power and authority to execute and deliver the Loan Documents (to the extent each is a party thereto) and all other instruments and documents contemplated hereby or thereby. . The execution, delivery and performance of this Agreement and each of the other Loan Documents to which any Borrower is a party and delivery and payment of such Borrower's respective Note have been duly authorized by all necessary and proper action on the part of such Borrower. The execution, delivery and performance of this Agreement and each of the other Loan Documents to which FSI is a party have been duly authorized by all necessary and proper corporate action on the part of FSI. The Loan Documents constitute legally valid and binding obligations of each Borrower and FSI, as the case may be, enforceable against each Borrower and FSI, to the extent any one of them is a party thereto, in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. . (a) The execution, delivery and performance of this Agreement, and each of the other Loan Documents and the execution, delivery and payment of the Notes will not: (i) contravene any provision of FSI's certificate of incorporation or bylaws; (ii) contravene any provision of any Borrowers' Limited Partnership Agreements or, in the case of Income Fund I, Operating Agreement or other formation or organization document; or (iii) contravene, conflict with or violate any applicable law or regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority, which contravention, conflict or violation, in the aggregate, may have Material Adverse Effect; and (b) the execution and delivery of this Agreement, and each of the other Loan Documents and the execution and delivery of the Notes will not violate or result in the breach of, or constitute a default under any indenture or other loan or credit agreement, or other agreement or instrument which are, in the aggregate, material and to which any Borrower or FSI is a party or by which any Borrower, FSI or their Property and assets may be bound or affected. Neither any Borrower nor FSI is in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which any one of them is a party, the non-compliance with, the violation or breach of or the default under which would, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower's and FSI's audited consolidated financial statements as of December 31, 1995 and Borrowers' and FSI's unaudited consolidated financial statements as of March 31, 1996, copies of which heretofore have been delivered to Agent by such Borrower and FSI, respectively, and all other financial statements and other data submitted in writing by any Borrower and FSI to Agent or any Lender in connection with the request for credit granted by this Agreement, are true, accurate and complete in all material respects, and said financial statements and other data fairly present the consolidated financial condition of such Borrower and FSI, as of the date thereof, and have been prepared in accordance with GAAP, subject to fiscal year-end audit adjustments. There has been no material adverse change in the business, properties or assets, operations, prospects, profitability or financial or other condition of any Borrower or FSI since March 31, 1996. . The current location of each Borrower's and FSI's chief executive offices and principal places of business is set forth on Schedule 4.1.5. . Except as disclosed on Schedule 4.1.6, there are no claims, actions, suits, proceedings or other litigation pending or, to the best of each Borrower's and FSI's knowledge, after due inquiry, threatened against any Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, at law or in equity before any Governmental Authority or, to the best of each Borrower's and FSI's knowledge, after due inquiry, any investigation by any Governmental Authority of any Borrower's or FSI's or any of FSI's Subsidiaries', including, without limitation, TEC AcquiSub's, affairs, Properties or assets which would, with reasonable likelihood, if adversely determined, have a Material Adverse Effect. Other than any liability incident to the litigation or proceedings disclosed on Schedule 4.1.6, neither any Borrower, nor FSI nor any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, has any Contingent Obligations which are not provided for or disclosed in the financial statements delivered to Agent pursuant to Sections 4.1.4 and 5.1. . Schedule 4.1.7 lists all currently effective contracts and agreements (whether written or oral) to which each Borrower is a party and which (i) could involve the payment or receipt by such Borrower after the date of this Agreement of more than $250,000 or (ii) otherwise materially affect the business, operations or financial condition of any Borrower (the "Material Contracts"). Except as disclosed on Schedule 4.1.7, there are no material defaults under any such Material Contract by any Borrower, to the best of each Borrower's knowledge, by any other party to any such Material Contract. Each Borrower has delivered to Agent true and correct copies of all such contracts or agreements (or, with respect to oral contracts or agreements, written descriptions of the material terms thereof). . Except as set forth in Schedule 4.1.8, all consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by any Borrower, FSI or any of FSI's Subsidiaries in order to make or consummate the transactions contemplated under the Loan Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect. . Neither any Borrower, FSI nor any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, is a party to or is bound by any agreement, contract, lease, license or instrument, or is subject to any restriction under its respective charter or formation documents, which has, or is likely in the foreseeable future to have, a Material Adverse Effect. Neither any Borrower nor FSI has entered into and, as of the Closing Date does not contemplate entering into, any material agreement or contract with any Affiliate of any Borrower or FSI on terms that are less favorable to such Borrower or FSI than those that might be obtained at the time from Persons who are not such Affiliates. . There are no collective bargaining agreements or other labor agreements covering any employees of any Borrower, FSI or any of FSI's Subsidiaries. . No Borrower has an Employee Benefit Plan subject to ERISA. All Pension Plans of FSI and any of FSI's Subsidiaries, that are intended to be qualified under Section 401(a) of the Code have been determined by the IRS to be qualified or FSI or any of FSI's Subsidiaries will obtain such determination prior to instituting such a Pension Plan. All Pension Plans existing as of the date hereof continue to be so qualified. No "reportable event" (as defined in Section 4043 of ERISA) has occurred and is continuing with respect to any Pension Plan for which the thirty-day notice requirement may not be waived other than those of which the appropriate Governmental Authority has been notified. All Employee Benefit Plans of FSI or any of FSI's Subsidiaries have been operated in all material respects in accordance with their terms and applicable law, including ERISA, and no "prohibited transaction" (as defined in ERISA and the Code) that would result in any material liability to FSI or any of FSI's Subsidiaries has occurred with respect to any such Employee Benefit Plan. . There are no strikes or other labor disputes against any Borrower, FSI or any of FSI's Subsidiaries or, to the best of each Borrower's and FSI's knowledge, after due inquiry, threatened against any Borrower, FSI or any of FSI's Subsidiaries, which would, with reasonable likelihood, have a Material Adverse Effect. All payments due from any Borrower or FSI on account of employee health and welfare insurance which would, with reasonable likelihood, have a Material Adverse Effect if not paid have been paid or, if not due, accrued as a liability on the books of such Borrower or FSI. . Neither any Borrower nor FSI own any "margin security", as that term is defined in Regulations G and U of the Federal Reserve Board, and the proceeds of the Loans under this Agreement will be used only for the purposes contemplated hereunder. None of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans under this Agreement to be considered a "purpose credit" within the meaning of Regulations G, T, U and X. Neither any Borrower nor FSI will take or permit any agent acting on its behalf to take any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. . All federal, state, local and foreign tax returns, reports and statements required to be filed by any Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, by any of FSI's Subsidiaries have been filed with the appropriate Governmental Authorities where failure to file would, with reasonable likelihood, have a Material Adverse Effect, and all material Charges and other impositions shown thereon to be due and payable by any Borrower, FSI or such Subsidiary have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or such Borrower, FSI or such Subsidiary is contesting its liability therefore in good faith and has fully reserved all such amounts according to GAAP in the financial statements provided to Agent pursuant to Section 5.1. Each Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, each of FSI's Subsidiaries has paid when due and payable all material Charges upon the books of any Borrower, FSI or such Subsidiary and no Government Authority has asserted any Lien against any Borrower, FSI or any of FSI's Subsidiaries with respect to unpaid Charges. Proper and accurate amounts have been withheld by each Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, each of FSI's Subsidiaries from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. . .15 Environmental Quality (a) Except as specifically disclosed in Schedule 4.1.15, the on-going operations of each Borrower, FSI and each of FSI's Subsidiaries comply in all material respects with all Environmental Laws, except such non-compliance which would not (if enforced in accordance with applicable law) result in liability in excess of $250,000 in the aggregate. (b) Except as specifically disclosed in Schedule 4.1.15, each Borrower, FSI and each of FSI's Subsidiaries has obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and each Borrower, FSI and each of FSI's Subsidiaries is in compliance with all material terms and conditions of such Environmental Permits. (c) Except as specifically disclosed in Schedule 4.1.15, neither any Borrower, FSI or any of FSI's Subsidiaries nor any of their respective present Property or operations is subject to any outstanding written order from or agreement with any Governmental Authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material. (d) Except as specifically disclosed in Schedule 4.1.15, there are no Hazardous Materials or other conditions or circumstances existing with respect to any Property, or arising from operations prior to the Closing Date, of any Borrower, FSI or any of FSI's Subsidiaries that would reasonably be expected to give rise to Environmental Claims with a potential liability of any Borrower, FSI or any of FSI's Subsidiaries in excess of $250,000 in the aggregate for any such condition, circumstance or Property. . Each Borrower and FSI and, to the best of their knowledge, after due inquiry, each of FSI's Subsidiaries possess and owns all necessary trademarks, trade names, copyrights, patents, patent rights, franchises and licenses which are material to the conduct of their business as now operated. . As of the Closing Date, no information contained in this Agreement, the other Loan Documents or any other documents or written materials furnished by or on behalf of any Borrower or FSI to Agent or any Lender pursuant to the terms of this Agreement or any of the other Loan Documents contains any untrue or inaccurate statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein not misleading in light of the circumstances under which made. . Neither any Borrower nor FSI is: (a) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act or (b) an "investment company," or an "affiliated person" of, or a "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act. The making of the Loans hereunder and the application of the proceeds and repayment thereof by each Borrower and the performance of the transactions contemplated by this Agreement and the other Loan Documents will not violate any provision of the Investment Company Act or the Public Utility Holding Company Act, or any rule, regulation or order issued by the SEC thereunder. . Each Borrower and FSI are Solvent. . At the time any Borrower makes a request for an initial borrowing hereunder, each such Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each such Borrower and as to itself, hereby warrant and represent to Agent and each Lender as follows, and agree that each of said warranties and representations shall be deemed to continue until full, complete and indefeasible payment and performance of the Obligations and shall apply anew to each additional borrowing hereunder: . Each Borrower and FSI has the power and authority to perform the terms of the Loan Documents (to the extent each is a party thereto) and all other instruments and documents contemplated hereby or thereby. . The performance of this Agreement, and each of the other Loan Documents and the payment of the Notes will not violate or result in the breach of, or constitute a default under any indenture or other loan or credit agreement, or other agreement or instrument which are, in the aggregate, material and to which any Borrower or FSI is a party or by which any Borrower, FSI or their Property and assets may be bound or affected. . No approval, authorization or consent of any trustee or holder of any indebtedness or obligation of any Borrower or FSI or of any other Person under any such material agreement, contract, lease or license or similar document or instrument to which such Borrower, FSI or any of FSI's Subsidiaries is a party or by which such Borrower, FSI or any such Subsidiary is bound, is required to be obtained by any such Borrower, FSI or any such Subsidiary in order to make or consummate the transactions contemplated under the Loan Documents. . So long as any of the Commitments shall be available and until payment and performance in full of the Obligations, the representations and warranties contained herein shall have a continuing effect as having been true when made. . 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each Borrower and as to itself (and, where applicable, PLMI) covenant and agree that, so long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower and FSI shall do or cause to have done all of the following: . Maintain, and cause each of FSI's Subsidiaries to maintain, a system of accounting administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP, and deliver to Agent or caused to be delivered to Agent: . As soon as practicable and in any event within sixty (60) days after the end of each quarterly accounting period of each Borrower, FSI and PLMI, except with respect to the final fiscal quarter of each fiscal year, in which case as soon as practicable and in any event within one hundred twenty (120) days after the end of such fiscal quarter, consolidated and consolidating balance sheets of FSI and PLMI and a balance sheet of each Borrower as at the end of such period and the related consolidated (and, as to statements of income only for FSI, consolidating) statements of income and stockholders' or members' equity of each Borrower and FSI and the related consolidated statements of income, stockholders' or members' equity and cash flows of PLMI (and, as to statements of income only, consolidating) for such quarterly accounting period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous year, all in reasonable detail and certified by the Chief Financial Officer or Corporate Controller of the general partner or manager of each Borrower, as applicable, FSI and PLMI that they (i) are complete and fairly present the financial condition of such Borrower, FSI and PLMI as at the dates indicated and the results of their operations and changes in their cash flow for the periods indicated, (ii) disclose all liabilities of each Borrower, FSI and PLMI that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent and (iii) have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end adjustment; . As soon as practicable and in any event within one hundred twenty (120) days after the end of each fiscal year of each Borrower, FSI and PLMI, consolidated and consolidating balance sheets of FSI and PLMI and a balance sheet of each Borrower as at the end of such year and the related consolidated (and, as to statements of income only for FSI and PLMI, consolidating) statements of income, stockholders' or members' equity and cash flows of each Borrower, if applicable, FSI and PLMI for such fiscal year, setting forth in each case, in comparative form the consolidated figures for the previous year, all in reasonable detail and (i) in the case of such consolidated financial statements, accompanied by a report thereon of an independent public accountant of recognized national standing selected by each Borrower, FSI and PLMI and satisfactory to Agent, which report shall contain an opinion which is not qualified in any manner or which otherwise is satisfactory to Requisite Lenders, in their sole discretion, and (ii) in the case of such consolidating financial statements, certified by the Chief Financial Officer or Corporate Controller of FSI and PLMI; . As soon as practicable, and in any event not later than fifteen (15) days after the end of each calendar month in which a Loan has been, or is, outstanding, a Borrowing Base Certificate dated as of the last day of such month, duly executed by a Chief Financial Officer or Corporate Controller of the general partner or manager of each Borrower, with appropriate insertions; . As soon as practicable, and in any event not later than forty-five (45) days after the end of each fiscal quarter of each Borrower, a Compliance Certificate dated as of the last day of such fiscal quarter, and executed by the Chief Financial Officer or Corporate Controller of the general partner or manager of such Borrower, with appropriate insertions. . At Agent's request, promptly upon receipt thereof, copies of all reports submitted to each Borrower, FSI or PLMI by independent public accountants in connection with each annual, interim or special audit of the financial statements of such Borrower, FSI or PLMI made by such accountants; . (i) On the date six months after the Closing Date and thereafter upon Agent's reasonable request, which request will not be made more than once during any calendar year (unless an Event of Default shall have occurred and be continuing), a report from each Borrower's insurance broker, in such detail as Agent may reasonably request, as to the insurance maintained or caused to be maintained by each Borrower pursuant to this Agreement, demonstrating compliance with the requirements hereof and thereof, and (ii) as soon as possible and in no event later than fifteen (15) days prior to the expiration date of any insurance policy of any Borrower, a written confirmation that such policy is in process of renewal and is not terminated or subject to a notice of non-renewal from such Borrower's insurance broker; provided, however, that such Borrower shall give Agent prompt written notice if changes affecting risk coverage will be made to such policy or if the policy will be terminated; . Promptly upon any officer of any Borrower or FSI obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to any Borrower, FSI, TEC, TEC AcquiSub or PLMI or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1.2, (c) of the institution of any litigation or of the receipt of written notice from any Governmental Authority as to the commencement of any formal investigation involving an alleged or asserted liability of any Borrower, FSI, TEC, TEC AcquiSub or PLMI equal to or greater than $500,000 or any adverse judgment in any litigation involving a potential liability of any Borrower, FSI, TEC, TEC AcquiSub or PLMI equal to or greater than $500,000, or (d) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of any Borrower, FSI, TEC, TEC AcquiSub or PLMI, a certificate of a Responsible Officer of any Borrower or FSI, as applicable, specifying the notice given or action taken by such Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition and what action such Borrower, FSI, TEC, TEC AcquiSub or PLMI has taken, is taking and proposes to take with respect thereto; . Promptly upon becoming aware of the occurrence of any (a) Termination Event in connection with any Pension Plan or (b) "prohibited transaction" (as such term is defined in ERISA and the Code) in connection with any Employee Benefit Plan or any trust created thereunder, a written notice specifying the nature thereof, what action any Borrower or any of its ERISA Affiliates has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the IRS or the PBGC with respect thereto; . With reasonable promptness, copies of (a) all notices received by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (b) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates with the IRS with respect to each Pension Plan covering employees of any Borrower, FSI or any of FSI's Subsidiaries, and (c) all notices received by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; . Promptly upon receipt by any Borrower, FSI or any of FSI's Subsidiaries, any challenge by the IRS to the qualification under Section 401 or 501 of the Code of any Pension Plan; . As soon as available and in no event later than five (5) days after the same shall have been filed with the SEC, a copy of each Form 8-K Current Report, Form 10-K Annual Report, Form 10-Q Quarterly Report, Annual Report to Shareholders, Proxy Statement and Registration Statement of any Borrower and PLMI; . Upon the request of Agent, copies of all federal, state, local and foreign tax returns and reports in respect of income, franchise or other taxes on or measured by income (excluding sales, use or like taxes) filed by or on behalf of any Borrower and FSI; and . Such other information respecting the condition or operations, financial or otherwise, of any Borrower and PLMI and its Subsidiaries as Agent or any Lender may from time to time reasonably request, and such information regarding the lessees under Leases as any Borrower from time to time receives or Agent or any Lender reasonably requests. All financial statements of Borrowers, FSI and PLMI to be delivered by any Borrower and FSI to Agent pursuant to this Section 5.1 will be complete and correct and present fairly the financial condition of each Borrower, FSI and PLMI as of the date thereof; will disclose all liabilities of each Borrower, FSI and PLMI that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and will have been prepared in accordance with GAAP. All tax returns submitted to Agent by Borrowers and FSI will, to the best of each Borrower's and FSI's knowledge, after due inquiry, be true and correct. Each Borrower and FSI hereby agree that each time any one of them submits a financial statement or tax return to Agent, such Borrower and FSI shall be deemed to represent and warrant to Lenders that such financial statement or tax return complies with all of the preceding requirements set forth in this paragraph. . Each Borrower and FSI shall preserve and maintain, and FSI shall cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to preserve and maintain, their existence and all of their licenses, permits, governmental approvals, rights, privileges and franchises necessary or desirable in the normal conduct of their businesses as now conducted or presently proposed to be conducted (including, without limitation, their qualification to do business in each jurisdiction in which such qualification is necessary or desirable in view of its business); conduct, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and any Owner Trustee to conduct, its business in an orderly and regular manner; and comply, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and any Owner Trustee, to comply, with (a) as to any Borrower, its Limited Partnership Agreement, Operating Agreement and other organizational documents, as applicable, and as to FSI and each of its Subsidiaries, including, without limitation, TEC AcquiSub, the provisions of its respective certificate or articles of incorporation, as applicable, and bylaws and (b) the requirements of all applicable laws, rules, regulations or orders of any Governmental Authority and requirements for the maintenance of any Borrower's, FSI's or such Subsidiary's insurance, licenses, permits, governmental approvals, rights, privileges and franchises, except, in either case, to the extent that the failure to comply therewith would not, in the aggregate, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower and FSI shall maintain and keep in force, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to maintain and keep in force insurance of the types and in amounts then customarily carried in lines of business similar to that of Borrowers, FSI or any of FSI's Subsidiaries as the case may be, including, but not limited to, fire, extended coverage, public liability, property damage, environmental hazard and workers' compensation, in each case carried with financially sound Persons and in amounts satisfactory to Requisite Lenders (subject to commercial reasonableness as to each type of insurance); provided, however, that the types and amounts of insurance shall not provide any less coverage for any Borrower than provided as of the Closing Date by the existing blanket policies of insurance for PLMI and its Subsidiaries. All such policies as to liability insurance shall carry endorsements naming Agent and each Lender as an additional insured and, upon the reasonable request of Agent, all such policies of property insurance shall carry endorsements naming Agent as principal loss payee as to any property owned by Borrowers and financed by Lenders, and in each case indicating that (a) any loss thereunder shall be payable to Agent or Lenders, as the case may be, notwithstanding any action, inaction or breach of representation or warranty by any Borrower or FSI; (b) there shall be no recourse against any Lender for payment of premiums or other amounts with respect thereto, and (c) at least fifteen (15) days' prior written notice of cancellation, lapse or material change in coverage shall be given to Agent by the insurer. . Promptly pay and discharge and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, promptly to pay and discharge all material Charges when due and payable, except (a) such as may be paid thereafter without penalty or (b) such as may be contested in good faith by appropriate proceedings and for which an adequate reserve has been established and is maintained in accordance with GAAP. Each Borrower and FSI shall promptly notify Agent of any material challenge, contest or proceeding pending by or against any Borrower, FSI and PLMI or any of FSI's Subsidiaries before any taxing authority. . At any reasonable time and from time to time during normal business hours, permit Agent or any Lender or any agent, representative or employee thereof, to examine and make copies of and abstracts from the financial records and books of account of each Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and other documents in the possession or under the control of any Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, relating to any obligation of any Borrower or FSI arising under or contemplated by this Agreement and to visit the offices of any Borrower or FSI to discuss the affairs, finances and accounts of any Borrower or FSI with any of the officers of any Borrower or FSI, and, upon reasonable notice and during normal business hours (unless an Event of Default or Potential Event of Default shall have occurred and be continuing, in which event no notice is required), to conduct audits of and appraise Equipment. Such audits and appraisals shall be subject to the lessee's right to quiet enjoyment as set forth in the respective lease. . 6 Maintenance Of Facilities; Modifications . Each Borrower and FSI shall keep and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to keep, all of their respective Properties which are useful or necessary to such Borrower's, FSI's or such Subsidiary's business, in good repair and condition, normal wear and tear excepted, and from time to time make, and cause each such Subsidiary to make necessary repairs thereto, and renewals and replacements thereof so that each Borrower's, FSI's or such Subsidiary's Properties shall be fully and efficiently preserved and maintained. . Subject to Section 5.6.1, each Borrower and FSI shall promptly make, or cause to be made, all modifications, additions and adjustments to the Eligible Inventory as may from time to time be required by any Governmental Authority having jurisdiction over the operation, safety or use thereof. . From time to time as may be necessary (in the event that such information is not otherwise delivered by Borrowers or FSI to Agent or Lenders pursuant to this Agreement), so long as there are Obligations outstanding hereunder, disclose to Agent in writing any material matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described by any Borrower or FSI in this Agreement or any of the other Loan Documents (including all Schedules and Exhibits hereto or thereto) or which is necessary to correct any information set forth or described by Borrowers or FSI hereunder or thereunder or in connection herewith which has been rendered inaccurate thereby. . In addition to the obligations and documents which this Agreement expressly requires Borrowers or FSI to execute, deliver and perform, each Borrower or FSI shall execute, deliver and perform, and shall cause FSI's Subsidiaries to execute, deliver and perform, any and all further acts or documents which Agent or Lenders may reasonably require to effectuate the purposes of this Agreement or any of the other Loan Documents. . Each Borrower shall, unless otherwise directed in writing by Agent, cause all remittances made by the obligor under any Lease to be made to a lock box (the "Lockbox") maintained with FUNB pursuant to the Lockbox Agreement. Unless otherwise directed by Agent in writing, all invoices and other instructions submitted by any Borrower to the obligor relating to Lease payments shall designate the Lockbox as the place to which such payments shall be made. . Each Borrower and FSI shall, and FSI shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in material compliance with all Environmental Laws. . 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS So long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to such Borrower and to itself, covenant and agree as follows: . Each Borrower and FSI shall not create, incur, assume or suffer to exist, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Lien of any nature upon or with respect to any of their respective Property, whether now or hereafter owned, leased or acquired, except (collectively, the "Permitted Liens"): .1 Existing Liens disclosed on Schedule 6.1, provided that the obligations secured thereby are not increased; .2 Liens for Charges if payment shall not at the time be required to be made in accordance with Section 5.4; .3 Liens in respect of pledges, obligations or deposits (a) under workers' compensation laws, unemployment insurance and other types of social security or similar legislation, (b) in connection with surety, appeal and similar bonds incidental to the conduct of litigation, (c) in connection with bid, performance or similar bonds and mechanics', laborers' and materialmen's and similar statutory Liens not then delinquent, or (d) incidental to the conduct of the business of such Borrower, any Marine Subsidiary of such Borrower, FSI or any Owner Trustee or any of FSI's Subsidiaries and which were not incurred in connection with the borrowing of money or the obtaining of advances or credit; provided that the Liens permitted by this Section 6.1.3 do not in the aggregate materially detract from the value of any assets or property of or materially impair the use thereof in the operation of the business of such Borrower, FSI or any Owner Trustee or any of FSI's Subsidiaries; and provided further that the adverse determination of any claim or liability, contingent or otherwise, secured by any of such Liens would not either individually or in the aggregate, with reasonable likelihood, have a Material Adverse Effect; .4 Permitted Rights of Others; and .5 Liens granted in favor of Agent on behalf of Lenders under the TEC AcquiSub Agreement and the security agreement and other loan documents delivered by TEC AcquiSub pursuant thereto. . Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, and FSI shall not permit TEC and TEC AcquiSub to, make any Acquisition or enter into any agreement to make any Acquisition, other than with respect to the purchase of Equipment in the ordinary course of business or the formation or acquisition of a Marine Subsidiary. . Each Borrower and FSI shall not create, incur, assume or suffer to exist, nor permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Indebtedness or Contingent Obligation; provided, however, that this Section 6.3 shall not be deemed to prohibit: .1 The Obligations to Lenders and Agent arising hereunder and under the other Loan Documents; .2 Existing Indebtedness disclosed on Schedule 6.3(a) and anticipated Indebtedness disclosed on Schedule 6.3(b); .3 Indebtedness of any Subsidiary of FSI, provided that such Indebtedness is non-recourse as to FSI, TEC and TEC AcquiSub; .4 The acquisition of goods, supplies or merchandise on normal trade credit; .5 The endorsement of negotiable instruments received in the ordinary course of any Borrower's business as presently conducted; .6 Indebtedness incurred in respect of the deferred purchase price for an item of Equipment, but only to the extent that the incurrence of such Indebtedness is customary in the industry with respect to the purchase of this type of equipment (provided that such Indebtedness shall only be permitted under this clause (d) if, taking into account the incurrence of such Indebtedness, the Borrower incurring such Indebtedness shall not be in violation of any of the financial covenants set forth in Section 7 if measured as of the date of incurrence as determined by GAAP); .7 Any Guaranty Obligations of any Borrower in the form of performance guaranties undertaken on behalf of a Marine Subsidiary of such Borrower in favor of the charter party in connection with the leasing of a marine vessel on a time charter; and .8 Contingent Obligations (but excluding specifically Guaranty Obligations which shall be prohibited) of FSI solely in its capacity as a general partner or manager of the Equipment Growth Funds. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, use the proceeds of any Loan except for the purpose set forth in Recital D, above, and shall not, and shall not permit any such Marine Subsidiary or such Owner Trustee to, use the proceeds to repay any loans or advances made by any other Person. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, sell, assign or otherwise dispose of, any of its or their respective assets, except for full, fair and reasonable consideration, or enter into any sale and leaseback agreement covering any of its or their respective fixed or capital assets. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower to, enter into any transaction of merger, consolidation or recapitalization, directly or indirectly, whether by operation of law or otherwise, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, Property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, Property or assets of, or stock or other evidence of beneficial ownership of, any Person, except (a) sales of Equipment in the ordinary course of business (for the purposes of this Section 6.6, with respect to any Borrower and any Marine Subsidiary of such Borrower, ordinary course of business shall refer to the business of the Equipment Growth Funds and all Marine Subsidiaries, collectively), and (b) any Subsidiary of FSI (other than TEC AcquiSub) may be merged or consolidated with or into FSI or any wholly-owned Subsidiary of FSI, or be liquidated, wound up or dissolved, or all or substantially all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to, FSI or any wholly-owned Subsidiary of FSI; provided that, in the case of such a merger or consolidation, FSI or such wholly-owned Subsidiary shall be the continuing or surviving corporation. . Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates on terms that are less favorable to such Borrower or such Marine Subsidiary than those that might be obtained at the time from Persons who are not such Affiliates. . Each Borrower and FSI shall not, and FSI shall not permit any of its existing Subsidiaries to, engage in any business materially different than the business currently engaged in by such Person. . Each Borrower shall not make, pay or set apart any funds for the payment of distribution to its partners or members if such distribution would cause or result in an Event of Default or Potential Event of Default. . Each Borrower and FSI shall not take or omit to take any action, which act or omission would, with the lapse of time, or otherwise constitute (a) a default, event of default or Event of Default under any of the Loan Documents or (b) a default or an event of default under any other material agreement, contract, lease, license, mortgage, deed of trust or instrument to which either is a party or by which either or any of their Properties or assets is bound, which default or event of default would, with reasonable likelihood, have a Material Adverse Effect. . If any Borrower or FSI or any of their ERISA Affiliates incurs any obligation to contribute to any Pension Plan, then such Borrower or FSI, as the case may be, shall not (a) terminate, or permit such ERISA Affiliate to terminate, any Pension Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect or (b) make or permit such ERISA Affiliate to make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower and FSI shall not use or authorize others to use any Lender's name or marks in any publication or medium, including, without limitation, any prospectus, without such Lender's advance written authorization. . Each Borrower and FSI shall not change their fiscal year end from December 31, nor make any change in their accounting treatment and reporting practices except as permitted by GAAP; provided, however, that should any Borrower or FSI change its accounting treatment or reporting practices in a way that would cause a change in the calculation, or in the results of a calculation, of any of the financial covenants set forth in Section 7, below, then such Borrower or FSI, as applicable, shall continue to calculate such covenants as if such accounting treatment or reporting practice had not been changed unless otherwise agreed to by Requisite Lenders. . Each Borrower and FSI shall not, shall not cause to occur and shall not permit any amendment, modification or supplement of or to any of the terms or provisions of such Borrower's Limited Partnership Agreement or, in the case of Income Fund I, its Operating Agreement, which amendment, modification or supplement would affect, limit or otherwise impair such Borrower's ability to pay the Obligations or perform its obligations under this Agreement or any of the other Loan Documents. . 7. FINANCIAL COVENANTS OF BORROWER AND FSI Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each Borrower and as to itself, covenant and agree that, so long as the Commitments hereunder shall be available, and until full, complete and indefeasible payment and performance of the Obligations, including, without limitation, all Loans evidenced by the Notes, unless Requisite Lenders shall otherwise consent in writing, Borrowers and FSI shall perform the following financial covenants. Each Borrower and FSI agree and understand that (except as expressly provided herein) all covenants under this Section 7 shall be subject to quarterly compliance or compliance as of the date of any request for a Loan pursuant to Section 3.2.1 (as measured on the last day of each fiscal quarter of such Borrower, or FSI, as the case may be, or as of the date of any request for a Loan pursuant to Section 3.2.1), and in each case review by Lenders of the respective fiscal quarter's consolidated financial statements delivered to Agent by each Borrower and FSI pursuant to Section 5.1; provided, however, that the following financial covenants shall apply only as to those Borrowers requesting a Loan or as to which a Loan remains outstanding. . Each Borrower shall maintain a Funded Debt Ratio of not greater than 0.5:1.0. . Each Borrower shall maintain a Debt Service Ratio of not less than 1.75:1.0. . FSI shall maintain a Consolidated Tangible Net Worth of not less than $20,000,000. . The Equipment Growth Funds of which FSI is the sole general partner shall maintain aggregate unrestricted cash balances of $10,000,000. . 8. EVENTS OF DEFAULT AND REMEDIES . As to any Borrower, the occurrence of any one or more of the following shall constitute an Event of Default for each such Borrower individually: . Such Borrower, any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI fails to pay any sum due to Lenders or Agent arising under this Agreement, the Note of such Borrower or any of the other Loan Documents when and as the same shall become due and payable, whether by acceleration or otherwise and such failure shall not have been cured to Lenders' satisfaction within five (5) calendar days; or . (a) Such Borrower, any Marine Subsidiary of such Borrower, FSI, TEC, TEC AcquiSub or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower defaults in the repayment of any principal of or the payment of any interest on any Indebtedness of such Borrower, any such Marine Subsidiary, FSI, TEC, TEC AcquiSub or any such Owner Trustee, respectively, or breaches any term of any evidence of such Indebtedness or defaults in any payment in respect of any Contingent Obligation (excluding, as to FSI, any Contingent Obligation of FSI arising solely as a result of FSI's status as a general partner of any Person other than such Borrower), in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, or such Borrower, any Marine Subsidiary, FSI, TEC, TEC AcquiSub or any Owner Trustee breaches or violates any term or provision of any evidence of such Indebtedness or Contingent Obligation or of any such loan agreement, mortgage, indenture, guaranty or other agreement relating thereto if the effect of such breach is to permit acceleration under the applicable instrument, loan agreement, mortgage, indenture, guaranty or other agreement and such failure shall not have been cured within the applicable cure period, or there is an acceleration under the applicable instrument, loan agreement, mortgage, indenture, guaranty or other agreement; or (b) PLMI defaults in the repayment of any principal of or the payment of any interest on any Indebtedness or defaults in any payment in respect of any Contingent Obligation, in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, or PLMI breaches or violates any term or provision of any evidence of such Indebtedness or Contingent Obligation or of any such loan agreement, mortgage, indenture, guaranty or other agreement relating thereto with the result that such Indebtedness or Contingent Obligation becomes or is caused to become then due and payable in its entirety, whether by acceleration of otherwise; or . Such Borrower or FSI fails or neglects to perform, keep or observe any of the covenants contained in Sections 2.1.3, 5.2, 5.3, 5.9, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.13, or any of the financial covenants contained in Section 7 of this Agreement; or . Any representation or warranty made by or on behalf of such Borrower or FSI in this Agreement or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false, misleading or incomplete in any material respect when made; or . Except as provided in Sections 8.1.1 and 8.1.3, such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI fails or neglects to perform, keep or observe any covenant or provision of this Agreement or of any of the other Loan Documents or any other document or agreement executed by such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI in connection therewith and the same has not been cured to Requisite Lenders' satisfaction within thirty (30) calendar days after such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI shall become aware thereof, whether by written notice from Agent or any Lender or otherwise; or . Such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders shall (a) cease to be Solvent, (b) admit in writing its inability to pay its debts as they mature, (c) make an assignment for the benefit of creditors, (d) apply for or consent to the appointment of a receiver, liquidator, custodian or trustee for it or for a substantial part of its Properties or business, or such a receiver, liquidator, custodian or trustee otherwise shall be appointed and shall not be discharged within sixty (60) days after such appointment; or . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders or any order, judgment or decree shall be entered against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders decreeing its dissolution or division; provided, however, with respect to an involuntary petition in bankruptcy, such petition shall not have been dismissed within sixty (60) days after the filing of such petition; or . There shall have been a change in the assets, liabilities, financial condition, operations, affairs or prospects of such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders which, in the reasonable determination of Requisite Lenders has, either individually or in the aggregate, had a Material Adverse Effect; or . There shall be a money judgment, writ or warrant of attachment or similar process entered or filed against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI which (net of insurance coverage) remains unvacated, unbonded, unstayed or unpaid or undischarged for more than sixty (60) days (whether or not consecutive) or in any event later than five (5) calendar days prior to the date of any proposed sale thereunder, which, together with all such other unvacated, unbonded, unstayed, unpaid and undischarged judgments or attachments against such Borrower or any Marine Subsidiary of such Borrower exceeds in the aggregate $1,000,000; against FSI exceeds in the aggregate $500,000; against TEC or TEC AcquiSub exceeds in the aggregate $500,000; or against any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI exceeds in the aggregate $1,000,000; or against any combination of the foregoing Persons exceeds in the aggregate $1,000,000; or . Any of the Loan Documents shall for any reason other than the full, complete and indefeasible satisfaction of the Obligations thereunder cease to be, or be asserted by such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI not to be, a legal, valid and binding obligation of such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI, respectively enforceable against such Person in accordance with its terms; or . The occurrence of any "Event of Default" as defined under the TEC AcquiSub Agreement or any other loan or security document related to the TEC AcquiSub Agreement; or . The occurrence of any "Event of Default" as defined under the AFG Agreement or any other loan or security document related to the AFG Agreement; or . FSI shall cease to be the sole general partner or the sole manager, as applicable, of such Borrower, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower; or . Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries shall cease to be the purchaser of Eligible Inventory for such Requesting Borrower. . A criminal proceeding shall have been filed in any court naming any Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI as a defendant for which forfeiture is a potential penalty under applicable federal or state law which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect; or . Any Governmental Authority enters a decree, order or ruling ("Government Action") which will materially and adversely affect any Borrower's, any Marine Subsidiary of such Borrower's, FSI's, TEC's, TEC AcquiSub's or PLMI's financial condition, operations or ability to perform or pay such party's obligations arising under this Agreement or any instrument or agreement executed pursuant to the terms of this Agreement or which will similarly affect any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI. Such Borrower or FSI shall have thirty (30) days from the earlier of the date (a) Borrower or FSI, as applicable, first discovers it is the subject of Government Action or (b) a Lender or any agency gives notice of Government Action to take such steps as are necessary to obtain relief from the Government Action. For the purpose of this paragraph, "relief from Government Action" means to discharge or to obtain a dismissal of or release or relief from (i) any Government Action so that the affected party or parties do not incur monetary liability (A) of more than $1,000,000 in the case of any Borrower or any Marine Subsidiary of such Borrower, (B) of more than $500,000 in the case of FSI, (C) of more than $500,000 in the case of TEC, (D) of more than $250,000 in the case of TEC AcquiSub, (E) of more than $1,000,000 in the case of PLMI, or (F) of more than $1,000,000, in the aggregate, in the case of any combination of the foregoing Persons, or (ii) any disqualification of or other limitation on the operation of any Borrower, any Marine Subsidiary of such Borrower, FSI, TEC, TEC AcquiSub and PLMI, or any of them, which in the reasonable determination of Requisite Lenders may have a Material Adverse Effect; or . Any Governmental Authority, including, without limitation, the SEC, shall enter a decree, order or ruling prohibiting the Equipment Growth Funds from releasing or paying to FSI any funds in the form of management fees, profits or otherwise which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect. . An Event of Default may be waived only with the written consent of Requisite Lenders, or if expressly provided, of all Lenders. Any Event of Default so waived shall be deemed to have been cured and not to be continuing; but no such waiver shall be deemed a continuing waiver or shall extend to or affect any subsequent like default or impair any rights arising therefrom. . Upon the occurrence and continuance of any Event of Default or Potential Event of Default, Lenders shall have no further obligation to advance money or extend credit to or for the benefit of the defaulting Borrower or any other Borrower, regardless of whether such Event of Default or Potential Event of Default has occurred with respect to such Borrower or another Borrower. In addition, upon the occurrence and during the continuance of an Event of Default, except an Event of Default arising under Section 8.1.11 hereof (the remedies for which shall be limited to those set forth in the preceding paragraph), Lenders or Agent, on behalf of Lenders, may, as to such defaulting Borrower, or as to all Borrowers should such Event of Default result from the actions or inactions of FSI, at the option of Requisite Lenders, do any one or more of the following, all of which are hereby authorized by each Borrower and FSI: .1 Declare all or any of the Obligations of such Borrower under this Agreement, the Note of such Borrower, the other Loan Documents and any other instrument executed by such Borrower pursuant to the Loan Documents to be immediately due and payable, and upon such declaration such obligations so declared due and payable shall immediately become due and payable; provided that if such Event of Default is under part 8.1.6 or 8.1.7 of Section 8.1, then all of the Obligations of each Borrower shall become immediately due and payable forthwith without the requirement of any notice or other action by Lenders or Agent; .2 Terminate this Agreement as to any future liability or obligation of Agent or Lenders as to such Borrower or as to each Borrower if such Event of Default results from the actions, inactions or violation of any covenant of or by FSI (excluding, as to FSI, Events of Default under Section 8.1.2 arising in relation to Contingent Obligation of FSI arising solely as a result of FSI's status as a general partner of any Person other than such Borrower); and .3 Exercise in addition to all other rights and remedies granted hereunder, any and all rights and remedies granted under the Loan Documents or otherwise available at law or in equity. . 4 Set-Off .1 During the continuance of an Event of Default, any deposits or other sums credited by or due from any Lender to any Borrower or FSI (exclusive of deposits in accounts expressly held in the name of third parties or held in trust for benefit of third parties) may be set-off against the Obligations of such Borrower and any and all other liabilities, due or existing or hereafter arising and owing by such Borrower or FSI to Lenders. Each Lender agrees to notify promptly Borrowers and FSI and Agent of any such set-off; provided, that the failure to give such notice shall not affect the validity of any such set-off. .2 Each Lender agrees that if it shall, whether by right of set-off, banker's lien or similar remedy pursuant to Section 8.4.1, obtain any payment as a result of which the outstanding and unpaid principal portion of the Commitments of such Lender shall be less than such Lender's Pro Rata Share of the outstanding and unpaid principal portion of the aggregate of all Commitments, such Lender receiving such payment shall simultaneously purchase from each other Lender a participation in the Commitments held by such Lenders so that the outstanding and unpaid principal amount of the Commitments and participations in Commitments of such Lender shall be in the same proportion to the unpaid principal amount of the aggregate of all Commitments then outstanding as the unpaid principal amount under the Commitments of such Lender outstanding immediately prior to receipt of such payment was to the unpaid principal amount of the aggregate of all Commitments outstanding immediately prior to such Lender's receipt of such payment; provided, however, that if any such purchase shall be made pursuant to this Section 8.4.2 and the payment giving rise thereto shall thereafter be recovered, such purchase shall be rescinded to the extent of such recovery and the purchase price restored without interest. Each Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Commitment deemed to have been so purchased may exercise any and all rights of set-off, banker's lien or similar remedy with respect to any and all moneys owing by Borrower to such Lender as fully as if such Lender held a Commitment in the amount of such participation. . The enumeration of the rights and remedies of Agent and Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by Agent and Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Agent and Lenders in exercising any right, power or privilege shall operate as a waiver hereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default or Potential Event of Default. No course of dealing between any Borrower, FSI, Agent, or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the Loan Documents or to constitute a waiver of any Event of Default or Potential Event of Default. . 9. AGENT . Each of the Lenders hereby irrevocably designates and appoints First Union National Bank of North Carolina as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes First Union National Bank of North Carolina as the Agent for such Lender to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against Agent. To the extent any provision of this Agreement permits action by Agent, Agent shall, subject to the provisions of this Section 9, take such action if directed in writing to do so by Requisite Lenders. . Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. . Neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or for any failure of any Borrower to perform its obligations hereunder or thereunder. Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the Properties, books or records of any Borrower. . Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrowers), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any promissory note issued pursuant to this Agreement as the owner thereof for all purposes unless such promissory note shall have been transferred in accordance with Section 11.10 hereof. Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of Requisite Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action except for its own gross negligence or willful misconduct. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of Requisite Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders. . Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Potential Event of Default hereunder unless Agent has received notice from a Lender or any Borrower referring to this Agreement, describing such Event of Default or Potential Event of Default and stating that such notice is a "notice of default". In the event that Agent receives such a notice, Agent shall promptly give notice thereof to Lenders. The Agent shall take such action with respect to such Event of Default or Potential Event of Default as shall be reasonably directed by Requisite Lenders; provided that unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Potential Event of Default as it shall deem advisable in the best interests of Lenders. . Each Lender expressly acknowledges that neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by Agent hereinafter taken, including any review of the affairs of Borrower, shall be deemed to constitute any representation or warranty by Agent to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of each Borrower and FSI and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of each Borrower and FSI. Except for notices, reports and other documents expressly required to be furnished to the Lenders by Agent hereunder or by the other Loan Documents, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of each Borrower and FSI which may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. . Each Lender agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrowers and without limiting the obligation of Borrowers to do so), ratably according to the respective amounts of their Pro Rata Share of the Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's bad faith, gross negligence or willful misconduct. The agreements in this Section 9.7 shall survive the repayment of the Loans and all other amounts payable hereunder. . Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Borrower or FSI as though Agent were not Agent hereunder. With respect to Advances made or renewed by it, Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" and "Lenders" shall include Agent in its individual capacity. . Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Borrowers; provided, however, that the retiring Agent shall continue to serve until a successor Agent shall have been selected and approved pursuant to this Section 9.9. Upon any such notice, Agent shall have the right to appoint a successor Agent; provided, however, that if such successor shall not be a signatory to this Agreement, such appointment shall be subject to the consent of Requisite Lenders. Agent may be replaced by Requisite Lenders, with or without cause; provided, however, that any successor agent shall be subject to Borrowers' consent, which consent shall not be unreasonably withheld. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. . 10. EXPENSES AND INDEMNITIES . Borrowers and Lenders agree that, as the following costs, expenses, charges and other disbursements benefit each Borrower and as such costs, expenses, charges and other disbursements cannot easily be ratably allocated to the account of any Borrower or Borrowers, each Borrower, unless otherwise specified in this Section 10.1, shall pay, as its Obligation, promptly on demand, and in any event within thirty (30) days of the invoice date therefor, (a) all costs, expenses, charges and other disbursements (including, without limitation, all reasonable attorneys' fees and allocated expenses of outside counsel and in-house legal staff) incurred by or on behalf of Agent or any Lender in connection with the preparation of the Loan Documents and all amendments and modifications thereof, extensions thereto or substitutions therefor, and all costs, expenses, charges or other disbursements incurred by or on behalf of Agent or any Lender (including, without limitation all reasonable attorney's fees and allocated expenses of outside counsel and in-house legal staff) in connection with the furnishing of opinions of counsel (including, without limitation, any opinions requested by Lenders as to any legal matters arising hereunder) and of Borrowers' performance of and compliance with all agreements and conditions contained herein or in any of the other Loan Documents on its part to be performed or complied with; (b) all other costs, expenses, charges and other disbursements incurred by or on behalf of Agent or any Lender in connection with the negotiation, preparation, execution, administration, continuation and enforcement of the Loan Documents, and the making of the Loans hereunder; (c) all costs, expenses, charges and other disbursements (including, without limitation, all reasonable attorney's fees and allocated expenses of outside counsel and in-house legal staff) incurred by or on behalf of Agent or any Lender in connection with the assignment or attempted assignment to any other Person of all or any portion of any Lender's interest under this Agreement pursuant to Section 11.10; and (d) regardless of the existence of an Event of Default or Potential Event of Default, all legal, appraisal, audit, accounting, consulting or other fees, costs, expenses, charges or other disbursements incurred by or on behalf of Agent or any Lender in connection with any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lenders, Agent, any Borrower or any other Person) seeking to enforce any Obligations of, or collecting any payments due from, any Borrower under this Agreement and the Notes, all of which amounts shall be deemed to be part of the Obligations; provided, however, that Lenders shall be entitled to collect the full amount of such costs, expenses, charges and other disbursements only once. Notwithstanding anything to the contrary contained in this Section 10.1, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, all appraisals of the Eligible Inventory shall be at the expense of Lenders. If an Event of Default or Potential Event of Default shall have occurred and be continuing, such appraisals shall be at the expense of the Requesting Borrower. . Whether or not the transactions contemplated hereby shall be consummated: . Each Borrower, as to itself, and FSI, jointly and severally as to itself and each Borrower, shall pay, indemnify, and hold each Lender, Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable attorney's fees and the allocated cost of in-house counsel) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Documents, or the transactions contemplated hereby and thereby, and with respect to any investigation, litigation or proceeding (including any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of debtors or any appellate proceeding) related to this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that Borrowers and FSI shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. . .2 Environmental Indemnity (a) Each Borrower, to the extent of its pro rata share of ownership of Property involved in any investigation, litigation or proceeding, as set forth below, and FSI hereby jointly and severally agree to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable attorneys' fees and the allocated cost of in-house counsel and of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim arising out of or related to any Property owned, leased or operated by such Borrower. No action taken by legal counsel chosen by Agent or any Lender in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall (except for actions which constitute fraud, willful misconduct, gross negligence or material violations of law) vitiate or in any way impair Borrowers' or FSI's obligation and duty hereunder to indemnify and hold harmless Agent and each Lender. Agent and all Lenders agree to use reasonable efforts to cooperate with Borrowers respecting the defense of any matter indemnified hereunder, except insofar as and to the extent that their respective interests may be adverse to Borrowers' or FSI's in Agent's or such Lender's sole discretion. (b) In no event shall any site visit, observation, or testing by Agent or any Lender be deemed a representation or warranty that Hazardous Materials are or are not present in, on, or under the site, or that there has been or shall be compliance with any Environmental Law. Neither Borrowers, FSI nor any other Person is entitled to rely on any site visit, observation, or testing by Agent or any Lender. Except as otherwise provided by law, neither Agent nor any Lender owes any duty of care to protect Borrowers, or any one of them, or any other Person against, or to inform Borrowers or any other party of, any Hazardous Materials or any other adverse condition affecting any site or Property. Neither Agent nor any Lender shall be obligated to disclose to Borrowers, FSI or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by Agent or any Lender. . The obligations in this Section 10.2 shall survive payment of all other Obligations. At the election of any Indemnified Person, Borrowers shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's reasonable discretion, at the sole cost and expense of Borrowers, which cost and expense shall be allocated to Borrowers according to such Borrower's pro rata share of ownership of any Property in relation to which such obligations arise. All amounts owing under this Section 10.2 shall be paid within thirty (30) days after written demand. . 11. MISCELLANEOUS . All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of the Loan Documents and the making of the Loans hereunder. . No failure or delay on the part of Agent or any Lender in the exercise of any power, right or privilege under this Agreement, the Note or any of the other Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. . Except as otherwise provided in this Agreement, any notice or other communication herein required or permitted to be given shall be in writing and may be delivered in person, with receipt acknowledged, or sent by telex, facsimile, telecopy, computer transmission or by United States mail, registered or certified, return receipt requested, or by Federal Express or other nationally recognized overnight courier service, postage prepaid and confirmation of receipt requested, and addressed as set forth on the signature pages to this Agreement or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which the same shall have been personally delivered, with receipt acknowledged, or sent by telex, facsimile, telecopy or computer transmission (with appropriate answerback), three (3) Business Days after the same shall have been deposited in the United States mail or on the next succeeding Business Day if the same has been sent by Federal Express or other nationally recognized overnight courier service. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. . Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. . Whenever possible, each provision of this Agreement, the Note and each of the other Loan Documents shall be interpreted in such a manner as to be valid, legal and enforceable under the applicable law of any jurisdiction. Without limiting the generality of the foregoing sentence, in case any provision of this Agreement, the Note or any of the other Loan Documents shall be invalid, illegal or unenforceable under the applicable law of any jurisdiction, the validity, legality and enforceability of the remaining provisions, or of such provision in any other jurisdiction, shall not in any way be affected or impaired thereby. . 6 Entire Agreement; Construction; Amendments And Waivers .1 This Agreement, the Notes and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement among Borrowers, Lenders and Agent and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. .2 This Agreement is the result of negotiations between and has been reviewed by each Borrower, FSI, and each Lender executing this Agreement as of the Closing Date and Agent and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrowers, FSI, Lenders or Agent. Borrowers, FSI, Lenders and Agent agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrowers', FSI's any Lender's or Agent's actual intentions. .3 No amendment, modification, discharge or waiver of or consent to any departure by any Borrower or FSI from, any provision in this Agreement or any of the other Loan Documents relating to (a) the definition of "Borrowing Base" or "Requisite Lenders," (b) any increase of the amount of any Commitment, (c) any reduction of principal, interest or fees payable hereunder, (d) any postponement of any date fixed for any payment or prepayment of principal or interest hereunder or (e) this Section 11.6.3 shall be effective without the written consent of all Lenders. Any and all other amendments, modifications, discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Requisite Lenders. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower or FSI in any case shall entitle any Borrower or FSI to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent effected in accordance with this Section 11.6 shall be binding upon each Lender then party hereto and each subsequent Lender, on Borrower, and on FSI. . All covenants, agreements, representations and warranties made herein by each Borrower or FSI shall, notwithstanding any investigation by Lenders or Agent be deemed to be material to and to have been relied upon by Lenders. . Lenders shall be under no obligation to marshall any assets in favor of any Borrower or any other person or against or in payment of any or all of the Obligations. To the extent that any Borrower makes a payment or payments to Lenders or Agent, or Lenders or Agent, on behalf of Lenders, enforce their or its Liens or exercises their or its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under Title 11 of the United States Code or under any other similar federal or state law, common law or equitable cause, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred. . All sums payable by Borrowers or FSI pursuant to this Agreement, the Note or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. . 10 Binding Effect, Assignment .1 This Agreement, the Note and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto and thereto and their respective successors and assigns, except that no Borrower nor FSI may assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of each Lender. Each Lender shall (a) have the right in accordance with this Section 11.10 to sell and assign to any Eligible Assignee all or any portion of its interest (provided that any such partial assignment shall not be for a principal amount of less than Five Million Dollars ($5,000,000)) under this Agreement, the Notes and the other Loan Documents, together with a ratable interest in the AFG Agreement and the TEC AcquiSub Agreement and the related Notes and other Loan Documents (as separately described and defined in those agreements), subject to the prior written consent of the affected Borrower, which consent shall not be unreasonably withheld, and (b) to grant any participation or other interest herein or therein, except that each potential participant to which a Lender intends to grant any rights under Sections 2.9, 2.10, 5.1 or 10.2 shall be subject to the prior written consent of the affected Borrower, which consent shall not be unreasonably withheld; provided, however, that no such sale, assignment or participation grant shall result in requiring registration under the Securities Act of 1933, as amended, or qualification under any state securities law. .2 Subject to the limitations of this Section 11.10.2, each Lender may sell and assign, from time to time, all or any portion of its Pro Rata Share of the Commitments to any of its Affiliates or, with the approval of the affected Borrower and FSI (which approval shall not be unreasonably withheld), to any other financial institution acceptable to Agent, subject to the assumption by such assignee of the share of the Commitments so assigned. The assignment to such Affiliate or other financial institution shall be evidenced by an Assignment and Assumption in the form of Exhibit I ("Assignment and Acceptance") executed by the assignor Lender (hereinafter from time to time referred to as the "Assignor Lender") and such Affiliate or other financial institution (which, upon such assignment shall become a Lender hereunder (hereinafter from time to time referred to as the "Assignee Lender")). The Assignment and Assumption need not include any of the economic or financial terms upon which such Assignee Lender receives the assignment from the Assignor Lender, and such terms need not be disclosed to or approved by such Borrower or FSI; provided only that such terms do not diminish the obligations undertaken by such Assignee Lender in the Assignment and Assumption or increase the obligations of Borrowers or FSI under this Agreement. Upon execution of such Assignment and Assumption, (a) the definition of "Commitments" in Section 1 hereof and the Pro Rata Shares set forth therein shall be deemed to be amended to reflect each Lender's share of the Commitments, giving effect to the assignment and (b) the Assignee Lender shall, from the effective date of the instrument of assignment and assumption, be subject to all of the obligations, and entitled to all of the rights, of a Lender hereunder, except as may be expressly provided to the contrary in the Assignment and Assumption. To the extent the obligations hereunder of the Assignor Lender are assumed by the Assignee Lender, the Assignor Lender shall be relieved of such obligations. Upon the assignment of any interest by any Assignor Lender pursuant to this Section 11.10.2, such Assignor Lender agrees to supplement Schedule 1.1 to show the date of such assignment, the Assignor Lender, the Assignee Lender, the Assignee Lender's address for notice purposes and the amount of the Commitments so assigned. .3 Subject to the limitations of this Section 11.10.3, any Lender may also grant, from time to time, participation interests in the interests of such Lender under this Agreement, the Notes and the other Loan Documents to any other financial institution without notice to, or approval of, any Borrower or FSI. The grant of such a participation interest shall be on such terms as the granting Lender determines are appropriate, provided only that (a) the holder of such participation interest shall not have any of the rights of a Lender under this Agreement except, if the participation agreement expressly provides, rights under Sections 2.9, 2.10, 5.1 and 10.2, and (b) the consent of the holder of such a participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than, if the participation agreement expressly provides, those which (i) increase the monetary amount of any Commitment, (ii) decrease any fee or any other monetary amount payable to Lenders, or (iii) extend the date upon which any monetary amount is payable to Lenders. . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto or thereto, delivery of each such counterpart to Agent. . Borrowers and FSI recognize that, in the event any Borrower or FSI fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, the Notes or any of the other Loan Agreements, any remedy at law may prove to be inadequate relief to Lenders or Agent; therefore, Borrowers and FSI agree that Lenders or Agent, if Lenders or Agents so request, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. . EACH BORROWER AND FSI HEREBY AGREE THAT EACH SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR AGENT, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR ANY ACT OR OMISSION TO ACT BY ANY LENDER OR AGENT WITH RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH PROMPT NOTICE TO AGENT WITH REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY. . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, EACH BORROWER AND FSI HEREBY AGREE THAT EACH SHALL NOT SEEK FROM LENDERS OR AGENT, UNDER ANY THEORY OF LIABILITY, INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY PUNITIVE DAMAGES. . The relationship between Borrowers and FSI, on the one hand, and Lenders and Agent, on the other, is, and at all time shall remain solely that of a borrower and lenders. Neither Lenders nor Agent shall under any circumstances be construed to be partners or joint venturers of Borrowers or FSI or any of their Affiliates; nor shall Lenders nor Agent under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrowers or FSI or any of their Affiliates, or to owe any fiduciary duty to any Borrower or any of its Affiliates. Lenders and Agent do not undertake or assume any responsibility or duty to Borrowers or FSI or any of their Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrowers or any of their Affiliates of any matter in connection with its or their Property, any collateral held by Agent or any Lender or the operations of Borrowers or FSI or any of their Affiliates. Borrowers and each of their Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by any Lender or Agent in connection with such matters is solely for the protection of Lenders and Agent and neither Borrowers nor any Affiliate is entitled to rely thereon. . Each Borrower and FSI agrees that its liability hereunder shall be the immediate, direct, and primary obligation of such Borrower or FSI, as the case may be, and shall not be contingent upon the Agent's or any Lender's exercise or enforcement of any remedy it may have against any other Borrower, FSI or any other person, or against any collateral or any security for the Obligations. Without limiting the generality of the foregoing, the Obligations shall remain in full force and effect without regard to and shall not be impaired or affected by, nor shall such Borrower or FSI be exonerated or discharged by, any of the following events: .1 Insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, death, liquidation, winding up or dissolution of any Borrower or any guarantor of the Obligations of any Borrower; .2 Any limitation, discharge, or cessation of the liability of any other Borrower or any guarantor for the Obligations of such other Borrower due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of the documents evidencing the Obligations of such other Borrower or any guaranty of the Obligations of such other Borrower; .3 Any merger, acquisition, consolidation or change in structure of any Borrower or any guarantor of the Obligations of any Borrower or any sale, lease, transfer or other disposition of any or all of the assets, shares or interests in or of any Borrower or any guarantor of the Obligations of any Borrower; .4 Any assignment or other transfer, in whole or in part, of any Lender's interests in and rights under this Agreement or any of the other Loan Documents, including, without limitation, any assignment or other transfer, in whole or in part, of Banks' interests in and to any collateral; .5 Any claim, defense, counterclaim or setoff, other than that of prior performance, that any Borrower or any guarantor of the Obligations of any Borrower may have or assert, including, but not limited to, any defense of incapacity or lack of corporate or other authority to execute any documents relating to the Obligations of any Borrower or any collateral; .6 Agent's or any Lender's amendment, modification, renewal, extension, cancellation or surrender of any agreement, document or instrument relating to this Agreement, the Obligations of any Borrower or any collateral, or any exchange, release, or waiver of any collateral; .7 Agent's or any Lender's exercise or nonexercise of any power, right or remedy with respect to the Obligations of any Borrower or any collateral, including, but not limited to, the compromise, release, settlement or waiver with or of any Borrower or any other person; .8 Agent's or any Lender's vote, claim, distribution, election, acceptance, action or inaction in any bankruptcy case related to the Obligations of any Borrower or any collateral; and .9 Any impairment or invalidity of any collateral or any failure to perfect any of Agent's liens thereon. . Each Borrower and FSI hereby expressly waives (a) diligence, presentment, demand for payment and protest affecting any other Borrower's or FSI's liability under the Loan Documents; (b) discharge due to any disability of any Borrower or FSI; (c) any defenses of any other Borrower or FSI to obligations under the Loan Documents not arising under the express terms of the Loan Documents or from a material breach thereof by Agent or any Lender which under applicable law has the effect of discharging any other Borrower from the Obligations of any Borrower as to which this Agreement is sought to be enforced; (d) the benefit of any act or omission by Agent or any Lender which directly or indirectly results in or aids the discharge of any other Borrower from any of the Obligations of any such Borrower by operation of law or otherwise; (e) all notices whatsoever, including, without limitation, notice of acceptance of the incurring of the Obligations of any Borrower; (f) any right it may have to require Agent or any Lender to disclose to it any information that Agent or Lenders may now or hereafter acquire concerning the financial condition or any circumstances that bear on the risk of nonpayment by any other Borrower, including the release of such other Borrower from its Obligations hereunder; and (g) any requirement that Agent and Lenders exhaust any right, power or remedy or proceed against any other Borrower or any other security for, or any guarantor of, or any other party liable for, any of the Obligations of any Borrower, or any portion thereof (including without limitation any requirements set forth in Section 26-7 of the North Carolina General Statutes). Each Borrower specifically agrees that it shall not be necessary or required, and Borrowers shall not be entitled to require, that Agent or any Lender (i) file suit or proceed to assert or obtain a claim for personal judgment against any other Borrower for all or any part of the Obligations of any Borrower; (ii) make any effort at collection or enforcement of all or any part of the Obligations of any Borrower from any Borrower; (iii) foreclose against or seek to realize upon any collateral or any other security now or hereafter existing for all or any part of the Obligations of any Borrower; (iv) file suit or proceed to obtain or assert a claim for personal judgment against any Borrower or any guarantor or other party liable for all or any part of the Obligations of any Borrower; (v) exercise or assert any other right or remedy to which Agent or any Lender is or may be entitled in connection with the Obligations of any Borrower or any security or guaranty relating thereto to assert; or (vi) file any claim against assets of one Borrower before or as a condition of enforcing the liability of any other Borrower under this Agreement or the Notes. . Except as otherwise expressly provided in any of the Loan Documents, in all respects, including all matters of construction, validity and performance, this Agreement and the Obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. . Each Borrower and FSI hereby irrevocably consent to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Note and the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. Each Borrower hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by Agent or any Lender in connection with this Agreement or the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations, on behalf of itself or its Property, in the manner specified in Section 11.3. Nothing in this Section 11.19 shall affect the right of the Agent or any Lender to serve legal process in any other manner permitted by applicable law or affect the right of Agent or any Lender to bring any action or proceeding against any Borrower or its properties in the courts of any other jurisdictions. . This Agreement is not intended to be, and shall not be construed to create, a novation or accord and satisfaction, and, except as otherwise provided herein, the Growth Fund Agreement, as executed and delivered on September 27, 1995, shall remain in full force and effect. Without limiting the generality of the foregoing, Section 10.2 of the Growth Fund Agreement shall survive the effectiveness of the Agreement and shall remain enforceable against both the Borrowers and EGF II. . TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND FSI, BY EXECUTION HEREOF, AND THE AGENT AND EACH LENDER, BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND EACH LENDER TO ACCEPT THIS AGREEMENT AND THE NOTES EXECUTED AND DELIVERED BY EACH BORROWER PURSUANT TO THIS AGREEMENT. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWER PLM EQUIPMENT GROWTH FUND III BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND IV BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND V BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer Notice to any Borrower to be sent to: [Insert name of Borrower] c/o PLM Financial Services, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: J. Michael Allgood Vice President of Finance and Chief Financial Officer Telephone: 415/974-1399 Telecopy: 415/882-0860 With a copy to: TEC AcquiSub, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: General Counsel Telephone: 415/896-1138 Facsimile: 415/882-0860 FSI PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood ----------------------------------- J. Michael Allgood Chief Financial Officer Notice to be sent to: PLM Financial Services, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: J. Michael Allgood Vice President of Finance and Chief Financial Officer Telephone: 415/974-1399 Telecopy: 415/882-0860 AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ----------------------------------- Bill A. Shirley Vice President Notice to be sent to: First Union National Bank of North Carolina One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson, Director Telephone: 704/383-5164 Facsimile: 704/374-4092 LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ----------------------------------- Bill A. Shirley Vice President Notice to be sent to: First Union National Bank of North Carolina One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson, Director Telephone: 704/383-5164 Facsimile: 704/374-4092 The undersigned acknowledges and agrees to Section 11.20 of this Agreement. PLM EQUIPMENT GROWTH FUND II BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------------- J. Michael Allgood Chief Financial Officer SCHEDULE A (COMMITMENTS) Pro Rate Lender Commitment Share First Union National Bank $35,000,000 35/35 x 100% of North Carolina EX-10 4 AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT (Growth Funds) THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT dated as of November 5, 1996 (the "Amendment"), is entered into by and among PLM EQUIPMENT GROWTH FUND IV, a California limited partnership ("EGF IV"), PLM EQUIPMENT GROWTH FUND V, a California limited partnership ("EGF V"), PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income Fund I") (EGF IV, EGF V, EGF VI, EGF VII and Income Fund I each individually being a "Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general partner, in the case of EGF IV, EGF V, EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB"), FLEET BANK, N.A. ("Fleet") and each other financial institution which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one financial institution individually, a "Lender," and collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Credit Agreement. RECITAL in respect of pledA.Annual Borrowers, PLM Equipment Growth Fund III, a California limited partnership ("EGF III"), Lenders and Agent have entered into that certain Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996 (the "Credit Agreement"), by and among Borrowers, EGF III, FUNB (as the sole Lender party thereto), and Agent pursuant to which Lenders have agreed to extend and make available to Borrowers certain advances of money. B. Borrowers desire that Lenders and Agent amend the Credit Agreement to increase the aggregate amount of the Commitments by $15,000,000, to extend the Commitment Termination Date, to remove EGF III as a borrower under the revolving credit facility, to add PLM International, Inc., a Delaware corporation ("PLMI"), as a guarantor of FSI's Obligations under the Credit Agreement and FSI's Guaranty Obligations under its Guaranty, as more fully set forth herein. C. FUNB is currently the sole Lender under the Credit Agreement. On the terms and conditions set forth below, Fleet desires to become a Lender under the Credit Agreement and to make Loans to Borrowers with an aggregate Commitment of $15,000,000. D. Subject to the representations and warranties of Borrowers and upon the terms and conditions set forth in this Amendment, Lenders and Agent are willing to so amend the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows: 2. AMENDMENTS. The Credit Agreement is hereby amended as follows: 1 Section 1.1 Defined Terms (Commitment). The definition of "Commitment" set forth in Section 1.1 of the Credit Agreement is amended by deleting Schedule A to the Credit Agreement entitled "Commitments" referred to in such definition in its entirety and replacing such Schedule A with the Schedule A attached to this Amendment, and the respective Commitment of each Lender in effect from and after the effective date of this Amendment shall be equal to the amount set forth opposite such Lender's name in Schedule A. 1.2 Section 1.1 Defined Terms (Commitment Termination Date). The definition of "Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Commitment Termination Date" means October 3, 1997. 2 Section 1.1 Defined Terms (Guaranty). The definition of "Guaranty" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Guaranty" means, collectively, that certain Guaranty dated as of June 30, 1993, executed by FSI in favor of Lenders and Agent and that certain Guaranty dated as of November 5, 1996, executed by PLMI in favor of Lenders and Agent. 3 Section 1.1 Defined Terms (Responsible Officer). The definition of "Responsible Officer" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Responsible Officer" means for (i) FSI, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI having authority to request Advances or perform other duties required hereunder, and (ii) Borrowers, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI as the sole general partner of EGF IV, EGF V, EGF VI or EGF VII, as the case may be, or sole manager of Income Fund I, in each case having authority to request Advances or perform other duties required hereunder. 4 Section 1.1 Defined Terms (Requisite Lenders). The definition of "Requisite Lenders" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Requisite Lenders" means any combination of Lenders whose combined Pro Rata Share (and voting interest with respect thereto) of all amounts outstanding under this Agreement, or, in the event there are no amounts outstanding, the Commitments, is greater than sixty-six and two-thirds percent (66 2/3%) of all such amounts outstanding or the total Commitments, as the case may be; provided, however, that in the event there are only two (2) Lenders, Requisite Lenders means both Lenders. 5 Section 2.2.1 Revolving Facility. The portion of Section 2.1.1 of the Credit Agreement preceding subsection (a) is deleted and replaced with the following: 2.1.1 Revolving Facility. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers set forth herein, Lenders hereby agree to make Advances (as defined below) of immediately available funds to Borrowers, on a revolving basis, from the Closing Date until the Business Day immediately preceding the commitment Termination Date, in the aggregate principal amount outstanding at any time not to exceed the lesser of (a) the total Commitments for the Facility less the aggregate principal amount then outstanding under the TEC AcquiSub Agreement and under the AFG Agreement or (b) for any one Borrower, its respective Borrowing Base or (c) $35,000,000 (such lesser amount being the "Maximum Availability"), as more fully set forth in this Section 2.1.1. The obligation of Borrowers to repay the Advances made to any Borrower shall be several but not joint. 6 Section 2.1.1(a)(i) Facility Commitments. Section 2.1.1(a)(i) of the Credit Agreement is deleted and replaced with the following: (i) On the Funding Date requested by any Borrower (the "Requesting Borrower"), after such Borrower shall have satisfied all applicable conditions precedent set forth in Section 3, each Lender shall advance immediately available funds to Agent (each such advance being an "Advance") evidencing such Lender's Pro Rata Share of a loan ("Loan"). Agent shall immediately advance such immediately available funds to such Borrower at the Designated Deposit Account (or such other deposit account at FUNB or such other financial institution as to which such Borrower and Agent shall agree at least three (3) Business Days prior to the requested Funding Date) on the Funding Date with respect to such Loan. The Requesting Borrower shall pay interest accrued on the Loan at the rates and in the manner set forth in Section 2.1.1(b). Subject to the terms and conditions of this Agreement, the unpaid principal amount of each Loan and all unpaid interest accrued thereon, together with all other fees, expenses, costs and other sums chargeable to the Requesting Borrower incurred in connection therewith shall be due and payable no later than the Maturity Date of such Loan. Each Loan advanced hereunder by each Lender shall be evidenced by the Requesting Borrower's revolving promissory note substantially in the form of Exhibit A (each a "Note"). 7 Section 3.3.1 General Partner or Manager. Section 3.3.1 of the Credit Agreement is deleted and replaced with the following: 3.3.1 General Partner Or Manager. FSI shall have ceased to be the sole general partner of any of EGF IV, EGF V, EGF VI or EGF VII or the sole manager of Income Fund I, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower. 8 Section 5 Annual Statements. Section 5.1.2 of the Credit Agreement is deleted and replaced with the following: Annual Statements. As ( in the case of such consolidated financial statements, accompanied by a report thereon of an independent public accountant of recognized national standing selected by each Borrower and PLMI and satisfactory to Agent, which report shall contain an opinion which is not qualified in any manner or which otherwise is satisfactory to Requisite Lenders, in their sole discretion, and (B) in the case of such consolidating financial statements, certified by the Chief Financial Officer or Corporate Controller of PLMI; 9 Section 6 Borrowers' and FSI's Negative Covenants. Section 6 of the Credit Agreement is deleted and replaced with the following: SECTION 6. BORROWERS' AND FSI'S NEGATIVE COVENANTS. So long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to such Borrower and to itself, covenants and agrees as follows: 6.1 Liens; Negative Pledges; And Encumbrances. Each Borrower shall not create, incur, assume or suffer to exist, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Lien of any nature upon or with respect to any of their respective Property, whether now or hereafter owned, leased or acquired, except (collectively, the "Permitted Liens"): 6.1.1 Existing Liens disclosed on Schedule 6.1, provided that the obligations secured thereby are not increased; 6.1.2 Liens for Charges if payment shall not at the time be required to be made in accordance with Section 5.4; (a) in respect of pledg( under workers' compensation laws, unemployment insurance and other types of social security or similar legislation, (b) in connection with surety, appeal and similar bonds incidental to the conduct of litigation, (c) in connection with bid, performance or similar bonds and mechanics', laborers' and materialmen's and similar statutory Liens not then delinquent, or (d) incidental to the conduct of the business of such Borrower, any Marine Subsidiary of such Borrower, or any Owner Trustee or any of FSI's Subsidiaries and which were not incurred in connection with the borrowing of money or the obtaining of advances or credit; provided that the Liens permitted by this Section 6.1.3 do not in the aggregate materially detract from the value of any assets or property of or materially impair the use thereof in the operation of the business of such Borrower, any Owner Trustee or any of FSI's Subsidiaries; and provided further that the adverse determination of any claim or liability, contingent or otherwise, secured by any of such Liens would not either individually or in the aggregate, with reasonable likelihood, have a Material Adverse Effect; 6.1.4 Permitted Rights of Others; and 6.1.5 Liens granted in favor of Agent on behalf of Lenders under the TEC AcquiSub Agreement and the security agreement and other loan documents delivered by TEC AcquiSub pursuant thereto. 6.2 Acquisitions. Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, and FSI shall not permit TEC and TEC AcquiSub to, make any Acquisition or enter into any agreement to make any Acquisition, other than with respect to the purchase of Equipment in the ordinary course of business or the formation or acquisition of a Marine Subsidiary. 6.3 Limitations On Indebtedness. Each Borrower shall not create, incur, assume or suffer to exist, nor permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Indebtedness or Contingent Obligation; provided, however, that this Section 6.3 shall not be deemed to prohibit: 6.3.1 The Obligations to Lenders and Agent arising hereunder and under the other Loan Documents; 6.3.2 Existing Indebtedness disclosed on Schedule 6.3(a) and anticipated Indebtedness disclosed on Schedule 6.3(b); 6.3.3 Indebtedness of any Subsidiary of FSI, provided that such Indebtedness is non-recourse as to FSI, TEC and TEC AcquiSub; 6.3.4 The acquisition of goods, supplies or merchandise on normal trade credit; 6.3.5 The endorsement of negotiable instruments received in the ordinary course of any Borrower's business as presently conducted; 6.3.6 Indebtedness incurred in respect of the deferred purchase price for an item of Equipment, but only to the extent that the incurrence of such Indebtedness is customary in the industry with respect to the purchase of this type of equipment (provided that such Indebtedness shall only be permitted under this Section 6.3.6 if, taking into account the incurrence of such Indebtedness, the Borrower incurring such Indebtedness shall not be in violation of any of the financial covenants set forth in Section 7 if measured as of the date of incurrence as determined by GAAP); and 6.3.7 Any Guaranty Obligations of any Borrower in the form of performance guaranties undertaken on behalf of a Marine Subsidiary of such Borrower in favor of the charter party in connection with the leasing of a marine vessel on a time charter; 6.4 Use Of Proceeds. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, use the proceeds of any Loan except for the purpose set forth in Recital C, above, and shall not, and shall not permit any such Marine Subsidiary or such Owner Trustee to, use the proceeds to repay any loans or advances made by any other Person. 6.5 Disposition Of Assets. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, sell, assign or otherwise dispose of, any of its or their respective assets, except for full, fair and reasonable consideration, or enter into any sale and leaseback agreement covering any of its or their respective fixed or capital assets. 6.6 Restriction On Fundamental Changes. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower to, enter into any transaction of merger, consolidation or recapitalization, directly or indirectly, whether by operation of law or otherwise, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, Property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, Property or assets of, or stock or other evidence of beneficial ownership of, any Person, except sales (a) of Equipment in the ordinary course of business (for the purposes of this Section 6.6, with respect to any Borrower and any Marine Subsidiary of such Borrower, ordinary course of business shall refer to the business of the Equipment Growth Funds and all Marine Subsidiaries, collectively) and (b) any Subsidiary of FSI (other than TEC AcquiSub) may be merged or consolidated with or into FSI or any wholly-owned Subsidiary of FSI, or be liquidated, wound up or dissolved, or all or substantially all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to, FSI or any wholly-owned Subsidiary of FSI; provided that, in the case of such a merger or consolidation, FSI or such wholly-owned Subsidiary shall be the continuing or surviving corporation. 6.7 Transactions With Affiliates. Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates on terms that are less favorable to such Borrower or such Marine Subsidiary than those that might be obtained at the time from Persons who are not such Affiliates. 6.8 Maintenance Of Business. Each Borrower shall not, and FSI shall not permit any of its existing Subsidiaries to, engage in any business materially different than the business currently engaged in by such Person. 6.9 No Distributions. Each Borrower shall not make, pay or set apart any funds for the payment of distribution to its partners or members if such distribution would cause or result in an Event of Default or Potential Event of Default. 6.10 Events Of Default. Each Borrower and FSI shall not take or omit to take any action, which act or omission would, with the lapse of time, or otherwise constitute (a) a default, event of default or Event of Default under any of the Loan Documents or (b) a default or an event of default under any other material agreement, contract, lease, license, mortgage, deed of trust or instrument to which either is a party or by which either or any of their Properties or assets is bound, which default or event of default would, with reasonable likelihood, have a Material Adverse Effect. 6.11 ERISA. If any Borrower or FSI or any of their ERISA Affiliates incurs any obligation to contribute to any Pension Plan, then such Borrower or FSI, as the case may be, shall not (a) terminate, or permit such ERISA Affiliate to terminate, any Pension Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect or (b) make or permit such ERISA Affiliate to make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect. 6.12 No Use Of Any Lender's Name. Each Borrower and FSI shall not use or authorize others to use any Lender's name or marks in any publication or medium, including, without limitation, any prospectus, without such Lender's advance written authorization. 6.13 Certain Accounting Changes. Each Borrower shall not change its fiscal year end from December 31, nor make any change in its accounting treatment and reporting practices except as permitted by GAAP; provided, however, that should any Borrower change its accounting treatment or reporting practices in a way that would cause a change in the calculation, or in the results of a calculation, of any of the financial covenants set forth in Section 7, below, then such Borrower shall continue to calculate such covenants as if such accounting treatment or reporting practice had not been changed unless otherwise agreed to by Requisite Lenders. 6.14 Amendments Of Limited Partnership Or Operating Agreements. Each Borrower shall not, shall not cause to occur and shall not permit any amendment, modification or supplement of or to any of the terms or provisions of such Borrower's Limited Partnership Agreement or, in the case of Income Fund I, its Operating Agreement, which amendment, modification or supplement would affect, limit or otherwise impair such Borrower's ability to pay the Obligations or perform its obligations under this Agreement or any of the other Loan Documents. 11 Note. The forms of Note set forth as Exhibits A-1 through A-6 of the Credit Agreement are deleted and replaced with Exhibit A attached hereto. 12 Borrowing Base Certificate. The Borrowing Base Certificate set forth as Exhibit B of the Credit Agreement is deleted and replaced with Exhibit B attached hereto. 3. LIMITATIONS ON AMENDMENTS. 1 The amendments set forth in Section 1, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with any Loan Document. 2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived or amended, are hereby ratified and confirmed and shall remain in full force and effect. 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and Agent to enter into this Amendment, each Borrower represents and warrants to each Lender and Agent as follows: (a) Immediately after giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Default or Event of Default, or event which constitutes a Potential Event of Default, has occurred and is continuing; (b) Each Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party; (c) The articles of incorporation, bylaws and other organizational documents of each Borrower delivered to each Lender as a condition precedent to the effectiveness of the Credit Agreement are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; (d) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of such Borrower; (e) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting such Borrower, (ii) the articles of incorporation, bylaws, or other organizational documents of such Borrower, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on such Borrower, or (iv) any contractual restriction binding on or affecting such Borrower; (f) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on such Borrower, except as already has been obtained or made; and (g) This Amendment has been duly executed and delivered by each Borrower and is the binding Obligation of each Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. 5. REAFFIRMATION. Each Borrower hereby reaffirms its Obligations under each Loan Document to which it is a party. 6. EFFECTIVENESS. This Amendment shall become effective upon the last to occur of: (a) The execution and delivery of this Amendment, whether the same or different copies, by Borrowers, Lenders and Agent. (b) The execution and delivery of the Acknowledgement of Amendment and Reaffirmation of Guaranty attached to this Amendment by FSI. (c) Receipt by Agent, in form and substance satisfactory to Lenders, of a Guaranty of FSI's Obligations under the Credit Agreement and FSI's Guaranty Obligations under its Guaranty dated as of the date hereof executed by PLMI in favor of Lenders and Agent. (d) Receipt by Agent, in form and substance satisfactory to Lenders, of a certified copy of the records of all actions taken by each Borrower, FSI and PLMI, including all corporate resolutions of each Borrower, FSI and PLMI authorizing or relating to the execution, delivery and performance of this Amendment and the Guaranty, as the case may be. (e) Receipt by Agent, in form and substance satisfactory to Lenders, of Notes executed by each Borrower in favor of each Lender in the stated principal amount equal to each Lender's Pro Rata Share of the Commitments, which Notes will replace and supersede the existing Notes dated May 31, 1996, issued by Borrowers to Agent. (f) Receipt by Agent, in form and substance satisfactory to Lenders, of a supplemental fee letter (the "Supplemental Fee Letter") and a supplemental agent's side letter (the "Supplemental Agent's Side Letter"), each duly executed by each Borrower, AFG and TEC AcquiSub, and the Supplemental Arrangement Fee and the Supplemental Agent's Fee described in the Supplemental Fee Letter and the Supplemental Agent's Side Letter, respectively. (g) Receipt by Agent of an originally executed legal opinion of Stephen Peary, general counsel of each Borrower and Guarantor, on behalf of each Borrower and Guarantor, in form and substance satisfactory to Lenders, dated as of the effective date of this Amendment and addressed to Lenders, together with copies of any officer's certificate or legal opinion of other counsel or law firm specifically identified and expressly relied upon by such counsel. (h) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 2 to Amended and Restated Warehousing Credit Agreement dated as of the date hereof by and among TEC AcquiSub, Lenders and Agent. (i) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 1 to Warehousing Credit Agreement dated as of the date hereof by and among AFG, Lenders and Agent. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. 8. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. EACH BORROWER HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF. 9. FLEET AS LENDER. Upon the execution and delivery of this Amendment, Fleet shall be a Lender and a party to the Credit Agreement, and shall be entitled to the rights and benefits of the Loan Documents and, to the extent of the percentage equivalent of Fleet's Commitment under the Facility divided by the aggregate Commitment of all Lenders under the Facility, have the rights and obligations of a Lender thereunder. 10. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. BORROWERS PLM EQUIPMENT GROWTH FUND IV BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND V BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood -------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer FSI PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood -------------------------- J. Michael Allgood Chief Financial Officer LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ------------------------- Bill A. Shirley Vice President FLEET BANK, N.A. By /s/ Felix Herrera ---------------------- Printed Name: Felix Herrera Title: Vice President AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By /s/ Bill A. Shirley ----------------------- Bill A. Shirley Vice President ACKNOWLEDGEMENT OF AMENDMENT AND REAFFIRMATION OF GUARANTY (Growth Funds) 11. PLM Financial Services, Inc. ("FSI") hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Amendment No. 1 to Second Amended and Restated Warehousing Credit Agreement ("Amendment"). 12. FSI hereby consents to this Amendment and agrees that its Guaranty of the Obligations of Borrower under the Credit Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Amendment or any other document or instrument delivered in connection herewith. 13. FSI represents and warrants that, after giving effect to this Amendment, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood ---------------------------- J. Michael Allgood Chief Financial Officer SCHEDULE A COMMITMENTS LENDER COMMITMENT PRO RATA SHARE First Union National Bank $35,000,000 35/50 x 100% of North Carolina Fleet Bank, N.A. $15,000,000 15/50 x 100% EXHIBIT A REVOLVING PROMISSORY NOTE [LENDER] $____________ San Francisco, California Date: November 5, 1996 [BORROWER], a _____________________ (the "Borrower"), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of [LENDER] ("[_________________]"), in lawful money of the United States of America, the aggregate outstanding principal amount of [_________________]'s Pro Rata Share of all Loans made to the Borrower under the Credit Agreement referred to below, payable in the amounts, on the dates and in the manner set forth below. This revolving promissory note (this "Note") is one of the Notes referred to and defined in that certain Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, as amended by that certain Amendment No. 1 to Second Amended and Restated Warehousing Credit Agreement dated as of even date herewith (as the same may from time to time be further amended, modified, supplemented, renewed, extended or restated, the "Credit Agreement") by and among the Borrower, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, Professional Lease Management Income Fund I, L.L.C., PLM Financial Services, Inc. ("FSI"), First Union National Bank Of North Carolina, solely in its capacity as agent (solely in such capacity, the "Agent") for [_________________] and such other financial institutions as shall from time to time become "Lenders" pursuant to Section 11.10 of the Credit Agreement (such entities, together with their respective successors and assigns being collectively referred to herein as the "Lenders"), and the Lenders, and amends, restates and replaces that certain Revolving Promissory Note dated May 31, 1996, executed and delivered by the Borrower in favor of and to the Agent, on behalf of the Lenders. All capitalized terms used but not defined herein shall have the same meaning as given to them in the Credit Agreement. 14. Principal Payments. Subject to the terms and conditions of the Credit Agreement, including, without limitation, terms relating to mandatory prepayments of principal (Section 2.2.3), the entire principal amount outstanding under each Loan evidenced by this Note shall be due and payable on the Maturity Date with respect to such Loan, with any and all unpaid and not previously due and payable principal amounts under each such Loan being due and payable on the Commitment Termination Date. 15. Interest Rate. The Borrower further promises to pay interest on the sum of the daily unpaid principal balance of all Loans evidenced by this Note outstanding on each day in lawful money of the United States of America, from the Closing Date until all such principal amounts shall have been repaid in full, which interest shall be payable at the rates per annum and on the dates determined pursuant to the Credit Agreement. 16. Place Of Payment. All amounts payable hereunder shall be payable to the Agent, on behalf of [_________________], at the office of First Union National Bank of North Carolina, One First Union Center, 301 South College Street, Charlotte, North Carolina 28288, Attention: Elisha Sabido, or such other place of payment as may be specified by the Agent in writing. 17. Application Of Payments; Acceleration. Payments on this Note shall be applied in the manner set forth in the Credit Agreement. The Credit Agreement contains provisions for acceleration of the maturity of the Loans upon the occurrence of certain stated events and also provides for mandatory and optional prepayments of principal prior to the stated maturity on the terms and conditions therein specified. Each Advance made by [_________________] to the Borrower constituting [_________________]'s Pro Rata Share of a Loan made to the Borrower pursuant to the Credit Agreement shall be recorded by [_________________] on its books and records. The failure of [_________________] to record any such Advance or any repayment or prepayment made on account of the principal balance thereof shall not limit or otherwise affect the obligation of the Borrower under this Note and under the Credit Agreement to pay the principal, interest and other amounts due and payable thereunder. 18. Default. The Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on or within five (5) calendar days after the date the same becomes due and payable shall constitute a default under this Note. Upon the occurrence of a default hereunder or an Event of Default under the Credit Agreement with respect to the Borrower, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of the Required Lenders, be immediately collectible by the Lenders and the Agent pursuant to the Credit Agreement and applicable law. 19. Waivers. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred by or on behalf of the Lenders, including, without limitation, reasonable attorneys' fees, costs and other expenses as provided in the Credit Agreement. 20. Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 21. Successors And Assigns. The provisions of this Note shall inure to the benefit of and be binding on any successor to the Borrower and shall extend to any holder hereof. BORROWER [BORROWER] By: PLM FINANCIAL SERVICES, INC., a Delaware corporation its general partner/manager By J. Michael Allgood Chief Financial Officer EXHIBIT B BORROWING BASE CERTIFICATE [Insert Borrower's Name] __________________, 199_ First Union National Bank of North Carolina, as Agent One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson Re: Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 to Second Amended and Restated Warehousing Agreement dated as of November 5, 1996 (as the same may from time to time be further amended, modified, supplemented or restated, the "Credit Agreement"), by and among 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, a California limited partnership, Professional Lease Management Income Fund I, L.L.C., a Delaware limited partnership (any one individually, a "Borrower," and collectively "Borrowers"), PLM Financial Services, Inc., a Delaware corporation and the sole general partner or manager of the Borrowers ("FSI"), First Union National Bank of North Carolina ("FUNB"), Fleet Bank, N.A. and each other lender whose name is set forth on the signature pages to the Agreement or which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Agreement (any one individually, a "Lender," and collectively, "Lenders") and FUNB as Agent, on behalf of Lenders Ladies and Gentlemen: Reference is made to the Credit Agreement. The capitalized terms used in this Borrowing Base Certificate and not defined herein have the same meaning as given to them in the Credit Agreement. Pursuant to Section 5.1.3 of the Credit Agreement, the undersigned Borrower hereby certifies as follows: 22. The information furnished in Schedule 1 attached hereto was true, accurate and complete as of the last day of the calendar month immediately preceding the date of this Borrowing Base Certificate; provided, however, that if such certificate is being delivered with respect to a requested borrowing of a Loan under the Credit Agreement, then if expressly provided, so stated in Schedule 1, such information shall be true, accurate and complete through the requested Funding Date. The calculation of each item is subject to the more detailed description thereof set forth in the Credit Agreement. 23. Except as disclosed in Schedule 2 attached hereto, the representations and warranties set forth in Section 4 of the Credit Agreement are true, accurate and complete as of the date hereof; provided, however, that those representations and warranties expressly referring to another date shall be deemed to be made as of such date; and 24. The Borrower does not have knowledge of the existence, as of the date hereof, of any Event of Default or Potential Event of Default, except for such conditions or events listed on Schedule 2 attached hereto and incorporated herein by this reference, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto. IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the undersigned this ____ day of , 199 . [INSERT BORROWER NAME] By: PLM FINANCIAL SERVICES, INC., a Delaware corporation, its general partner/manager By: Printed Name: Title: Received by: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, in its capacity as Agent under the Credit Agreement By: Printed Name: Title: Date: SCHEDULE 1 TO BORROWING BASE CERTIFICATE Dated , 199
Calculated separately for each Borrower: $---------- 1. Fifty percent (50.0%) of the unrestricted cash available for purchase of Eligible Inventory by Borrower 25. The lesser of Line 2(a)(vi) or Line 2(b)(vi): $__________ (a) (i) The aggregate net book value of all Eligible Inventory $__________ (including the item(s) of Eligible Inventory being financed with this Loan if this certificate is supplied in connection with a Loan request) owned of record by Borrower or a Marine Subsidiary or of record by an Owner Trustee for the beneficial interest of Borrower or any Marine Subsidiary .1 The aggregate net book value of all Eligible Inventory listed $__________ in Line 2(a)(i) that is off-lease or that is subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due .2 Fifteen percent (15.0%) of Line 2(a)(i) $__________ .3 The amount, if any, by which Line 2(a)(ii) exceeds Line $__________ 2(a)(iii) .4 Line 2(a)(i) minus Line 2(a)(iv) $__________ .5 Seventy percent (70.0%) of Line 2(a)(v) $__________ or 2 (i) The aggregate net fair market value of all Eligible Inventory $__________ (including the item(s) of Eligible Inventory being financed with this Loan if this certificate is supplied in connection with a Loan request) owned of record by Borrower or a Marine Subsidiary or of record by an Owner Trustee for the beneficial interest of Borrower or any Marine Subsidiary .1 The aggregate net fair market value of all Eligible Inventory $__________ listed in Line 2(b)(i) that is off-lease or that is subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due .2 Fifteen percent (15.0%) of Line 2(b)(i) $__________ .3 The amount, if any, by which Line 2(b)(ii) exceeds Line $__________ 2(b)(iii) .4 Line 2(b)(i) minus Line 2(a)(iv) $__________ .5 Fifty percent (50.0%) of Line 2(b)(v) 3. The aggregate Consolidated Funded Debt of Borrower excluding the $__________ principal amount of any Loans outstanding to Borrower under the Credit Agreement 4. Line 1 plus Line 2 minus Line 3 $__________ NOTE: Lines 1, 2 and 3 to be computed (a) with respect to any requested Loan, as of the requested Funding Date, and (b) with respect to the delivery of any monthly Borrowing Base Certificate to be furnished pursuant to Section 5.1.3, as of the last day of the calendar month for which such Borrowing Base Certificate is furnished (provided, that for the purpose of computing the Borrowing Base under this Line 1, in the event that Borrower or a Marine Subsidiary shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Eligible Inventory, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included only Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Eligible Inventory) 26. Aggregate amount outstanding under TEC AcquiSub Agreement and the AFG $__________ Agreement 27. Aggregate amount outstanding under the Credit Agreement for all $__________ Borrowers (include any amounts to be drawn or proposed to be drawn by any other Borrower as of the date of this certificate and not reflected as outstanding under the Credit Agreement) 28. $50,000,000 less Line 5 plus 6 $__________ 29. Lesser of (a) Line 4 and (b) Line 7 $__________ 30. Lesser of Line 8 and $35,000,000 $__________ 31. Amount request to be advanced (must not be greater than Line 9) $__________
SCHEDULE 2 TO BORROWING BASE CERTIFICATE Dated ________________, 199_ LIST OF EXCEPTIONS Condition(s) or event(s) constituting an Event of Default or Potential Event of Default: Period of existence: Remedial action with respect to such condition or event: EX-24 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Equipment Growth Fund V, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund V, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this __ day of February, 1997. /s/ Douglas P. Goodrich - - ------------------------------------ Douglas P. Goodrich POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Equipment Growth Fund V, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund V, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this __ day of February, 1997. /s/ Robert L. Pagel - - ---------------------------------- Robert L. Pagel POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as General Partner of PLM Equipment Growth Fund V, to comply with the Securities Exchange Act of 1934, as amended (the "Act"), and any rules and regulations thereunder, in connection with the preparation and filing with the Securities and Exchange Commission of annual reports on Form 10-K on behalf of PLM Equipment Growth Fund V, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this __ day of February, 1997. /s/ J. Alec Merriam - - --------------------------------- J. Alec Merriam EX-27 6
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 5,215 0 3,481 (236) 0 0 155,004 (81,541) 98,419 4,222 0 0 0 0 52,296 98,419 0 44,322 0 31,765 0 0 2,789 12,441 0 12,441 0 0 0 12,441 0 0
-----END PRIVACY-ENHANCED MESSAGE-----