-----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, TgntuVTstmmt7gbD/Lqs+mifHu4lmLdAd74zGUNfFJ43sB1OOL7RLLCtskxjgBCb Y9ervztrOCIn+hLUJ3NMFg== 0000857645-98-000001.txt : 19990811 0000857645-98-000001.hdr.sgml : 19990811 ACCESSION NUMBER: 0000857645-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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: 98582717 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, 1997 [ ] 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 on page 45. Total number of pages in this report: 133. 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 limited partnership units (including 2,500,000 option 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 and related 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: (1) 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. All transactions over $1.0 million must be approved by the PLM Credit Review Committee (the "Committee') which is made up of members of PLM's senior management. In determining a lessee's creditworthiness, the Committee will consider, among other factors, the financial statements, internal and external credit ratings, and letters of credit; (2) 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; (3) 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 that 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 operating cash flow from operations (net cash provided by operating activities plus distributions from unconsolidated special-purpose entities) that remains after scheduled principal payments to debt and cash distributions have been made to the partners, will be used to acquire additional equipment throughout the six-year reinvestment phase of the Partnership. Before buying any additional equipment for the Partnership, the General Partner will evaluate the market conditions at the time of acquisition so that the specific equipment will meet the investment objectives of the Partnership; (4) to preserve and protect the value of the portfolio through quality management, maintaining diversity, and constantly monitoring equipment markets. The offering of Partnership units closed on December 23, 1991. As of December 31, 1997, there were 9,086,608 units outstanding. The General Partner contributed $100 for its 5% general partner interest in the Partnership. Beginning in the Partnership's seventh year of operation, which commences January 1, 1999, the General Partner will stop reinvesting cash flow and surplus funds, which, if any, less reasonable reserves, will be distributed to the partners. In the ninth year of operation, the General Partner will begin to liquidate the assets of the Partnership in an orderly fashion, unless the Partnership is terminated earlier upon the 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 operation of the Partnership. Table 1, below, lists the equipment and the cost of the equipment in the Partnership portfolio as of December 31, 1997 (in thousands of dollars): TABLE 1
Units Type Manufacturer Cost - - ------------------------------------------------------------------------------------------------------------------ Owned equipment held for operating leases: 1 Product tanker Kaldnes M/V $ 16,276 5 737-200 Stage II commercial aircraft Boeing 26,405 1 DC-9-32 Stage II commercial aircraft McDonnell Douglas 10,056 2 DHC-8-102 commuter aircraft DeHavilland 7,629 1 DHC-8-300 commuter aircraft DeHavilland 5,748 531 Refrigerated marine containers Various 9,485 2,054 Various marine containers Various 8,107 125 Covered hopper cars Various 2,945 106 Anhydrous ammonia tank cars GATX 2,483 85 Sulphur tank cars ACF/RTC 2,907 73 Tank cars Various 1,917 44 Mill gondola cars Bethlehem Steel 1,248 183 Refrigerated trailers Various 5,557 154 Dry trailers Various 1,878 148 Piggyback refrigerated trailers Oshkosh 2,261 ------------- Total equipment held for operating leases $ 104,902 ============= Investment in equipment owned by unconsolidated special-purpose entities: 0.5 Bulk carrier Nipponkai & Toyama $ 9,705 0.48 Product tanker Boelwerf-Temse 9,492 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 Stage II JT8D aircraft engines Pratt & Whitney 195 Portfolio of aircraft rotables Various 325 0.60 727-200 Stage III commercial aircraft Boeing 3,759 0.25 Equipment on direct finance lease: Two DC-9 Stage III commercial aircraft McDonnell Douglas 2,787 ------------- Total investments $ 39,218 ============= Includes proceeds from capital contributions, undistributed cash flow from operations, and partnership borrowings invested in equipment. Includes costs capitalized 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 program. Jointly owned: EGF V and two affiliated programs. Jointly owned: EGF V and three affiliated programs.
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. As of December 31, 1997, approximately 70% 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 doing business as PLM Trailer Leasing. 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 indirect expenses of the rental yard operations is charged to the Partnership monthly. The lessees of the equipment include but are not limited to: 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. The Partnership's management agreement with IMI are to co-terminate with the dissolution of the Partnership, unless the partners vote to terminate the agreement prior to that date or at the discretion of the General Partner. IMI has agreed to perform all services necessary to manage the 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 2). (C) Competition (1) Operating Leases versus 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 a lessee's balance sheet. The Partnership encounters considerable competition from lessors that utilize full payout leases on new equipment. Full payout leases are leases that have terms equal to the expected economic life of the equipment and 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, which may put the Partnership at a competitive disadvantage. (2) Manufacturers and Equipment Lessors The Partnership competes with equipment manufacturers who offer operating leases and full payout leases. Manufacturers may provide ancillary services that 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), GATX, General Electric Railcar Services Corporation, General Electric Capital Aviation Services Corporation, and other limited partnerships that lease the same types of equipment. (D) Demand The Partnership has investments in transportation-related capital equipment and relocatable environments. Types of capital equipment owned by the Partnership include aircraft, marine vessels, railcars, and trailers. Relocatable environments are functionally self-contained transportable equipment, such as marine containers. Except for those aircraft leased to passenger air carriers, the Partnership's equipment is used to transport materials and commodities, rather than people. The following section describes the international and national markets in which the Partnership's capital equipment operates: (1) Aircraft (a) Commercial Aircraft The international commercial aircraft market experienced another good year in 1997, with a third consecutive year of profits by the world's airlines. Airline managements have continued to emphasize cost reductions and a moderate increase in capacity. However, even the limited volume of new aircraft deliveries has caused the market to change from being in equilibrium at the end of 1996 to having excess supply. This market imbalance is expected to continue, with the number of surplus aircraft increasing from approximately 350 aircraft at the end of 1996 to an estimated 600 aircraft by the end of the decade. The changes taking place in the commercial aircraft market also reflect the impact of noise legislation enacted in the United States and Europe. Between 1997 and the end of 2002, approximately 1,400 Stage II aircraft (Stage II aircraft are aircraft that have been shown to comply with Stage II noise levels prescribed in Federal Aviation Regulation section C36.5) are forecast to be retired, primarily due to noncompliance with Stage III (Stage III aircraft are aircraft that have been shown to comply with Stage III noise levels prescribed in Federal Aviation Regulation section C36.5) noise requirements. This represents about 41% of the Stage II aircraft now in commercial service worldwide. By 2002, about 2,000 (59%) of the current fleet of Stage II aircraft will remain in operational service outside of Stage III-legislated regions or as aircraft that have had hushkits installed so that engine noise levels meet the quieter Stage III requirements. The cost to install a hushkit is approximately $1.5 million, depending on the type of aircraft. All aircraft currently being manufactured meet Stage III requirements. The Partnership's fleet consists primarily of late-model Stage II narrowbody commercial aircraft and Stage II aircraft that have been hush-kitted. The Stage II aircraft either are positioned with air carriers outside of Stage III-legislated areas, are scheduled for Stage III hushkit installation in 1998-99, or are anticipated to be sold or leased outside Stage III areas before the year 2000. Specifically, the Partnership has scheduled some Stage II narrowbody aircraft for sale during 1998. A Stage II narrowbody aircraft that has been hushed to meet Stage III requirements, currently positioned in the United States (U.S.), is also scheduled for sale in 1998. A Stage II narrowbody aircraft now on lease in the U.S. will be sold or leased outside the Stage III-affected areas before the year 2000. The Partnership has entered into agreements to install hushkits on selected late-model Boeing 737-200 Advanced aircraft over the next two years. These modifications are expected to enhance the current and residual value of the aircraft, while allowing them to continue operating in the Stage III-legislated areas of North America. (b) Commuter Aircraft The commuter aircraft market is experiencing a revolution with the successful entry of small regional jets into this market. Major turboprop manufacturers are re-evaluating their programs, and several successful but larger models are now being considered for phase-out. The original concept for regional jets was for them to take over the hub-and-spoke routes served by the larger turboprops in North America, but they are also finding successful niches in point-to-point routes. The introduction of this smaller aircraft has allowed major airlines to shift the regional jets to marginal routes previously operated by narrowbody aircraft, allowing the larger-capacity aircraft to be more efficiently employed in an airline's route system. The Partnership leases commuter aircraft in the 36 to 50 seat turboprop category. These aircraft are all positioned in North America, the fastest-growing market for commuter aircraft in the world. The Partnership's aircraft possess unique performance capabilities, compared to other turboprops, which allow them to readily operate at maximum payloads from unimproved surfaces, hot and high runways, and short runways. The market for turboprops is undergoing rapid change due to the introduction of regional jets. The manufacturer of the Partnership's commuter/regional aircraft has already announced production cutbacks for some types of turboprops, which may adversely affect both demand and near-term values for the Partnership's aircraft. (c) Aircraft Engines and Rotables The demand for spare engines has increased, particularly for the Pratt & Whitney Stage II JT8D engine, which powers many of the Partnership's Stage II commercial aircraft. Aircraft rotables, or components, are replacement spare parts held in inventory by an airline. These parts are components that are removed from an aircraft or engine, undergo overhaul, and are recertified and refit to the aircraft in an "as new" condition. 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, replacement doors, control surfaces, pumps, valves, and other comparable equipment. The Partnership expects to sell this equipment during 1998. (2) Marine Vessels The Partnership owns or has investments with other affiliated programs in small to medium-sized dry bulk vessels and product tankers, which are traded in worldwide markets and carry commodity cargoes. The markets for dry bulk vessels and product tankers took different paths in 1997. Dry bulk markets experienced flat freight rates, with supply increases outrunning demand growth. In the product tanker trades, rates strengthened through most of the year and supply and demand were well balanced. Demand for commodity shipping closely tracks worldwide economic growth patterns; however, economic development alters trade patterns from time to time, causing changes in volume on trade routes. The General Partner operates the Partnership's marine vessels under spot charters, period charters, and pooled-vessel operations. It believes that this operating approach provides the flexibility to adapt to changing demand patterns. Freight rates for dry bulk vessels in 1997 maintained the levels experienced in the fourth quarter of 1996. Freight rates had declined significantly in 1996 until a moderate recovery occurred late in the year due to an increase in grain trade. The size of the overall dry bulk carrier fleet increased by 3%, as measured by the number of vessels, and by 5%, as measured by deadweight tonnage. Scrapping of ships was not a significant factor in 1997: 126 dry bulk ships were scrapped while 247 were delivered. Total dry trade (as measured in deadweight tons) grew by 3% in 1997, versus 1% in 1996. This balance of supply and demand made market conditions soft, providing little foundation for increasing freight rates. Growth in 1998 is expected to be approximately 2%. The majority of growth is forecast to come from grain (2%) and thermal coal (6%). The primary variable in forecasts is Asian growth; if there is some recovery from the economic shake-up of the second half of 1997, then there will be prospects for improvement in 1998. Delivery of ships in 1998 is expected to be about the same as in 1997; however, an increase in scrapping is anticipated to strengthen the market. Current rates do not justify any new construction of dry bulk carriers and there should be a significant drop in orders over the next two years. If growth in demand matches historic averages of around 3%, then the current excess supply should be absorbed by the end of 1999, leading to the possible strengthening of freight rates. Marine Containers The marine container market began 1997 with a continuation of the weakness in industrywide container utilization and rate pressures that had been experienced in 1996. A reversal of this trend began in early spring and continued throughout the remainder of 1997, as utilization returned to the 80% range. Per diem rates did not strengthen, however, since customers resisted attempts to raise daily rental rates. Industrywide consolidation continued in 1997. Late in the year, Genstar, one of the world's largest container leasing companies, announced that it had reached an agreement with SeaContainers, another large container leasing company, whereby SeaContainers will take over the management of Genstar's fleet. Long term, such industrywide consolidation should bring more rationalization to the container leasing market and result in both higher fleetwide utilization and per diem rates. (4) Railcars (a) Pressurized Tank Cars Pressurized tank cars are used primarily in the petrochemical and fertilizer industries to transport liquefied petroleum gas and anhydrous ammonia. The demand for natural gas is anticipated to grow through 1999, as the developing world, former Communist countries, and the industrialized world all increase their energy consumption. World demand for fertilizer is expected to increase, based on an awareness of the necessity of fertilizing crops and improving diets, the shortage of farm land, and population growth in developing nations. Based on ongoing renewals with current lessees, demand for these cars continues to be strong and is projected to remain so during 1998. The utilization rate of the Partnership's fleet of pressurized tank cars was over 98% during 1997. (b) General Purpose (Nonpressurized) Tank Cars General purpose or nonpressurized tank cars are used to transport a wide variety of bulk liquid commodities, such as petroleum fuels, lubricating oils, vegetable oils, molten sulfur, corn syrup, asphalt, and specialty chemicals. Chemical carloadings for the first 45 weeks of 1997 were up 4%, compared to the same period in 1996. The demand for petroleum is anticipated to grow, as the developing world, former Communist countries, and the industrialized world increase energy consumption. The demand for general purpose tank cars in the Partnership's fleet has remained healthy over the last three years, with utilization remaining above 98%. (c) Covered Hopper (Grain) Cars Industrywide, the size of the covered hopper car fleet has increased only 9% over the last 10 years, from a total of 299,172 cars in 1985 to 325,882 cars in 1995. Covered hopper cars accounted for 30% of all new railcar deliveries in 1995 and 50% of new deliveries in 1996. During 1997, there was some downward pressure on rental rates, as demand for covered hopper cars softened somewhat. Grain car loadings decreased 2% compared to the same period in 1996. (d) Mill Gondolas Mill gondolas are typically used to haul scrap steel from processors to steel mills throughout the United States. Recycled scrap steel constitutes nearly all of the raw material used by small steel mills, called minimills. For example, in 1960 minimills produced only 8% of the total steel output in the U.S., but by 1996 that figure had reached 42%. The overall stability of the U.S. economy and relatively steady levels of steel production have strengthened demand for mill gondolas over the last year. In 1997, the national gondola fleet increased from 90,583 to 91,351 cars, a change consistent with the anticipated continuing expansion of demand for steel mill products through 2000, averaging 2.5% to 3% a year. (5) Trailers (a) Intermodal Trailers In all intermodal equipment areas, 1997 was a remarkably strong year. The US inventory of intermodal equipment was approximately 164,000 units in 1997, divided between about 55% intermodal trailers (piggyback) 20 and 45% domestic containers. Trailer loadings increased approximately 4% in 1997 due to a robust economy and a continuing shortage of drivers in over-the-road markets. The expectation is for flat to slightly declining utilization of intermodal trailer fleets in the near future. (b) Over-the-Road Dry Trailers The U.S. over-the-road dry trailer market began to recover in mid-1997, as an oversupply of equipment from 1996 subsided. The strong domestic economy, a continuing focus on integrated logistics planning by American companies, and numerous service problems on Class I railroads contributed to the recovery in the dry van market. In addition, federal regulations requiring antilock brake systems on all new trailers, effective in March 1998, have helped stimulate new trailer production, and the market is anticipated to remain strong in the near future. There continues to be much consolidation of the trailer leasing industry in North America, as the two largest lessors of dry vans now control over 60% of the market. The reduced level of competition, coupled with anticipated continued strong utilization, may lead to an increase in rates. (c) Over-the-Road Refrigerated Trailers The temperature-controlled over-the-road trailer market recovered in 1997; freight levels improved and equipment oversupply was reduced as industry players actively retired older trailers and consolidated fleets. Most refrigerated carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are planning fleet upgrades. In addition, with refrigeration and trailer technologies changing rapidly and industry regulations becoming tighter, trucking companies are managing their refrigerated fleets more effectively. As a result of changes in the refrigerated trailer market, it is anticipated that trucking companies will utilize short-term trailer leases more frequently to supplement their fleets. Such a trend should benefit the Partnership, which generally leases its equipment of this type on a short-term basis from rental yards owned and operated by PLM International subsidiaries. (E) Government Regulations The use, maintenance, and ownership of equipment are regulated by federal, state, local, 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 its removal from service or extensive modification 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 and mobile offshore drilling units that create environmental pollution). This regulation has resulted in higher oil pollution liability insurance. The lessee typically reimburses the Partnership for these additional costs; (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 corrosion criteria). In addition, under U.S. Federal Aviation Regulations, after December 31, 1999, no person shall operate an aircraft to or from any airport in the contiguous United States unless that airplane has been shown to comply with Stage III noise levels. The Partnership has Stage II aircraft that do not meet Stage III requirements; (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 and over-the-road refrigerated trailers); (4) the U.S. Department of Transportation's Hazardous Materials Regulations (which regulate the classification and packaging requirements of hazardous materials and which apply particularly to the Partnership's tank cars). As of December 31, 1997, the Partnership is in compliance with the above governmental regulations. Typically, costs related to extensive equipment modifications to meet government regulations are passed on to the lessee of that equipment. ITEM 2. PROPERTIES The Partnership neither owns nor leases any properties other than the equipment it has purchased for leasing purposes. As of December 31, 1997, 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 along with FSI, TEC, IMI and PLM Securities (the PLM Entities), are named as defendants in a lawsuit filed as a class action on January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch action). The plaintiffs, who filed the complaint on their own and on behalf of all class members similarly situated, are six individuals who allegedly invested in certain California limited partnerships 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 Growth Funds). The complaint asserts eight causes of action against all defendants, as follows: fraud and deceit, suppression, negligent misrepresentation and suppression, intentional breach of fiduciary duty, negligent breach of fiduciary duty, unjust enrichment, conversion, and conspiracy. Additionally, plaintiffs allege a cause of action against PLM Securities for breach of third party beneficiary contracts in violation of the National Association of Securities Dealers rules of fair practice. Plaintiffs allege that each defendant owed plaintiffs and the class certain duties due to their status as fiduciaries, financial advisors, agents, general partner, and control persons. Based on these duties, plaintiffs assert liability against the defendants for improper sales and marketing practices, mismanagement of the Growth Funds, and concealing such mismanagement from investors in the 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. On March 6, 1997, the defendants removed the Koch action from the state court to the United States District Court for the Southern District of Alabama, Southern Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity jurisdiction, following which plaintiffs filed a motion to remand the action to the state court. On September 24, 1997, the district court denied plaintiffs' motion and dismissed without prejudice the individual claims of the California class representative, reasoning that he had been fraudulently joined as a plaintiff. On October 3, 1997, plaintiffs filed a motion requesting that the district court reconsider its ruling or, in the alternative, that the court modify its order dismissing the California plaintiff's claims so that it is a final appealable order, as well as certify for an immediate appeal to the Eleventh Circuit Court of Appeals that part of its order denying plaintiffs' motion to remand. On October 7, 1997, the district court denied each of these motions. In responses to such denial, plaintiffs filed a petition for writ of mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for rehearing and consideration of the full court's order denying the petition for a writ of mandamus, which petition was supplemented by plaintiffs on January 27, 1998. On October 10, 1997, defendants filed a motion to compel arbitration of plaintiffs' claims, based on an agreement to arbitrate contained in the limited partnership agreement of each Growth Fund, and to stay further proceedings pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition, the district court granted the motion on December 8, 1997. On December 15, 1997, plaintiffs filed with the Eleventh Circuit a notice of appeal from the district court's order granting defendants' motion to compel arbitration and to stay the proceedings, and of the district court's September 24, 1997 order denying plaintiffs' motion to remand and dismissing the claims of the California plaintiff. Plaintiffs filed an amended notice of appeal on December 31, 1997. The PLM Entities believe that the allegations of the Koch action are completely without merit and intend to continue to defend this matter vigorously. On June 5, 1997, the PLM Entities were named as defendants in another purported class action filed in the San Francisco Superior Court, San Francisco, California, Case No. 987062 (the Romei action). The plaintiff is an investor in PLM Equipment Growth Fund V, and filed the complaint on her own behalf and on behalf of all class members similarly situated who invested in certain California limited partnerships for which FSI acts as the general partner, including the Growth Funds. The complaint alleges the same facts and the same nine causes of action as in the Koch action, plus five additional causes of action against all of the defendants, as follows: violations of California Business and Professions Code Sections 17200, et seq. for alleged unfair and deceptive practices, constructive fraud, unjust enrichment, violations of California Corporations Code Section 1507, and a claim for treble damages under California Civil Code Section 3345. On July 31, 1997, the PLM Entities filed with the district court for the Northern District of California (Case No. C-97-2847 WHO) a petition under the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims and for an order staying the state court proceedings pending the outcome of the arbitration. In connection with this motion, plaintiff agreed to a stay of the state court action pending the district court's decision on the petition to compel arbitration. By memorandum and order dated October 23, 1997, the district court denied the PLM Entities' petition to compel arbitration. On November 5, 1997, the PLM Entities filed an expedited motion for leave to file a motion for reconsideration of this order, which motion was granted on November 14, 1997. The parties have agreed to have oral argument on the reconsideration motion set for April 23, 1998. The state court action has been stayed pending the district court's decision on this motion. In connection with her opposition to the Company's petition to compel arbitration, on August 22, 1997, the plaintiff filed an amended complaint with the state court alleging two new causes of action for violations of the California Securities Law of 1968 (California Corporations Code Sections 25400 and 25500) and for violation of California Civil Code Section 1709 and 1710. Plaintiff has also served certain discovery requests on defendants. Because of the stay, no response to the amended complaint or to the discovery is currently required. The PLM Entities believe that the allegations of the amended complaint in the Romei action are completely without merit and intend to defend this matter vigorously. 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, 1997. 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 at the close of such year. The remaining interests in the profits and losses and distributions of the Partnership are owned, as of December 31, 1997, by the 9,855 holders of Units in the Partnership. Several secondary exchanges facilitate sales and purchases of limited partnership units. Secondary markets are characterized as having few buyers for limited partnership interests and, therefore, are generally viewed as inefficient vehicles for the sale of limited 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 percentage or 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 redeem a certain number of units each year under the terms of the Partnership's Limited Partnership Agreement, beginning January 1, 1994. If the number of units made available for purchase by limited partners in any calendar year exceeds the number that can be purchased with reinvestment plan proceeds, then the Partnership may, subject to certain terms and conditions, redeem up to 2% of the outstanding units each year. The purchase price to be offered by the Partnership for these 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. As of December 31, 1997, the Partnership agreed to purchase approximately 9,000 units for an aggregate price of approximately $0.1 million. The General Partner anticipates that these units will be repurchased in the first and second quarters of 1998. The General Partner may purchase additional units on behalf of the Partnership in the future. ITEM 6. SELECTED FINANCIAL DATA Table 2, below, lists selected financial data for the Partnership: TABLE 2 For the years ended December 31, 1997, 1996, 1995, 1994, and 1993 (In thousands of dollars, except weighted-average unit amounts)
1997 1996 1995 1994 1993 ------------------------------------------------------------------------------ Operating results: Total revenues $ 41,123 $ 44,322 $ 39,142 $ 44,291 $ 38,476 Net gain (loss) on disposition of equipment 10,990 14,199 3,835 4,920 (584) Loss on revaluation of equipment -- -- -- -- (4,125) Equity in net loss of unconsolidated special-purpose entities (264) (116) -- -- -- Net income (loss) 7,921 12,441 2,045 3,193 (8,443) At year-end: Total assets $ 80,033 $ 98,419 $ 102,109 $ 120,114 $ 135,582 Total liabilities 35,947 46,123 44,092 44,221 43,462 Notes payable 32,000 40,463 38,000 38,000 38,000 Cash distribution $ 15,346 $ 18,083 $ 19,342 $ 19,420 $ 19,430 ` Cash distribution that represent a return of capital $ 7,425 $ 5,642 $ 17,297 $ 16,227 $ 18,460 Per weighted-average of limited partnership unit: Net income (loss) $ 0.79 $ 1.26 $ 0.12 $ 0.24 $ (1.02) Cash distribution $ 1.60 $ 1.87 $ 2.00 $ 2.00 $ 2.00 Cash distribution that represent a return of capital $ 0.81 $ 0.61 $ 1.89 $ 1.76 $ 2.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (A) Introduction Management's discussion and analysis of financial condition and results of operations relates to the financial statements of PLM Equipment Growth Fund V (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. (B) Results of Operations - Factors Affecting Performance (1) Re-leasing and Repricing Activity The exposure of the Partnership's equipment portfolio to re-pricing 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 of transport capacity, desirability of the equipment in the leasing market, market conditions for the particular industry segment in which the equipment is to be leased, and various regulations concerning the use of the equipment. 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 1997 primarily in its trailer, marine vessels, and marine container portfolios. (a) Trailers: The majority of the Partnership's trailer portfolio operates in short-term rental facilities or with 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 were higher than projected due to higher utilization and lease rates. (b) Marine vessels: Certain of the partnership's marine vessels operated in the voyage charter market. 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 contributions due to the higher lease rates in the voyage charter market. Higher revenues were partially offset by the higher operating costs associated with this type of charter. (c) 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 Partnership saw higher re-lease rates earned on the remaining marine containers fleet during 1997. (d) Other: While market conditions and other factors may have had some impact on lease rates in other markets in which the Partnership owns equipment, the majority of this equipment was unaffected. (2) Equipment Liquidations and Nonperforming Lessees Liquidation of Partnership equipment, unless accompanied by immediate replacement of additional equipment earning similar rates (see Reinvestment Risk, below), represents a reduction in the size of the equipment portfolio and may result in reductions of contributions 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 lease terms, can result not only in reductions in contributions, but also may require the Partnership to assume additional costs to protect its interests under the leases, such as repossession or legal fees. (a) Liquidations: During the year, the Partnership received proceeds of approximately $25.8 million from the sale of vessels, aircraft, marine containers, trailers, a jet engine, and a railcar. The sale proceeds represented approximately 52% of the original cost of the assets. By year end, the Partnership had reinvested or reached agreements to reinvest approximately $18.5 million of these proceeds. The remainder was used to pay down debt. (b) Nonperforming lessees: As of December 31, 1997, the lessee of the Partnership's hushkit had been delinquent in lease payments for the full year. The Partnership took an ownership interest in an aircraft as compensation for the past due amounts. This aircraft, now jointly owned with two affiliated Partnerships, along with the attached hushkit, was sold in the first quarter of 1998. (3) 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 the 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 income from operating and finance leases, together with the proceeds from sales of equipment, are intended to enhance financial returns to the partners. During 1997, the Partnership purchased an interest in an entity owning a marine vessel for $9.1 million and reached an agreement to buy an anchor-handling vessel for $9.2 million. The purchase of the anchor-handling vessel is expected to be completed in the first quarter of 1998. During 1997, the Partnership began paying quarterly installments on the principal portion of the senior loan. In addition the Partnership paid down $2.5 million on a short-term borrowing facility used to purchase equipment in 1996. The total amount of $8.5 million accounts for the difference between sale proceeds and reinvested cash. (4) 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. No reductions were required to the carrying value of equipment during 1997, 1996 or 1995. As of December 31, 1997, the General Partner estimated the current fair market value of the Partnership's equipment portfolio, including equipment owned by unconsolidated special-purpose entities (USPEs), to be approximately $100.3 million. (C) 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 and permanent debt financing of $38.0 million. No further capital contributions from original partners are permitted under the terms of the Partnership's limited partnership agreement. The total outstanding debt, currently $32.0 million, can only be increased with borrowings from the short-term Committed Bridge Facility. 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, 1997, the Partnership generated sufficient operating cash to meet its operating obligations, make principal debt payments, and pay distributions. For the year ended December 31, 1997, the Partnership generated $15.5 million in operating cash (net cash provided by operating activities plus cash distributions from unconsolidated special-purpose entities) to meet its operating obligations and maintain the current level of distributions (total 1997 of approximately $15.3 million) to the partners. Pursuant to the terms of the limited partnership agreement, beginning January 1, 1994, if the number of units made available for purchase by limited partners in any calendar year exceeds the number that can be purchased with reinvestment plan proceeds, then the Partnership may, subject to certain terms and conditions, redeem up to 2% of the outstanding limited partnership 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. During 1997, the Partnership repurchased 82,000 units for $0.8 million. As of December 31, 1997, the Partnership agreed to purchase approximately 9,000 units for an aggregate price of approximately $0.1 million. The General Partner anticipates that these units will be repurchased in the first and second quarters of 1998. The General Partner may purchase additional units on behalf of the Partnership in the future. During 1997 the Partnership borrowed $1.6 million from the General Partner for 45 days. The General Partner charged the Partnership market interest rates. Total interest paid to the General Partner was $10,000. The General Partner has entered into a joint $50.0 million credit facility (the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth Fund VI (Fund VI), PLM Equipment Growth & Income Fund VII (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, 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 December 2, 1997 to expire on November 2, 1998. The Partnership, Funds VI and VII, Fund I, and TECAI may collectively borrow up to $35.0 million of the Committed Bridge Facility, and AFG may borrow up to $50.0 million. The Committed Bridge Facility also provides for a $5.0 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the Committed Bridge Facility. Individual borrowings for the Partnership may be outstanding for no more than 179 days, with all advances due no later than November 2, 1998. Interest accrues at either the prime rate or adjusted LIBOR plus 1.625%, at the borrower's 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, 1997, AFG had $23.0 million in outstanding borrowings. No other eligible borrower had any outstanding borrowings. The General Partner believes it will renew the Committed Bridge Facility upon its expiration with similar terms as those in the current Committed Bridge Facility. 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. (D) Results of Operations - Year-to-Year Detailed Comparison (1) Comparison of the Partnership's Operating Results for the Years Ended December 31, 1997 and 1996 (a) Owned Equipment Operations Lease revenues less direct expenses (defined as repair and maintenance, marine equipment operation, and asset-specific insurance expenses) on owned equipment decreased during the year ended December 31, 1997, when compared to the same period of 1996. The following table presents lease revenues less direct expenses by owned equipment type (in thousands of dollars):
For the Years Ended December 31, 1997 1996 --------------------------------- Aircraft and aircraft engines $ 9,304 $ 6,348 Marine vessels 2,650 4,910 Rail equipment 2,062 1,532 Marine containers 2,057 2,790 Trailers 1,918 1,567 Mobile offshore drilling unit -- 1,062
Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were $9.4 million and $0.1 million, respectively, for the year ended December 31, 1997, compared to $6.5 million and $0.1 million, respectively, during the same period of 1996. The increase in aircraft contribution was due to the transfer of two commercial aircraft into the Partnership from unconsolidated special-purpose entities and the purchase of three commercial aircraft and a commuter aircraft during the second and third quarters of 1996. The increase in aircraft contribution caused by these events was offset, in part, by a decrease in the contribution from the aircraft engine that was off lease and subsequently sold during 1997. This engine was on lease during 1996. Marine vessels: Marine vessel lease revenues and direct expenses were $12.8 million and $10.1 million, respectively, for the year ended December 31, 1997, compared to $14.0 million and $9.1 million, respectively, during the same period of 1996. The decrease in marine vessel contribution was primarily due to the sale of two marine vessels during the fourth quarter of 1997. Additionally, the marine vessels liability insurance increased $1.0 million during 1997 when compared to 1996. Rail equipment: Rail equipment lease revenues and direct expenses were $2.5 million and $0.5 million, respectively, for the year ended December 31, 1997, compared to $2.4 million and $0.9 million, respectively, during the same period of 1996. Although the railcar fleet remained relatively the same size for both years, the increase in railcar contribution resulted from a decrease in repairs required on certain of the railcars in the fleet during 1997, when compared to the same period of 1996. Marine containers: Marine container lease revenues and direct expenses were $2.1 million and $17,000, respectively, for the year ended December 31, 1997, compared to $2.8 million and $25,000, respectively, during the same quarter of 1996. The number of marine containers owned by the Partnership has been declining over the past 12 months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container contribution. Trailers: Trailer lease revenues and direct expenses were $2.8 million and $0.8 million, respectively, for the year ended December 31, 1997, compared to $2.0 million and $0.5 million, respectively, during the same period of 1996. The number of trailers that transferred to the PLM-affiliated short-term rental yards increased during 1996, resulting in a larger number of the Partnership's trailers operating in the rental yards during 1997, when compared to the same period of 1996. Trailers earned higher lease rates while in the affiliated short-term rental yards than they earned during the same period of 1996 while they were on term lease; however, the trailers also incurred higher maintenance costs. Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and direct expenses were $1.1 million and $3,000, respectively, for the year ended December 31, 1996. The elimination of the mobile offshore drilling unit contribution during 1997 was due to the sale of this equipment during the second quarter of 1996. (b) Indirect Expenses Related to Owned Equipment Operations Total indirect expenses of $21.4 million for the year ended December 31, 1997 increased from $21.1 million for the same period in 1996. The significant variances are explained as follows: (i) A $0.8 million increase in depreciation and amortization expenses from 1996 levels reflects the purchase of three commercial aircraft and a commuter aircraft, and the transfer of two commercial aircraft from USPEs during 1996; the increase was offset in part by the double-declining balance method of depreciation and the sale of two marine vessels during 1997. (ii) A $0.3 million decrease in bad debt expenses was due to the recovery of receivables previously reserved for as bad debts. (iii) A $0.2 million decrease in interest expense was due to a lower average balance outstanding on the notes payable in 1997 compared to 1996. (c) Net Gain on Disposition of Owned Equipment The net gain on the disposition of equipment for the year ended December 31, 1997 totaled $11.0 million, which resulted from the sale of an aircraft engine, a commuter aircraft, marine containers, trailers, and a railcar, with an aggregate net book value of $4.7 million, for proceeds of $7.8 million, and the sale of two marine vessels with a net book value of $10.9 million for proceeds of $18.0 million. Included in the gain of $7.9 million from the sale of the marine vessels is the unused portion of accrued drydocking of $0.8 million. For the same period in 1996, a $14.2 million net gain resulted from the sale of a mobile offshore drilling unit with a net book value of $10.7 million, for proceeds of $21.3 million, and marine containers, aircraft engines, a commuter aircraft, a trailer and railcars with an aggregate net book value of $5.1 million, for proceeds of $8.7 million. (d) Interest and Other Income Interest and other income decreased $0.7 million for the year ended December 31, 1997, when compared to the same period of 1996. This was partially due to a $0.3 business interruption claim that was received during 1996. No such claim was received during 1997. In addition, interest income decreased $0.3 million due to lower average cash balances available for investment throughout most of 1997, when compared to the same period of 1996. Additionally, interest income from the direct finance lease decreased $0.1 million, due to a lower balance due from the lessee and the termination of the direct finance lease during 1997(see Note 5 to the financial statements). (e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities (USPEs) Net income (loss) generated from the operation of jointly owned assets accounted for under the equity method is shown in the following table by equipment type (in thousands of dollars):
For the Years Ended December 31, 1997 1996 --------------------------------- Aircraft, rotable components, and aircraft engines $ 1,215 $ (265) Marine vessels (1,479) 149
Aircraft, rotable components, and aircraft engines: As of December 31, 1997, the Partnership had an interest in two trusts that own three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables; an interest in two commercial aircraft on a direct finance lease; and an interest in a commercial aircraft that was transferred from a direct finance lease (see Notes 4 and 5 to the financial statements). As of December 31, 1996, the Partnership owned the interest in the two trusts that own three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables, as well as an interest in two commercial aircraft on a direct finance lease. During the year ended December 31, 1997, revenues of $2.3 million were offset by depreciation and administrative expenses of $1.0 million. During 1996, revenues of $3.3 million were offset by depreciation and administrative expenses of $3.5 million. The decrease in revenues and administrative expenses was due to the transfer of two commercial aircraft from the USPEs to the Partnership during 1996, which was offset in part by the revenue earned from the interest in the direct finance lease that was purchased in the fourth quarter of 1996. Marine vessels: As of December 31, 1997, the Partnership owned an interest in three marine vessels, one of which was purchased on the last day of the third quarter of 1997. As of December 31, 1996, the Partnership owned an interest in two marine vessels. During the year ended December 31, 1997, revenues of $4.2 million were offset by depreciation and administrative expenses of $5.7 million. During the same period of 1996, lease revenues of $3.9 million were offset by depreciation and administrative expenses of $3.7 million. The primary reason for the increase in revenues and depreciation and administrative expenses during 1997 was due to the purchase of an additional marine vessel in the third quarter of 1997. (f) Net Income As a result of the foregoing, the Partnership's net income for the period ended December 31, 1997 was $7.9 million, compared to net income of $12.4 million during the same period in 1996. The Partnership's ability to operate and liquidate assets, secure leases, and re-lease those assets whose leases expire is subject to many factors, and the Partnership's performance during the year ended December 31, 1997 is not necessarily indicative of future periods. In the year ended December 31, 1997, the Partnership distributed $14.6 million to the limited partners, or $1.60 per weighted-average limited partnership unit. (2) 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 increased 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 of dollars):
For the Years Ended December 31, 1996 1995 ------------------------------ Aircraft and aircraft engines $ 6,348 $ 4,727 Marine vessels 4,910 3,542 Marine containers 2,790 3,939 Trailers 1,567 1,436 Rail equipment 1,532 1,797 Mobile offshore drilling unit 1,062 2,553
Aircraft and aircraft engines: 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 latter 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 two aircraft from the USPEs to comply with the credit agreement (see Note 4 to the financial statements). 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 that were operating under a voyage charter during the first six months of 1996 and transferred 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, 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. 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 $0.1 million, respectively, during the same period of 1995. The number of marine containers owned by the Partnership has been declining over the past 12 months due to sales and dispositions. The result of this declining fleet has been a decrease in marine container net contribution. In addition, the container fleet experienced a decline in the utilization rate during 1996, compared to 1995. 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 12 months the number of trailers in the PLM-affiliated short-term rental yards has increased due to the 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 in the number of trailers in the PLM-affiliated short-term rental yards, repairs to maintain these trailers in running condition 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 was due to the sale of 98 railcars in May 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 latter 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: (i) 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. (ii) A $0.3 million increase in bad debt expenses was due to an increase in uncollectable amounts owing from certain lessees. (iii) 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. (iv) 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 partly offset by the purchase of two commercial aircraft during 1996. (c) Net Gain on Disposition of Owned Equipment The net gain on disposition of equipment for the year ended December 31, 1996 totaled $14.2 million, and resulted from the sale of a rig with a net book value of $10.7 million for proceeds of $21.3 million; and aircraft engines, a commuter aircraft, marine containers, railcars, and a trailer with an aggregate net book value of $5.1 million for proceeds of $8.7 million. The net gain on disposition of equipment during the same period of 1995 of $3.8 million was realized on the disposal of marine containers, marine vessels, an aircraft, and railcars, with an aggregate net book value of $15.8 million, for proceeds of $18.3 million. Included in the gain on the 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 that was received during 1996 and interest earned from a finance lease that 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. Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities Net income (loss) generated from the operation of jointly owned assets accounted for under the equity method (see Note 4 to the financial statements) is shown in the following table by equipment type (in thousands):
For the Year Ended December 31, 1996 1995 ------------------------------ Marine vessels $ 149 $ 135 Aircraft, rotable components, and aircraft engines (265 ) (87)
Marine vessels: As of December 31, 1996, the Partnership owned an interest in two entities that 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 compared to the same period of 1995, was also due to the transfer of one marine vessel to a time charter during 1996, which had been a voyage charter during the same period of 1995. Depreciation expense decreased $0.2 million due to the double-declining balance method of depreciation. Aircraft, rotable components, and aircraft engines: As of December 31 1996, the Partnership had an interest in two trusts that owned three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables. The Partnership had also purchased an interest in an additional trust during 1996, which was transferred into equipment held for operating lease during the latter part of the third quarter of 1996 (see Notes 3 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 expenses, management fees, and administrative costs of $3.5 million. As of December 31 1995, the Partnership had an interest in three trusts that owned four commercial aircraft, two 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 in 1995, of $0.7 million, were offset by depreciation and amortization expenses and management fees of $0.8 million. (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 a 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 remainder of the Partnership is subject to many factors, and the Partnership's performance in the 12 months ended December 31, 1996 is not necessarily indicative of future periods. In the 12 months ended December 31, 1996, the Partnership distributed $17.2 million to the limited partners, or $1.87 per weighted average limited partnership unit. (E) Geographic Information The Partnership operates certain of its equipment in international markets. Although these operations expose the Partnership to certain currency, political, credit, and economic risks, the General Partner believes that these risks are minimal or has implemented strategies to control the risks. Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in US dollars. Political risks are minimized by avoiding 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 US 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 General Partner strives to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to the financial statements, Note 3 for information on the revenues, income, and net book value of equipment 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 of ownership due to the use of the double-declining balance method of depreciation. The relationships of geographic revenues, net income (loss), and net book value of equipment are expected to change significantly in the future, as assets come off lease and decisions are made to either 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 1997, U.S. lease revenues accounted for 21% of the total lease revenues of wholly and partially owned equipment while net income accounted for $4.5 million of the total aggregate net income for the Partnership of $7.9 million. The primary reason for this is that a large gain was realized from the sale of assets in the United States and another geographic region, while the other geographic region recorded a loss. The Partnership's owned equipment and its ownership share in equipment owned by USPEs on lease to Canadian-domiciled lessees consists of railcars. During 1997, Canadian lease revenues accounted for 12% of the total lease revenues of wholly and partially owned equipment, and recorded a net income of $0.9 million, compared to the total aggregate net income for the Partnership of $7.9 million. The Partnership's owned aircraft on lease to a South American-domiciled lessee during 1997 accounted for 8% of the total lease revenues of wholly and partially owned equipment, and recorded a net loss of $2.7 million, compared to the total aggregate net income for the Partnership of $7.9 million. The Partnership's ownership share of equipment owned by USPEs on lease to European-domiciled lessees consisted of aircraft, aircraft engines, and aircraft rotables, and accounted for 5% of lease revenues of wholly and partially owned equipment and $0.8 million of the Partnership's total aggregate net income. The primary reason for this is that the Partnership sold some of the aircraft equipment and realized a gain on the sales. The Partnership's owned equipment and its ownership share in USPEs on lease to lessees in the rest of the world consisted of marine vessels and marine containers. During 1997, lease revenues for these lessees accounted for 54% of the total lease revenues of wholly and partially owned equipment and recorded a net income of $7.5 million, compared to the total aggregate net income for the Partnership. The primary reason for this is that a large gain was realized from the sale of assets in worldwide markets (F) Year 2000 Compliance The General Partner is currently addressing the Year 2000 computer software issue. The General Partner is creating a timetable for carrying out any program modifications that may be required. The General Partner does not anticipate that the cost of these modifications allocable to the Partnership will be material. (G) Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued two new statements: SFAS No. 130, "Reporting Comprehensive Income," which requires enterprises to report, by major component and in total, all changes in equity from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for a public company's operating segments and related disclosures about its products, services, geographic areas, and major customers. Both statements are effective for the Partnership's fiscal year ended December 31, 1998, with earlier application permitted. The effect of adoption of these statements will be limited to the form and content of the Partnership's disclosures and will not impact the Partnership's results of operations, cash flow, or financial position. (H) Inflation Inflation had no significant impact on the Partnership's operations during 1997, 1996, or 1995. (I) 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. (J) Outlook for the Future Several factors may affect the Partnership's operating performance in 1998 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 1997, market conditions, supply and demand equilibrium, and other factors varied in several markets. In the dry over-the-road trailer markets, strong demand produced high utilization and returns. The marine vessel, rail, and mobile offshore drilling unit markets can generally be categorized by increasing rates, as the demand for equipment is increasing faster than the size of worldwide fleets. Finally, the 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 a decline in performance and in others in an improvement in 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, and government or other regulations. The unpredictability of some of these factors 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 that these acquisitions may cause the Partnership to generate additional earnings and cash flow for the Partnership. (1) Repricing and Reinvestment Risk Certain portions of the Partnership's marine container, marine vessel, and trailer portfolios will be remarketed in 1998 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. (2) 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 US ports, resulting from implementation of the US Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both in the US and internationally, cannot be predicted with accuracy, and preclude the General Partner from determining the impact of such changes on Partnership operations, purchases, or sale of equipment. (3) Distributions Pursuant to the limited partnership agreement, the Partnership will cease to reinvest in additional equipment beginning in its seventh year of operation, which commences on January 1, 1999. 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 that is sufficient to meet its obligations and sustain a predictable level of distributions to the partners. The General Partner believes that the current level of distributions to the partners can be maintained throughout 1998, using cash from operations, undistributed available cash from prior periods, and proceeds from the sale or disposition 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 on Form 10-K. 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 PLM INTERNATIONAL AND PLM FINANCIAL SERVICES, INC. As of the date of this annual report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) and of PLM Financial Services, Inc. are as follows:
Name Age Position - - ------------------------------------------------------------------------------------------------------------------------- Robert N. Tidball 59 Chairman of the Board, Director, President, and Chief Executive Officer, PLM International, Inc.; Director, PLM Financial Services, Inc.; Vice President, PLM Railcar Management Services, Inc.; President, PLM Worldwide Management Services Ltd. Randall L.-W. Caudill 50 Director, PLM International, Inc. Douglas P. Goodrich 51 Director and Senior Vice President, PLM International; Director and President, PLM Financial Services, Inc.; President, PLM Transportation Equipment Corporation; President, PLM Railcar Management Services, Inc. Harold R. Somerset 63 Director, PLM International, Inc. Robert L. Witt 57 Director, PLM International, Inc. J. Michael Allgood 49 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 51 President, PLM Investment Management, Inc. and PLM Securities Corp.; Vice President and Director, PLM Financial Services, Inc. Richard K Brock 35 Vice President and Corporate Controller, PLM International, Inc. and PLM Financial Services, Inc. Frank Diodati 43 President, PLM Railcar Management Services Canada Limited Steven O. Layne 43 Vice President, PLM Transportation Equipment Corporation; Vice President, PLM Worldwide Management Services Ltd. Susan C. Santo 35 Vice President, Secretary, and General Counsel, PLM International, Inc. and PLM Financial Services, Inc. Thomas L. Wilmore 55 Vice President, PLM Transportation Equipment Corporation; Vice President, PLM Railcar Management Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and 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. Mr. Tidball was appointed Director of PLM Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide Management Services Limited in February 1998. He has served as an officer of PLM Railcar Management Services, Inc. since June 1987. 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, he was Vice President, General Manager, and Director of North American Car Corporation and a director of the American Railcar Institute and the Railway Supply Association. Randall L.-W. Caudill was elected to the Board of Directors in September 1997. He is President of Dunsford Hill Capital Partners, a San Francisco-based financial consulting firm serving emerging growth companies in the United States and abroad, as well as a senior advisor to the investment banking firm of Prudential Securities, where he has been employed since 1987. Mr. Caudill also serves as a director of VaxGen, Inc. and SBE, Inc. Douglas P. Goodrich was elected to the Board of Directors in July 1996, appointed Senior Vice President of PLM International in March 1994, and appointed Director and President of PLM Financial Services, Inc. in June 1996. 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 Corporation of Chicago, Illinois, from December 1980 to September 1985. 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 Sugar), a recently acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar 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 of Agriculture and 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 US 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 L. Witt was elected to the Board of Directors in June 1997. Since 1993, Mr. Witt has been a principal with WWS Associates, a consulting and investment group specializing in start-up situations and private organizations about to go public. Prior to that, he was Chief Executive Officer and Chairman of the Board of Hexcel Corporation, an international advanced materials company with sales primarily in the aerospace, transportation, and general industrial markets. Mr. Witt also serves on the boards of directors for various other companies and organizations. J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992 and Vice President and Chief Financial Officer of PLM Financial Services, Inc. in December 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public-sector companies and institutions specializing in financial operations 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 Director of PLM Financial Services, Inc. in July 1997. Mr. Bess was appointed President of PLM Securities Corporation 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 Corporation, a manufacturer of computer peripheral equipment, from October 1975 to November 1978. Richard K Brock was appointed Vice President and Corporate Controller of PLM International and PLM Financial Services, Inc. in June 1997, having served as an accounting manager beginning in September 1991 and as Director of Planning and General Accounting beginning in February 1994. Mr. Brock was a division controller of Learning Tree International, a technical education company, from February 1988 through July 1991. 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 of PLM Transportation Equipment Corporation's Air Group in November 1992, and was appointed Vice President and Director of PLM Worldwide Management Services Limited in September 1995. Mr. Layne was its Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was Director of 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 a senior pilot with 13 years of accumulated service. Susan C. Santo became Vice President, Secretary, and General Counsel of PLM International and PLM Financial Services, Inc. in November 1997. She has worked as an attorney for PLM International since 1990 and served as its Senior Attorney since 1994. Previously, Ms. Santo was engaged in the private practice of law in San Francisco. Ms. Santo received her J.D. from the University of California, Hastings College of the Law. Thomas L. Wilmore was appointed Vice President, Rail of PLM Transportation Equipment Corporation in March 1994, and has served as Vice President of Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President and Regional Manager for MNC Leasing Corporation in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and co-owner of Guardian Industries Corporation, Chicago, 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 PLM International are elected for a three-year term and the directors of PLM Financial Services, Inc. are elected for a one-year term or until their successors are elected and qualified. No family relationships exist between any director or executive officer of PLM International or PLM Financial Services, Inc. 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, 1997. 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. As of December 31, 1997, 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, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others During 1997, the Partnership paid or accrued the following fees to FSI or its affiliates: management fees, $1.5 million, and administrative and data processing services performed on behalf of the Partnership, $1.0 million. The Partnership paid Transportation Equipment Indemnity Company Ltd. (TEI), a wholly-owned, Bermuda-based subsidiary of PLM International, $0.8 million for insurance coverages during 1997; these 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 1997, the USPEs paid or accrued the following fees to FSI or its affiliates (based on the Partnership's proportional share of ownership): management fees, $0.3 million; administrative and data processing services, $0.1 million; equipment acquisition fees, $0.4 million; and lease negotiation fees, $0.1 million. The USPEs also paid TEI $0.3 million for insurance coverages during 1997 (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 on Form 10-K. (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. 10.3 Amendment No. 1 to the Amended and Restated $38,000,000 Loan Agreement, dated as of December 29, 1997 10.4 Third amended and restated Warehousing Credit Agreement, dated as of December 2, 1997 with First Union National Bank of North Carolina and others. 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 24, 1998 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/ Richard K Brock ---------------------------- Richard K Brock 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 *___________________ Robert N. Tidball Director, FSI March 24, 1998 *___________________ Douglas P. Goodrich Director, FSI March 24, 1998 *___________________ Stephen M. Bess Director, FSI March 24, 1998 *Susan Santo, by signing her 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/ Susan Santo - - ----------------------- Susan Santo Attorney-in-Fact PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) Page Report of independent auditors 30 Balance sheets as of December 31, 1997 and 1996 31 Statements of income for the years ended December 31, 1997, 1996, and 1995 32 Statements of changes in partners' capital for the years ended December 31, 1997, 1996, and 1995 33 Statements of cash flows for the years ended December 31, 1997, 1996, and 1995 34 Notes to financial statements 35 - 44 All other financial statement schedules have been omitted, because 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 have 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, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP - - -------------------------------- SAN FRANCISCO, CALIFORNIA March 12, 1998 PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) BALANCE SHEETS December 31, (in thousands of dollars, except unit amounts) Assets
1997 1996 --------------------------------- Equipment held for operating lease, at cost $ 104,902 $ 155,004 Less accumulated depreciation (62,320) (81,541 ) ------------------------------------- Net equipment 42,582 73,463 Cash and cash equivalents 9,884 4,662 Restricted cash 111 553 Accounts and note receivable, less allowance for doubtful accounts of $113 in 1997 and $236 in 1996 3,229 3,508 Investments in unconsolidated special-purpose entities 22,758 12,673 Net investment in direct finance lease -- 2,282 Lease negotiation fees to affiliate, less accumulated amortization of $325 in 1997 and $184 in 1996 156 319 Debt issuance and loan costs, less accumulated amortization of $331 in 1997 and $255 in 1996 192 268 Debt placement fees to affiliate, less accumulated amortization of $292 in 1997 and $245 in 1996 87 134 Prepaid expenses and other assets 114 557 Equipment acquisition deposit 920 -- ------------------------------------- Total assets $ 80,033 $ 98,419 ===================================== Liabilities and partners' capital Liabilities Accounts payable and accrued expenses $ 1,826 $ 1,060 Due to affiliates 477 699 Short-term note payable -- 2,463 Lessee deposits and reserve for repairs 1,644 3,901 Note payable 32,000 38,000 ------------------------------------- Total liabilities 35,947 46,123 ------------------------------------- Partners' capital Limited partners (limited partnership units of 9,086,608 in 1997 and 9,169,019 in 1996) 44,086 52,296 General Partner -- -- ------------------------------------- Total partners' capital 44,086 52,296 ------------------------------------- Total liabilities and partners' capital $ 80,033 $ 98,419 =====================================
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 weighted-average unit amounts)
1997 1996 1995 ------------------------------------------------ Revenues Lease revenue $ 29,493 $ 28,763 $ 34,298 Interest and other income 640 1,360 1,009 Net gain on disposition of equipment 10,990 14,199 3,835 ------------------------------------------------ Total revenues 41,123 44,322 39,142 ------------------------------------------------ Expenses Depreciation and amortization 15,693 14,941 17,321 Management fees to affiliate 1,480 1,458 1,767 Repairs and maintenance 2,690 2,843 4,004 Equipment operating expenses 6,088 6,016 7,736 Interest expense 2,593 2,789 3,048 Insurance expense to affiliate 838 768 1,015 Other insurance expenses 1,933 985 1,080 General and administrative expenses to affiliates 981 838 612 Other general and administrative expenses 731 903 514 Provision for (recovery of) bad debts (89) 224 -- ------------------------------------------------ Total expenses 32,938 31,765 37,097 ------------------------------------------------ Equity in net loss of unconsolidated special-purpose entities (264) (116) -- ------------------------------------------------ Net income $ 7,921 $ 12,441 $ 2,045 ================================================ Partners' share of net income Limited partners $ 7,154 $ 11,524 $ 1,077 General Partner 767 917 968 ------------------------------------------------ Total $ 7,921 $ 12,441 $ 2,045 ================================================ Net income per weighted-average limited partnership unit (9,107,121, 9,170,232, and 9,181,103 limited partnership units in 1997, 1996, and 1995, respectively) $ 0.79 $ 1.26 $ 0.12 ================================================ Cash distribution $ 15,346 $ 18,083 $ 19,342 ================================================ Cash distribution per weighted-average limited partnership unit $ 1.60 $ 1.87 $ 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, 1997, 1996, and 1995 (in thousands of dollars)
Limited General Partners Partner Total -------------------------------------------------- Partners' capital as of December 31, 1994 $ 75,893 $ -- $ 75,893 Net income 1,077 968 2,045 Repurchase of limited partnership units (579) -- (579) Cash distribution (18,374) (968) (19,342) ------------------------------------------------------- Partners' capital as of December 31, 1995 58,017 -- 58,017 Net income 11,524 917 12,441 Repurchase of limited partnership units (79) -- (79) Cash distribution (17,166) (917) (18,083) ------------------------------------------------------- Partners' capital as of December 31, 1996 52,296 -- 52,296 Net income 7,154 767 7,921 Repurchase of limited partnership units (785) -- (785) Cash distribution (14,579) (767) (15,346) ------------------------------------------------------- Partners' capital as of December 31, 1997 $ 44,086 $ -- $ 44,086 =======================================================
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 of dollars)
1997 1996 1995 --------------------------------------------- Operating activities Net income $ 7,921 $ 12,441 $ 2,045 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 15,693 14,941 17,321 Net gain on disposition of equipment (10,990) (14,199) (3,835) Equity in net (income) loss of unconsolidated special-purpose entities 264 116 -- Changes in operating assets and liabilities, net: Restricted cash 442 (330) (36) Accounts and note receivable, net (374) (455) 1,973 Prepaid expenses and other assets 443 (364) (152) Accounts payable and accrued expenses 766 (294) 7 Due to affiliates (222) (414) 785 Lessee deposits and reserve for repairs (1,438) 285 620 -------------------------------------------------- Net cash provided by operating activities 12,505 11,727 18,728 --------------------------------------------------- Investing activities Proceeds from disposition of equipment 25,831 29,992 18,375 Payments for purchase of equipment (165) (21,378) (27,128) Payments for equipment acquisition deposits (920) -- -- 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 (10,453) (8,952) -- Distribution from unconsolidated special-purpose entities 3,018 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 17,311 3,187 (12,856) --------------------------------------------------- Financing activities Proceeds from short-term note payable 9,110 8,073 -- Payments of short-term note payable (11,573) (5,610) -- Payments of note payable (6,000) -- -- Proceeds from short-term loan from affiliate 1,610 -- -- Payment of short-term loan to affiliate (1,610) -- -- Cash distribution paid to affiliate (767) (917) (968 ) Cash distribution paid to limited partners (14,579) (17,166) (18,374 ) Payment for loan costs -- (136) -- Repurchase of limited partnership units (785) (79) (579 ) --------------------------------------------------- Net cash used in financing activities (24,594) (15,835) (19,921 ) --------------------------------------------------- Net increase (decrease) in cash and cash equivalents 5,222 (921) (14,049 ) Cash and cash equivalents at beginning of year (see Note 4) 4,662 5,583 20,200 --------------------------------------------------- Cash and cash equivalents at end of year $ 9,884 $ 4,662 $ 6,151 =================================================== Supplemental information Interest paid $ 2,843 $ 2,815 $ 2,970 =================================================== Noncash transfer of equipment at net book value from unconsolidated special-purpose entities $ -- $ 7,901 $ -- =================================================== Receipt of interest in an unconsolidated special-purpose entity in settlement of receivables $ (2,914) $ -- $ -- ===================================================
See accompanying notes to financial statements. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 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 on April 11, 1990 and significant operations commenced 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 and related 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 Limited Partnership Unit, below). The General Partner is entitled to subordinated incentive fees 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. If the number of units made available for purchase by limited partners in any calendar year exceeds the number that can be purchased with reinvestment plan proceeds, then the Partnership may redeem up to 2% of the outstanding units each year, subject to certain terms and conditions. The purchase price to be offered by the Partnership for these 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, 1997 and 1996, the Partnership had repurchased 82,411 and 6,925 limited partnership units for $0.8 million and $0.1 million, respectively. As of December 31, 1997, the Partnership agreed to repurchase approximately 9,000 units for an aggregate price of approximately $0.1 million. The General Partner anticipates that these units will be repurchased in the first and second quarters of 1998. The General Partner may purchase additional units on behalf of the Partnership in the future. 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, along with 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 owned by 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 2). FSI, in conjunction with its subsidiaries, 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 programs. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 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, "Accounting for Leases" (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. Certain aircraft are depreciated under the double-declining balance depreciation method over the lease term. 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 related loan. Major expenditures that are expected to extend the useful lives or reduce operating expenses for equipment are capitalized and amortized over the remaining life of the equipment. 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, since 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. No reductions to the carrying value of equipment were required during either 1997, 1996 or 1995. Investments in Unconsolidated Special-Purpose Entities (USPEs) The Partnership has interests in unconsolidated special-purpose entities (USPEs) that own transportation equipment. These interests are accounted for using the equity method. The Partnership's investment in USPEs includes acquisition and lease negotiation fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC) and PLM Worldwide Management Services (WMS). TEC is a wholly-owned subsidiary of FSI and WMS is a wholly-owned subsidiary of PLM International. The Partnership's equity interest in net income of USPEs is reflected net of management fees paid or payable to IMI and the amortization of acquisition and lease negotiation fees paid to TEC and WMS. 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, 1997 1. Basis of Presentation (continued) Net Income (Loss) and Distributions per Limited Partnership 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 based on the number of limited partnership units owned by each limited partner and on the number of days of the year each limited partner has participated in the Partnership. Cash distributions are recorded when paid. Monthly unitholders receive a distribution check 15 days after the close of the previous month and quarterly unitholders receive a distribution check 45 days after the close of the quarter Cash distributions to investors in excess of net income are considered to represent a return of capital. Cash distributions to the limited partners of $7.4 million, $5.6 million, and $17.3 million in 1997, 1996, and 1995, respectively, were deemed to be a return of capital. Cash distributions of $2.8 million, $2.8 million, and $3.5 million related to the fourth quarter of 1997, 1996, and 1995, respectively, were paid during January and February 1998, 1997, or 1996. 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. Reclassification Certain amounts in the 1995 financial statements have been reclassified to conform to the 1997 and 1996 presentation. 2. General Partner and Transactions with Affiliates An officer of PLM Securities Corp. (PLM Securities) contributed $100 of the Partnership's initial capital. PLM Securities is a wholly-owned subsidiary of the General Partner. Under the equipment management agreement, IMI receives a monthly management fee attributable to either owned equipment or interests in equipment owned by the USPEs equal to the lesser of (i) the fees that 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 that is subject to operating leases, (b) 2% of the gross lease revenues, as defined in the agreement, that is subject to full payout net leases, and (c) 7% of the gross lease revenues attributable to equipment, if any, that is subject to per diem leasing arrangements and thus is operated by the Partnership. Partnership management fees of $0.4 million and $1.0 million were payable as of December 31, 1997 and 1996, respectively. The Partnership's proportional share of USPE management fees of $0.1 million and $26,000 were payable as of December 31, 1997 and 1996, respectively. The Partnership's proportional share of USPE management fees expense was $0.3 million and $0.3 million during 1997 and 1996, respectively. An affiliate of the General Partner was reimbursed for data processing and administrative expenses directly attributable to the Partnership in the amount of $1.0 million, $0.8 million, and $0.6 million during 1997, 1996, and 1995, respectively. The Partnership's proportional share of USPE data processing and administrative expenses was $0.1 million during 1997 and 1996. Debt placement fees were paid to FSI in an amount equal to 1% of the Partnership's long-term borrowings. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 2. General Partner and Transactions with Affiliates (continued) The Partnership and the USPEs paid or accrued lease negotiation and equipment acquisition fees of $0.5 million, $1.6 million, and $1.6 million to TEC and WMS in 1997, 1996, and 1995, respectively. The Partnership paid $0.8 million, $0.8 million, and $1.0 million in 1997, 1996, and 1995, respectively, to Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the General Partner, which provides marine insurance coverage and other insurance brokerage services. The Partnership's proportional share of USPE marine insurance coverage paid to TEI was $0.3 million and $0.2 million during 1997 and 1996, respectively. 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, 1997, approximately 70% of the Partnership's trailer equipment was 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 expenses associated with the equipment are charged directly to the Partnership. An allocation of indirect expenses of the rental yard operations is charged to the Partnership monthly. The Partnership owned certain equipment in conjunction with affiliated programs during 1997 and 1996 (see Note 4). During 1997 the Partnership borrowed $1.6 million from the General Partner for 45 days. The General Partner charged the Partnership market interest rates. Total interest paid to the General Partner was $10,000. The balance due to affiliates as of December 31, 1997 included $0.4 million due to FSI and its affiliates for management fees and $0.1 million due to affiliated USPEs. The balance due to affiliates as of December 31, 1996 included $0.9 million due to FSI and its affiliates for management fees and $0.3 million due from affiliated USPEs. 3. Equipment The components of equipment as of December 31, 1997 and 1996 were as follows (in thousands of dollars):
Equipment held for operating leases: 1997 1996 ----------------------------------- Aircraft $ 49,838 $ 57,205 Marine containers 17,592 24,451 Marine vessels 16,276 52,259 Rail equipment 11,500 11,406 Trailers 9,696 9,683 -------------------------------------- 104,902 155,004 Less accumulated depreciation (62,320) (81,541) -------------------------------------- Net equipment $ 42,582 $ 73,463 ======================================
Revenues are earned by placing the equipment under operating leases that are billed monthly or quarterly. Some of the Partnership's marine containers and marine vessels are leased to operators of utilization-type leasing pools that include 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. Rents for other equipment are based on fixed rates. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 3. Equipment (continued) As of December 31, 1997, all equipment was on lease or operating in PLM-affiliated short-term trailer rental yards. As of December 31, 1996, all equipment was on lease or operating in PLM-affiliated short-term trailer rental yards, except for 14 railcars with a net book value of $0.2 million. As of December 31, 1997, the Partnership had entered into a commitment to purchase a marine vessel for $9.2 million. The Partnership made a deposit of $0.9 million toward this purchase which is included in this balance sheet as equipment acquisition deposits. The Partnership expects to purchase this equipment during the first quarter of 1998 and will pay $0.5 million for acquisition and lease negotiation fees to FSI related to this acquisition. During 1997, the Partnership disposed of an aircraft engine, a commuter aircraft, marine containers, railcars, and trailers with an aggregate net book value of $4.7 million for $7.8 million. The Partnership also sold two marine vessels with a net book value of $10.9 million for proceeds of $18.0 million. Included in the gain of $7.9 million from the sale of the marine vessels is the unused portion of accrued drydocking $0.8 million. During 1996, the Partnership disposed of a rig with a net book value of $10.7 million for proceeds of $21.3 million, as well as aircraft engines, marine containers, railcars, a commuter aircraft, and a trailer with an aggregate net book value of $5.1 million for proceeds of $8.7 million. Periodically, PLM International purchases groups of assets whose ownership may be allocated among affiliated programs and PLM International. Generally in these cases, only assets that are on lease are purchased by an affiliated program. PLM International generally assumes the ownership and remarketing risks associated with off-lease equipment. Allocation of the purchase price is determined by a combination of third-party industry sources, recent transactions, and published fair market value references. During 1996, PLM International realized a $0.7 million gain on the sale of 69 off-lease railcars purchased by PLM International as part of a group of assets in 1994 that had been allocated to PLM Equipment Growth Funds IV, VI, and VII, Professional Lease Management Income Fund I, LLC (Fund I), and PLM International. As of December 31, 1995, PLM International held these assets 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 that had been allocated to the Partnership, PLM Equipment Growth Funds IV, VI, and VII, Fund I, and PLM International. All owned equipment on lease is being accounted for as operating leases. Future minimum rentals receivable under noncancelable operating leases, as of December 31, 1997, for owned and partially owned equipment during each of the next five years are approximately $14.5 million in 1998, $11.3 million in 1999, $8.5 million in 2000, $5.6 million in 2001, and $2.3 million thereafter. Contingent rentals based upon utilization were approximately $2.2 million, $3.1 million, and $4.8 million in 1997, 1996, and 1995, respectively. The Partnership owns certain equipment that is leased and operated internationally. A limited number of the Partnership's transactions is denominated in a foreign currency. Gains or losses 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 that operate the marine vessels and marine containers worldwide. The tables below set forth geographic information about the Partnership's owned equipment and investments in USPEs, PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 3. Equipment (continued) grouped by domicile of the lessee as of and for the years ended December 31, 1997, 1996, and 1995 (in thousands of dollars):
Investments in USPEs Owned Equipment ----------------------------- ------------------------------------------- Region 1997 1996 1997 1996 1995 ------------------------------------------------------------ -------------------------------------------- Lease revenues: United States $ -- $ -- $ 7,553 $ 7,806 $ 6,666 Canada -- 1,509 4,096 1,821 892 South America -- -- 3,011 763 -- Asia -- -- -- 1,062 2,556 Australia -- -- -- -- 258 Europe 1,765 1,765 -- 493 1,671 Rest of the world 4,103 3,780 14,833 16,818 22,255 ------------------------------- ------------------------------------------------ Total lease revenues $ 5,868 $ 7,054 $ 29,493 $ 28,763 $ 34,298 =============================== ================================================
The following table sets forth identifiable net income (loss) information by region for the owned equipment and investments in USPEs for the years ended December 31, 1997, 1996, and 1995 (in thousands of dollars):
Investments in USPEs Owned Equipment --------------------------- ------------------------------------------- Region 1997 1996 1997 1996 1995 ---------------------------------------------------------------- ----------------------------------------------- Net income (loss): United States $ -- $ -- $ 4,549 $ 1,543 $ 2,142 Canada -- (753) 926 (555) (75) South America -- -- (2,712) (1,419) -- Asia -- -- -- 10,715 114 Australia -- -- -- -- 646 Europe 773 490 -- 3,190 410 Mexico 442 (2) -- -- -- Rest of the world (1,479) 149 8,950 2,500 2,085 ----------------------------- ----------------------------------------------- Total identifiable loss (264) (116) 11,713 15,974 5,322 Administrative and other -- -- (3,528) (3,417) (3,277) ----------------------------- ----------------------------------------------- Total net income (loss): $ (264) $ (116) $ 8,185 $ 12,557 $ 2,045 ============================= ===============================================
The net book value of these assets as of December 31, 1997, 1996, and 1995 are as follows (in thousands of dollars):
Investments in USPEs Owned Equipment ----------------------------------------- --------------------------------------- Region 1997 1996 1995 1997 1996 1995 ---------------------------------------------------------------------- --------------------------------------- Net book value: United States $ -- $ -- $ -- $ 14,602 $ 20,465 $ 24,971 Canada -- -- 4,205 11,366 14,065 2,187 South America -- -- -- 8,345 13,909 -- Mexico 2,863 2,768 -- -- -- -- Asia -- -- -- -- -- 11,540 Europe 4,027 4,565 5,334 -- -- 3,377 Rest of the world 12,090 5,340 6,619 8,269 25,024 31,675 ------------------------------------------ ------------------------------------------ 18,980 12,673 16,158 42,582 73,463 73,750 Equipment held for sale 3,778 -- -- -- -- -- ------------------------------------------ ------------------------------------------ Total net book value $ 22,758 $ 12,673 $ 16,158 $ 42,582 $ 73,463 $ 73,750 ========================================== ==========================================
PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. Equipment (continued) The lessees that accounted for 10% or more of the total revenues during 1997, 1996, and 1995 were M. T. Maritime (10.6% in 1997), Halla Merchant Marine Company Ltd. (11.6% in 1995) and Chembulk Trading, Inc. (12.2% in 1996; 11.1% in 1995). 4. Investments in Unconsolidated Special-Purpose Entities 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 and 1997. 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 principal differences between the previous accounting method and the equity method concern 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 USPEs, 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 partners' 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 this reclassification. During 1997, the Partnership purchased an interest in an entity owning a product tanker for $9.1 million and incurred acquisition and lease negotiation fees to FSI of $0.5 million. In addition, the Partnership received a partial interest in an entity that owns a commercial aircraft in exchange for past due receivables and the outstanding balance on a direct finance lease (see Note 5). The Partnership liquidated its interest in this entity in January 1998 when the aircraft was sold at its approximate book value. The Partnership received liquidating proceeds of $3.7 million. 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's. PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 4. Investments in Unconsolidated Special-Purpose Entities (continued) The following summarizes the financial information for the special-purpose entities and the Partnership's interest therein as of and for the years ended December 31, 1997 and 1996 (in thousands of dollars):
1997 1996 ------------ ------------ Net Interest Net Interest Total of Partnership Total of Partnership USPEs USPEs -------------------------------- ---------------------------------- Net Investments $ 67,208 $ 22,758 $ 48,660 $ 12,673 Lease revenues 28,822 5,868 30,337 7,054 Net income (loss) 11,390 (264) (1,692) (116 )
The net investments in USPEs include the following jointly-owned equipment (and related assets and liabilities) as of December 31 1997 and 1996 (in thousands of dollars):
1997 1996 ---------------------------------- 48% interest in an entity owning a product tanker $ 8,266 $ -- 17% interest in two trusts owning three commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables 4,027 4,565 60% interest in a commercial aircraft 3,778 -- 25% interest in two commercial aircraft on direct finance lease 2,863 2,768 50% interest in an entity owning a bulk carrier 2,277 3,196 50% interest in an entity owning a product tanker 1,547 2,144 ------------- ------------- Net investments $ 22,758 $ 12,673 ============= =============
The Partnership had beneficial interests in two USPEs 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 of which was purchased during 1996, are now reported as owned equipment by the Partnership. 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 Boeing 727-200 aircraft, at a cost of $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 were to be received over a five-year period, which commenced in December of 1995. The components of the net investment in direct finance lease as of December 31, 1996 are as follows (in thousands of dollars): 1996 ------------- Total minimum lease payments $ 2,978 Residual value 125 Less unearned income (821) ------------- $ 2,282 ============= PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 5. Net Investment in Direct Finance Lease (continued) During 1997, the lessee encountered financial difficulties. The General Partner established reserves against these receivables due to the determination that collection of these lease payments were uncertain. Due to the uncertainty of collection, the General Partner exercised its option under the terms of the settlement agreement. During June 1997, the Partnership, together with two affiliated programs to which the lessee also owed past due receivables, repossessed the Boeing 727-200 aircraft. This is the aircraft on which the Stage III hushkit was installed and that was owned by the lessee and pledged as security for the financing of the hushkit. As a result, the balance due from the lessee from the direct finance lease and the balances due to affiliated programs were reclassified to an investment in an entity that owns a commercial aircraft. The fair market value of the Partnership's interest in this aircraft approximated its outstanding receivable from the lessee. 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 to the lenders, and to amend the loan repayment schedule from 16 consecutive equal quarterly installments to 20 consecutive quarterly installments with lower payments of principle 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. On December 29, 1997, the existing senior loan agreement was amended and restated to allow the Partnership to deduct the next scheduled principal payment from the equipment sales proceeds which had previously been used to paydown the loan. During 1997, the loan required quarterly principal payments of $1.5 million and quarterly interest payments at a rate of approximately LIBOR plus 1.2 percent per annum (6.962% at December 31, 1997 and 6.825% at December 31, 1996). 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 $50.0 million credit facility (the Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth Fund VI (EGF VI), PLM Equipment Growth & Income Fund VII (EGF 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. The Committed Bridge Facility 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 December 2, 1997 to expire on November 2, 1998. The Partnership, Fund I, TECAI, and the other programs may collectively borrow up to $35.0 million of the Committed Bridge Facility. AFG may borrow up to $50.0 million of the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by one borrower reduce the amount available to each of the other borrowers under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than November 2, 1998. Interest accrues at either the prime rate or adjusted LIBOR plus 1.625% at the borrower's option and is set at the time of an advance of funds. Borrowings by the Partnership PLM EQUIPMENT GROWTH FUND V (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS December 31, 1997 6. Notes Payable (continued) are guaranteed by the General Partner. As of December 31, 1997, AFG had $23.0 million in outstanding borrowings. No other eligible borrower had outstanding borrowings. The General Partner believes it will renew the Committed Bridge Facility upon its expiration with similar terms as those in the current Committed Bridge Facility. 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. As of December 31, 1997, there were temporary differences of approximately $34.1 million between the financial statement's carrying values of assets and liabilities and the federal income tax basis of such assets and liabilities, principally due to the differences in depreciation methods and the tax treatment of underwriting commissions and syndication costs. 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 * 10.3 Amendment No. 1 to the Amended and Restated $38,000,000 Loan Agreement, dated as of December 29, 1997 46-50 10.4 Third Amended and Restated Warehousing Credit Agreement, dated as of December 2, 1997 with First Union National Bank of North Carolina and others 51-130 24. Powers of Attorney. 131-133 - - -------- * Incorporated by reference. See page 27 of this report. EX-10 2 AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 29, 1997 THIS AMENDMENT NO. 1 (the "Amendment") dated as of December 29, 1997 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 party to the Loan Agreement (as defined below) (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"). WITNESSETH WHEREAS, the Companies, the Lenders, the Agent and the Security Trustee are parties to that certain Amended and Restated Loan Agreement dated as of September 26, 1996 (the "Loan Agreement") pursuant to which the Lenders made available to the Companies a loan facility of Thirty Eight Million Dollars ($38,000,000); WHEREAS, the Companies, the Lenders, the Agent and the Security Trustee have agreed to amend the Loan Agreement on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows (with terms used herein and not otherwise defined having the meaning ascribed thereto in the Loan Agreement): ARTICLE I AMENDMENTS TO LOAN AGREEMENT Section 1.1 Amendment to Loan Agreement. The Loan Agreement is hereby amended as follows: (a) Clause (ii) of Section 4.03(a) of the Loan Agreement is hereby amended to read in its entirety as follows: (ii) an amount equal to 60% of the aggregate proceeds from the sale of any Equipment during such fiscal quarter minus the amount of the next scheduled principal payment. (b) Section 7.03(a)(A)(II) of the Loan Agreement is hereby amended to read in its entirety as follows: (II) after December 31, 1997, an amount equal to (x) 60% of the proceeds of such disposition MINUS the amount of the next scheduled principal repayment or (y) in the event of a Default or an Event of Default would occur as a consequence of such disposition, 100% of the proceeds, are deposited into the Cash Collateral Account within 5 days of such disposition; and Section 1.2. Agreement Acknowledged and Confirmed. Except as expressly amended hereby, the Loan Agreement, the Note and the Security Documents are hereby ratified and confirmed. ARTICLE II REPRESENTATIONS AND WARRANTIES Section 2.1. Representations and Warranties. The Companies jointly and severally represent and warrant to the Lenders as follows: (a) Due Authorization. Each of the Companies has the power, and has taken all necessary action to authorize it, to execute and deliver this Amendment and to perform this Amendment and the Loan Agreement as amended by this Amendment in accordance with their respective terms. This Amendment has been duly executed and delivered by all necessary action of each of the Companies and this Amendment and the Loan Agreement as amended by this Amendment are the legal, valid and binding obligations of each Company enforceable in accordance with their respective terms under all Applicable Law, subject, as to enforcement of remedies, to any applicable bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. (b) Compliance with Law, etc. The execution and delivery of this Amendment and the performance of this Amendment and the Loan Agreement as amended by this Amendment in accordance with their respective terms do not and will not (i) violate any provision of any applicable laws, orders, rules or regulations presently in effect or (ii) conflict with, result in a breach of or constitute a default under the organizational documents of any Company, or any indenture, agreement or instrument to which any Company is a party or by which it or its properties may be bound. (c) Governmental Regulation. None of the Companies is required to obtain any governmental authorizations, consents, orders or approvals in connection with the execution and delivery of this Amendment or the performance of the transactions contemplated by each of this Amendment and the Loan Agreement as amended by this Amendment. (d) Validity. There are no proceedings or investigations pending or, to the best knowledge of the Companies, threatened against any Company before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (i) asserting the invalidity of the Loan Agreement as amended by this Amendment, (ii) seeking to prevent the consummation of any of the transactions contemplated by the Loan Agreement as amended by this Amendment, (iii) seeking any determination or ruling that, in the reasonable judgment of the Companies, would materially and adversely affect the performance by any Company of its obligations under this Amendment and the Loan Agreement as amended by this Amendment and (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of the Loan Agreement as so amended. (e) Representations; No Defaults. The representations and warranties contained in Article 6 of the Loan Agreement are true and correct on and as of the date hereof as if made on and as of such date, and no Default or Event of Default has occurred and is continuing. ARTICLE III MISCELLANEOUS Section 3.1 Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. Section 3.2. Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. Section 3.3. Severability. Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating or affecting the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers all as of the date and year first above written. PLM EQUIPMENT GROWTH FUND V by its General Partner, PLM Financial Services, Inc. By: /s/ J. Michael Allgood ----------------------------------------------- Its: Vice President and Chief Financial Officer TRADER VESSEL LIMITED PARTNERSHIP by its General Partner, Trader Vessel, Inc. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President TRADER VESSEL INC. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President CALIFORNIA VESSEL LIMITED PARTNERSHIP by its General Partner, California Vessel, Inc. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President CALIFORNIA VESSEL INC. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President COLUMBUS VESSEL LIMITED PARTNERSHIP by its General Partner, Columbus Vessel Inc. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President COLUMBUS VESSEL INC. By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President REDCAR INVESTMENTS LIMITED By: /s/ Robert A. Carey ------------------------------------------------ Its: Vice President CHRISTIANIA BANK OG KREDITKASSE, as Lender By: /s/ Martin Lunder ------------------------------------------------- Its: First Vice President /s/ William J. Aber -------------------------------------------------- Its: Senior Vice President ING LEASE STRUCTURED FINANCE B.V., as Lender By: /s/ J. de Vries ------------------------------------------------- By: /s/ Peter E. Nijman ------------------------------------------------- Senior Vice President CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH as Agent and Security Trustee By: /s/ Martin Lunder ------------------------------------------------- Its: First Vice President /s/ William J. Aber -------------------------------------------------- Its: Senior Vice President EX-10 3 THIRD AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT AMONG 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, BANK OF MONTREAL AND SUCH OTHER FINANCIAL INSTITUTIONS AS SHALL BECOME LENDERS HEREUNDER AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT December 2, 1997 THIRD AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT THIS THIRD AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into as of December 2, 1997, by and among 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 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 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"), BANK OF MONTREAL ("BMO") 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, FSI, PLM Equipment Growth Fund III, a California limited partnership ("EGF III"), PLM Equipment Growth Fund IV, a California limited partnership ("EGF IV"), FUNB and Fleet Bank, N.A. (the "Prior Lenders") and Agent, as agent for the Prior Lenders, entered into that Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, as amended by that Amendment No. 1 to Second Amended and Restated Warehousing Credit Agreement dated as of November 5, 1996, that Amendment No. 2 to Second Amended and Restated Warehousing Credit Agreement dated as of October 3, 1997 and that Amendment No. 3 to Second Amended and Restated Warehousing Credit Agreement dated as of November 3, 1997 (as so amended to, the "Growth Fund Agreement"), pursuant to which the Prior Lenders have agreed to extend and make available to Borrowers certain advances of credit. B. Borrowers and FUNB, as the sole remaining Prior Lender having a Commitment under the Growth Fund Agreement, and FSI desire to amend and restate the Growth Fund Agreement and to, among other things, increase the aggregate Commitments set forth on Schedule A of the Growth Fund Agreement, remove EGF III and EGF IV as borrowers under the revolving credit facility, extend the commitment Termination Date and reduce the Applicable Margin, as more fully set forth herein. C. On the terms and conditions set forth below, BMO desires, as of and from the Closing Date, to become a Lender under this Agreement. 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. 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: SECTION 1. DEFINITIONS. 1.1 Defined Terms. 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: [GRAPHIC OMITTED]The 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 Amended and Restated Warehousing Credit Agreement dated as of November 3, 1997, by and among AFG, 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 November 3, 1997, by and between Borrowers, TEC AcquiSub, AFG and Agent. "Agreement" means this Third Amended and Restated Warehousing Credit Agreement dated as of November 3, 1997, 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, one and five-eighths percent (1.625%). "Assignment and Acceptance" has the meaning set forth in Section 11.10.2. "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 November 2, 1998. "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, 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. "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. "Lender's Side Letter" means the fee letter agreement dated November 3, 1997, by and among Borrowers, TEC AcquiSub, AFG and BMO. "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 V, the Limited Partnership Agreement dated as of November 14, 1989, (b) for EGF VI, the Amended and Restated Limited Partnership Agreement dated as of December 20, 1991 and (c) 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 Lockbox Agreement dated May 31, 1996, among Borrowers, FUNB and Agent on behalf of Lenders, 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 F, 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 G, 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 Susan Santo, 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. "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 November 3, 1997, executed by each of FSI and PMI in favor of Lenders reaffirming its obligations under its respective 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-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. "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 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 Second Amended and Restated Warehousing Credit Agreement dated as of November 3, 1997, 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. "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. 1.2 Accounting Terms. 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. 1.3 Other Terms. 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. 1.4 Schedules And Exhibits. 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. SECTION 2. AMOUNT AND TERMS OF CREDIT. 2.1 Commitment To Lend. 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. (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 by each Lender shall be evidenced by the Requesting Borrower's revolving promissory note substantially in the form of Exhibit A (each a "Note"). (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. 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. 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. 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. (b) Each Loan. 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. 2.1.2 Funding. 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. 2.1.3 Utilization Of The Loans. The Loans made under the Facility may be used solely for the purpose of acquiring the specific items of Equipment. 2.2 Repayment And Prepayment. 2.2.1 Repayment. 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. 2.2.2 Voluntary Prepayment. 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. 2.2.3 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. 2.3 Calculation Of Interest; Post-Maturity Interest. 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. 2.4 Manner Of Payments. 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. 2.5 Payment On Non-Business Days. 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. 2.6 Application Of Payments. 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. s2.7 Procedure For The Borrowing Of Loans. 2.7.1 Notice Of Borrowing. 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. 2.7.2 Unavailability Of LIBOR Loans. 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. 2.8 Conversion And Continuation Elections. 2.8.1 Election. 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. 2.8.2 Notice Of Conversion. 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. 2.8.3 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. 2.8.4 Unavailability Of LIBOR Loans. 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. 2.9 Discretion Of Lenders As To Manner Of Funding2.9 Discretion Of Lenders As To Manner Of Funding. 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. 2.10 Distribution Of Payments2.10 Distribution Of Payments. 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. 2.11 Agent's Right To Assume Funds Available For Advances2.11 Agent's Right To Assume Funds Available For Advances. 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. 2.12 Agent's Right To Assume Payments Will Be Made By Borrower2.12 Agent's Right To Assume Payments Will Be Made By Borrower. 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. 2.13 Capital Requirements. 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. 2.14 Taxes. 2.14.1 No Deductions. 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"). 2.14.2 Miscellaneous 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"). 2.14.3 Indemnity. 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. 2.14.4 Required Deductions. 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. 2.14.5 Evidence of Payment. 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. 2.14.6 Foreign Persons. 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. 2.14.7 Income Taxes. 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. 2.14.8 Reimbursement Of Costs. 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. 2.14.9 Jurisdiction. 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. 2.15 Illegality. 2.15.1 LIBOR Loans. 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. 2.15.2 Prepayment. 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. 2.15.3 Prime Rate Borrowing. 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. 2.16 Increased Costs. 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. 2.17 Inability To Determine Rates. 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. 2.18 Prepayment Of LIBOR Loans. 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. 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE MAKING OF LOANS. 3.1 Effectiveness of This Agreement. The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: 3.1.1 Partnership, Company And Corporate Documents. 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, FSI and PLMI, including all resolutions of each Borrower and corporate resolutions of FSI and PLMI, 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. 3.1.2 Notes. 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. 3.1.3 Opinion Of Counsel. 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. 3.1.4 Reaffirmation of Guaranty. Agent shall have received the Reaffirmation of Guaranty, in form and substance satisfactory to Lenders, duly executed and delivered by PLMI. 3.1.5 TEC AcquiSub Amendment. Agent shall have received the TEC AcquiSub Agreement, duly executed and delivered by TEC AcquiSub, and all conditions precedent to the effectiveness of the TEC AcquiSub Agreement shall have been satisfied. 3.1.6 AFG Agreement. 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. 3.1.7 Bringdown Certificate. 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 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. 3.1.8 Fees. Agent shall have received the Agent's Side Letter and BMO shall have received the Lender's Side Letter, each duly executed by Borrowers, TEC AcquiSub and AFG, and Agent and BMO shall have received the fees described in the Agent's Side Letter and Lender's Side Letter, respectively. 3.1.9 Other Documents. Agent shall have received such other documents, information and items from Borrowers and FSI as reasonably requested by Agent. 3.2 All Loans3.2 All Loans. 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: 3.2.1 Notice Of Borrowing. 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. 3.2.2 No Event Of Default. 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. 3.2.3 Representations And Warranties. 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). 3.2.4 Insurance. The insurance required to be maintained by such Borrower pursuant to the Loan Documents shall be in full force and effect. 3.2.5 Other Instruments. 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. 3.3 Further Conditions To All Loans. 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: 3.3.1 General Partner Or Manager. FSI shall have ceased to be the sole general partner of any of 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. 3.3.2 Removal Of General Partner Or Manager. 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. 3.3.3 Purchaser. 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. 4.1 General 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: 4.1.1 Existence And Power. 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. 4.1.2 Loan Documents And Notes Authorized; Binding Obligations. 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. 4.1.3 No Conflict; Legal Compliance. (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. 4.1.4 Financial Condition. Each Borrower's and FSI's audited consolidated financial statements as of December 31, 1996 and Borrowers' and FSI's unaudited consolidated financial statements as of June 30, 1997, 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 December 31, 1996. 4.1.5 Executive Offices. 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. 4.1.6 Litigation. 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. 4.1.7 Material Contracts. 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). 4.1.8 Consents And Approvals. 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. 4.1.9 Other Agreements. 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. 4.1.10 Employment And Labor Agreements. There are no collective bargaining agreements or other labor agreements covering any employees of any Borrower, FSI or any of FSI's Subsidiaries. 4.1.11 ERISA. 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. 4.1.12 Labor Matters. 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. 4.1.13 Margin Regulations. 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. 4.1.14 Taxes. 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. 4.1.15 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. 4.1.16 Trademarks, Patents, Copyrights, Franchises And Licenses. 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. 4.1.17 Full Disclosure. 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. 4.1.18 Other Regulations. 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. 4.1.19 Solvency. Each Borrower and FSI are Solvent. 4.2 Representations And Warranties At Time Of First Advance4.2 Representations And Warranties At Time Of First Advance. 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: 4.2.1 Power And Authority. 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. 4.2.2 No Conflict. 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. 4.2.3 Consents And Approvals. 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. 4.3 Survival Of Representations And Warranties. 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: 5.1 Records And Reports. 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: 5.1.1 Quarterly Statements. 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; 5.1.2 Annual Statements. As soon as practicable and in any event within one hundred twenty (120) days after the end of each fiscal year of each Borrower and PLMI, consolidated and consolidating balance sheets of 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 PLMI, consolidating) statements of income, stockholders' or members' equity and cash flows of each Borrower, if applicable, 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 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 PLMI; 5.1.3 Borrowing Base Certificate. 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; 5.1.4 Compliance Certificate. 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. 5.1.5 Reports. 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; 5.1.6 Insurance Reports. (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; 5.1.7 Certificate Of Responsible Officer. 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; 5.1.8 Employee Benefit Plans. 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; 5.1.9 ERISA Notices. 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; 5.1.10 Pension Plans. 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; 5.1.11 SEC Reports. 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; 5.1.12 Tax Returns. 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 5.1.13 Additional Information. 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. 5.2 Existence; Compliance With Law. 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. 5.3 Insurance. 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. 5.4 Taxes And Other Liabilities. 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. 5.5 Inspection Rights; Assistance. 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. 5.6 Maintenance Of Facilities; Modifications. 5.6.1 Maintenance Of Facilities. 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. 5.6.2 Certain Modifications To The Equipment. 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. 5.7 Supplemental Disclosure. 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. 5.8 Further Assurances. 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. 5.9 Lockbox. 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. 5.10 Environmental Laws. 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. SECTION 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, 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; 6.1.3 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, 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. SECTION 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. 7.1 Maximum Funded Debt Ratio. Each Borrower shall maintain a Funded Debt Ratio of not greater than 0.5:1.0. 7.2 Minimum Debt Service Ratio. Each Borrower shall maintain a Debt Service Ratio of not less than 1.75:1.0. 7.3 Cash Balances. The Equipment Growth Funds of which FSI is the sole general partner shall maintain aggregate unrestricted cash balances of $10,000,000. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. 8.1 Events Of Default. 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: 8.1.1 Failure To Make Payments. 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 8.1.2 Other Agreements. (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 8.1.3 Breach Of Covenants. 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 8.1.4 Breach Of Representations Or Warranties. 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 8.1.5 Failure To Cure. 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 8.1.6 Insolvency. 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 8.1.7 Bankruptcy Proceedings. 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 8.1.8 Material Adverse Effect. 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 8.1.9 Judgments, Writs And Attachments. 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 8.1.10 Legal Obligations. 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 8.1.11 TEC AcquiSub Agreement. 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 8.1.12 AFG Agreement. 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 8.1.13 Change Of General Partner Or Manager. 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 8.1.14 Change Of Purchaser. Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries shall cease to be the purchaser of Eligible Inventory for such Requesting Borrower. 8.1.15 Criminal Proceedings. 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 8.1.16 Action By Governmental Authority. 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 8.1.17 Governmental Decrees. 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. 8.2 Waiver Of Default. 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. 8.3 Remedies. 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: 8.3.1 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; 8.3.2 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 8.3.3 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. 8.4 Set-Off. 8.4.1 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. 8.4.2 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. 8.5 Rights And Remedies Cumulative. 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. SECTION 9. AGENT. 9.1 Appointment. 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. 9.2 Delegation Of Duties. 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. 9.3 Exculpatory Provisions9.3 Exculpatory Provisions. 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. 9.4 Reliance By Agent. 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. 9.5 Notice Of Default. 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. 9.6 Non-Reliance On Agent And Other 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. 9.7 Indemnification. 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. 9.8 Agent In Its Individual Capacity. 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. 9.9 Resignation And Appointment Of Successor Agent. 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. SECTION 10. EXPENSES AND INDEMNITIES. 10.1 Expenses. 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. 10.2 Indemnification. Whether or not the transactions contemplated hereby shall be consummated: 10.2.1 General Indemnity. 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. 10.2.2 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. 10.2.3 Survival; Defense. 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. SECTION 11. MISCELLANEOUS. 11.1 Survival. 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. 11.2 No Waiver By Agent Or Lenders. 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. 11.3 Notices. 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. 11.4 Headings. 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. 11.5 Severability11.5 Severability. 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. 11.6 Entire Agreement; Construction; Amendments And Waivers. 11.6.1 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. 11.6.2 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. 11.6.3 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. 11.7 Reliance By Lenders. 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. 11.8 Marshalling; Payments Set Aside. 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. 11.9 No Set-Offs By Borrowers. 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. 11.10 Binding Effect, Assignment. 11.10.1 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. 11.10.2 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 H ("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. 11.10.3 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. 11.11 Counterparts. 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. 11.12 Equitable Relief. 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. 11.13 Written Notice Of Claims; Claims Bar11.13 Written Notice Of Claims; Claims Bar. 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. 11.14 Waiver Of Punitive Damages. 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. 11.15 Relationship Of Parties. 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. 11.16 Obligations Of Each Borrower. 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: 11.16.1 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; 11.16.2 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; 11.16.3 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; 11.16.4 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; 11.16.5 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; 11.16.6 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; 11.16.7 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; 11.16.8 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 11.16.9 Any impairment or invalidity of any collateral or any failure to perfect any of Agent's liens thereon. 11.17 Co-Borrower Waivers. 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. 11.18 Governing Law. 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. 11.19 Consent To Jurisdiction. 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. 11.20 No Novation. 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 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, EGF III and EGF IV. 11.21 Waiver Of Jury Trial. 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. 11.22 BMO As Lender. Upon the Closing, BMO shall be a Lender for all purposes of this Agreement and the other Loan Documents, and shall be entitled to the rights and benefits and be subject to the obligations of a Lender under and in accordance with and subject to the terms of this Agreement and the other Loan Documents. 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 V BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By J. Michael Allgood Chief Financial Officer PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By 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 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 Printed Name: Title: 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 Printed Name: Title: 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 BANK OF MONTREAL By: Printed Name: Title: Notice to be sent to: Bank of Montreal ========================== Attention: ______________ Telephone: ______________ Facsimile: ______________ 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 J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND III BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND IV BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By J. Michael Allgood Chief Financial Officer ACKNOWLEDGEMENT OF AMENDMENT AND REAFFIRMATION OF GUARANTY (Growth Funds) SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Third Amended and Restated Warehousing Credit Agreement ("Agreement"). SECTION 2. PLMI hereby consents to this Agreement and agrees that its Guaranty of the Obligations of Borrowers under the Growth Fund Agreement shall continue in full force and effect under the Agreement, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Agreement or any other document or instrument delivered in connection herewith. SECTION 3. PLMI represents and warrants that, after giving effect to this Agreement, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM INTERNATIONAL, INC. By J. Michael Allgood Chief Financial Officer SCHEDULE A (COMMITMENTS) Pro Rate Lender Commitment Share First Union National Bank $35,000,000 70% of North Carolina Bank of Montreal $15,000,000 30% 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 (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...............................22 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 24 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.....................................................26 2.14.1 ..........................No Deductions 26 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 27 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 29 2.16 ...................Increased Costs 29 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 30 3.1 Effectiveness of This Agreement.........................30 3.1.1 Partnership, Company And Corporate Documents.30 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 31 3.1.9 ....................Other Documents 31 3.2 All Loans...................31 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 32 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...........33 4.1.4 Financial Condition.....................34 4.1.5 Executive Offices.......................34 4.1.6 Litigation..............................34 4.1.7 Material Contracts......................34 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 35 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 37 4.2 ..................Representations And Warranties At Time Of First Advance 37 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........................38 5.1.1 .........Quarterly Statements 38 5.1.2 Annual Statements.................39 5.1.3 ....Borrowing Base Certificate 39 5.1.4 ....Compliance Certificate 39 5.1.5 ....Reports 39 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 40 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.....41 5.3 Insurance..........................42 5.4 Taxes And Other Liabilities........42 5.5 Inspection Rights; Assistance......42 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 43 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........................46 6.8 Maintenance Of Business.............................46 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..47 SECTION 7...................FINANCIAL COVENANTS OF BORROWER AND FSI 47 7.1 .............Maximum Funded Debt Ratio 48 7.2 .............Minimum Debt Service Ratio 48 7.3 .............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 48 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 49 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 50 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 51 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..53 SECTION 9...................................................AGENT 54 9.1 Appointment...............................54 9.2 Delegation Of Duties......................54 9.3 Exculpatory Provisions....................54 9.4 Reliance By Agent.........................54 9.5 Notice Of Default.........................55 9.6 Non-Reliance On Agent And Other Lenders...55 9.7 Indemnification...........................56 9.8 Agent In Its Individual Capacity..........56 9.9 Resignation And Appointment Of Successor Agent..56 SECTION 10................EXPENSES AND INDEMNITIES 56 10.1 Expenses.................................56 10.2 Indemnification..........................57 10.2.1 ...................General Indemnity 57 10.2.2 .............Environmental Indemnity 58 10.2.3 .............Survival; Defense 58 SECTION 11.............................MISCELLANEOUS 59 11.1 Survival..............................................59 11.2 No Waiver By Agent Or Lenders.........................59 11.3 Notices...............................................59 11.4 Headings..............................................59 11.5 Severability..........................................59 11.6 Entire Agreement; Construction; Amendments And Waivers..60 11.7 Reliance By Lenders..................................60 11.8 Marshalling; Payments Set Aside......................60 11.9 No Set-Offs By Borrowers.............................61 11.10 ...........Binding Effect, Assignment 61 11.11 ...........Counterparts 62 11.12 ...........Equitable Relief 62 11.13 ...........Written Notice Of Claims; Claims Bar 62 11.14 ...........Waiver Of Punitive Damages 63 11.15 ...........Relationship Of Parties 63 11.16 ...........Obligations Of Each Borrower 63 11.17 ...........Co-Borrower Waivers 64 11.18 ...........Governing Law 65 11.19 ...........Consent To Jurisdiction 65 11.20 ...........No Novation 66 11.21 ...........Waiver Of Jury Trial 66 11.22 ...........BMO As Lender. 66 INDEX OF EXHIBITS Exhibit A Form of Revolving Promissory Note Exhibit B Form of Borrowing Base Certificate Exhibit C Form of Opinion of Counsel Exhibit D Form of Compliance Certificate Exhibit E Form of Notice of Borrowing Exhibit F Form of Notice of Conversion/Continuation Exhibit G 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 EX-24 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Susan Santo, J. Michael Allgood and Richard Brock, 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, 1998 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1997. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 12th day of February, 1998. /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, Susan Santo, J. Michael Allgood and Richard Brock, 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, 1998 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1997. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 17th day of February, 1998. /s/ Robert N. Tidball - - ---------------------------------- Robert N. Tidball POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Susan Santo, J. Michael Allgood and Richard Brock, 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, 1998 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1997. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 13th day of February, 1998. /s/ Stephen M. Bess - - --------------------------------- Stephen M. Bess EX-27 5
5 1,000 12-MOS DEC-31-1997 DEC-31-1997 9,995 0 3,342 (113) 0 0 104,902 (62,320) 80,033 0 32,000 0 0 0 44,086 80,033 0 41,123 0 0 30,434 (89) 2,593 7,921 0 7,921 0 0 0 7,921 0.79 0.79
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