-----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, OteGcirgXClRrHpcknEnVqcg4ij98/4IWAiP8dWU3Y5UPpibD0uO6eGGdrkgrf6i eUIAapclVOgG9XsTnsn3oQ== 0000928956-97-000001.txt : 19970317 0000928956-97-000001.hdr.sgml : 19970317 ACCESSION NUMBER: 0000928956-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC CENTRAL INDEX KEY: 0000928956 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943209289 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28376 FILM NUMBER: 97556717 BUSINESS ADDRESS: STREET 1: ONE MARKET STREET 2: STEWART ST TOWER STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 MAIL ADDRESS: STREET 1: ONE MARKET STREET 2: STEUART STREET TOWER STE 900 CITY: SAN FRANCISCO STATE: CA ZIP: 94105-1301 FORMER COMPANY: FORMER CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT INCOME FUND I LLC DATE OF NAME CHANGE: 19941223 FORMER COMPANY: FORMER CONFORMED NAME: PROFESSIONAL LEASE MANAGEMENT NOLOAD INCOME FUND I LLC DATE OF NAME CHANGE: 19940825 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------- FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 33-83216-01 ----------------------- PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (Exact name of registrant as specified in its charter) Delaware 94-3209289 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Market, Steuart Street Tower Suite 800, San Francisco, CA 94105-1301 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (415) 974-1399 ----------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Aggregate Market Value of Voting Stock: N/A An index of exhibits filed with this Form 10-K is located at page 37 Total number of pages in this report: 41 PART I ITEM 1. BUSINESS (A) Background Professional Lease Management Income Fund I, L.L.C., a Delaware Limited Liability Company (Fund I or the Company) was formed on August 22, 1994, to purchase, lease, charter, or otherwise invest in, a diversified portfolio of long-lived, low obsolescence capital equipment that is transportable by and among prospective users (the Equipment). The securities represent limited liability company interests (the Class A Units) which are offered to the public. The Company's offering became effective on January 23, 1995. PLM Financial Services, Inc. (FSI) is the Manager of the Company and is the initial Class B Member. The purchase price of the Class A Units was $20.00 per Class A Unit. On May 13, 1996, the Company ceased its offering for Class A Units ($100,000,000). As of December 31, 1996, there were 4,999,581 Units outstanding. The primary objectives of the Company are: (i)Investment in and leasing of capital equipment: to invest in a diversified leasing portfolio of low obsolescence Equipment having long lives and high residual values, at prices that the Manager believes to be below inherent values and to place the Equipment on lease or under other contractual arrangements with creditworthy lessees and operators of Equipment; (ii) Safety through diversification: to create a significant degree of safety relative to other equipment leasing investments through the purchase of a diversified Equipment portfolio. This diversification may reduce the exposure to market fluctuations in any one sector. The purchase of used long-lived, low obsolescence Equipment typically at prices which are substantially below the cost of new equipment should also reduce the impact of economic depreciation and may create the opportunity for appreciation in certain market situations, where supply and demand return to balance from oversupply conditions; while providing: (iii) Cash distributions: to generate cash distributions, which may be substantially tax-deferred (i.e., distributions which are not subject to current taxation) during the early years of the Company, to investors beginning in the month after the minimum number of Class A Units were sold a portion of which may represent a return of an investor's investment; and (iv)Growth potential through reinvestment: to increase the Company's revenue base by reinvesting a portion of its operating cash flow in additional Equipment in order to grow the size of its portfolio. Since net income and distributions are affected by a variety of factors, including purchase prices, lease rates and costs and expenses, growth in the size of the Company's portfolio does not mean that in all cases the Company's aggregate net income and distributions will increase upon the reinvestment of operating cash flow. Between the eighth and tenth years of operations of the Company, the Manager intends to begin the dissolution and liquidation of the Company in an orderly fashion, unless the Company is terminated earlier upon sale of all of the equipment or by certain other events. However, under certain circumstances, the term of the Company may be extended. In no event will the Company extend beyond December 31, 2010. Table 1, below, lists cumulative offering proceeds, the cost of equipment in the Company's portfolio, and the cost of investments in unconsolidated special purpose entities, at December 31, 1996: TABLE 1 Use of proceeds (through December 31, 1996) Total gross offering proceeds: $ 99,991,620 Equipment purchases:
Units Type Manufacturer Cost - ----------------------------------------------------------------------------------------------------------------------- Owned equipment held for operating leases: 1 Bulk carrier marine vessel Hitachi Shipbuilding & Engineering Co. $ 12,256,531 5 737-200A Stage II Commercial aircraft Boeing 24,605,000 246 Boxcars Various 4,971,660 325 Pressurized tank cars Various 8,489,898 100 Covered hopper railcars Various 5,414,500 181 Over the Road Refrigerated Trailers Various 7,824,482 450 Piggyback Trailers Various 6,771,028 ------------------- Total equipment $ 70,333,099 =================== Investments in unconsolidated special purpose entities: 33% Two trusts consisting of: Three 737-200A Stage II commercial aircraft Boeing 9,003,825 Two aircraft engines Pratt Whitney 373,296 Portfolio of rotable components Various 621,879 25% Trust consisting of four 737-200A Stage II commercial aircraft Boeing 5,610,000 17% Trust consisting of six 737-200A Stage II commercial aircraft Boeing 4,300,000 50% Container feeder marine vessel O. C. Staalskibsvaerft A/F 3,750,000 35% Mobile offshore drilling unit AT & CH de France 7,000,000 ------------------- Total investments $ 30,659,000 =================== Includes proceeds from capital contributions and operations invested in equipment. Includes costs capitalized, subsequent to the date of purchase. Jointly owned by Fund I and affiliated partnerships. Jointly owned by Fund I and an affiliated partnership. Jointly owned by Fund I, affiliated partnerships, and TEC Acquisub, Inc.
The equipment is generally leased under operating leases for a term of one to six years. The lessees of the equipment include, but are not limited to: Canadian Airlines, Transportation Airline Portugal, and Norfolk Southern. As of December 31, 1996, all of the equipment was on lease except for 14 railcars. (B) Management of Company Equipment The Company has entered into an equipment management agreement with PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the management of equipment. IMI has agreed to perform all services necessary to manage the transportation equipment on behalf of the Company and to perform or contract for the performance of all obligations of the lessor under the Company's leases. In consideration for its services and pursuant to the Operating Agreement, IMI will be entitled to a monthly management fee. (See Financial Statements Notes 1 and 2). (C) Competition (1) Operating Leases vs. Full Payout Leases Generally, the equipment owned by the Company is leased out on an operating lease basis wherein rents owed during the initial noncancelable term of the lease are insufficient to recover the purchase price of the equipment. The short to mid-term nature of operating leases generally command a higher rental rate than longer term, full payout leases and offers lessees relative flexibility in their equipment commitment. In addition, the rental obligation under an operating lease need not be capitalized on the lessee's balance sheet. The Company encounters considerable competition from lessors utilizing full payout leases on new equipment, i.e., leases which have terms equal to the expected economic life of the equipment. Full payout leases are written for longer terms and for lower monthly rates than the Company 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 Company may write full payout leases at considerably lower rates, or larger competitors with a lower cost of capital may offer operating leases at lower rates, and as a result, the Company may be at a competitive disadvantage. (2) Manufacturers and Equipment Lessors The Company also competes with equipment manufacturers who offer operating leases and full payout leases. Manufacturers may provide ancillary services which the Company cannot offer, such as specialized maintenance service (including possible substitution of equipment), training, warranty services, and trade-in privileges. The Company competes with many equipment lessors, including ACF Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services Corporation, Greenbrier Leasing Company, General Electric Capital Aviation Services Corporation, and other limited partnerships which lease the same types of equipment. (D) Demand The Company invests in transportation-related capital equipment and in "relocatable environments." "Relocatable environments" refers to capital equipment constructed to be self-contained in function but transportable, an example of which includes a mobile offshore drilling unit. A general distinction can be drawn between equipment used for the transport of either materials and commodities or people. With the exception of aircraft leased to passenger air carriers, the Company's equipment is used primarily for the transport of materials. The following describes the markets for the Company's equipment: (1) Aircraft Commercial Aircraft The market for commercial aircraft continued to improve in 1996, representing two consecutive years of growth and profits in the airline industry. The $5.7 billion in net profits recorded by the world's top 100 airlines in 1995 grew to over $6 billion in 1996. The profits are a result of the continued management emphasis on costs. The demand for ever lower unit costs by airline managements has caused a significant reduction of surplus used Stage II and Stage III commercial aircraft. The result is a return to supply/demand equilibrium. On the demand side, passenger traffic is improving, cargo movement is up, and load factors are generally higher across the major markets. These changes are reflected in the performance of the world's 62 major airlines that operate 60% of the world airline fleet but handle 78% of world passenger traffic. Focusing on the supply/demand for Company type-narrowbody commercial aircraft, there were 213 used narrowbody aircraft available at year end 1995. In the first ten months of 1996, this supply was reduced to 119 narrowbody aircraft available for sale or lease. Forecasts for 1997 see a continuing supply/demand equilibrium due to air travel growth and balanced aircraft supply. The Company's narrowbody fleet are late model (post 1974) Boeing 737-200 Advanced aircraft. There are a total of 939 Boeing 737-200 aircraft in service, with 219 built prior to 1974. Independent forecasts estimate that 250 of the total 737-200s will be retired, leaving approximately 700 aircraft in service after 2003. The forecasts regarding hushkits estimate that half of the 700 Boeing 737-200s will be hushed to meet Stage III noise levels. The Company's Stage II aircraft are all prospects for Stage III hushkits due to their age, hours, cycles, engine configurations, and operating weights. Aircraft Engines The demand for spare engines has increased as a result of the air travel industry's expansion over the last two years. The most significant area of increase is in the Pratt & Whitney Stage II JT8D engine which powers many of the Company's Stage II commercial aircraft. Today there are over 3000 Stage II commercial jets in service. In December 1993 there were 288 Stage II narrowbody aircraft available for sale or lease. As of October 1996, the number of available Stage II narrowbodies was only 107 aircraft. The increase in the Stage II fleet has placed over 450 engines back into service. This level of demand has placed a premium on spare JT8D engines and resulted in a good leasing market for available engines. The Company's spare engines will all be re-leased or sold over the next two years during this market cycle. Aircraft Rotables Aircraft rotables are replacement spare parts held by an airline in inventory. These parts are components that are removable from an aircraft or engine, undergo overhaul, and are recertified and refit to the aircraft in an "as new" condition. Components or rotables, carry specific identification numbers allowing each part to be individually tracked. The types of rotables owned and leased by the Company include landing gear, certain engine components, avionics, auxiliary power units (APU's), replacement doors, control surfaces, pumps, valves and other comparable equipment. Generally a rotable has a useful life that is either measured in terms of time in service or number of cycles (takeoffs and landings). While there are no specific guidelines that apply to the time or cycles between overhauls for rotable equipment, there is no limitation on the number of times a rotable may be overhauled and recertified. The component will be overhauled until the cost of such overhaul becomes uneconomic relative to the units' replacement cost. The Company's rotable parts will be available for sale or lease in 1998. Rotables generally reflect the market conditions of the aircraft they support which for the Company is the Boeing 737-200 Advanced aircraft. Independent forecasts for 1997 indicate a supply/demand equilibrium for these aircraft types. (2) Railcars Pressurized Tank Cars These cars are used primarily in the petrochemical and fertilizer industries. They transport liquefied petroleum gas (LPG) and anhydrous ammonia. The utilization rate on the Company's fleet of pressurized tank cars was over 98% during 1996. Independent forecasts show the demand for natural gas growing during 1997 to 1999, as the developing world, former Communist countries, and the industrialized world all increase their demand for energy. The fertilizer industry was undergoing a rapid restructuring toward the end of 1996 after a string of major mergers, which began in 1995. These mergers reduce the number of companies that use pressurized tank cars for fertilizer service. Whether or not the economies of the mergers allow the total fleet size to be reduced remains to be seen. Covered Hopper (Grain) Cars Through October 5, 1996, grain car loadings were down 13% compared to the same period for 1995. Even with the greatly reduced loadings, the on-lease rate during 1996 for the Company-owned grain cars remained at 100%. Industry-wide, the covered hopper is one car type that has increased in number over the last ten years, going from a total of 299,172 cars in 1985 to 325,882 cars in 1995. It is possible that another poor crop year, combined with more available cars, could place downward pressure on grain car rental rates during 1997. (3) Marine Vessels The Company owns or has investments in small- to medium-sized dry bulk vessels, which are traded in worldwide markets, carrying commodity cargoes. The freight rates in the dry bulk shipping market are dependent on the balance of supply and demand for shipping commodities and trading patterns for such dry bulk commodities. In 1995, dry bulk shipping demand was robust (growing at 5% over 1994) and there was a significant infusion of new vessel tonnage, especially late in the year, causing some decline in freight rates after a peak in midyear. The slide in freight rates continued in the first half of 1996, as new tonnage was delivered and shipping demand slipped from the high growth rates of 1995. In the third quarter of 1996, there was a significant acceleration in the drop of freight rates, primarily caused by the lack of significant grain shipment volumes and the infusion of new tonnage. The low freight rates induced many ship owners to scrap older tonnage and to defer or cancel newbuilding orders. In the fourth quarter, a strong grain harvest worldwide gave the market new strength, and freight rates recovered to the levels experienced in early 1996, but not to 1995 levels. Overall, 1996 was a soft year for shipping, with dry bulk demand growing only 1.8% and the dry bulk fleet growing 3% in tonnage. The outlook for 1997 shows an expected improvement in demand with growth at 2.4%, but a high orderbook remains. The year 1997 is expected to be a soft year with relatively low freight rates; however, prospects may be strengthened by the continued scrapping of older vessels in the face of soft rates and the deferment or canceling of orders. Demand for commodity shipping closely tracks worldwide economic growth; however, economic development may alter demand patterns from time to time. The general partner operates its funds' vessels in spot charters, period charters and pooled vessel operations. This operating approach provides the flexibility to adapt to changing demand patterns. Independent forecasts show that the longer-term outlook (past 1997) should bring improvement in freight rates earned by vessels; however, this is dependent on the supply/demand balance and stability in growth levels. The newbuilding orderbook currently is slightly lower than at the end of 1995 in tonnage. Shipyard capacity is booked through late 1998; however, it remains to be seen how many of these orders will actually be fulfilled. Historically, demand has averaged approximately 3% annual growth, fluctuating between flat growth and 6% annually. With predictable long-term demand growth, the long-term outlook depends on the supply side, which is affected by interest rates, government shipbuilding subsidy programs, and prospects for reasonable capital returns in shipping. (4) Mobile Offshore Drilling Units (Rigs) Worldwide demand for mobile offshore drilling units ("rigs") in 1996 increased in all sectors of the business over the demand levels experienced in 1995 and 1994. This increase in demand spread over all geographic regions of offshore drilling; it also affected all equipment types in the offshore drilling sector. This increase in demand without any increase in supply of rigs gave increased utilization and higher contract dayrates in the market. The improvement in the market can be attributed to a number of factors, but primarily it can be associated with continued growth worldwide in the use of oil and natural gas for energy. Stable prices at moderate levels have encouraged such growth, while providing adequate margins for oil and natural gas exploration and production development. The floating rig sector also has experienced an improving market. Technological improvements and more efficient operations have improved the economics of drilling and production in the deeper water operations for which floating rigs are utilized. Overall, demand for floating rigs increased from 117 rig-years in 1995 to 128 rig-years in 1996, with no increase in supply of rigs. The increase in demand and utilization prompted an approximate doubling of contract dayrates and an associated increase in floating rig market values. Three floating rigs were ordered in 1996; however, these will not be delivered until late in 1998 and will have a minimal effect on the market as they are committed to specific contracts. The most significant trend in 1996 was the continued consolidation of the offshore drilling industry. Five major mergers of offshore drilling contractors occurred in 1996, leading to a more controlled and stable market in which higher levels of dayrates may be maintained. The consolidation of rig ownership into fewer hands has a recognizable effect on stabilizing dayrates in times of lower utilization and quicker improvement in times of increasing utilization. Demand for floating rigs is projected by industry participants to continue to increase through 1997, with no significant increases in rig supply. Dayrates are not yet at levels sufficiently high to justify widespread ordering of new equipment. (5) Trailers Intermodal Trailers The robust intermodal trailer market that began four years ago began to soften in 1995 and reduced demand continued in 1996. Intermodal trailer loadings were flat in 1996 from 1995's depressed levels. This lack of growth has been the result of many factors, ranging from truckload firms recapturing market share from the railroads through aggressive pricing to the continuing consolidation activities and asset efficiency improvements of the major U.S. railroads. All of these factors helped make 1996 a year of equalizing equipment supply, as railroads and lessors were pressured to retire older and less efficient trailers. The two largest suppliers of railroad trailers reduced the available fleet in 1996 by over 15%. Overall utilization for intermodal trailers, including the Company's fleet, was lower in 1996 than in previous years. Over-The-Road Refrigerated Trailers PLM experienced fairly strong demand levels in 1996 for its refrigerated trailers. With over 15% of the fleet in refrigerated trailers, the Company, PLM and the Partnerships are the largest supplier of short-term rental refrigerated trailers in the U.S. In 1996, the Company embarked on a strategy of identifying niche markets and capitalizing on them. Building on PLM's refrigeration leadership, the Company purchased new refrigerated foodservice distribution trailers for the rental operation, and these trailers have been well received by the marketplace to date. (E) Government Regulations The use, maintenance, and ownership of equipment is regulated by federal, state, local and/or foreign governmental authorities. Such regulations may impose restrictions and financial burdens on the Company'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 Company'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 Company's equipment is subject to extensive safety and operating regulations which may require the removal from service or extensive modification of such equipment to meet these regulations at considerable cost to the Company. Such regulations include (but are not limited to): (1) the U.S. Oil Pollution Act of 1990 (which established liability for operators and owners of vessels, mobile offshore drilling units, etc. that create environmental pollution); (2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990 (which limits or eliminates the operation of commercial aircraft in the U.S. that do not meet certain noise, aging, and corrosion criteria); (3) the Montreal Protocol on Substances that Deplete the Ozone layer and the U.S. Clean Air Act Amendments of 1990 (which call for the control and eventual replacement of substances that have been found to cause or contribute significantly to harmful effects on the stratospheric ozone layer and which are used extensively as refrigerants in refrigerated marine cargo containers, over-the-road trailers, etc.); (4) the U.S. Department of Transportation's Hazardous Materials Regulations (which regulate the classification of and packaging requirements for hazardous materials and which could apply particularly to the Company's tank cars). ITEM 2. PROPERTIES The Company neither owns nor leases any properties other than the equipment it has purchased for leasing purposes. At December 31, 1996, the Company owned a portfolio of transportation equipment as described in Part I, Table 1. The Company acquired equipment with the proceeds of the Company offering through the end of 1996. In December of 1996, the Company closed a $25 million long term note with an institutional investor. The Company intends to acquire additional equipment in 1997 with the proceeds of the long term note and any surplus cash flow. The Company 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 Company. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's limited partners during the fourth quarter of its fiscal year ended December 31, 1996. (This space intentionally left blank) PART II ITEM 5. MARKET FOR THE COMPANY'S EQUITY AND RELATED UNITHOLDER MATTERS Pursuant to the terms of the Operating Agreement, the Manager is generally entitled to a 1% interest in the profits and losses and 15% of Cash Available for Distributions of the Company. After the investors receive cash distributions equal to their original Capital Contributions the Manager's interest will increase to 25%. The Manager is the sole holder of such interests. Gross income in each year of the Company will be specially allocated to the Manager in the amount equal to the lesser of (i) the deficit balance, if any, in the Manager's capital account calculated under generally accepted accounting principles using the straight-line method of depreciation, and (ii) the deficit balance, if any, in the Manager's capital account calculated under Federal income tax regulations. The remaining interests in the profits and losses and distributions of the Company are owned as of December 31, 1996, by approximately 3,094 holders of Units in the Company. (This space intentionally left blank) ITEM 6. SELECTED FINANCIAL DATA Table 2, below, lists selected financial data for the Company: TABLE 2 For the years ended December 31, 1996 and 1995, and for the period from inception (August 22, 1994) to December 31, 1994
1996 1995 1994 ------------------------------------------------------- Operating results: Total revenues $ 11,295,107 $ 4,149,484 $ -- Net gain on disposition of equipment -- 24,593 -- Equity in net income (loss) of unconsolidated special purpose entities (255,969 ) 69,619 -- Net loss (2,392,494 ) (617,991 ) -- At year-end: Total assets $ 87,755,105 $ 62,589,016 $ 100 Total liabilities 1,466,544 1,187,292 -- Cash distributions $ 9,832,146 $ 1,302,566 $ -- Cash distribution which represents a return of capital to Class A Members $ 8,471,087 $ 1,179,332 $ Per weighted average Class A unit: Net loss Various, N/A Cash distributions according to N/A interim Cash distributions which represent a return of capital closings N/A
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management's Discussion and Analysis of Financial Condition and Results of Operations relates to the Financial Statements of Professional Lease Management Income Fund I, L.L.C. (the Company). The following discussion and analysis of operations focuses on the performance of the Company's equipment in various sectors of the transportation industry, and its effect on the Company's overall financial condition. Results of Operations - Factors Affecting Performance (A) Re-leasing and Repricing Activity The exposure of the Company'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 or kinds of transport capacity, desirability of the equipment in the lease market, market conditions for the particular industry segment in which the equipment is to be leased, overall economic conditions both domestically and worldwide, various regulations concerning the use of the equipment, and others. The equipment portfolio owned by the Company at December 31, 1996, experienced no re-pricing exposure for the year ended December 31, 1996. (B) Reinvestment Risk Reinvestment risk occurs when 1) the Company cannot generate sufficient surplus cash after fulfillment of operating obligations and distributions to reinvest in additional equipment during the reinvestment phase of Company operations; 2) equipment is sold or liquidated for less than threshold amounts; 3) proceeds from sales, losses, or surplus cash available for reinvestment cannot be reinvested at threshold lease rates; or 4) proceeds from sales, losses, or surplus cash available for reinvestment cannot be deployed in a timely manner. During the first six years of operations, the Company intends to increase its equipment portfolio by investing surplus cash after fulfilling operating requirements and payments of distributions to the Members in additional equipment. Subsequent to the end of the reinvestment period at January 1, 2002, the Company will continue to operate for an additional two years, then begin an orderly liquidation over an anticipated two-year period. Other nonoperating funds for reinvestment are generated from the sale of equipment, the receipt of funds realized from the payment of stipulated loss values on equipment lost or disposed of during the time it is subject to lease agreements, or the exercise of purchase options written into certain lease agreements. Equipment sales generally result from evaluations by the Manager that continued ownership of certain equipment is either inadequate to meet Company performance goals, or that market conditions, market values, and other considerations indicate it is the appropriate time to sell certain equipment. During 1996, the Company acquired four commercial 737-200A Stage II aircraft for $20.6 million, 181 refrigerated trailers for $7.8 million and 113 railcars for $5.8 million. In addition, the Company purchased a 25% interest in a trust which owns four Boeing 737-200 aircraft for $5.6 million, a 50% interest in an entity which owns a marine vessel for $3.4 million (a deposit of $0.4 million was lodged in December of 1995) and a 35% interest in an entity which owns a mobile offshore drilling unit for $7.0 million. The remaining interests are owned by affiliated partnerships. (C) Equipment Valuation and Write-downs 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 Company adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Company was consistent with SFAS 121. In accordance with SFAS 121, the Company reviews the carrying value of its equipment at least annually in relation to expected future market conditions for the purpose of assessing the recoverability of the recorded amounts. If projected undiscounted cash flows (future lease revenue plus residual values) are less than the carrying value of the equipment, a loss on revaluation is recorded. No adjustments to reflect impairment of individual equipment carrying values were required for the year ended December 31, 1996. As of December 31, 1996, the Manager estimates the current fair market value of the Company's equipment portfolio, including equipment owned by unconsolidated special purpose entities, to be approximately $99.9 million. Financial Condition - Capital Resources and Liquidity The Company's initial contributed capital was composed of the proceeds from its initial offering, expected to be supplemented in March 1997 by permanent debt in the amount of $25 million. The Company intends to rely on operating cash flow to meet its operating obligations, make cash distributions to Class A Unitholders, and grow the Company's equipment portfolio through reinvestment of any remaining surplus cash available in additional equipment. The Manager has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Company, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII, all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the Manager and American Finance Group ("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 an affiliate plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and became available to the Company on May 8, 1995, and was amended and restated in October 1996 to expire on October 31, 1997 and increase the available borrowings for AFG to $50 million. The Company, TECAI and the other partnerships collectively may borrow up to $35 million of the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by the Company, TECAI, AFG or PLM Equipment Growth Funds IV through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Company from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR at 2.5% at the borrower's option and is set at the time of advance of funds. To the extent the Company is unable to raise sufficient capital through the sale of interests to repay its portion of the Committed Bridge Facility, the Company will continue to be obligated under the Committed Bridge Facility until the Company generates proceeds from operations or the sale of Equipment sufficient for repayment. Borrowings by the Company are guaranteed by the Manager. As of March 6, 1996, PLM Equipment Growth Fund V had borrowings of $1.5 million, AFG had $30.8 million, and TECAI had $12.5 million in outstanding borrowings. Neither PLM Equipment Growth Fund IV, VI, VII, nor Fund I had any outstanding borrowings. For the year ended December 31, 1996, the Company generated sufficient operating income to meet its operating obligations and pay distributions to those Class A and B Unitholders. Results of Operations - Year over Year Comparison (A) Owned equipment operations The Company commenced significant operations in May 1995. As of May 13, 1996, the Company completed its equity-raising stage. As of December 31, 1996, the Company had purchased and placed into service $70.4 million of equipment, compared to $36.2 million at December 31, 1995. All of these purchases were completed with a combination of unrestricted cash, interim financing, and an advance from an affiliate of the Manager. The nine day advance from the Manager was repaid (including interest at commercial loan rates) in July of 1995. Revenues of $11.3 million were generated during the year ended December 31, 1996, compared to $4.1 million in the same period in 1995. The variance is due to the Company's equipment purchasing activities throughout 1996. Expenses of $13.4 million for the year ended December 31, 1996 consisted primarily of depreciation expense, using the double-declining balance method, and normal operating costs incurred as equipment is being purchased and placed in service. Expenses for the same period in 1995 totaled $4.8 million, and also consisted of depreciation expense and normal operating costs incurred when equipment is purchased and placed in service. (B) Equity in net loss of unconsolidated special purpose entities represents net loss generated from the operation of jointly-owned assets accounted for under the equity method (see Note 4 to the financial statements). As of December 31, 1996, the Company had interests in entities which purchased and placed into service $30.7 million of assets. The Company's investment consists of a 35% interest in an entity which owns a mobile offshore drilling unit, a 50% interest in an entity which owns a marine vessel, a 17% interest in a trust which owns six Boeing 737-200A aircraft, a 25% interest in a trust which owns four Boeing 737-200A aircraft, and a 33% interest in two trusts (the Trusts) which own three Boeing 737-200A aircraft, two spare Pratt & Whitney JT8D-17A engines and a rotables package. Revenues of $6.6 million were generated during the year ended December 31, 1996 compared to $1.3 million in the same period in 1995. The variance is due to the Company's equipment purchasing activities throughout 1996. Expenses of $6.8 million for the year ended December 31, 1996, compared to $1.2 million in the same period in 1995, consisted primarily of depreciation expense for both periods. During September of 1996, an affiliated Partnership converted its partial beneficial interests in the trust holding five commercial aircraft and the trust holding seven commercial aircraft into the sole ownership of two of the commercial aircraft, resulting in a change in the beneficial interests for the Company. This change has no effect on the income or loss recognized in the year ended December 31, 1996. The Company's performance during 1996 is not necessarily indicative of future periods. Geographic Information The Company operates its equipment in international markets. Although these operations expose the Company to certain currency, political, credit and economic risks, the Manager believes these risks are minimal or has implemented strategies to control the risks as follows: Currency risks are at a minimum because all invoicing, with the exception of a small number of railcars operating in Canada, is conducted in U.S. dollars. Political risks are minimized generally through the avoidance of operations in countries that do not have a stable judicial system and established commercial business laws. Credit support strategies for lessees range from letters of credit supported by U.S. banks to cash deposits. Although these credit support mechanisms generally allow the Company to maintain its lease yield, there are risks associated with slow-to-respond judicial systems when legal remedies are required to secure payment or repossess equipment. Economic risks are inherent in all international markets and the Manager strives to minimize this risk with market analysis prior to committing equipment to a particular geographic area. Refer to the Financial Statements, Note 3 for information on the revenues, income, and assets in various geographic regions. Revenues and net operating income by geographic region are impacted by the time period the assets are owned and the useful life ascribed to the assets for depreciation purposes. Net income (loss) from equipment is significantly impacted by depreciation charges which are greatest in the early years due to the use of the 200% declining balance method of depreciation. The relationships of geographic revenues, net income (loss) and net book value are expected to significantly change in the future as additional equipment is purchased in various equipment markets and geographic areas. An explanation of the current relationships is presented below: The Company's equipment on lease to U.S. domiciled lessees accounted for 28% of the revenues generated by owned and partially owned equipment while a net operating loss of $0.2 million was generated compared to $2.4 million in loss for the entire Company. The primary reason for this relationship is the fact that the Company depreciates its rail equipment over a 15 year period versus 5 to 12 years for other equipment types owned and leased in other geographic regions. The trailers leased to U.S. domiciled lessees are expected to become profitable in the near future, as the revenue from the trailers is expected to exceed the operating costs, and the depreciation recorded by the Company declines in future periods. The Company's equipment leased to Canadian domiciled lessees consists of railcars, an aircraft and a partial interest in an entity which owns two aircraft. Revenues in Canada accounted for 23% of total revenues while these operations accounted for $0.8 million loss of the $2.4 million total net operating loss for the entire Company. The net operating loss generated in Canada was created by the shorter depreciable life on the partially owned aircraft leased in Canada. While the aircraft in Canada generated losses for the period, this loss was partially offset by net operating income from the railcar operations. As the depreciation recorded by the Company declines in future periods the aircraft is expected to generate net operating income for the Company. One wholly owned marine vessel, a 50% investment in an entity which owns a marine vessel and a 35% investment in an entity which owns a mobile offshore drilling unit, which were leased in various regions throughout the period, accounted for 22% of the revenues and $1.3 million of the $2.4 million net operating loss for the period. These marine assets, representing 23% of the net book value of the Company's assets and investments in unconsolidated special purpose entities, generated a significant depreciation charge for the period that exceeded the revenues less direct operating costs of the vessels. As depreciation charges in the future decline, the vessels are expected to generate net income for the Company. European operations consist of partial interests in entities which own aircraft and aircraft rotables that are generating revenues that accounted for 21% of combined, owned and partially owned equipment revenues. The net income generated by this equipment accounted for $1.2 million in income for the period as lease revenues exceeded depreciation charges. While this equipment is expected to remain profitable during the lease term expiring in January 1998 the Company may not be able to remarket this equipment at comparable rates in the future. South American operations consist of four aircraft that are generating revenues that accounted for 6% of the total revenues and $1.9 million of the net operating loss for the period. The net operating loss was generated as a result of the shorter depreciable life on the aircraft leased in South America. As the depreciation recorded by the Company declines in future periods, the aircraft are expected to generate net operating income for the Company. Inflation There was no significant impact on the Company's operations as a result of inflation during 1996. Forward Looking Information Except for historical information contained herein, the discussion in this Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of the Partnership's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-K should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. The Partnership's actual results could differ materially from those discussed here. Outlook for the Future Several factors may affect the Company's operating performance in 1997 and beyond, including changes in the markets for the Company's equipment and changes in the regulatory environment in which the equipment operates. The Company intends to use excess cash flow, after payment of expenses, and cash distributions to acquire additional equipment during the first six years of the Company's operations. The Manager believes these acquisitions may cause the Company to generate additional earnings and cash flow for the Company. The Company relies on operating cash flow to meet its operating obligations, make cash distributions to Class A and B Unitholders, and grow the Company's equipment portfolio through reinvestment of any remaining surplus cash available in additional equipment. (1) Repricing and Reinvestment Risk Certain portions of the Company's marine vessel and trailer portfolios will be remarketed in 1997 as existing leases expire, exposing the Company to considerable repricing risk/opportunity. Additionally, the Manager 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 Manager intends to re-lease or sell equipment at prevailing market rates; however, the Manager cannot predict these future rates with any certainty at this time and cannot accurately assess the effect of such activity on future Company performance. (2) Residual Risk A portion of the total return on the Class A and B Unitholders' investment in the Company is expected to be realized on the sale or liquidation of the Company's equipment portfolio, the majority of which is anticipated during the liquidation phase of the Company's operations. The Manager's Credit Review Committee selects equipment for acquisition based on many factors, including anticipated residual values from the eventual sale of that equipment. These residuals may be affected by several factors during the time the equipment is held, including changes in regulatory environments in which the equipment is operated, the onset of technological obsolescence, changes in the equipment markets, perceived values for equipment at the time of sale, and others. As the impact of any of these factors becomes difficult to forecast with accuracy over extended time horizons, the Manager cannot predict with certainty that the anticipated residual values for equipment selected for acquisition will actually be realized when the equipment is sold. Prior to the liquidation phase of the Company's operations, the Manager may decide to selectively sell equipment either when it has determined that opportunities exist to realize significant gains on the sales; when continuing ownership of the equipment becomes prohibitively expensive; or when the Manager determines that continuing ownership of the equipment may result in the realization of unsatisfactory residual values. At this time, the Manager cannot predict when such occasions may occur, and thus cannot predict with any certainty the impact of such events on Company operations. (B) Impact of Government Regulations on Future Operations The Manager operates the Company'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 Company'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 Company of meeting regulatory compliance for the same equipment operated between countries. Currently, the Manager has observed rising insurance costs to operate certain vessels into U.S. ports resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing changes in the regulatory environment, both in the U.S. and internationally, cannot be predicted with any accuracy and preclude the Manager from determining the impact of such changes on Company operations, purchases, or sale of equipment. (C) Distributions Pursuant to the Fifth Amended and Restated Operating Agreement of Professional Lease Management Income Fund I, L.L.C. (the Agreement), the Company will cease to reinvest surplus cash in additional equipment beginning in its seventh year of operations. The Manager intends to pursue a strategy of selectively redeploying equipment to achieve competitive returns. By the end of the reinvestment period, the Manager intends to have assembled an equipment portfolio capable of achieving a level of operating cash flow for the remaining life of the Company sufficient to meet its obligations and sustain a predictable level of distributions to the Class A Unitholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements for the Company are listed on the Index to Financial Statements included in Item 14(a) of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. (This space intentionally left blank) PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP As of the date of this Annual Report, the directors and executive officers of PLM International (and key executive officers of its subsidiaries) are as follows:
Name Age Position - -------------------------------------- ------------------- ------------------------------------------------------- J. Alec Merriam 61 Director, Chairman of the Board, PLM International, Inc.; Director, PLM Financial Services, Inc. Douglas P. Goodrich 50 Director and Senior Vice President, PLM International; Director and President, PLM Financial Services, Inc.; Senior Vice President, PLM Transportation Equipment Corporation; President, PLM Railcar Management Services, Inc. Walter E. Hoadley 80 Director, PLM International, Inc. Robert L. Pagel 60 Director, Chairman of the Executive Committee, PLM International, Inc.; Director, PLM Financial Services, Inc. Harold R. Somerset 62 Director, PLM International, Inc. Robert N. Tidball 58 Director, President and Chief Executive Officer, PLM International, Inc. J. Michael Allgood 48 Vice President and Chief Financial Officer, PLM International, Inc. and PLM Financial Services, Inc. Stephen M. Bess 50 President, PLM Investment Management, Inc.; President, PLM Securities, Inc.; Vice President, PLM Financial Services, Inc.; David J. Davis 40 Vice President and Corporate Controller, PLM International and PLM Financial Services, Inc. Frank Diodati 42 President, PLM Railcar Management Services Canada Limited. Steven O. Layne 42 Vice President, PLM Transportation Equipment Corporation.; Vice President and Director, PLM Worldwide Management Services, Ltd. Stephen Peary 48 Senior Vice President, General Counsel and Secretary, PLM International, Inc.; Vice President, General Counsel and Secretary, PLM Financial Services, Inc., PLM Investment Management, Inc., PLM Transportation Equipment Corporation; Vice President, PLM Securities, Corp. Thomas L. Wilmore 54 Vice President, PLM Transportation Equipment Corporation; Vice President, PLM Railcar Management Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988 he became a member of the Executive Committee of the Board of Directors of PLM International. From 1972 to 1988, Mr. Merriam was Executive Vice President and Chief Financial Officer of Crowley Maritime Corporation, a San Francisco area-based company engaged in maritime shipping and transportation services. Previously, he was Chairman of the Board and Treasurer of LOA Corporation of Omaha, Nebraska and served in various financial positions with Northern Natural Gas Company, also of Omaha. Douglas P. Goodrich was elected to the Board of Directors in July 1996 and appointed Director and President of PLM Financial Services in June 1996 and Senior Vice President of PLM International in March 1994. Mr. Goodrich has also served as Senior Vice President of PLM Transportation Equipment Corporation since July 1989, and as President of PLM Railcar Management Services, Inc. since September 1992, having been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice President of G.I.C. Financial Services Corporation, a subsidiary of Guardian Industries Corp. of Chicago, Illinois from December 1980 to September 1985. Dr. Hoadley joined PLM International's Board of Directors and its Executive Committee in September 1989. He served as a Director of PLM, Inc. from November 1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988. Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since 1981. He was Executive Vice President and Chief Economist for the Bank of America from 1968 to 1981 and Chairman of the Federal Reserve Bank of Philadelphia from 1962 to 1966. Dr. Hoadley had served as a Director of Transcisco Industries, Inc. from February 1988 through August 1995. Robert L. Pagel was appointed Chairman of the Executive Committee of the Board of Directors of PLM International in September 1990, having served as a director since February 1988. In October 1988, he became a member of the Executive Committee of the Board of Directors of PLM International. From June 1990 to April 1991, Mr. Pagel was President and Co-Chief Executive Officer of The Diana Corporation, a holding company traded on the New York Stock Exchange. He is the former President and Chief Executive Officer of FanFair Corporation which specializes in sports fans' gift shops. He previously served as President and Chief Executive Officer of Super Sky International, Inc., a publicly traded company, located in Mequon, Wisconsin, engaged in the manufacture of skylight systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis & Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt, Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the brokerage and financial industries. Mr. Pagel has also served on the Board of Governors of the Midwest Stock Exchange. Harold R. Somerset was elected to the Board of Directors of PLM International in July 1994. From February 1988 to December 1993, Mr. Somerset was President and Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H), a recently-acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating Officer, having served on its Board of Directors since 1978, a position in which he continues to serve. Between 1972 and 1984, Mr. Somerset served in various capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture company headquartered in Honolulu, Hawaii, including Executive Vice President - Agricultures, Vice President, General Counsel and Secretary. In addition to a law degree from Harvard Law School, Mr. Somerset also holds degrees in civil engineering from the Rensselaer Polytechnic Institute and in marine engineering from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors for various other companies and organizations, including Longs Drug Stores, Inc., a publicly-held company headquartered in Maryland. Robert N. Tidball was appointed President and Chief Executive Officer of PLM International in March 1989. At the time of his appointment, he was Executive Vice President of PLM International. Mr. Tidball became a director of PLM International in April 1989 and a member of the Executive Committee of the Board of Directors of PLM International in September 1990. Mr. Tidball was elected President of PLM Railcar Management Services, Inc. in January 1986. Mr. Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith, Inc., he was Vice President, a General Manager and a Director of North American Car Corporation, and a Director of the American Railcar Institute and the Railway Supply Association. J. Michael Allgood was appointed Vice President and Chief Financial Officer of PLM International in October 1992. Between July 1991 and October 1992, Mr. Allgood was a consultant to various private and public sector companies and institutions specializing in financial operational systems development. In October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding company, Aviation Holdings Plc of London where he served as Chief Financial Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served as a First Vice President with American Express Bank, Ltd. In February 1978, Mr. Allgood founded and until June 1981, served as a director of Trade Projects International/Philadelphia Overseas Finance Company, a joint venture with Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served in various capacities with Citibank, N.A. Stephen M. Bess was appointed President of PLM Securities, Inc. in June 1996 and President of PLM Investment Management, Inc. in August 1989, having served as Senior Vice President of PLM Investment Management, Inc. beginning in February 1984 and as Corporate Controller of PLM Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate Controller of PLM, Inc., beginning in December 1982. Mr. Bess was Vice President-Controller of Trans Ocean Leasing Corporation, a container leasing company, from November 1978 to November 1982, and Group Finance Manager with the Field Operations Group of Memorex Corp., a manufacturer of computer peripheral equipment, from October 1975 to November 1978. David J. Davis was appointed Vice President and Controller of PLM International in January 1994. From March 1993 through January 1994, Mr. Davis was engaged as a consultant for various firms, including PLM. Prior to that Mr. Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice President and Controller for ITEL Containers International Corporation which was located in San Francisco. Between May 1978 and April 1989, Mr. Davis held various positions with Transamerica Leasing Inc., in New York, including that of Assistant Controller for their rail leasing division. Frank Diodati was appointed President of PLM Railcar Management Services Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and Sales for G.E. Railcar Services Canada Limited. Steven O. Layne was appointed Vice President, PLM Transportation Equipment Corporation's Air Group in November 1992, and was appointed Vice President and Director of PLM Worldwide Management Services, Ltd. in September, 1995. Mr. Layne was PLM Transportation Equipment Corporation's Vice President, Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint venture of General Electric Corporation and the Government Development Bank of Puerto Rico. Mr. Layne is a Major in the United States Air Force Reserves and senior pilot with 13 years of accumulated service. Stephen Peary became Vice President, Secretary, and General Counsel of PLM International in February 1988 and Senior Vice President in March 1994. Mr. Peary was Assistant General Counsel of PLM Financial Services, Inc. from August 1987 through January 1988. Previously, Mr. Peary was engaged in the private practice of law in San Francisco. Mr. Peary is a graduate of the University of Illinois, Georgetown University Law Center, and Boston University (Masters of Taxation Program). Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation Equipment Corporation in March 1994 and has served as Vice President, Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM, Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp. in Towson, Maryland from February 1987 to April 1988. From July 1985 to February 1987, he was President and Co-Owner of Guardian Industries Corp., Chicago, Illinois and between December 1980 and July 1985, Mr. Wilmore was an Executive Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr. Wilmore also served as Vice President of Sales for Gould Financial Services located in Rolling Meadows, Illinois from June 1978 to December 1980. The directors of the General Partner are elected for a one-year term or until their successors are elected and qualified. There are no family relationships between any director or any executive officer of the General Partner. ITEM 11. EXECUTIVE COMPENSATION The Company has no directors, officers or employees. The Company has no pension, profit sharing, retirement or similar benefit plan in effect as of December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The Manager is generally entitled to a 15% interest in the Company's cash distributions and earnings subject to certain allocation provisions. After the investors receive cash at December 31, 1996, no investor was known by the Manager to beneficially own more than 5% of the Units of the Company. (b) Security Ownership of Management Neither the Manager and its affiliates nor any executive officer or director of the Manager and its affiliates own any Units of the Company as of December 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with Management and Others During 1996, the Company paid or accrued the following fees to FSI or its affiliates: management fees - $585,277. The Company reimbursed FSI and/or its affiliates $313,036 for administrative and data processing services performed on behalf of the Company during 1996. The Company paid Transportation Equipment Indemnity Company Ltd. (TEI), a wholly owned, Bermuda-based subsidiary of PLM International, $7,411 for insurance coverages during 1996 substantially all of which 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. During 1996, the Unconsolidated Special Purpose Entities paid or accrued the following fees to FSI or its affiliates (based on the Company's proportional share of ownership): management fees - $240,501; and administrative and data processing services - $85,261. (b) Certain Business Relationships None. (c) Indebtedness of Management None. (d) Transactions With Promoters None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report. (b) Reports on Form 8-K None. (c) Exhibits 4. Limited Partnership Agreement of Partnership, incorporated by reference to the Partnership's Registration Statement on Form S-1 (Reg. No. 33-55796) which became effective with the Securities and Exchange Commission on May 25, 1993. 10.1 Management Agreement between Company and PLM Investment Management, Inc., incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 33-55796) which became effective with the Securities and Exchange Commission on May 25, 1993. 10.2 Second Amended and restated Warehousing Credit Agreement, dated as of May 31, 1996 with First Union National Bank of North Carolina. 10.3 Amendment No.1 to Second Amended and restated Warehousing Credit Agreement, dated as of November 5, 1996 with First Union National Bank of North Carolina. 10.4 $25,000,000 Note Agreement, dated as of December 30, 1996. 24. Powers of Attorney. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Company has no directors or officers. The Manager has signed on behalf of the Company by duly authorized officers. PROFESSIONAL LEASE MANAGEMENT INCOME Date: March 12, 1997 FUND I By: PLM Financial Services, Inc. Manager By: /s/ Douglas P. Goodrich --------------------------- Douglas P. Goodrich President By: /s/ David J. Davis ---------------------------- David J. Davis Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following directors of the Company's Manager on the dates indicated. Name Capacity Date *_________________________ J. Alec Merriam Director - FSI March 12, 1997 *_________________________ Robert L. Pagel Director - FSI March 12, 1997 * Stephen Peary, by signing his name hereto does sign this document on behalf of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. /s/ Stephen Peary - --------------------- Stephen Peary Attorney-in-Fact PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) INDEX TO FINANCIAL STATEMENTS (Item 14(a)) Page Report of Independent Auditors 24 Balance sheets as of December 31, 1996 and 1995 25 Statement of operations for the years ended December 31, 1996 and 1995 26 Statement of changes in members' equity for the years ended December 31, 1996, 1995 and the period from inception (August 22, 1994) through December 31, 1994 27 Statements of cash flows for the years ended December 31, 1996, 1995 and the period from inception (August 22, 1994) through December 31, 1994 28 Notes to financial statements 29 - 36 All other financial statement schedules have been omitted as the required information is not pertinent to the Registrant or is not material, or because the information required is included in the financial statements and notes thereto. REPORT OF INDEPENDENT AUDITORS The Members Professional Lease Management Income Fund I, L.L.C.: We have audited the financial statements of Professional Lease Management Income Fund I, L.L.C. as listed in the accompanying index. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Professional Lease Management Income Fund I, L.L.C. as of December 31, 1996 and 1995, and the results of its operations for the years ended December 31, 1996 and 1995 and its cash flows for the years ended December 31, 1996 and 1995 and the period from inception (August 22, 1994) through December 31, 1994, in conformity with generally accepted accounting principles. /S/ KPMG PEAT MARWICK LLP - -------------------------------- SAN FRANCISCO, CALIFORNIA February 28, 1997 PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) BALANCE SHEETS December 31, ASSETS
1996 1995 ------------------------------------------ Assets: Equipment held for operating leases, at cost $ 70,333,099 $ 36,139,950 Less accumulated depreciation (12,189,573 ) (2,869,535 ) ------------------------------------------ Net equipment 58,143,526 33,270,415 Cash and cash equivalents 1,691,650 6,803,946 Restricted cash 223,260 6,315,548 Investment in unconsolidated special purpose entities 25,348,602 14,596,206 Accounts receivable, net of allowance for doubtful accounts of $35,887 in 1996 and $7,835 in 1995 1,534,297 797,097 Prepaid expenses 505,298 416,515 Organization and offering costs, net of accumulated amortization 308,472 389,289 ------------------------------------------ Total assets $ 87,755,105 $ 62,589,016 ========================================== LIABILITIES AND MEMBERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 430,133 $ 664,686 Due to affiliates 162,704 387,197 Lessee deposits and reserves for repairs 873,707 135,409 ------------------------------------------ Total liabilities 1,466,544 1,187,292 Subscriptions in escrow -- 6,259,500 Members' equity: Class A Members (4,999,581 Units at December 31, 1996 and 2,831,388 Units at December 31, 1995) 86,023,701 54,836,617 Class B Member 264,860 305,607 ------------------------------------------ Total Members' Equity 86,288,561 55,142,224 ------------------------------------------ Total liabilities and members' equity $ 87,755,105 $ 62,589,016 ==========================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENT OF OPERATIONS For the year ended December 31,
1996 1995 -------------------------------------- Revenues: Lease revenue $ 9,939,148 $ 3,991,638 Interest and other income 1,355,959 133,253 Gain on disposition of equipment -- 24,593 -------------------------------------- Total revenues 11,295,107 4,149,484 Expenses: Depreciation and amortization 9,407,974 2,916,682 Management fees to affiliate 585,277 284,376 Repairs and maintenance 1,363,040 570,919 Marine equipment operating expenses 926,179 479,486 Insurance expense to affiliate 7,411 3,860 Other insurance expense 179,998 46,416 Interest expense 8,902 229,660 General and administrative expenses to affiliates 313,036 118,114 Other general and administrative expenses 639,815 187,581 -------------------------------------- Total expenses 13,431,632 4,837,094 Equity in net income (loss) of unconsolidated special purpose entities (255,969 ) 69,619 -------------------------------------- Net loss $ (2,392,494 ) $ (617,991 ) ====================================== Members' share of net loss: Class A Members $ (3,705,689 ) $ (611,811 ) Class B Member 1,313,195 (6,180 ) ===================================== Total $ (2,392,494 ) $ (617,991 ) ====================================== Cash distributions $ 9,832,146 $ 1,302,566 ======================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENT OF CHANGES IN MEMBERS' EQUITY For the year ended December 31, 1996, 1995 and for the period from inception (August 22, 1994) through December 31, 1994
Class A Class B Total -------------------------------------------------------- Member's capital contributions $ 100 $ -- $ 100 -------------------------------------------------------- Member's equity at December 31, 1994 100 -- 100 Members' capital contributions 56,627,660 9,536,106 66,163,766 Syndication costs -- (9,101,085 ) (9,101,085 ) Net loss (611,811 ) (6,180 ) (617,991 ) Distributions (1,179,332 ) (123,234 ) (1,302,566 ) -------------------------------------------------------- Members' equity at December 31, 1995 54,836,617 305,607 55,142,224 Members' capital contributions 43,363,860 5,068,822 48,432,682 Syndication costs -- (5,061,705 ) (5,061,705 ) Net loss (3,705,689 ) 1,313,195 (2,392,494 ) Distributions (8,471,087 ) (1,361,059 ) (9,832,146 ) -------------------------------------------------------- Members' equity at December 31, 1996 $ 86,023,701 $ 264,860 $ 86,288,561 ========================================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. (A Delaware Limited Liability Company) STATEMENTS OF CASH FLOWS For the year ended December 31, 1996, 1995 and for the period from inception (August 22, 1994) through December 31, 1994
Cash flows from operating activities: 1996 1995 1994 ---------------------------------------------------- Net loss $ (2,392,494 ) $ (617,991 ) $ -- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,407,974 2,916,682 Gain on sale of equipment -- (24,593 ) Equity in net (income) loss unconsolidated special purpose entities 255,969 (69,619 ) Changes in operating assets and liabilities: Restricted cash (223,260 ) Accounts receivable, net (737,200 ) (869,097 ) Prepaid expenses (88,783 ) (416,515 ) Accounts payable and accrued expenses (234,553 ) 664,686 Due to affiliates (224,493 ) 387,197 Lessee deposits and reserves for repairs 738,298 207,409 ---------------------------------------------------- Net cash provided by operating activities 6,501,458 2,178,159 -- ---------------------------------------------------- Investing activities: Payments to affiliates for purchase of equipment -- (29,707,311 ) Payments for purchase of equipment (34,193,151 ) (6,464,489 ) Investment in and equipment purchased and placed in unconsolidated special purpose entities (16,067,613 ) (14,676,987 ) Proceeds from disposition of equipment -- 55,028 ---------------------------------------------------- Net cash used in investing activities (50,260,764 ) (50,793,759 ) -- ---------------------------------------------------- Financing activities: Proceeds from note payable -- 1,057,221 Proceeds from note payable - affiliates -- 3,956,300 Principal payments on notes payable -- (1,057,221 ) Principal payments on notes payable - affiliates -- (3,956,300 ) Cash distributions to Class A Members (8,471,087 ) (1,179,332 ) Cash distributions to Class B Member (1,361,059 ) (123,234 ) Class A members capital contribution 43,363,860 56,627,660 100 (Decrease) increase in subscriptions in escrow (6,259,500 ) 6,259,500 Decrease (increase) in restricted cash from subscriptions in escrow, net 6,315,548 (6,315,548 ) Distributions from unconsolidated special purpose entities 5,059,248 150,400 ---------------------------------------------------- ---------------------------------------------------- Cash provided by financing activities 38,647,010 55,419,446 100 ---------------------------------------------------- Cash and cash equivalents: Net (decrease) increase in cash and cash equivalents (5,112,296 ) 6,803,846 100 Cash and cash equivalents at beginning of period 6,803,946 100 -- ---------------------------------------------------- Cash and cash equivalents at end of period $ 1,691,650 $ 6,803,946 $ 100 ==================================================== Supplemental information: Cash items: Interest paid ($8,902 paid to affiliate) $ 8,902 $ 229,660 $ -- ==================================================== Non cash items: Syndication and offering costs paid by Class B Member $ 5,068,822 $ 9,536,106 $ -- ====================================================
See accompanying notes to financial statements. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation Organization Professional Lease Management Income Fund I, L.L.C., a Delaware Limited Liability Company (Fund I or the Company) was formed on August 22, 1994, to purchase, lease, charter, or otherwise invest in, a diversified portfolio of long-lived, low obsolescence capital equipment that is transportable by and among prospective users (the Equipment). The securities represent limited liability company interests (the Class A Units) which were offered to the public. The Company's offering became effective on January 23, 1995. PLM Financial Services, Inc. (FSI) is the Manager of the Company and is the initial Class B Member. On May 13, 1996, the Company ceased its offering for Class A Units ($100,000,000). As of December 31, 1996, there were 4,999,581 Units outstanding. At December 31, 1996, the Class B Member had capital contributions of $14,604,931 representing the cash payments for organization and syndication costs. Syndication costs of $14,162,791 are recorded as a reduction to Class B Member's equity. The Manager controls and manages the affairs of the Company. The Manager will pay out of its own corporate funds (as a capital contribution to the Company) all organization and syndication expenses incurred in connection with the offering; therefore, 100% of the cash proceeds received by the Company from the sale of Class A Units are initially being used to purchase Equipment and establish any required cash reserves. For its contribution, the Manager is generally entitled to a 15% interest in the Company's cash distributions and earnings subject to certain allocation provisions. After the investors receive cash distributions equal to their original capital contributions the Manager's interest will increase to 25%. Between the eighth and tenth years of operations of the Company, the Manager intends to begin the dissolution and liquidation of the Company in an orderly fashion, unless the Company is terminated earlier upon sale of all of the equipment or by certain other events. However, under certain circumstances, the term of the Company may be extended. In no event will the Company extend beyond December 31, 2010. These financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operations The equipment of the Company is being managed, under a management agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of the Manager. IMI receives a monthly management fee from the Company for managing the equipment (See Note 2). The Manager is also the General Partner in a series of limited partnerships which own and lease transportation equipment. The Manager, in conjunction with its subsidiaries, also sells transportation PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued) Operations (continued) equipment to these partnerships and manages transportation equipment under management agreements with the partnerships. Accounting for Leases The Company'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. Depreciation and Amortization Depreciation of 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 12 years for trailers, and marine vessels, 15 years for railcars, and 8 years, 6 years and 5 years for aircraft. The depreciation method is changed to straight line when annual depreciation expense using the straight line method exceeds that calculated by the 200% declining balance method. Organization costs will be amortized over a 60 month period. Major expenditures which are expected to extend the useful lives or reduce future operating expenses of equipment are capitalized. Transportation Equipment In March 1995, the Financial Accounting Standards Board (FASB) issued statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is effective for years beginning after December 15, 1995. The Company adopted SFAS 121 during 1995, the effect of which was not material as the method previously employed by the Company was consistent with SFAS 121. In accordance with SFAS 121, the Company reviews the carrying value of its equipment at least annually in relation to expected future market conditions for the purpose of assessing the recoverability of the recorded amounts. If projected undiscounted cash flows (future lease revenue plus residual values) are less than the carrying value of the equipment, a loss on revaluation is recorded. There were no writedowns required during 1996. Investments in Unconsolidated Special Purpose Entities The Company has interests in unconsolidated special purpose entities which own transportation equipment. These interests are accounted for using the equity method. The Company's equity interest in net income of unconsolidated special purpose entities is reflected net of management fees paid or payable to IMI. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 1. Basis of Presentation (continued) 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. To meet the maintenance obligations of certain aircraft airframes and engines, reserve accounts are prefunded by the lessee. Marine vessel drydocking is a periodic required maintenance process that generally occurs every five years. The drydock maintenance process generally lasts from 10 to 21 days. Estimated costs associated with marine vessel drydockings are accrued and charged to repair and maintenance expense ratably over the period prior to such drydocking because wear and tear occurs over the same revenue generating period. The reserve accounts are included in the balance sheet as prepaid deposits and reserve for repairs. Net Income (Loss) and Distributions per Depositary Unit After giving effect to the special allocations set forth in Sections 3.08(b) and 3.17 of the Company's Operating Agreement, Net Profits and Net Loss shall be allocated 1% to the Class B Members and 99% to the Class A Members. During 1996, the Manager received a special allocation of income of $1,350,627. Cash distributions are recorded when paid and totaled $9,832,146 and $1,302,566 for 1996 and 1995, respectively. Cash distributions to Class A Unitholders in excess of net income are considered to represent a return of capital. Cash distributions to Class A Unitholders of $8,471,087 and $1,179,332 in 1996 and 1995, respectively, were deemed to be a return of capital. Cash distributions related to the fourth quarter results of $621,000 were paid or are payable during January, 1997, to the Class A Unitholders of record as of December 31, 1996, for unitholders who elected for monthly distributions. Quarterly cash distributions of approximately $1,077,000 were declared on January 25, 1997 and were paid on February 15, 1997 to Class A and Class B Unitholders. Cash and Cash Equivalents The Company considers highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less as cash equivalents. Restricted Cash At December 31, 1996, restricted cash includes lessee security deposits. At December 31, 1995, restricted cash represented subscription deposits for Units in escrow which were considered restricted cash until the members were admitted, usually the next day of the following month. 2. Manager and Transactions with Affiliates An officer of PLM Securities Corp. (PLMS) contributed $100 of the Company's initial capital. Under the equipment management agreement, IMI, subject to certain reductions, is entitled to a monthly management fee attributable to either owned equipment or interests in equipment owned by the Unconsolidated Special Purpose Entities (USPE) equal to the lesser of (i) the fees which would be charged by an independent party for similar services for similar equipment or (ii) the sum of (A) for that Equipment for which IMI provides only Basic Equipment Management Services (a) 2% of the Gross Lease Revenues attributable to Equipment which is subject to Full Payout Net Leases, (b) 5% of the Gross Lease Revenues attributable to Equipment which is subject to Operating Leases, and (B) for that Equipment for which IMI provides supplemental Equipment Management Services, 7% of the Gross Lease Revenues attributable to such Equipment. Company management fees of $163,524 were payable at December 31, 1996. The Company's proportional share of the USPE's PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 2. Other Transactions with Affiliates (continued) management fees of $23,092 and $58,832 were payable as of December 31, 1996 and 1995, respectively. The Company's proportional share of the USPE's management fees expense during 1996 was $240,501. The Company reimbursed FSI $313,036 for data processing expenses and administrative services performed on behalf of the Company during 1996. The Company's proportional share of the USPE's administrative and data processing expenses was $85,261 during 1996. Transportation Equipment Corporation (TEC) will also be entitled to receive an equipment liquidation fee equal to the lesser of (i) 3% of the sales price of equipment sold on behalf of the Company, or (ii) 50% of the "Competitive Equipment Sale Commission," as defined, if certain conditions are met. PLMS and TEC are wholly-owned subsidiaries of the Manager. In certain circumstances, the Manager will be entitled to a monthly re-lease fee for re-leasing services following expiration of the initial lease, charter or other contract for certain Equipment equal to the lesser of (a) the fees which would be charged by an independent third party for comparable services for comparable equipment or (b) 2% of Gross Lease Revenues derived from such re-lease. No re-lease fee, however, shall be payable if such fee would cause the combination of the equipment management fee paid to IMI (see Note 1) or the re-lease fees to exceed 7% Gross Lease Revenues. The Company paid $7,411 in 1996 to Transportation Equipment Indemnity Company Ltd. (TEI) which provides marine insurance coverage and other insurance brokerage services to the Company. The Company's proportional share of USPE's marine insurance coverage paid to TEI was $1,472 during 1996. TEI is an affiliate of the Manager. A substantial portion of these amounts 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. 3. Equipment The components of equipment are as follows (in thousands):
1996 1995 ------------------------------------ Rail equipment $ 18,876,058 $ 13,112,390 Aircraft 24,605,000 4,000,000 Marine vessel 12,256,531 12,256,532 Trailers 14,595,510 6,771,028 ------------------------------------ 70,333,099 36,139,950 Less accumulated depreciation (12,189,573 ) (2,869,535 ) ------------------------------------ Net equipment $ 58,143,526 $ 33,270,415 ====================================
Revenues are earned by placing the equipment under operating leases which are generally billed monthly or quarterly. The Company's marine vessel is leased to an operator of utilization-type leasing pools which include equipment owned by unaffiliated parties. In such instances, revenues received by the Company consist of a specified percentage of revenues generated by leasing the equipment to sublessees, after deducting certain direct operating expenses of the pooled equipment. Rents for railcars are based on mileage traveled or a fixed rate; rents for all other equipment are based on fixed rates. During the year ended December 31, 1996, the Company purchased four 737-200A Stage II commercial aircraft, 181 refrigerated trailers and 113 railcars for $34.2 million. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. Equipment (continued) As of December 31, 1996, all equipment in the Company portfolio was either on lease or operating in PLM-affiliated short-term trailer rental facilities except for 14 railcars with a carrying value of $333,000. At December 31, 1995, all equipment in the Company portfolio was either on lease or operating in PLM-affiliate short-term trailer rental facilities. All leases are being accounted for as operating leases. Future minimum rent under noncancelable leases at December 31, 1996 during each of the next five years are approximately $18,691,000 - 1997; $10,561,000 - 1998; $8,694,000 - 1999; $8,148,000 - 2000; and $6,355,000 - 2001 and thereafter. Periodically, PLM International Inc., (PLM) will purchase groups of assets whose ownership may be allocated among affiliated partnerships and PLM. Generally in these cases, only assets that are on lease will be purchased by the affiliated partnerships. PLM will generally assume the ownership and remarketing risks associated with off-lease equipment. Allocation of the purchase price will be determined by a combination of third party industry sources, and recent transactions or published fair market value references. During 1996, PLM realized $0.7 million of gains on the sale of 69 off-lease railcars purchased by PLM as part of a group of assets in 1994 which had been allocated to PLM Equipment Growth Funds IV, VI, VII, Professional Lease Management Income Fund I, L.L.C. and PLM. These assets were included in assets held for sale at December 31, 1995. During 1995, PLM realized $1.3 million in gains on sales of railcars and aircraft purchased by PLM in 1994 and 1995 as part of a group of assets which had been allocated to EGFs IV, V, VI, VII, Fund I, and PLM. The Company owns certain equipment which is leased and operated internationally. A limited number of the Company's transactions are 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 Company leases its aircraft, railcars and trailers to lessees domiciled in four geographic regions: United States, Canada, Europe, and South America. The vessel is leased to multiple lessees in different regions who operate the vessel worldwide. The tables below set forth geographic information about the Company's equipment and the Company's proportional interest in equipment owned by special purpose entities. The Company accounts for proportional interest in equipment using the equity method. The geographic information is grouped by domicile of the lessee as of and for the year ended December 31, 1996 and 1995:
Investment in Unconsolidated Special Purpose Entities Owned --------------------------------- ------------------------------- 1996 1995 1996 1995 -------------------------------------------------------------------- Revenues: Various $ 2,668,536 $ 1,491,972 $ 925,948 $ -- United States 4,572,914 2,082,312 -- -- Canada 1,731,181 417,354 2,109,784 78,400 Europe -- -- 3,529,926 1,176,634 South America 966,517 -- -- -- ==================================================================== Total revenues $ 9,939,148 $ 3,991,638 $ 6,565,658 $ 1,255,034 ====================================================================
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 3. Equipment (continued) The following table sets forth Identifiable income (loss) information by region :
Investment in Unconsolidated Owned Special Purpose Entities ---------------------------------- -------------------------------- 1996 1995 1996 1995 ---------------------------------------------------------------------- Income (loss): Various $ (774,488 ) $ (442,731 ) $ (515,558 ) $ -- United States (201,018 ) 197,288 -- -- Canada 128,229 (2,724 ) (896,260 ) (41,045 ) Europe -- -- 1,155,849 110,664 South America (1,918,227 ) -- -- -- ---------------------------------------------------------------------- Total identifiable income (loss) (2,765,504 ) (248,167 ) (255,969 ) 69,619 Administrative and other 628,979 (439,443 ) -- -- ---------------------------------------------------------------------- Total net income (loss) $ (2,136,525 ) $ (687,610 ) $ (255,969 ) $ 69,619 ======================================================================
The net book value of owned assets and the net investment in the unconsolidated special purpose entities at December 31, 1996 and 1995 are as follows:
Investment in Unconsolidated Owned Special Purpose Entities ----------------------------------- ----------------------------------- 1996 1995 1996 1995 -------------------------------------------------------------------------- Net book value: Various $ 9,220,776 $ 11,064,923 $ 9,916,538 $ 377,987 United States 26,400,747 16,365,304 -- -- Canada 4,664,333 5,840,188 6,665,213 4,108,555 Europe -- -- 8,766,851 10,109,664 South America 17,857,670 -- -- -- -------------------------------------------------------------------------- Total equipment $ 58,143,526 $ 33,270,415 $ 25,348,602 $ 14,596,206 ==========================================================================
For 1996 and 1995, one lessee, Transportes Aeroes Portugueses, accounted for more than 10% of the Company's revenues. The total amount of revenue accounted for by this lessee was $3.5 million or 21% of total revenues in 1996 and $1.2 million or 22% of total revenues in 1995. Thus, the lease revenues are not reported in Lease Revenue in the Statement of Operations, but, rather are reported net in Equity in net income of unconsolidated special purpose entities. Such concentration of revenues are not unusual, given the early stage of the equity raising period and are expected to decrease in the future to the extent additional equipment is acquired using proceeds from the Company's sale of limited liability company interests. 4. Investments in Unconsolidated Special Purpose Entities During 1996, the Company purchased a 25% interest in a trust which owns four Boeing 737-200 aircraft for $5.6 million, and a 50% interest in an entity which owns a marine vessel for $3.4 million (a deposit of $0.4 million was lodged in December of 1995) and a 35% interest in an entity which owns a drilling marine vessel for $7.0 million. The remaining interests are owned by affiliated partnerships. During 1995, the Company purchased a 14% (17% at December 31, 1996) interest in a trust which owns seven Boeing 737-200A aircraft for $4.3 million, and 33% in two trusts (the Trusts) which own three 1983 Boeing 737-200A aircraft, equipped with Pratt & Whitney JT8D-17A engines, two spare Pratt & Whitney JT8D-17A engines and a rotables package for $10.0 million. The remaining interests are owned by affiliated partnerships. The Company accounts for investments in unconsolidated special purpose entities using the equity method. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 4. Investments in Unconsolidated Special Purpose Entities (continued) The net investments in unconsolidated special purpose entities include the following jointly-owned equipment (and related assets and liabilities):
December 31, December 31, % Ownership Equipment 1996 1995 --------------------------------------------------------------------------------------------------------------- 33% Two trusts consisting of: Three 737-200A Stage II commercial aircraft Two aircraft engines Portfolio of rotable components $ 8,766,851 $ 10,109,664 14% Trust consisting of seven 737-200A Stage II commercial aircraft (see note below) -- 4,108,555 17% Trust consisting of six 737-200A Stage II commercial aircraft (see note below) 2,683,784 -- 25% Trust consisting of four 737-200A Stage II commercial aircraft 3,981,429 -- 35% Drilling marine vessel 6,906,103 -- 50% Cargo marine vessel 3,010,435 377,987 ---------------------------------------------- Total investments $ 25,348,602 $ 14,596,206 ==============================================
The Company has beneficial interest in two unconsolidated special purpose entities that own multiple aircraft (the Trusts). These Trusts contain provisions, under certain circumstances, for allocating specific aircraft to the beneficial owners. During September 1996, PLM Equipment Growth Fund V, an affiliated partnership which also has a beneficial interest in the Trust, renegotiated its senior loan agreement and was required, for loan collateral purposes, to withdraw the aircraft designated to it from the Trust. The result was to restate the percentage ownership of the remaining beneficial owners of the Trusts beginning September 30, 1996. This change has no effect on the income or loss recognized in the year ended December 31, 1996. The following summarizes the financial information for the special purpose entities and the Company's interests therein as of and for the years ended December 31, 1996 and 1995:
Total Numbers Net Interest of Company ----------------------------------- ----------------------------------- 1996 1995 1996 1995 -------------------------------------------------------------------------- Net assets $ 80,845,706 $ 59,388,644 $ 25,348,602 $ 14,596,206 Revenues 24,675,879 4,777,472 6,565,658 1,255,034 Net Income (loss) (3,071,146 ) (1,021,162 ) (255,969 ) 69,619
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS December 31, 1996 5. Notes Payable In December 1996, the Company entered into an agreement to issue a long-term note totaling $25 million to one institutional investor. The note bears interest at a fixed rate of 7.33% per annum and has a final maturity in 2006. Interest on the note is payable semi-annually. The note will be repaid in five principal payments of $3.0 million on December 31, 2000, 2001, 2002, 2003, and 2004 and two principal payments of $5.0 million on December 31, 2005, and 2006. The agreement requires the Company to maintain certain financial covenants related to fixed-charge coverage. Proceeds from the sale of the note will be used to fund additional equipment acquisitions during the first and second quarters of 1997. The Manager has entered into a joint $50 million credit facility (the "Committed Bridge Facility") on behalf of the Company, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, and PLM Equipment Growth & Income Fund VII, all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned subsidiary of the Manager and American Finance Group ("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 an affiliate plus (ii) 50% of unrestricted cash held by the borrower. The Committed Bridge Facility became available on December 20, 1993, and became available to the Company on May 8, 1995, and was amended and restated in October 1996 to expire on October 31, 1997 and increase the available borrowings for AFG to $50 million. The Company, TECAI and the other partnerships collectively may borrow up to $35 million of the Committed Bridge Facility. The Committed Bridge Facility also provides for a $5 million Letter of Credit Facility for the eligible borrowers. Outstanding borrowings by the Company, TECAI, AFG or PLM Equipment Growth Funds IV through VII reduce the amount available to each other under the Committed Bridge Facility. Individual borrowings may be outstanding for no more than 179 days, with all advances due no later than October 31, 1997. The Committed Bridge Facility prohibits the Company from incurring any additional indebtedness. Interest accrues at either the prime rate or adjusted LIBOR at 2.5% at the borrower's option and is set at the time of advance of funds. To the extent the Company is unable to raise sufficient capital through the sale of interests to repay its portion of the Committed Bridge Facility, the Company will continue to be obligated under the Committed Bridge Facility until the Company generates proceeds from operations or the sale of Equipment sufficient for repayment. Borrowings by the Company are guaranteed by the Manager. As of December 31, 1996, PLM Equipment Growth Fund V had borrowings of $2.5 million, PLM Equipment Growth Fund VI had $1.3 million, PLM Equipment Growth and Income Fund VII had $2.0 million, AFG had $26.9 million, and TECAI had $4.1 million in outstanding borrowings. Neither PLM Equipment Growth Fund IV nor the Company had any outstanding borrowings. 6. Income Taxes The Company is not subject to income taxes as any income or loss is included in the tax returns of the individual members. Accordingly, no provision for income taxes has been made in the financial statements of the Company. As of December 31, 1996, there were temporary differences of approximately $5,152,000 between the financial statement carrying values of certain assets and liabilities and the income tax basis of such assets and liabilities, primarily due to differences in depreciation methods and equipment reserves. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I INDEX OF EXHIBITS Exhibit Page 4. Operating Agreement of Partnership. * 10.1 Management Agreement between Company and * PLM Investment Management, Inc. 10.2 Second Amended and restated Warehousing Credit Agreement, dated as of May 31, 1996 with First Union National Bank of North Carolina. * 10.3 Amendment No. 1 to Second Amended and restated Warehousing Credit Agreement, dated as of November 5, 1996 with First Union National Bank of North Carolina. * 10.4 $25,000,000 Note Agreement, dated as of December 30, 1996. * 24. Powers of Attorney. 38-41 * Incorporated by reference. See page 18 of this report. EX-10 2 SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT AMONG PLM EQUIPMENT GROWTH FUND III PLM EQUIPMENT GROWTH FUND IV PLM EQUIPMENT GROWTH FUND V PLM EQUIPMENT GROWTH FUND VI PLM EQUIPMENT GROWTH & INCOME FUND VII PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. PLM FINANCIAL SERVICES, INC. AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA AND SUCH OTHER FINANCIAL INSTITUTIONS AS SHALL BECOME LENDERS HEREUNDER AND FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT May 31, 1996 WAREHOUSING CREDIT AGREEMENT TABLE OF CONTENTS Page SECTION 1. DEFINITIONS..............................................2 1.1 Defined Terms............................................2 1.2 Accounting Terms........................................18 1.3 Other Terms.............................................18 1.4 Schedules And Exhibits..................................19 SECTION 2. AMOUNT AND TERMS OF CREDIT..............................19 2.1 Commitment To Lend......................................19 2.1.1 Revolving Facility...........................19 (a) Facility Commitments..................19 (b) Each Loan.............................20 2.1.2 Funding......................................21 2.1.3 Utilization Of The Loans.....................21 2.2 Repayment And Prepayment................................21 2.2.1 Repayment....................................21 2.2.2 Voluntary Prepayment.........................21 2.2.3 Mandatory Prepayments........................22 2.3 Calculation Of Interest; Post-Maturity Interest.........22 2.4 Manner Of Payments......................................23 2.5 Payment On Non-Business Days............................23 2.6 Application Of Payments.................................23 2.7 Procedure For The Borrowing Of Loans....................23 2.7.1 Notice Of Borrowing..........................23 2.7.2 Unavailability Of LIBOR Loans................24 2.8 Conversion And Continuation Elections...................24 2.8.1 Election.....................................24 2.8.2 Notice Of Conversion.........................24 2.8.3 Interest Period..............................25 2.8.4 Unavailability Of LIBOR Loans................25 2.9 Discretion Of Lenders As To Manner Of Funding...........25 2.10 Distribution Of Payments................................25 2.11 Agent's Right To Assume Funds Available For Advances....25 2.12 Agent's Right To Assume Payments Will Be Made By Borrower..26 2.13 Capital Requirements....................................26 2.14 Taxes...................................................27 2.14.1 No Deductions................................27 2.14.2 Miscellaneous Taxes..........................27 2.14.3 Indemnity....................................27 2.14.4 Required Deductions..........................27 2.14.5 Evidence of Payment..........................27 2.14.6 Foreign Persons..............................28 2.14.7 Income Taxes.................................28 2.14.8 Reimbursement Of Costs.......................29 2.14.9 Jurisdiction.................................29 2.15 Illegality..............................................29 2.15.1 LIBOR Loans..................................29 2.15.2 Prepayment...................................29 2.15.3 Prime Rate Borrowing.........................30 2.16 Increased Costs.........................................30 2.17 Inability To Determine Rates............................30 2.18 Prepayment Of LIBOR Loans...............................30 SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE MAKING OF LOANS............... 31 3.1 Effectiveness of This Agreement.........................31 3.1.1 Partnership, Company And Corporate Documents..31 3.1.2 Notes........................................31 3.1.3 Opinion Of Counsel...........................31 3.1.4 Reaffirmation of Guaranty....................31 3.1.5 TEC AcquiSub Amendment.......................31 3.1.6 AFG Agreement................................31 3.1.7 Bringdown Certificate........................31 3.1.8 Fees.........................................32 3.1.9 Other Documents..............................32 3.2 All Loans...............................................32 3.2.1 Notice Of Borrowing..........................32 3.2.2 No Event Of Default..........................32 3.2.3 Representations And Warranties...............32 3.2.4 Insurance....................................32 3.2.5 Other Instruments............................32 3.3 Further Conditions To All Loans.........................32 3.3.1 General Partner Or Manager...................32 3.3.2 Removal Of General Partner Or Manager........33 3.3.3 Purchaser....................................33 SECTION 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES.....33 4.1 General Representations And Warranties..................33 4.1.1 Existence And Power..........................33 4.1.2 Loan Documents And Notes Authorized; Binding Obligations........................... 33 4.1.3 No Conflict; Legal Compliance................34 4.1.4 Financial Condition..........................34 4.1.5 Executive Offices............................34 4.1.6 Litigation...................................34 4.1.7 Material Contracts...........................35 4.1.8 Consents And Approvals.......................35 4.1.9 Other Agreements.............................35 4.1.10 Employment And Labor Agreements..............35 4.1.11 ERISA........................................35 4.1.12 Labor Matters................................36 4.1.13 Margin Regulations...........................36 4.1.14 Taxes........................................36 4.1.15 Environmental Quality........................36 4.1.16 Trademarks, Patents, Copyrights, Franchises And Licenses........................... 37 4.1.17 Full Disclosure..............................37 4.1.18 Other Regulations............................37 4.1.19 Solvency.....................................38 4.2 Representations And Warranties At Time Of First Advance..38 4.2.1 Power And Authority..........................38 4.2.2 No Conflict..................................38 4.2.3 Consents And Approvals.......................38 4.3 Survival Of Representations And Warranties..............38 SECTION 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS..............38 5.1 Records And Reports.....................................39 5.1.1 Quarterly Statements.........................39 5.1.2 Annual Statements............................39 5.1.3 Borrowing Base Certificate...................39 5.1.4 Compliance Certificate.......................40 5.1.5 Reports......................................40 5.1.6 Insurance Reports............................40 5.1.7 Certificate Of Responsible Officer...........40 5.1.8 Employee Benefit Plans.......................40 5.1.9 ERISA Notices................................41 5.1.10 Pension Plans................................41 5.1.11 SEC Reports..................................41 5.1.12 Tax Returns..................................41 5.1.13 Additional Information.......................41 5.2 Existence; Compliance With Law..........................42 5.3 Insurance...............................................42 5.4 Taxes And Other Liabilities.............................42 5.5 Inspection Rights; Assistance...........................43 5.6 Maintenance Of Facilities; Modifications................43 5.6.1 Maintenance Of Facilities....................43 5.6.2 Certain Modifications To The Equipment.......43 5.7 Supplemental Disclosure.................................43 5.8 Further Assurances......................................43 5.9 Lockbox.................................................44 5.10 Environmental Laws......................................44 SECTION 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS.................44 6.1 Liens; Negative Pledges; And Encumbrances...............44 6.2 Acquisitions............................................45 6.3 Limitations On Indebtedness.............................45 6.4 Use Of Proceeds.........................................46 6.5 Disposition Of Assets...................................46 6.6 Restriction On Fundamental Changes......................46 6.7 Transactions With Affiliates............................47 6.8 Maintenance Of Business.................................47 6.9 No Distributions........................................47 6.10 Events Of Default.......................................47 6.11 ERISA...................................................47 6.12 No Use Of Any Lender's Name.............................47 6.13 Certain Accounting Changes..............................47 6.14 Amendments Of Limited Partnership Or Operating Agreements..48 SECTION 7. FINANCIAL COVENANTS OF BORROWER AND FSI.................48 7.1 Maximum Funded Debt Ratio...............................48 7.2 Minimum Debt Service Ratio..............................48 7.3 Minimum Consolidated Tangible Net Worth.................48 7.4 Cash Balances...........................................48 SECTION 8. EVENTS OF DEFAULT AND REMEDIES..........................48 8.1 Events Of Default.......................................48 8.1.1 Failure To Make Payments.....................48 8.1.2 Other Agreements.............................49 8.1.3 Breach Of Covenants..........................49 8.1.4 Breach Of Representations Or Warranties......49 8.1.5 Failure To Cure..............................49 8.1.6 Insolvency...................................50 8.1.7 Bankruptcy Proceedings.......................50 8.1.8 Material Adverse Effect......................50 8.1.9 Judgments, Writs And Attachments.............50 8.1.10 Legal Obligations............................51 8.1.11 TEC AcquiSub Agreement.......................51 8.1.12 AFG Agreement................................51 8.1.13 Change Of General Partner Or Manager.........51 8.1.14 Change Of Purchaser..........................51 8.1.15 Criminal Proceedings.........................51 8.1.16 Action By Governmental Authority.............52 8.1.17 Governmental Decrees.........................52 8.2 Waiver Of Default.......................................52 8.3 Remedies................................................52 8.4 Set-Off.................................................53 8.5 Rights And Remedies Cumulative..........................54 SECTION 9. AGENT...................................................54 9.1 Appointment.............................................54 9.2 Delegation Of Duties....................................54 9.3 Exculpatory Provisions..................................55 9.4 Reliance By Agent.......................................55 9.5 Notice Of Default.......................................55 9.6 Non-Reliance On Agent And Other Lenders.................56 9.7 Indemnification.........................................56 9.8 Agent In Its Individual Capacity........................56 9.9 Resignation And Appointment Of Successor Agent..........57 SECTION 10. EXPENSES AND INDEMNITIES................................57 10.1 Expenses................................................57 10.2 Indemnification.........................................58 10.2.1 General Indemnity............................58 10.2.2 Environmental Indemnity......................58 10.2.3 Survival; Defense............................59 SECTION 11. MISCELLANEOUS...........................................59 11.1 Survival................................................59 11.2 No Waiver By Agent Or Lenders...........................59 11.3 Notices.................................................59 11.4 Headings................................................60 11.5 Severability............................................60 11.6 Entire Agreement; Construction; Amendments And Waivers..60 11.7 Reliance By Lenders.....................................61 11.8 Marshalling; Payments Set Aside.........................61 11.9 No Set-Offs By Borrowers................................61 11.10 Binding Effect, Assignment..............................61 11.11 Counterparts............................................63 11.12 Equitable Relief........................................63 11.13 Written Notice Of Claims; Claims Bar....................63 11.14 Waiver Of Punitive Damages..............................63 11.15 Relationship Of Parties.................................63 11.16 Obligations Of Each Borrower............................64 11.17 Co-Borrower Waivers.....................................65 11.18 Governing Law...........................................66 11.19 Consent To Jurisdiction.................................66 11.20 No Novation.............................................66 11.21 Waiver Of Jury Trial....................................66 INDEX OF EXHIBITS Exhibit A-1 Form of Revolving Promissory Note - EGF III Exhibit A-2 Form of Revolving Promissory Note - EGF IV Exhibit A-3 Form of Revolving Promissory Note - EGF V Exhibit A-4 Form of Revolving Promissory Note - EGF VI Exhibit A-5 Form of Revolving Promissory Note - EGF VII Exhibit A-6 Form of Revolving Promissory Note - Income Fund I Exhibit B Form of Borrowing Base Certificate Exhibit C Form of Reaffirmation of Guaranty Exhibit D Form of Opinion of Counsel (Stephen Peary) Exhibit E Form of Compliance Certificate Exhibit F Form of Lockbox Agreement Exhibit G Form of Notice of Borrowing Exhibit H Form of Notice of Conversion/Continuation Exhibit I Form of Assignment and Acceptance INDEX OF SCHEDULES Schedule A Commitments Schedule 1.1 Amendments to Schedule A Schedule 4.1.5 Executive Offices and Principal Places of Business Schedule 4.1.6 Litigation Schedule 4.1.7 Material Contracts Schedule 4.1.8 Consent and Approvals Schedule 4.1.15 Environmental Disclosures Schedule 6.1 Existing Liens Schedule 6.3(a) Existing Indebtedness Schedule 6.3(b) Anticipated Indebtedness 1 SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT THIS SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into as of May 31, 1996, by and among PLM EQUIPMENT GROWTH FUND III, a California limited partnership ("EGF III"), PLM EQUIPMENT GROWTH FUND IV, a California limited partnership ("EGF IV"), PLM EQUIPMENT GROWTH FUND V, a California limited partnership ("EGF V"), PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income Fund I") (EGF III, EGF IV, EGF V, EGF VI, EGF VII and Income Fund I each individually being a "Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general partner, in the case of EGF III, EGF IV, EGF V, EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB") and each other financial institution which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 11.10 (each individually being a "Lender," and collectively, the "Lenders"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as agent on behalf and for the benefit of the Lenders (not in its individual capacity, but solely as agent, the "Agent"). This Agreement amends, restates and supersedes the Growth Fund Agreement (as defined below). RECITALS A. Borrowers, PLM Equipment Growth Fund II, a California limited partnership ("EGF II"), Lenders and Agent have entered into that certain Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995 (the "Growth Fund Agreement"). B. Borrowers, FSI, Lenders and Agent desire to amend and restate the Growth Fund Agreement with this amended and restated Agreement and to remove EGF II as a borrower under the revolving credit facility. C. Borrowers desire, on a several but not joint basis, to obtain from Lenders a revolving credit facility with an aggregate principal availability up to but not to exceed the maximum amount set forth on Schedule A for the purpose of financing the purchase of transportation equipment for periods up to one hundred seventy-nine (179) days, all as more particularly described below. D. Lenders have agreed to make such credit available to Borrowers, but only upon the terms and subject to the conditions hereinafter set forth and in reliance on the representations and warranties set forth herein. This Agreement amends, restates and supersedes the Growth Fund Agreement in the its entirety. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants hereinafter set forth, and intending to be legally bound, the parties hereto agree as follows: . 1. DEFINITIONS . As used herein, the following terms have the following meanings: "Acquisition" means, with respect to any Borrower, any transaction, or any series of related transactions, by which such Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any Person or division thereof, whether through a purchase of assets, merger or otherwise, or (b) acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority of the stock of a corporation having ordinary voting power for the election of directors, or (c) acquires control of at least a majority of the ownership interests in any partnership or joint venture. "Adjusted LIBOR" means, for each Interest Period in respect of LIBOR Loans, an interest rate per annum (rounded upward to the nearest 1/16th of one percent (0.0625%)) determined pursuant to the following formula: Adjusted LIBOR = LIBOR ---------------------------------------- 1.00 - Eurodollar Reserve Percentage 1The Adjusted LIBOR shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Advance" means any Advance made or to be made by any Lender to any Borrower as set forth in Section 2.1.1. "Affiliate" means, with respect to any Person, (a) each Person that, directly or indirectly, through one or more intermediaries, owns or controls, whether beneficially or as a trustee, guardian or other fiduciary, five percent (5.0%) or more of the stock having ordinary voting power in the election of directors of such Person or of the ownership interests in any partnership or joint venture, (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person, or (c) each of such Person's officers, directors, joint venturers and partners; provided, however, that in no case shall any Lender or Agent be deemed to be an Affiliate of any Borrower or FSI for purposes of this Agreement. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "AFG" means American Finance Group, Inc., a Delaware corporation. "AFG Agreement" means the Warehousing Credit Agreement dated as of the date hereof, by and among AFG, and Lenders and Agent, as the same from time to time may be amended, modified, supplemented, renewed, extended or restated. "Agent" means FUNB solely when acting in its capacity as the Agent under this Agreement or any of the other Loan Documents, and any successor Agent. "Agent's Side Letter" means the side letter agreement dated as of the date hereof by and between Borrowers, TEC AcquiSub, AFG and Agent. "Agreement" means this Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, including all amendments, modifications and supplements hereto, renewals, extensions or restatements hereof, and all appendices, exhibits and schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect from time to time. "Aircraft" means any corporate, commuter, or commercial aircraft or helicopters, with modifications (as applicable) and replacement or spare parts used in connection therewith, including, without limitation, engines, rotables or propellers, and any engines, rotables and propellers used on a stand-lone basis. "Applicable Margin" means: (a) with respect to Prime Rate Loans, zero percent (0.00%); and (b) with respect to LIBOR Loans, two percent (2.00%). "Assignment and Acceptance" has the meaning set forth in Section 10.11.2. "Bank Affiliate" means a Person engaged primarily in the business of commercial banking and that is an Affiliate of a Lender or of a Person of which a Lender is an Affiliate. "Bankruptcy Code" means the Bankruptcy Code of 1978, as amended, as codified under Title 11 of the United States Code, and the Bankruptcy Rules promulgated thereunder, as the same may be in effect from time to time. "Borrowing Base" means, as calculated separately for each Borrower individually as at any date of determination, an amount not to exceed the sum of: (a) fifty percent (50.0%) of the unrestricted cash available for the purchase of Eligible Inventory by such Borrower, plus (b) an amount equal to the lesser of (i) seventy percent (70.0%) of the aggregate net book value or (ii) fifty percent (50.0%) of the aggregate net fair market value of all Eligible Inventory then owned by such Borrower or a Marine Subsidiary or owned of record by an Owner Trustee for the beneficial interest of such Borrower or any Marine Subsidiary of such Borrower (provided, however, that there shall be excluded from this clause (b) the aggregate net book value or aggregate net fair market value, as the case may be, of all items of Eligible Inventory which are either (i) off-lease or (ii) subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due, but only to the extent and in the amount that the aggregate net book value or net fair market value, as the case may be, of such otherwise excluded Eligible Inventory exceeds fifteen percent (15.0%) of the respective net book value or net fair market value of all Eligible Inventory included in this clause (b) notwithstanding this proviso), less (c) the aggregate Consolidated Funded Debt of such Borrower then outstanding, excluding the aggregate principal amounts of the Loans outstanding for such Borrower under the Facility, in each case computed, (1) with respect to any requested Loan, as of the requested Funding Date (and shall include the item(s) of Eligible Inventory to be acquired with the proceeds of the requested Loan), and (2) with respect to the delivery of any monthly Borrowing Base Certificate to be furnished pursuant to Section 5.1.3, as of the last day of the calendar month for which such Borrowing Base Certificate is furnished (provided, that for the purpose of computing the Borrowing Base, in the event that any Borrower or a Marine Subsidiary of such Borrower shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Eligible Inventory, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included only such Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Eligible Inventory). "Borrowing Base Certificate" means, with respect to any Borrower, a certificate with appropriate insertions setting forth the components of the Borrowing Base of such Borrower as of the last day of the month for which such certificate is submitted or as of a requested Funding Date, as the case may be, which certificate shall be substantially in the form set forth in Exhibit B and certified by a Responsible Officer of such Borrower. "Business Day" means any day which is not a Saturday, Sunday or a legal holiday under the laws of the States of California or North Carolina or is not a day on which banking institutions located in the States of California or North Carolina are authorized or permitted by law or other governmental action to close and, with respect to LIBOR Loans, means any day on which dealings in foreign currencies and exchanges may be carried on by Agent and Lenders in the London interbank market. "Casualty Loss" means any of the following events with respect to any item of Eligible Inventory: (a) the actual total loss or compromised total loss of such item of Eligible Inventory; (b) such item of Eligible Inventory shall become lost, stolen, destroyed, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever; (c) the seizure of such item of Eligible Inventory for a period exceeding sixty (60) days or the condemnation or confiscation of such item of Eligible Inventory; or (d) such item of Eligible Inventory shall be deemed under its lease to have suffered a casualty loss as to the entire item of Eligible Inventory. "Charges" means, with respect to any Borrower, all federal, state, county, city, municipal, local, foreign or other governmental taxes, levies, assessments, charges or claims, in each case then due and payable, upon or relating to (a) the Loans made to such Borrower hereunder, (b) such Borrower's employees, payroll, income or gross receipts, (c) such Borrower's ownership or use of any of its Properties or assets or (d) any other aspect of such Borrower's business. "Closing" means the time at which each of the conditions precedent set forth in Section 3 to the making of the first Loan hereunder shall have been duly fulfilled or satisfied by each Borrower. "Closing Date" means the date on which Closing occurs. "Code" means the Internal Revenue Code of 1986, as amended, the Treasury Regulations adopted thereunder and the Treasury Regulations proposed thereunder (to the extent Requisite Lenders, in their sole discretion, reasonably determine that such proposed regulations set forth the regulations that apply in the circumstances), as the same may be in effect from time to time. "Commitment" means with respect to each Lender the amounts set forth on Schedule A and "Commitments" means all such amounts collectively, as each may be amended from time to time upon the execution and delivery of an instrument of assignment pursuant to Section 11.10, which amendments shall be evidenced on Schedule 1.1. "Commitment Termination Date" means May 23, 1997. "Compliance Certificate" means, with respect to any Borrower, a certificate signed by a Responsible Officer of such Borrower, substantially in the form of Exhibit E, with such changes as Agent may from time to time reasonably request for the purpose of having such certificate disclose the matters certified therein and the method of computation thereof. "Consolidated EBITDA" means, for any Borrower, as measured as at any date of determination for any period on a consolidated basis, the sum of (a) the Consolidated Net Income of such Borrower, plus (b) all amounts treated as expenses for depreciation and the amortization of intangibles of any kind, plus (c) all accrued taxes on or measured by income, plus (d) Consolidated Interest Expense, and in the cases of clauses (b), (c) and (d), above, each to the extent included in the determination of Consolidated Net Income. "Consolidated Funded Debt" means, for any Borrower, as measured at any date of determination on a consolidated basis, the total amount of all interest bearing obligations (including Indebtedness for borrowed money) of such Borrower, capital lease obligations of such Borrower as a lessee and the stated amount of all outstanding undrawn letters of credit issued on behalf of such Borrower or for which such Borrower is liable. "Consolidated Intangible Assets" means, for any Person, as measured at any date of determination on a consolidated basis, all intangible assets of such Person. "Consolidated Interest Expense" means, for any Borrower, as measured at any date of determination for any period on a consolidated basis, the gross interest expense of such Borrower for the period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments), less interest income for that period. "Consolidated Net Income" means, for any Borrower, as measured at any date of determination for any period on a consolidated basis, the net income (or loss) of such Borrower for such period taken as a single accounting period. "Consolidated Net Worth" means, for any Person, as measured at any date of determination, the difference between Consolidated Total Assets and Consolidated Total Liabilities. "Consolidated Tangible Net Worth" means, for any Person, as measured at any date of determination, the difference between Consolidated Net Worth and Consolidated Intangible Assets. "Consolidated Total Assets" means, for any Person, as measured at any date of determination on a consolidated basis, all assets of such Person. "Consolidated Total Liabilities" means, for any Person, as measured at any date of determination on a consolidated basis, all liabilities of such Person. "Contingent Obligation" means, as to any Person, (a) any Guaranty Obligation of that Person and (b) any direct or indirect obligation or liability, contingent or otherwise, of that Person, (i) in respect of any letter of credit or similar instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, (ii) with respect to the Indebtedness of any partnership or joint venture of which such Person is a partner or a joint venturer, (iii) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (iv) in respect of any interest rate protection contract that is not entered into in connection with a bona fide hedging operation that provides offsetting benefits to such Person. The amount of any Contingent Obligation shall (subject, in the case of Guaranty Obligations, to the last sentence of the definition of "Guaranty Obligation") be deemed equal to the maximum reasonably anticipated liability in respect thereof, and shall, with respect to clause (b)(iv) of this definition, be marked to market on a current basis. "Debt Service Ratio" means, as measured separately for each Borrower as at any date of determination, the ratio of (a) Consolidated EBITDA to (b) the sum of (i) Consolidated Interest Expense plus (ii) an amount equal to three and one-eighths percent (3.125%) of Consolidated Funded Debt (Consolidated EBITDA and Consolidated Interest Expense to be measured on a quarterly basis for the current fiscal quarter). "Default Rate" has the meaning set forth in Section 2.3. "Designated Deposit Account" means a demand deposit account maintained by Borrowers with FUNB designated by written notice from Borrowers to Agent. "Dollars" and the sign "$" means lawful money of the United States of America. "EGF" means PLM Equipment Growth Fund, a California limited partnership. "EGF II" means PLM Equipment Growth Fund II, a California limited partnership. "EGF III" means PLM Equipment Growth Fund III, a California limited partnership. "EGF IV" has the meaning set forth in the Preamble to this Agreement. "EGF V" has the meaning set forth in the Preamble to this Agreement "EGF VI" has the meaning set forth in the Preamble to this Agreement "EGF VII" has the meaning set forth in the Preamble to this Agreement. "Eligible Assignee" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States, and (c) any Bank Affiliate. "Eligible Inventory" means, with respect to any Borrower, all Trailers, Aircraft and Aircraft engines, Railcars, cargo-containers, marine vessels and, if approved by Requisite Lenders, other related Equipment, in each case owned by such Borrower or a Marine Subsidiary of such Borrower (or jointly by such Borrower and one or more of the other Equipment Growth Funds) or, subject to the approval of Agent, any owner trust of which such Borrower is the sole beneficiary or owner (or is the beneficiary or owner jointly with one or more of the other Equipment Growth Funds), as applicable, or solely with respect to any marine vessel registered in Liberia, The Bahamas, Hong Kong, Singapore or other registry acceptable to Agent in its sole discretion, any nominee entity of which such Borrower or a Marine Subsidiary of such Borrower is the sole beneficiary or direct or indirect owner (or as the beneficiary or direct or indirect owner jointly with one or more of the other Equipment Growth Funds). "Employee Benefit Plan" means, with respect to any Borrower, any Pension Plan and any employee welfare benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the employees of such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower. "Environmental Claims" means, with respect to any Borrower, all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from Property, whether or not owned by such Borrower, FSI or any Subsidiary of FSI, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. "Environmental Permit" has the meaning set forth in Section 4.1.15. "Equipment" means, with respect to any Borrower, all items of transportation related equipment owned directly or beneficially by such Borrower or by any Marine Subsidiary of such Borrower and held for lease or rental, and shall include items of equipment legal or record title to which is held by any owner trust or nominee entity in which such Borrower or any Marine Subsidiary of such Borrower holds the sole beneficial interest. "Equipment Growth Funds" means any and all of EGF, EGF II, EGF III, EGF IV, EGF V, EGF VI, EGF VII and Income Fund I. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, as the same may be in effect from time to time, and any successor statute. "ERISA Affiliate" means, as applied to any Person, any trade or business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of the regulations promulgated under Section 414 of the Code. "Eurodollar Reserve Percentage" means the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of one percent (0.01%)) in effect from time to time (whether or not applicable to any Lender) under regulations issued by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency liabilities having a term comparable to such Interest Period. "Event of Default" means any of the events set forth in Section 8.1. "Facility" means the total Commitments described in Schedule A, as such Schedule A may be amended from time to time as set forth on Schedule 1.1, for the revolving credit facility described in Section 2.1.1 to be provided by Lenders to Borrowers, on a several but not joint basis, according to each Lender's Pro Rata Share. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such previous day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System and any successor thereto. "Fee Letter" means the fee letter agreement dated as of the date hereof, by and among Borrowers, TEC AcquiSub, AFG, and Agent, on behalf and for the benefit of Lenders. "Form 1001" has the meaning set forth in Section 2.14.6. "Form 4224" has the meaning set forth in Section 2.14.6. "FSI" means PLM Financial Services, Inc., a Delaware corporation. "Funded Debt Ratio" means, as measured separately for each Borrower as at any date of determination, the ratio of (a) the Consolidated Funded Debt of such Borrower to (b) the sum of (i) the aggregate net fair market value of the Equipment owned of record and beneficially by such Borrower or any Marine Subsidiary of such Borrower or owned of record by an Owner Trustee for the beneficial interest of such Borrower or any Marine Subsidiary of such Borrower plus (ii) the unrestricted cash available for the purchase of Eligible Inventory for such Borrower (provided, that for the purpose of computing the Funded Debt Ratio, in the event that any Borrower or a Marine Subsidiary of such Borrower shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Equipment, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included any such Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Equipment). "Funding Date" means with respect to any proposed borrowing hereunder, the date funds are advanced to any Borrower for any Loan requested by such Borrower. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar function of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. "Guaranty" means that certain Guaranty dated as of September 27, 1995, executed by FSI in favor of Lenders and Agent. "Guaranty Obligation" means, as applied to any Person, any direct or indirect liability of that Person with respect to any Indebtedness, lease for capital equipment other than Equipment, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor, or (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, or (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Hazardous Materials" means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "IMI" means PLM Investment Management, Inc., a California corporation and a wholly-owned Subsidiary of FSI. "Income Fund I" has the meaning set forth in the Preamble to this Agreement. "Indebtedness" means, as to any Person, (a) all indebtedness of such Person for borrowed money, (b) all leases of equipment of such Person as lessee, (c) to the extent not included in clause (b), above, all capital leases of such Person as lessee, (d) any obligation of such Person for the deferred purchase price of Property or services (other than trade or other accounts payable in the ordinary course of business and not more than ninety (90) days past due), (e) any obligation of such Person that is secured by a Lien on assets of such Person, whether or not that Person has assumed such obligation or whether or not such obligation is non-recourse to the credit of such Person, (f) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person and (g) any obligation of such Person to reimburse the issuer of any letter of credit issued for the account of such Person upon which a draw has been made. "Indemnified Liability" has the meaning set forth in Section 10.2. "Indemnified Person" has the meaning set forth in Section 10.2. "Interest Differential" means, with respect to any prepayment of a LIBOR Loan on a day other than an Interest Payment Date on which such LIBOR Loan matures, the difference between (a) the per annum interest rate payable with respect to such LIBOR Loan as of the date of the prepayment and (b) the Adjusted LIBOR on, or as near as practicable to, the date of the prepayment for a LIBOR Loan commencing on such date and ending on the last day of the applicable Interest Period. The determination of the Interest Differential by Agent shall be conclusive in the absence of manifest error. "Interest Payment Date" means, with respect to any LIBOR Loan, the last day of each Interest Period applicable to such Loan and, with respect to Prime Rate Loans, the first Business Day of each calendar month following the Funding Date of such Prime Rate Loan; provided, however, that if any Interest Period for a LIBOR Loan exceeds three (3) months, interest shall also be paid on the date which falls three (3) months after the beginning of such Interest Period. "Interest Period" means, with respect to any LIBOR Loan, the one-month, two-month or three-month period selected by the Requesting Borrower pursuant to Section 2, in each instance commencing on the applicable Funding Date of the Loan; provided, however, that any Interest Period which would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day except that in the instance of any LIBOR Loan, if such next succeeding Business Day falls in the next calendar month, the Interest Period shall end on the next preceding Business Day. "Investment Company Act" means the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1 et seq.), as the same may be in effect from time to time, or any successor statute thereto. "IRS" means the Internal Revenue Service and any successor thereto. "Lease" means, for any Borrower, each and every item of chattel paper, installment sales agreement, equipment lease or rental agreement (including progress payment authorizations) relating to an item of Equipment of which such Borrower is the record or beneficial lessor and in respect of which the lessee and lease terms (including, without limitation, as to rental rate, maturity and insurance coverage) are acceptable to Agent, in its reasonable discretion. The term "Lease" includes (a) all payments to be made thereunder, (b) all rights of such Borrower therein, and (c) any and all amendments, renewals, extensions or guaranties thereof. "Lending Office" means, with respect to any Lender, the office or offices of the Lender specified as its lending office opposite its name on the applicable signature page hereto, or such other office or offices of the Lender as it may from time to time notify Borrowers and Agent. "LIBOR" means, with respect to any Loan to be made, continued as or converted into a LIBOR Loan, the London Inter-Bank Offered Rate (determined solely by Agent), rounded upward to the nearest 1/16th of one percent (0.0625%), at which Dollar deposits are offered to Agent by major banks in the London interbank market at or about 11:00 a.m., London time, on the second Business Day prior to the first day of the related Interest Period with respect to such Loan in an aggregate amount approximately equal to the amount of such Loan and for a period of time comparable to the number of days in the applicable Interest Period. The determination of LIBOR by Agent shall be conclusive in the absence of manifest error. "LIBOR Loan" means a Loan that bears interest based on Adjusted LIBOR. "Lien" means any mortgage, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, affecting any Property, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of or agreement to file or deliver any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. "Limited Partnership Agreement" means (a) for EGF III, the Limited Partnership Agreement dated as of October 15, 1987, as amended by the First Amended and Restated Limited Partnership Agreement as of February 9, 1988, the Second Amended and Restated Limited Partnership Agreement as of March 10, 1988, a First Amendment to the Second Amended and Restated Limited Partnership Agreement as of November 18, 1991 and the Reformed First Amendment to the Second Amended and Restated Limited Partnership Agreement as of November 18, 1991, (b) for EGF IV, the Amended and Restated Limited Partnership Agreement dated as of May 22, 1989, (c) for EGF V, the Limited Partnership Agreement dated as of November 14, 1989, (d) for EGF VI, the Amended and Restated Limited Partnership Agreement dated as of December 20, 1991, and (e) for EGF VII, the Third Amended and Restated Limited Partnership Agreement of EGF VII dated as of May 10, 1993, as amended by the First Amendment to the Third Amended and Restated Limited Partnership Agreement dated May 28, 1993 and by the Second Amendment to Third Amended and Restated Limited Partnership Agreement dated as of January 21, 1994. "Loan" has the meaning set forth in Section 2.1.1. "Loan Document" when used in the singular and "Loan Documents" when used in the plural means any and all of this Agreement, the Notes, the Lockbox Agreement and the Guaranty and any and all other agreements, documents and instruments executed and delivered by or on behalf or support of any Borrower to Agent or any Lender or any of their respective authorized designees evidencing or otherwise relating to the Advances and the Liens granted to Agent, on behalf of Lenders, with respect to the Advances, as the same may from time to time be amended, modified, supplemented or renewed. "Lockbox" has the meaning set forth in Section 5.9. "Lockbox Agreement" means the Agreement of even date herewith between Borrowers, FUNB and Agent on behalf of Lenders, substantially in the form of Exhibit F, relating to the Lockbox. "Marine Subsidiary" means, for any Borrower, a Subsidiary of such Borrower (in which the remaining record or beneficial ownership interests may be held by TEC AcquiSub or any Equipment Growth Fund) organized for the purpose of holding legal record title to one or more marine vessels or to aircraft rotables and spare parts. "Material Adverse Effect" means, with respect to any Borrower, any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of such Borrower or FSI, (c) materially impairs or could reasonably be expected to materially impair the ability of such Borrower or FSI to perform its Obligations, or (d) materially impairs or could reasonably be expected to materially impair the ability of Agent or any Lender to enforce any of its or their legal remedies pursuant to the Loan Documents. "Maturity Date" means, with respect to each Loan advanced by Lenders hereunder, the date which is one hundred seventy-nine (179) days after the Funding Date of such Loan or such earlier or later date as requested by the Requesting Borrower and approved by Requisite Lenders, in their sole and absolute discretion; provided, however, in no event shall any Maturity Date be a date which is later than the Commitment Termination Date. "Maximum Availability" has the meaning set forth in Section 2.1.1. "Multiemployer Plan" means, with respect to any Borrower, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower, FSI or any of FSI's Subsidiaries is making, or is obligated to make, contributions or has made, or been obligated to make, contributions within the preceding five (5) years. "Note" has the meaning set forth in Section 2.1.1(a)(i), and any and all replacements, substitutions and renewals thereof. "Notice of Borrowing" means a notice given by any Borrower to Agent in accordance with Section 2.7, substantially in the form of Exhibit G, with appropriate insertions. "Notice of Conversion/Continuation" means a notice given by any Borrower to Agent in accordance with Section 2.8, substantially in the form of Exhibit H, with appropriate insertions. "Obligations" means, with respect to any Borrower, all loans, advances, liabilities and obligations for monetary amounts owing by such Borrower to any Lender or Agent, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind or nature, arising under any of the Loan Documents. This term includes, without limitation, all principal, interest (including interest that accrues after the commencement of a case or proceeding against such Borrower under the Bankruptcy Code), fees, including, without limitation, any and all prepayment fees, facility fees, commitment fees, arrangement fees, agent fees and attorneys' fees and any and all other fees, expenses, costs or other sums chargeable to such Borrower under any of the Loan Documents. "Operating Agreement" means the Fifth Amended and Restated Operating Agreement of Income Fund I, entered into as of January 24, 1995. "Opinion of Counsel" means the favorable written legal opinion of Stephen Peary, general counsel of FSI on behalf of FSI for itself and as the sole general partner or managing member, as applicable, of each Borrower, substantially in the form of Exhibit D, together with copies of any officer's certificate or legal opinion of another counsel or law firm specifically identified and expressly relied upon by such counsel in its opinion. "Other Taxes" has the meaning set forth in Section 2.14.2. "Overadvance" has the meaning set forth in Sections 2.1.1(a)(iii) and (iv). "Owner Trustee" means any Person acting in the capacity of (a) a trustee for any owner trust or (b) a nominee entity, in each case holding title to any Eligible Inventory pursuant to a trust or similar agreement with any Borrower or FSI. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means, with respect to any Borrower, any employee pension benefit plan, as defined in Section 3(2) of ERISA, that is maintained for the employees of such Borrower, FSI or any of FSI's Subsidiaries or any ERISA Affiliate of such Borrower, FSI or any of FSI's Subsidiaries, other than a Multiemployer Plan. "Permitted Liens" has the meaning set forth in Section 6.1. "Permitted Rights of Others" means, as to any Property in which a Person has an interest, (a) an option or right to acquire a Lien that would be a Permitted Lien, (b) the reversionary interest of a lessor under a lease of such Property and (c) an option or right of the lessee under a lease of such Property to purchase such property at fair market value. "Person" means any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or Governmental Authority. "PLMI" means PLM International, Inc., a Delaware corporation. "Potential Event of Default" means a condition or event which, after notice or lapse of time or both, will constitute an Event of Default. "Prepayment Date" has the meaning set forth in Section 2.2.2. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by FUNB as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by FUNB as its Prime Rate is an index or base rate and shall not necessarily be its lowest rate charged to FUNB's customers or other banks. "Prime Rate Loan" means any borrowing which bears interest at a rate determined with reference to the Prime Rate. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. "Pro Rata Share" means, for any Lender, the proportion such Lender's Commitment with respect to the Facility has to the aggregate of all Commitments with respect to the Facility. "Public Utility Holding Company Act" means the Public Utility Holding Company Act of 1935, as amended (15 U.S.C. ss. 79 et seq.) as the same shall be in effect from time to time, and any successor statute thereto. "Railcar" means all railroad rolling stock, including, without limitation, all coal, timber, plastic pellet, tank, hopper, flat and box cars and locomotives. "Reaffirmation of Guaranty" means the Acknowledgement and Reaffirmation of Guaranty, dated as of the date hereof, executed by FSI in favor of Lenders reaffirming its obligations under the Guaranty. "Regulations G, T, U and X" means, collectively, Regulations G, T, U and X adopted by the Federal Reserve Board (12 C.F.R. Parts 207, 220, 221 and 224, respectively) and any other regulation in substance substituted therefor. "Requesting Borrower" means any Borrower requesting a Loan pursuant to Section 2.1.1. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule, regulation, guideline or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Requisite Lenders" means any combination of Lenders whose combined Pro Rata Share (and voting interest with respect thereto) of all amounts outstanding under this Agreement, or, in the event there are no amounts outstanding, the Commitments, is greater than sixty percent (60.0%) of all such amounts outstanding or the total Commitments, as the case may be. "Responsible Officer" means for (i) FSI, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI having authority to request Advances or perform other duties required hereunder, and (ii) Borrowers, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI as the sole general partner of EGF III, EGF IV, EGF V, EGF VI or EGF VII, as the case may be, or sole manager of Income Fund I, in each case having authority to request Advances or perform other duties required hereunder "SEC" means the Securities and Exchange Commission and any successor thereto. "Solvent" means, as to any Person at any time, that (a) the fair value of the Property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code; (b) the present fair saleable value of the Property in an orderly liquidation of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its Property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company or other business entity (other than Equipment Growth Funds) of which an aggregate of fifty percent (50.0%) or more of the beneficial interest (in the case of a partnership) or fifty percent (50%) or more of the outstanding stock, units or other voting interest having ordinary voting power to elect a majority of the directors, managers or trustees of such Person (irrespective of whether, at the time, the stock, units or other voting interest of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person. "Taxes" has the meaning set forth in Section 2.14.1. "TEC" means PLM Transportation Equipment Corporation, a California corporation and a wholly-owned Subsidiary of FSI. "TEC AcquiSub" means TEC AcquiSub, Inc., a California special purpose corporation and a wholly-owned Subsidiary of TEC. "TEC AcquiSub Agreement" means the Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995, as amended by the TEC AcquiSub Amendment, by and among TEC AcquiSub, Lenders and Agent, and as the same may from time to time be further amended, modified, supplemented, renewed, extended or restated. "TEC AcquiSub Amendment" means the Amendment No. 1 to Amended and Restated Warehousing Credit Agreement dated as of the date hereof, by and among TEC AcquiSub, Lenders and Agent. "Termination Event" means, with respect to any Borrower, (a) a "reportable event" described in Section 4043 of ERISA and the regulations issued thereunder (other than a reportable event not subject to the provision for 30-day notice to the PBGC under such regulations), or (b) the withdrawal of such Borrower, FSI or any of FSI's Subsidiaries or any of their ERISA Affiliates from a Pension Plan during a plan year in which any of them was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate a Pension Plan by the PBGC, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan. "Trailer" means (a) vehicles having a minimum length of twenty (20) feet used in trailer or freight car service and constructed for the transport of commodities or containers from point to point and (b) associated equipment. "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of North Carolina; provided, however, in the event that, by reason of mandatory provisions of law, any and all of the attachment, perfection or priority of the Lien of Agent, on behalf of Lenders, in and to any collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of North Carolina, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Utilization Leases" means Leases for Equipment held for lease in pooling or similar arrangements where the actual rental payments under such Lease is based on and for the actual period of utilization of such item of Equipment rather than the Lease term. . Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial data required to be submitted by this Agreement shall be prepared and computed, unless otherwise specifically provided herein, in accordance with GAAP. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. In the event that GAAP changes during the term of this Agreement such that the covenants contained in Section 7 would then be calculated in a different manner or with different components, (a) the parties hereto agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating each Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) each Borrower shall be deemed to be in compliance with the covenants contained in the aforesaid subsections during the sixty (60) day period following any such change in GAAP if and to the extent that each Borrower would have been in compliance therewith under GAAP as in effect immediately prior to such change. . All other undefined terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, all of which are by this reference incorporated into this Agreement, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. The term "including" shall not be limiting or exclusive, unless specifically indicated to the contrary. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter. . Any reference to a "Section," "Subsection," "Exhibit," or "Schedule" shall refer to the relevant Section or Subsection of or Exhibit or Schedule to this Agreement, unless specifically indicated to the contrary. . 2. AMOUNT AND TERMS OF CREDIT . 1 Commitment To Lend . Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers set forth herein, Lenders hereby agree to make Advances (as defined below) of immediately available funds to Borrowers, on a revolving basis, from the Closing Date until the Business Day immediately preceding the Commitment Termination Date, in the aggregate principal amount outstanding at any time not to exceed the lesser of (a) the total Commitments for the Facility less the aggregate principal amounts then outstanding under the TEC AcquiSub Agreement and under the AFG Agreement or (b) for any one Borrower, its respective Borrowing Base (such lesser amount being the "Maximum Availability"), as more fully set forth in this Section 2.1.1. The obligation of Borrowers to repay the Advances made to any Borrower shall be several but not joint. . (a) Facility Commitments (i) On the Funding Date requested by any Borrower (the "Requesting Borrower"), after such Borrower shall have satisfied all applicable conditions precedent set forth in Section 3, each Lender shall advance immediately available funds to Agent (each such advance being an "Advance") evidencing such Lender's Pro Rata Share of a loan ("Loan"). Agent shall immediately advance such immediately available funds to such Borrower at the Designated Deposit Account (or such other deposit account at FUNB or such other financial institution as to which such Borrower and Agent shall agree at least three (3) Business Days prior to the requested Funding Date) on the Funding Date with respect to such Loan. The Requesting Borrower shall pay interest accrued on the Loan at the rates and in the manner set forth in Section 2.1.1(b). Subject to the terms and conditions of this Agreement, the unpaid principal amount of each Loan and all unpaid interest accrued thereon, together with all other fees, expenses, costs and other sums chargeable to the Requesting Borrower incurred in connection therewith shall be due and payable no later than the Maturity Date of such Loan. Each Loan advanced hereunder shall be evidenced by the Requesting Borrower's revolving promissory note substantially in the form of Exhibits A-1 through A-6, as applicable (the "Notes"). (ii) The obligation of Lenders to make any Loan from time to time hereunder shall be limited to the then applicable Maximum Availability. For the purpose of determining the amount of the Borrowing Base available at any one time, the amount available shall be the total amount of the Borrowing Base as set forth in the Borrowing Base Certificate delivered to Agent pursuant to Section 3.2.1 with respect to such requested Loan. Nothing contained in this Agreement shall under any circumstance be deemed to require any Lender to make any Advance under the Facility which, in the aggregate principal amount, either (1) taking into account such Lender's portion of the principal amounts outstanding under this Agreement and the making of such Advance, exceeds the lesser of (A) such Lender's Commitment for the Facility and (B) such Lender's Pro Rata Share of the Requesting Borrower's Borrowing Base, or (2) taking into account such Lender's portion of the aggregate principal amounts outstanding under this Agreement, under the TEC AcquiSub Agreement, under the AFG Agreement and the making of such Advance, exceeds such Lender's Commitment for the Facility. (iii) If at any time and for any reason the aggregate principal amount of the Loan(s) then outstanding to any Borrower shall exceed the Maximum Availability for such Borrower (the amount of such excess, if any, being an "Overadvance"), such Borrower shall immediately repay the full amount of such Overadvance, together with all interest accrued thereon; provided, however, that if such Overadvance occurs solely as a result of a decrease in the amount of the Borrowing Base due solely to a decrease in the computation of the Borrowing Base under clause (b), as set forth on a Borrowing Base Certificate delivered to Agent pursuant to Section 5.1.3, then, to the extent of such decrease, such Borrower shall not be required under this Section 2.1.1(a)(iii) to prepay such Overadvance but Lenders shall have no obligation to make or fund any Loans hereunder so long as such Overadvance condition shall remain in effect. (iv) Amounts borrowed by Borrowers under this Facility may be repaid and, prior to the Commitment Termination Date and subject to the applicable terms and conditions precedent to borrowings hereunder, reborrowed; provided, however, that no Loan shall have a Maturity Date which is later than the Commitment Termination Date and no LIBOR Loan shall have an Interest Period ending after the Maturity Date. (v) Each request for a Loan hereunder shall constitute a reaffirmation by the Requesting Borrower and the Responsible Officer requesting the same that the representations and warranties contained in this Agreement are true, correct and complete in all material respects to the same extent as though made on and as of the date of the request, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date. . Each Loan made by Lenders hereunder shall, at the Requesting Borrower's option in accordance with the terms of this Agreement, be either in the form of a Prime Rate Loan or a LIBOR Loan. Subject to the terms and conditions of this Agreement, each Loan shall bear interest on the sum of the unpaid principal balance thereof outstanding on each day from the date when made, continued or converted until such Loan shall have been fully repaid at a rate per annum equal to the Prime Rate, as the same may fluctuate on a daily basis, or the Adjusted LIBOR, as the case may be, plus the Applicable Margin. Interest on each Loan funded hereunder shall be due and payable by the Requesting Borrower in arrears on each Interest Payment Date, with all accrued but unpaid interest on such Loan being due and payable on the date such Loan is repaid, whether by prepayment or at maturity, and with all accrued but unpaid interest being due and payable by the Requesting Borrower on the Maturity Date for such Loan. Each Advance made by a Lender as part of a Loan hereunder and all repayments of principal with respect to such Advance shall be evidenced by notations made by such Lender on the books and records of such Lender; provided, however, that the failure by such Lender to make such notations shall not limit or otherwise affect the obligations of any Borrower with respect to the repayments of principal or payments of interest on any Advance or Loan. The aggregate unpaid amount of each Advance set forth on the books and records of a Lender shall be presumptive evidence of such Lender's Pro Rata Share of the principal amount owing and unpaid by any Borrower under its Note. . Promptly following the receipt of such documents required pursuant to Section 3.2.1 and approval of a Loan by the Agent, Agent shall notify by telephone, telecopier, facsimile or telex each Lender of the (a) Requesting Borrower, (b) the principal amount (including Lender's Pro Rata Share thereof) and (c) Funding Date of the Loan requested by such Requesting Borrower. Not later than 1:00 p.m., North Carolina time, on the Funding Date for any Loan, each Lender shall make an Advance to Agent for the account of Requesting Borrower in the amount of its Pro Rata Share of the Loan being requested. Upon satisfaction of the applicable conditions precedent set forth in Section 3, all Advances shall be credited in immediately available funds to the Designated Deposit Account. . The Loans made under the Facility may be used solely for the purpose of acquiring the specific items of Equipment. . 2 Repayment And Prepayment . Unless prepaid pursuant to Section 2.2.2, the principal amount of each Loan hereunder made to a Requesting Borrower shall be repaid by the Requesting Borrower to Lenders not later than the Maturity Date of such Loan. . Subject to Section 2.18, any Borrower may in the ordinary course of such Borrower's business, upon at least three (3) Business Days' written notice, or telephonic notice promptly confirmed in writing to Agent, which notice shall be irrevocable, prepay any Loan in whole or in part. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Prime Rate Loans or LIBOR Loans, or any combination thereof. Such prepayment of Loans, together with any amounts required pursuant to Section 2.18, shall be in immediately available funds and delivered to Agent not later than 1:00 p.m., North Carolina time, on the date for prepayment stated in such notice (the "Prepayment Date"). With respect to any prepayment under this Section 2.2.2, all interest on the amount prepaid accrued up to but excluding the date of such prepayment shall be due and payable on the Prepayment Date. . .3 Mandatory Prepayments (a) In the event that any item of Eligible Inventory shall be sold or assigned by any Borrower or any Marine Subsidiary of such Borrower, or the ownership interests (whether Stock or otherwise) of any Borrower in any Marine Subsidiary of such Borrower owning record or beneficial title to any item of Eligible Inventory shall be sold or transferred, then such Borrower shall immediately prepay the Loan made with respect to such Eligible Inventory so sold or assigned or with respect to the Eligible Inventory owned by such Marine Subsidiary so sold or transferred, together with any accrued interest on such Loan to the date of prepayment and any amounts required pursuant to Section 2.18. The sale or assignment of Eligible Inventory by an Owner Trustee, or the sale or assignment of any Borrower's or any Marine Subsidiary's beneficial interest in any owner trust (or nominee entity) holding title to Eligible Inventory, shall be considered a sale or assignment, as the case may be, of such Eligible Inventory by such Borrower or such Marine Subsidiary, as the case may be. (b) In the event that any of the Eligible Inventory shall have sustained a Casualty Loss, the applicable Borrower shall promptly notify Agent and Lenders of such Casualty Loss and make arrangements reasonably acceptable to the Agent to cause any and all cash proceeds received by such Borrower to be paid to Lenders as a prepayment hereunder. To the extent not so prepaid, the Loan funded with respect to such Eligible Inventory will nevertheless be paid by such Borrower as provided in Section 2.2.1. . Interest on the Loans shall be computed on the basis of a 365/366-day year for all Prime Rate Loans and a 360-day year for all LIBOR Loans and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Loan, the date of the making of such Loan shall be included and the date of payment shall be excluded. Each change in the interest rate of Prime Rate Loans based on changes in the Prime Rate and each change in the Adjusted LIBOR based on changes in the Eurodollar Reserve Percentage shall be effective on the effective date of such change and to the extent of such change. Agent shall give Borrowers notice of any such change in the Prime Rate; provided, however, that any failure by Agent to provide Borrowers with notice hereunder shall not affect Agent's right to make changes in the interest rate of any Loan based on changes in the Prime Rate. Upon the occurrence and during the continuation of any Event of Default under this Agreement, Advances under this Agreement will, at the option of Requisite Lenders, bear interest at a rate per annum which is determined by adding two percent (2.00%) to the Applicable Margin for such Loan (the "Default Rate"). This may result in the compounding of interest. The imposition of a Default Rate will not constitute a waiver of any Event of Default. . All repayments or prepayments of principal and all payments of interest, fees, costs, expenses and other sums chargeable to Borrowers under this Agreement, the Notes or any of the other Loan Documents shall be in lawful money of the United States of America in immediately available funds and delivered to Agent, for the account of Lenders, not later than 1:00 p.m., North Carolina time, on the date due at First Union National Bank of North Carolina, One First Union Center, 301 South College Street, Charlotte, North Carolina 28288, Attention: Hannah Carmody, or such other place as shall have been designated in writing by Agent. . Whenever any payment to be made under this Agreement, the Note or any of the other Loan Documents shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of the payment of interest thereon; provided, however, that no Loan shall have remained outstanding after the Maturity Date of such Loan. . All payments to or for the benefit of Lenders hereunder shall be applied to the Obligations of any Borrower making payment in the following order: (a) then due and payable fees as set forth in Section 2.1.1(a)(i) and, at the direction of such Borrower or upon prior notice given to such Borrower by Agent, other then due and payable fees, expenses and costs; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments; provided that if an Event of Default shall have occurred and be continuing, Lenders shall have the exclusive right to apply any and all such payments against the then due and owing Obligations of such Borrower as Lenders may deem advisable. To the extent any Borrower fails to make payment required hereunder or under any of the other Loan Documents, each Lender is authorized to, and at its sole option may, make such payments on behalf of such Borrower. To the extent permitted by law, all amounts advanced by any Lender hereunder or under other provisions of the Loan Documents shall accrue interest at the same rate as Loans hereunder. . 7 Procedure For The Borrowing Of Loans . Each borrowing of Loans shall be made upon any Requesting Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Borrowing, executed by a Responsible Person of such Requesting Borrower, with appropriate insertions (which Notice of Borrowing must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, three (3) Business Days prior to the requested Funding Date) specifying: (a) the amount of the requested borrowing, which, if a LIBOR Loan is requested, shall be not less than One Million Dollars ($1,000,000); (b) the requested Funding Date, which shall be a Business Day; (c) whether the borrowing is to be comprised of one or more LIBOR Loans or Prime Rate Loans; and (d) the duration of the Interest Period applicable to any such LIBOR Loans included in such Notice of Borrowing. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any borrowing comprised of LIBOR Loans, such Interest Period shall be three (3) months. . Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrowers may not elect to have a Loan made as a LIBOR Loan. . 8 Conversion And Continuation Elections . Each Borrower may, upon irrevocable written notice to Agent: (a) elect to convert on any Business Day, any Prime Rate Loan (or any portion thereof in an amount equal to at least One Million Dollars ($1,000,000)) into a LIBOR Loan; or (b) elect to convert on any Interest Payment Date any LIBOR Loan maturing on such Interest Payment Date (or any portion thereof) into a Prime Rate Loan; or (c) elect to continue on any Interest Payment Date any LIBOR Loan maturing on such Interest Payment Date (or any portion thereof in an amount equal to at least One Million Dollars ($1,000,000)); provided, that if the aggregate amount of LIBOR Loans outstanding to such Borrower shall have been reduced, by payment, prepayment, or conversion of portion thereof, to be less than $1,000,000, such LIBOR Loans shall automatically convert into Prime Rate Loans, and on and after such date the right of such Borrower to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate. . Each conversion or continuation of Loans shall be made upon any Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Conversion/Continuation, executed by a Responsible Person of such Borrower, with appropriate insertions (which Notice of Conversion/Continuation must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, at least three (3) Business Days in advance of the proposed conversion date or continuation date specifying: (a) the proposed conversion date or continuation date; (b) the aggregate amount of Loans to be converted or continued; (c) the nature of the proposed conversion or continuation; and (d) the duration of the requested Interest Period. . If upon the expiration of any Interest Period applicable to any LIBOR Loan, the Requesting Borrower has failed to select a new Interest Period to be applicable to such LIBOR Loan, such Borrower shall be deemed to have elected to convert such LIBOR Loan into a Prime Rate Loan effective as of the last day of such current Interest Period. . Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrowers may not elect to have a Loan converted into or continued as a LIBOR Loan. . Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its LIBOR Loans in any manner it elects, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender actually funded and maintained each LIBOR Loan through the purchase of deposits having a maturity corresponding to the maturity of the LIBOR Loan and bearing an interest rate equal to the LIBOR rate (whether or not, in any instance, Lender shall have granted any participations in such Loan). Each Lender may, if it so elects, fulfill any commitment to make LIBOR Loans by causing a foreign branch or affiliate to make or continue such LIBOR Loans; provided, however, that in such event such Loans shall be deemed for the purposes of this Agreement to have been made by such Lender, and the obligation of Borrowers to repay such Loans shall nevertheless be to such Lender and shall be deemed held by such Lender, to the extent of such Loans, for the account of such branch or affiliate. . Agent shall immediately distribute to each Lender, at such address as each Lender shall designate, its respective interest in all repayments and prepayments of principal and all payments of interest and all fees, expenses and costs received by Agent on the same day and in the same type of funds as payment was received. In the event Agent does not distribute such payments on the same day received, if such payments are received by Agent by 1:00 p.m., North Carolina time, or if received after such time, on the next succeeding Business Day, such payment shall accrue interest at the Federal Funds Rate. . Unless Agent shall have been notified by any Lender no later than the Business Day prior to the respective Funding Date of a Loan that such Lender does not intend to make available to Agent an Advance in immediately available funds equal to such Lender's Pro Rata Share of the total principal amount of such Loan, Agent may assume that such Lender has made such Advance to Agent on the date of the Loan and Agent may, in reliance upon such assumption, make available to the Requesting Borrower a corresponding Advance. If Agent has made funds available to such Borrower based on such assumption and such Advance is not in fact made to Agent by such Lender, Agent shall be entitled to recover the corresponding amount of such Advance on demand from such Lender. If such Lender does not promptly pay such corresponding amount upon Agent's demand, Agent shall notify such Requesting Borrower and such Requesting Borrower shall repay such Advance to Agent. Agent also shall be entitled to recover from such Lender interest on such Advance in respect of each day from the date such Advance was made by Agent to such Requesting Borrower to the date such corresponding amount is recovered by Agent at the Federal Funds Rate. Nothing in this Section 2.11 shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which Agent or such Requesting Borrower may have against such Lender as a result of any default by such Lender under this Agreement. . Unless Agent shall have been notified by any Borrower prior to the date on which any payment to be made by such Borrower hereunder is due that such Borrower does not intend to remit such payment, Agent may, in its sole discretion, assume that such Borrower has remitted such payment when so due and Agent may, in its sole discretion and in reliance upon such assumption, make available to each Lender on such payment date an amount equal to such Lender's Pro Rata Share of such assumed payment. If such Borrower has not in fact remitted such payment to Agent, each Lender shall forthwith on demand repay to Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each date from and including the date such amount was made available by Agent to such Lender to the date such amount is repaid to Agent at the Federal Funds Rate. . If any Lender determines that compliance with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Commitment or its making or maintaining its Pro Rata Share of the Loans below the rate which such Lender or such other corporation could have achieved but for such compliance (taking into account the policies of such Lender or corporation with regard to capital), then each Borrower shall, from time to time, upon written demand by such Lender (with a copy of such demand to Agent), immediately pay to such Lender (a) such additional amounts as shall be sufficient to compensate such Lender or other corporation for such reduction resulting from such Borrower's Loans or (b) in the case where such reduction results from compliance with any such law, regulation, guideline or request affecting only the Commitments and not the Loans, such additional amounts as shall be sufficient to compensate such Lender or other corporation for such reduction based on each Borrower's percentage of average usage of the Commitments versus the total average usage by all Borrowers. A certificate submitted by such Lender to any Borrower, stating that the amounts set forth as payable to such Lender are true and correct, shall be conclusive and binding for all purposes, absent manifest error. Each Lender agrees promptly to notify effected Borrowers and Agent of any circumstances that would cause any Borrower to pay additional amounts pursuant to this section, provided that the failure to give such notice shall not affect Borrowers' obligation to pay any such additional amounts. . 14 Taxes . Subject to Subsection 2.14.7, any and all payments by each Borrower to each Lender or Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's net income (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). . In addition, Borrowers shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). . Subject to Subsection 2.14.7, each Borrower shall indemnify and hold harmless each Lender and Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or Agent in relation to any payments made by or Obligations of such Borrower and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within thirty (30) days from the date any Lender or Agent makes written demand therefor. . If any Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or Agent, then, subject to Subsection 2.14.7: (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (b) such Borrower shall make such deductions, and (c) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. . Within thirty (30) days after the date of any payment by any Borrower of Taxes or Other Taxes, such Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to Agent. . Each Lender which is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) shall: (a) No later than the date upon which such Lender becomes a party hereto deliver to Borrowers through Agent two (2) accurate and complete signed originals of IRS Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete signed originals of IRS Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (b) If at any time such Lender makes any changes necessitating a new Form 4224 or Form 1001, with reasonable promptness deliver to Borrowers through Agent in replacement for, or in addition to, the forms previously delivered by it hereunder, two accurate and complete signed originals of Form 4224; or two accurate and complete signed originals of Form 1001, as appropriate, in each case indicating that the Lender is on the date of delivery thereof entitled to receive payments of principal, interest and fees under this Agreement free from withholding of United States Federal income tax; (c) Before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in (ii) above) requiring a change in or renewal of the most recent Form 4224 or Form 1001 previously delivered by such Lender, deliver to Borrowers through Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by the Lender; and (d) Promptly upon any Borrower's or Agent's reasonable request to that effect, deliver to such Borrower or Agent (as the case may be) such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's tax status for withholding purposes. . Borrowers will not be required to pay any additional amounts in respect of United States Federal income tax pursuant to Subsection 2.14.4 to Lender for the account of any Lending Office of such Lender: (a) If the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Subsection 2.14.6 in respect of such Lending Office; (b) If such Lender shall have delivered to Borrowers a Form 4224 in respect of such Lending Office pursuant to Subsection 2.14.6 and such Lender shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by Borrowers hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 4224; or (c) If such Lender shall have delivered to Borrowers a Form 1001 in respect of such Lending Office pursuant to Subsection 2.14.6, and such Lender shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by Borrowers hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 1001. . If, at any time, any Borrower requests any Lender to deliver any forms or other documentation pursuant to Subsection 2.14.6(a), then such Borrower shall, on demand of such Lender through Agent, reimburse such Lender for any costs and expenses (including reasonable attorney fees) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation. . If any Borrower is required to pay additional amounts to any Lender or Agent pursuant to Subsection 2.14.4, then such Lender shall use its reasonable good faith efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by such Borrower which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. . 15 Illegality . If any Lender shall determine that the introduction of any Requirement of Law, or any change in any Requirement of Law or in the interpretation or administration thereof, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for such Lender or its Lending Office to make LIBOR Loans, then, on notice thereof by Lender to the Requesting Borrower, the obligation of such Lender to make LIBOR Loans shall be suspended until such Lender shall have notified the Requesting Borrower that the circumstances giving rise to such determination no longer exists. . If a Lender shall determine that it is unlawful to maintain any LIBOR Loan, Borrowers shall prepay in full all LIBOR Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loans, together with any amounts required to be paid in connection therewith pursuant to Section 2.18. . If any Borrower is required to prepay any LIBOR Loan immediately as provided in Section 2.2.3, then concurrently with such prepayment, such Borrower shall borrow, in the amount of such prepayment, a Prime Rate Loan. . If any Lender shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) in or in the interpretation of any Requirement of Law or (b) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Loans, then Borrowers shall be liable on a joint and several basis for, and shall from time to time, upon demand therefor by such Lender, pay to such Lender such additional amounts as are sufficient to compensate such Lender for such increased costs. . If Agent shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan or that the LIBOR applicable for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to Lenders of funding such Loan, Agent will forthwith give notice of such determination to Borrowers and each Lender. Thereafter, the obligation of Lenders to make or maintain LIBOR Loans, as the case may be, hereunder shall be suspended until Agent, upon instruction from Requisite Lenders, revokes such notice in writing. Upon receipt of such notice, Borrowers may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted. If a Borrower does not revoke such notice, Lenders shall make, convert or continue the Loans, as proposed by such Borrower, in the amount specified in the applicable notice submitted by such Borrower, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans, as the case may be. . Each Borrower agrees, severally but not jointly, that in the event that such Borrower prepays or is required to prepay any LIBOR Loan by acceleration or otherwise or fails to draw down or convert to a LIBOR Loan after giving notice thereof, it shall reimburse each Lender for its funding losses due to such prepayment or failure to draw. Borrowers and Lenders hereby agree that such funding losses shall consist of the sum of the discounted monthly differences for each month during the applicable or requested Interest Period, calculated as follows for each such month: (a) Principal amount of such LIBOR Loan times (number of days between the date of prepayment and the last day in the applicable Interest Period divided by 360), times the applicable Interest Differential, plus (b) all actual out-of-pocket expenses (other than those taken into account in the calculation of the Interest Differential) incurred by Lenders and Agent (excluding allocation of any expense internal to Lenders and Agent) and reasonably attributable to such payment, prepayment or failure to draw down or convert as described above; provided that no prepayment fee shall be payable (and no credit or rebate shall be required) if the product of the foregoing formula is not a positive number. .. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT AND THE MAKING OF LOANS . The effectiveness of this Agreement is subject to the satisfaction of the following conditions precedent: . Agent shall have received, in form and substance satisfactory to Lenders and their respective counsel a certified copy of the records of all actions taken by each Borrower and FSI, including all resolutions of each Borrower and corporate resolutions of FSI, authorizing or relating to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby. . Agent shall have received new Notes, in form and substance satisfactory to Lenders, and duly executed and delivered by each Borrower, which Notes shall replace and supersede the Notes issued by Borrowers to Agent pursuant to the Growth Fund Agreement. . Agent shall have received an originally executed Opinion of Counsel, in form and substance satisfactory to Lenders, dated as of the Closing Date and addressed to Lenders, together with copies of any officer's certificate or legal opinion of other counsel or law firm specifically identified and expressly relied upon by such counsel. . Agent shall have received the Reaffirmation of Guaranty, in form and substance satisfactory to Lenders, duly executed and delivered by FSI. . Agent shall have received the TEC AcquiSub Amendment, duly executed and delivered by TEC AcquiSub, and all conditions precedent to the effectiveness of the TEC AcquiSub Amendment shall have been satisfied. . Agent shall have received the AFG Agreement, duly executed and delivered by AFG, and all conditions precedent to the effectiveness of the AFG Agreement shall have been satisfied. . Separate certificates, dated as of the Closing Date, of the Chief Financial Officer or Corporate Controller of FSI, in its capacity as the sole general partner of EGF III, EGF IV, EGF V, EGF VI and EGF VII and as the sole manager of Income Fund I, to the effect that (i) the representations and warranties of each Borrower contained in Section 4 are true, accurate and complete in all material respects as of the Closing Date as though made on such date and (ii) no Event of Default or Potential Event of Default under this Agreement has occurred. . Agent shall have received the Fee Letter and the Agent's Side Letter, duly executed by Borrowers, TEC AcquiSub and AFG, and the arrangement fee and the Agent's fee described in the Fee Letter and Agent's Side Letter, respectively. . Agent shall have received such other documents, information and items from Borrowers and FSI as reasonably requested by Agent. . Unless waived in writing by Requisite Lenders, the obligation of any Lender to make any Advance is subject to the satisfaction of the following further conditions precedent: . At least three (3) Business Days before each Loan hereunder with respect to any acquisition of Equipment by any Borrower, Agent shall have received (i) Notice of Borrowing and (ii) a Borrowing Base Certificate, with appropriate insertions, executed by the Chief Financial Officer or Corporate Controller of such Borrower. . No event shall have occurred and be continuing or would result from the making of any Loan on such Funding Date which constitutes an Event of Default or Potential Event of Default under this Agreement or under (and as separately defined in) the TEC AcquiSub Agreement or under (and as separately defined in) the AFG Agreement, or which with notice or lapse of time or both would constitute an Event of Default or Potential Event of Default under this Agreement or under the TEC AcquiSub Agreement or the AFG Agreement. . All representations and warranties contained in the Loan Documents shall be true, accurate and complete in all material respects with the same effect as though such representations and warranties had been made on and as of such Funding Date (except to the extent such representations and warranties specifically relate to an earlier date, in which case they shall be true, accurate and complete in all material respects as of such earlier date). . The insurance required to be maintained by such Borrower pursuant to the Loan Documents shall be in full force and effect. . Agent shall have received such other instruments and documents as it may have reasonably requested from Borrowers in connection with the Loans to be made on such date. . Notwithstanding anything to the contrary contained in this Agreement, unless waived in writing by Requisite Lenders, no Lender shall have any obligation hereunder to make any Advance if any of the following events shall occur: . FSI shall have ceased to be the sole general partner of any of EGF III, EGF IV, EGF V, EGF VI or EGF VII or the sole manager of Income Fund I, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower. . Twenty five percent (25.0%) or more of the limited partners (measured by such partners' percentage interest) of any Equipment Growth Fund shall at any time vote to remove FSI as the general partner of such Equipment Growth Fund or a majority in interest of Class A members, as that term is defined in the Operating Agreement, of Income Fund I shall at any time vote to remove FSI as manager of Income Fund I, in each case, regardless of whether FSI is actually removed. Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries shall have ceased to be the purchaser of Eligible Inventory for such Requesting Borrower. . 4. BORROWERS' AND FSI'S REPRESENTATIONS AND WARRANTIES . Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each such Borrower and as to itself, hereby warrant and represent to Agent and each Lender as follows, and agree that each of said warranties and representations shall be deemed to continue until full, complete and indefeasible payment and performance of the Obligations and shall apply anew to each borrowing hereunder: . Each Borrower is a limited partnership or, in the case of Income Fund I, a limited liability company, and FSI is a corporation, each duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified and licensed as a foreign corporation, partnership or limited liability company, as applicable, and authorized to do business in each jurisdiction within the United States where its ownership of Property and assets or conduct of business requires such qualification. Each Borrower and FSI has the power and authority, rights and franchises to own their Property and assets and to carry on their businesses as now conducted. Each Borrower and FSI has the power and authority to execute and deliver the Loan Documents (to the extent each is a party thereto) and all other instruments and documents contemplated hereby or thereby. . The execution, delivery and performance of this Agreement and each of the other Loan Documents to which any Borrower is a party and delivery and payment of such Borrower's respective Note have been duly authorized by all necessary and proper action on the part of such Borrower. The execution, delivery and performance of this Agreement and each of the other Loan Documents to which FSI is a party have been duly authorized by all necessary and proper corporate action on the part of FSI. The Loan Documents constitute legally valid and binding obligations of each Borrower and FSI, as the case may be, enforceable against each Borrower and FSI, to the extent any one of them is a party thereto, in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. . (a) The execution, delivery and performance of this Agreement, and each of the other Loan Documents and the execution, delivery and payment of the Notes will not: (i) contravene any provision of FSI's certificate of incorporation or bylaws; (ii) contravene any provision of any Borrowers' Limited Partnership Agreements or, in the case of Income Fund I, Operating Agreement or other formation or organization document; or (iii) contravene, conflict with or violate any applicable law or regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority, which contravention, conflict or violation, in the aggregate, may have Material Adverse Effect; and (b) the execution and delivery of this Agreement, and each of the other Loan Documents and the execution and delivery of the Notes will not violate or result in the breach of, or constitute a default under any indenture or other loan or credit agreement, or other agreement or instrument which are, in the aggregate, material and to which any Borrower or FSI is a party or by which any Borrower, FSI or their Property and assets may be bound or affected. Neither any Borrower nor FSI is in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which any one of them is a party, the non-compliance with, the violation or breach of or the default under which would, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower's and FSI's audited consolidated financial statements as of December 31, 1995 and Borrowers' and FSI's unaudited consolidated financial statements as of March 31, 1996, copies of which heretofore have been delivered to Agent by such Borrower and FSI, respectively, and all other financial statements and other data submitted in writing by any Borrower and FSI to Agent or any Lender in connection with the request for credit granted by this Agreement, are true, accurate and complete in all material respects, and said financial statements and other data fairly present the consolidated financial condition of such Borrower and FSI, as of the date thereof, and have been prepared in accordance with GAAP, subject to fiscal year-end audit adjustments. There has been no material adverse change in the business, properties or assets, operations, prospects, profitability or financial or other condition of any Borrower or FSI since March 31, 1996. . The current location of each Borrower's and FSI's chief executive offices and principal places of business is set forth on Schedule 4.1.5. . Except as disclosed on Schedule 4.1.6, there are no claims, actions, suits, proceedings or other litigation pending or, to the best of each Borrower's and FSI's knowledge, after due inquiry, threatened against any Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, at law or in equity before any Governmental Authority or, to the best of each Borrower's and FSI's knowledge, after due inquiry, any investigation by any Governmental Authority of any Borrower's or FSI's or any of FSI's Subsidiaries', including, without limitation, TEC AcquiSub's, affairs, Properties or assets which would, with reasonable likelihood, if adversely determined, have a Material Adverse Effect. Other than any liability incident to the litigation or proceedings disclosed on Schedule 4.1.6, neither any Borrower, nor FSI nor any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, has any Contingent Obligations which are not provided for or disclosed in the financial statements delivered to Agent pursuant to Sections 4.1.4 and 5.1. . Schedule 4.1.7 lists all currently effective contracts and agreements (whether written or oral) to which each Borrower is a party and which (i) could involve the payment or receipt by such Borrower after the date of this Agreement of more than $250,000 or (ii) otherwise materially affect the business, operations or financial condition of any Borrower (the "Material Contracts"). Except as disclosed on Schedule 4.1.7, there are no material defaults under any such Material Contract by any Borrower, to the best of each Borrower's knowledge, by any other party to any such Material Contract. Each Borrower has delivered to Agent true and correct copies of all such contracts or agreements (or, with respect to oral contracts or agreements, written descriptions of the material terms thereof). . Except as set forth in Schedule 4.1.8, all consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by any Borrower, FSI or any of FSI's Subsidiaries in order to make or consummate the transactions contemplated under the Loan Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect. . Neither any Borrower, FSI nor any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, is a party to or is bound by any agreement, contract, lease, license or instrument, or is subject to any restriction under its respective charter or formation documents, which has, or is likely in the foreseeable future to have, a Material Adverse Effect. Neither any Borrower nor FSI has entered into and, as of the Closing Date does not contemplate entering into, any material agreement or contract with any Affiliate of any Borrower or FSI on terms that are less favorable to such Borrower or FSI than those that might be obtained at the time from Persons who are not such Affiliates. . There are no collective bargaining agreements or other labor agreements covering any employees of any Borrower, FSI or any of FSI's Subsidiaries. . No Borrower has an Employee Benefit Plan subject to ERISA. All Pension Plans of FSI and any of FSI's Subsidiaries, that are intended to be qualified under Section 401(a) of the Code have been determined by the IRS to be qualified or FSI or any of FSI's Subsidiaries will obtain such determination prior to instituting such a Pension Plan. All Pension Plans existing as of the date hereof continue to be so qualified. No "reportable event" (as defined in Section 4043 of ERISA) has occurred and is continuing with respect to any Pension Plan for which the thirty-day notice requirement may not be waived other than those of which the appropriate Governmental Authority has been notified. All Employee Benefit Plans of FSI or any of FSI's Subsidiaries have been operated in all material respects in accordance with their terms and applicable law, including ERISA, and no "prohibited transaction" (as defined in ERISA and the Code) that would result in any material liability to FSI or any of FSI's Subsidiaries has occurred with respect to any such Employee Benefit Plan. . There are no strikes or other labor disputes against any Borrower, FSI or any of FSI's Subsidiaries or, to the best of each Borrower's and FSI's knowledge, after due inquiry, threatened against any Borrower, FSI or any of FSI's Subsidiaries, which would, with reasonable likelihood, have a Material Adverse Effect. All payments due from any Borrower or FSI on account of employee health and welfare insurance which would, with reasonable likelihood, have a Material Adverse Effect if not paid have been paid or, if not due, accrued as a liability on the books of such Borrower or FSI. . Neither any Borrower nor FSI own any "margin security", as that term is defined in Regulations G and U of the Federal Reserve Board, and the proceeds of the Loans under this Agreement will be used only for the purposes contemplated hereunder. None of the Loans will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans under this Agreement to be considered a "purpose credit" within the meaning of Regulations G, T, U and X. Neither any Borrower nor FSI will take or permit any agent acting on its behalf to take any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. . All federal, state, local and foreign tax returns, reports and statements required to be filed by any Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, by any of FSI's Subsidiaries have been filed with the appropriate Governmental Authorities where failure to file would, with reasonable likelihood, have a Material Adverse Effect, and all material Charges and other impositions shown thereon to be due and payable by any Borrower, FSI or such Subsidiary have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or such Borrower, FSI or such Subsidiary is contesting its liability therefore in good faith and has fully reserved all such amounts according to GAAP in the financial statements provided to Agent pursuant to Section 5.1. Each Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, each of FSI's Subsidiaries has paid when due and payable all material Charges upon the books of any Borrower, FSI or such Subsidiary and no Government Authority has asserted any Lien against any Borrower, FSI or any of FSI's Subsidiaries with respect to unpaid Charges. Proper and accurate amounts have been withheld by each Borrower, FSI and, to the best of each Borrower's and FSI's knowledge, after due inquiry, each of FSI's Subsidiaries from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. . .15 Environmental Quality (a) Except as specifically disclosed in Schedule 4.1.15, the on-going operations of each Borrower, FSI and each of FSI's Subsidiaries comply in all material respects with all Environmental Laws, except such non-compliance which would not (if enforced in accordance with applicable law) result in liability in excess of $250,000 in the aggregate. (b) Except as specifically disclosed in Schedule 4.1.15, each Borrower, FSI and each of FSI's Subsidiaries has obtained all licenses, permits, authorizations and registrations required under any Environmental Law ("Environmental Permits") and necessary for its ordinary course operations, all such Environmental Permits are in good standing, and each Borrower, FSI and each of FSI's Subsidiaries is in compliance with all material terms and conditions of such Environmental Permits. (c) Except as specifically disclosed in Schedule 4.1.15, neither any Borrower, FSI or any of FSI's Subsidiaries nor any of their respective present Property or operations is subject to any outstanding written order from or agreement with any Governmental Authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material. (d) Except as specifically disclosed in Schedule 4.1.15, there are no Hazardous Materials or other conditions or circumstances existing with respect to any Property, or arising from operations prior to the Closing Date, of any Borrower, FSI or any of FSI's Subsidiaries that would reasonably be expected to give rise to Environmental Claims with a potential liability of any Borrower, FSI or any of FSI's Subsidiaries in excess of $250,000 in the aggregate for any such condition, circumstance or Property. . Each Borrower and FSI and, to the best of their knowledge, after due inquiry, each of FSI's Subsidiaries possess and owns all necessary trademarks, trade names, copyrights, patents, patent rights, franchises and licenses which are material to the conduct of their business as now operated. . As of the Closing Date, no information contained in this Agreement, the other Loan Documents or any other documents or written materials furnished by or on behalf of any Borrower or FSI to Agent or any Lender pursuant to the terms of this Agreement or any of the other Loan Documents contains any untrue or inaccurate statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein not misleading in light of the circumstances under which made. . Neither any Borrower nor FSI is: (a) a "public utility company" or a "holding company," or an "affiliate" or a "subsidiary company" of a "holding company," or an "affiliate" of such a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act or (b) an "investment company," or an "affiliated person" of, or a "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act. The making of the Loans hereunder and the application of the proceeds and repayment thereof by each Borrower and the performance of the transactions contemplated by this Agreement and the other Loan Documents will not violate any provision of the Investment Company Act or the Public Utility Holding Company Act, or any rule, regulation or order issued by the SEC thereunder. . Each Borrower and FSI are Solvent. . At the time any Borrower makes a request for an initial borrowing hereunder, each such Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each such Borrower and as to itself, hereby warrant and represent to Agent and each Lender as follows, and agree that each of said warranties and representations shall be deemed to continue until full, complete and indefeasible payment and performance of the Obligations and shall apply anew to each additional borrowing hereunder: . Each Borrower and FSI has the power and authority to perform the terms of the Loan Documents (to the extent each is a party thereto) and all other instruments and documents contemplated hereby or thereby. . The performance of this Agreement, and each of the other Loan Documents and the payment of the Notes will not violate or result in the breach of, or constitute a default under any indenture or other loan or credit agreement, or other agreement or instrument which are, in the aggregate, material and to which any Borrower or FSI is a party or by which any Borrower, FSI or their Property and assets may be bound or affected. . No approval, authorization or consent of any trustee or holder of any indebtedness or obligation of any Borrower or FSI or of any other Person under any such material agreement, contract, lease or license or similar document or instrument to which such Borrower, FSI or any of FSI's Subsidiaries is a party or by which such Borrower, FSI or any such Subsidiary is bound, is required to be obtained by any such Borrower, FSI or any such Subsidiary in order to make or consummate the transactions contemplated under the Loan Documents. . So long as any of the Commitments shall be available and until payment and performance in full of the Obligations, the representations and warranties contained herein shall have a continuing effect as having been true when made. . 5. BORROWERS' AND FSI'S AFFIRMATIVE COVENANTS Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each Borrower and as to itself (and, where applicable, PLMI) covenant and agree that, so long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower and FSI shall do or cause to have done all of the following: . Maintain, and cause each of FSI's Subsidiaries to maintain, a system of accounting administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP, and deliver to Agent or caused to be delivered to Agent: . As soon as practicable and in any event within sixty (60) days after the end of each quarterly accounting period of each Borrower, FSI and PLMI, except with respect to the final fiscal quarter of each fiscal year, in which case as soon as practicable and in any event within one hundred twenty (120) days after the end of such fiscal quarter, consolidated and consolidating balance sheets of FSI and PLMI and a balance sheet of each Borrower as at the end of such period and the related consolidated (and, as to statements of income only for FSI, consolidating) statements of income and stockholders' or members' equity of each Borrower and FSI and the related consolidated statements of income, stockholders' or members' equity and cash flows of PLMI (and, as to statements of income only, consolidating) for such quarterly accounting period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous year, all in reasonable detail and certified by the Chief Financial Officer or Corporate Controller of the general partner or manager of each Borrower, as applicable, FSI and PLMI that they (i) are complete and fairly present the financial condition of such Borrower, FSI and PLMI as at the dates indicated and the results of their operations and changes in their cash flow for the periods indicated, (ii) disclose all liabilities of each Borrower, FSI and PLMI that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent and (iii) have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end adjustment; . As soon as practicable and in any event within one hundred twenty (120) days after the end of each fiscal year of each Borrower, FSI and PLMI, consolidated and consolidating balance sheets of FSI and PLMI and a balance sheet of each Borrower as at the end of such year and the related consolidated (and, as to statements of income only for FSI and PLMI, consolidating) statements of income, stockholders' or members' equity and cash flows of each Borrower, if applicable, FSI and PLMI for such fiscal year, setting forth in each case, in comparative form the consolidated figures for the previous year, all in reasonable detail and (i) in the case of such consolidated financial statements, accompanied by a report thereon of an independent public accountant of recognized national standing selected by each Borrower, FSI and PLMI and satisfactory to Agent, which report shall contain an opinion which is not qualified in any manner or which otherwise is satisfactory to Requisite Lenders, in their sole discretion, and (ii) in the case of such consolidating financial statements, certified by the Chief Financial Officer or Corporate Controller of FSI and PLMI; . As soon as practicable, and in any event not later than fifteen (15) days after the end of each calendar month in which a Loan has been, or is, outstanding, a Borrowing Base Certificate dated as of the last day of such month, duly executed by a Chief Financial Officer or Corporate Controller of the general partner or manager of each Borrower, with appropriate insertions; . As soon as practicable, and in any event not later than forty-five (45) days after the end of each fiscal quarter of each Borrower, a Compliance Certificate dated as of the last day of such fiscal quarter, and executed by the Chief Financial Officer or Corporate Controller of the general partner or manager of such Borrower, with appropriate insertions. . At Agent's request, promptly upon receipt thereof, copies of all reports submitted to each Borrower, FSI or PLMI by independent public accountants in connection with each annual, interim or special audit of the financial statements of such Borrower, FSI or PLMI made by such accountants; . (i) On the date six months after the Closing Date and thereafter upon Agent's reasonable request, which request will not be made more than once during any calendar year (unless an Event of Default shall have occurred and be continuing), a report from each Borrower's insurance broker, in such detail as Agent may reasonably request, as to the insurance maintained or caused to be maintained by each Borrower pursuant to this Agreement, demonstrating compliance with the requirements hereof and thereof, and (ii) as soon as possible and in no event later than fifteen (15) days prior to the expiration date of any insurance policy of any Borrower, a written confirmation that such policy is in process of renewal and is not terminated or subject to a notice of non-renewal from such Borrower's insurance broker; provided, however, that such Borrower shall give Agent prompt written notice if changes affecting risk coverage will be made to such policy or if the policy will be terminated; . Promptly upon any officer of any Borrower or FSI obtaining knowledge (a) of any condition or event which constitutes an Event of Default or Potential Event of Default under this Agreement, (b) that any Person has given any notice to any Borrower, FSI, TEC, TEC AcquiSub or PLMI or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1.2, (c) of the institution of any litigation or of the receipt of written notice from any Governmental Authority as to the commencement of any formal investigation involving an alleged or asserted liability of any Borrower, FSI, TEC, TEC AcquiSub or PLMI equal to or greater than $500,000 or any adverse judgment in any litigation involving a potential liability of any Borrower, FSI, TEC, TEC AcquiSub or PLMI equal to or greater than $500,000, or (d) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of any Borrower, FSI, TEC, TEC AcquiSub or PLMI, a certificate of a Responsible Officer of any Borrower or FSI, as applicable, specifying the notice given or action taken by such Person and the nature of such claimed default, Event of Default, Potential Event of Default, event or condition and what action such Borrower, FSI, TEC, TEC AcquiSub or PLMI has taken, is taking and proposes to take with respect thereto; . Promptly upon becoming aware of the occurrence of any (a) Termination Event in connection with any Pension Plan or (b) "prohibited transaction" (as such term is defined in ERISA and the Code) in connection with any Employee Benefit Plan or any trust created thereunder, a written notice specifying the nature thereof, what action any Borrower or any of its ERISA Affiliates has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the IRS or the PBGC with respect thereto; . With reasonable promptness, copies of (a) all notices received by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (b) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates with the IRS with respect to each Pension Plan covering employees of any Borrower, FSI or any of FSI's Subsidiaries, and (c) all notices received by any Borrower, FSI, any of FSI's Subsidiaries or any of their ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; . Promptly upon receipt by any Borrower, FSI or any of FSI's Subsidiaries, any challenge by the IRS to the qualification under Section 401 or 501 of the Code of any Pension Plan; . As soon as available and in no event later than five (5) days after the same shall have been filed with the SEC, a copy of each Form 8-K Current Report, Form 10-K Annual Report, Form 10-Q Quarterly Report, Annual Report to Shareholders, Proxy Statement and Registration Statement of any Borrower and PLMI; . Upon the request of Agent, copies of all federal, state, local and foreign tax returns and reports in respect of income, franchise or other taxes on or measured by income (excluding sales, use or like taxes) filed by or on behalf of any Borrower and FSI; and . Such other information respecting the condition or operations, financial or otherwise, of any Borrower and PLMI and its Subsidiaries as Agent or any Lender may from time to time reasonably request, and such information regarding the lessees under Leases as any Borrower from time to time receives or Agent or any Lender reasonably requests. All financial statements of Borrowers, FSI and PLMI to be delivered by any Borrower and FSI to Agent pursuant to this Section 5.1 will be complete and correct and present fairly the financial condition of each Borrower, FSI and PLMI as of the date thereof; will disclose all liabilities of each Borrower, FSI and PLMI that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent; and will have been prepared in accordance with GAAP. All tax returns submitted to Agent by Borrowers and FSI will, to the best of each Borrower's and FSI's knowledge, after due inquiry, be true and correct. Each Borrower and FSI hereby agree that each time any one of them submits a financial statement or tax return to Agent, such Borrower and FSI shall be deemed to represent and warrant to Lenders that such financial statement or tax return complies with all of the preceding requirements set forth in this paragraph. . Each Borrower and FSI shall preserve and maintain, and FSI shall cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to preserve and maintain, their existence and all of their licenses, permits, governmental approvals, rights, privileges and franchises necessary or desirable in the normal conduct of their businesses as now conducted or presently proposed to be conducted (including, without limitation, their qualification to do business in each jurisdiction in which such qualification is necessary or desirable in view of its business); conduct, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and any Owner Trustee to conduct, its business in an orderly and regular manner; and comply, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and any Owner Trustee, to comply, with (a) as to any Borrower, its Limited Partnership Agreement, Operating Agreement and other organizational documents, as applicable, and as to FSI and each of its Subsidiaries, including, without limitation, TEC AcquiSub, the provisions of its respective certificate or articles of incorporation, as applicable, and bylaws and (b) the requirements of all applicable laws, rules, regulations or orders of any Governmental Authority and requirements for the maintenance of any Borrower's, FSI's or such Subsidiary's insurance, licenses, permits, governmental approvals, rights, privileges and franchises, except, in either case, to the extent that the failure to comply therewith would not, in the aggregate, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower and FSI shall maintain and keep in force, and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to maintain and keep in force insurance of the types and in amounts then customarily carried in lines of business similar to that of Borrowers, FSI or any of FSI's Subsidiaries as the case may be, including, but not limited to, fire, extended coverage, public liability, property damage, environmental hazard and workers' compensation, in each case carried with financially sound Persons and in amounts satisfactory to Requisite Lenders (subject to commercial reasonableness as to each type of insurance); provided, however, that the types and amounts of insurance shall not provide any less coverage for any Borrower than provided as of the Closing Date by the existing blanket policies of insurance for PLMI and its Subsidiaries. All such policies as to liability insurance shall carry endorsements naming Agent and each Lender as an additional insured and, upon the reasonable request of Agent, all such policies of property insurance shall carry endorsements naming Agent as principal loss payee as to any property owned by Borrowers and financed by Lenders, and in each case indicating that (a) any loss thereunder shall be payable to Agent or Lenders, as the case may be, notwithstanding any action, inaction or breach of representation or warranty by any Borrower or FSI; (b) there shall be no recourse against any Lender for payment of premiums or other amounts with respect thereto, and (c) at least fifteen (15) days' prior written notice of cancellation, lapse or material change in coverage shall be given to Agent by the insurer. . Promptly pay and discharge and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, promptly to pay and discharge all material Charges when due and payable, except (a) such as may be paid thereafter without penalty or (b) such as may be contested in good faith by appropriate proceedings and for which an adequate reserve has been established and is maintained in accordance with GAAP. Each Borrower and FSI shall promptly notify Agent of any material challenge, contest or proceeding pending by or against any Borrower, FSI and PLMI or any of FSI's Subsidiaries before any taxing authority. . At any reasonable time and from time to time during normal business hours, permit Agent or any Lender or any agent, representative or employee thereof, to examine and make copies of and abstracts from the financial records and books of account of each Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, and other documents in the possession or under the control of any Borrower, FSI or any of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, relating to any obligation of any Borrower or FSI arising under or contemplated by this Agreement and to visit the offices of any Borrower or FSI to discuss the affairs, finances and accounts of any Borrower or FSI with any of the officers of any Borrower or FSI, and, upon reasonable notice and during normal business hours (unless an Event of Default or Potential Event of Default shall have occurred and be continuing, in which event no notice is required), to conduct audits of and appraise Equipment. Such audits and appraisals shall be subject to the lessee's right to quiet enjoyment as set forth in the respective lease. . 6 Maintenance Of Facilities; Modifications . Each Borrower and FSI shall keep and cause each of FSI's Subsidiaries, including, without limitation, TEC AcquiSub, to keep, all of their respective Properties which are useful or necessary to such Borrower's, FSI's or such Subsidiary's business, in good repair and condition, normal wear and tear excepted, and from time to time make, and cause each such Subsidiary to make necessary repairs thereto, and renewals and replacements thereof so that each Borrower's, FSI's or such Subsidiary's Properties shall be fully and efficiently preserved and maintained. . Subject to Section 5.6.1, each Borrower and FSI shall promptly make, or cause to be made, all modifications, additions and adjustments to the Eligible Inventory as may from time to time be required by any Governmental Authority having jurisdiction over the operation, safety or use thereof. . From time to time as may be necessary (in the event that such information is not otherwise delivered by Borrowers or FSI to Agent or Lenders pursuant to this Agreement), so long as there are Obligations outstanding hereunder, disclose to Agent in writing any material matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described by any Borrower or FSI in this Agreement or any of the other Loan Documents (including all Schedules and Exhibits hereto or thereto) or which is necessary to correct any information set forth or described by Borrowers or FSI hereunder or thereunder or in connection herewith which has been rendered inaccurate thereby. . In addition to the obligations and documents which this Agreement expressly requires Borrowers or FSI to execute, deliver and perform, each Borrower or FSI shall execute, deliver and perform, and shall cause FSI's Subsidiaries to execute, deliver and perform, any and all further acts or documents which Agent or Lenders may reasonably require to effectuate the purposes of this Agreement or any of the other Loan Documents. . Each Borrower shall, unless otherwise directed in writing by Agent, cause all remittances made by the obligor under any Lease to be made to a lock box (the "Lockbox") maintained with FUNB pursuant to the Lockbox Agreement. Unless otherwise directed by Agent in writing, all invoices and other instructions submitted by any Borrower to the obligor relating to Lease payments shall designate the Lockbox as the place to which such payments shall be made. . Each Borrower and FSI shall, and FSI shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in material compliance with all Environmental Laws. . 6. BORROWER'S AND FSI'S NEGATIVE COVENANTS So long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to such Borrower and to itself, covenant and agree as follows: . Each Borrower and FSI shall not create, incur, assume or suffer to exist, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Lien of any nature upon or with respect to any of their respective Property, whether now or hereafter owned, leased or acquired, except (collectively, the "Permitted Liens"): .1 Existing Liens disclosed on Schedule 6.1, provided that the obligations secured thereby are not increased; .2 Liens for Charges if payment shall not at the time be required to be made in accordance with Section 5.4; .3 Liens in respect of pledges, obligations or deposits (a) under workers' compensation laws, unemployment insurance and other types of social security or similar legislation, (b) in connection with surety, appeal and similar bonds incidental to the conduct of litigation, (c) in connection with bid, performance or similar bonds and mechanics', laborers' and materialmen's and similar statutory Liens not then delinquent, or (d) incidental to the conduct of the business of such Borrower, any Marine Subsidiary of such Borrower, FSI or any Owner Trustee or any of FSI's Subsidiaries and which were not incurred in connection with the borrowing of money or the obtaining of advances or credit; provided that the Liens permitted by this Section 6.1.3 do not in the aggregate materially detract from the value of any assets or property of or materially impair the use thereof in the operation of the business of such Borrower, FSI or any Owner Trustee or any of FSI's Subsidiaries; and provided further that the adverse determination of any claim or liability, contingent or otherwise, secured by any of such Liens would not either individually or in the aggregate, with reasonable likelihood, have a Material Adverse Effect; .4 Permitted Rights of Others; and .5 Liens granted in favor of Agent on behalf of Lenders under the TEC AcquiSub Agreement and the security agreement and other loan documents delivered by TEC AcquiSub pursuant thereto. . Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, and FSI shall not permit TEC and TEC AcquiSub to, make any Acquisition or enter into any agreement to make any Acquisition, other than with respect to the purchase of Equipment in the ordinary course of business or the formation or acquisition of a Marine Subsidiary. . Each Borrower and FSI shall not create, incur, assume or suffer to exist, nor permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Indebtedness or Contingent Obligation; provided, however, that this Section 6.3 shall not be deemed to prohibit: .1 The Obligations to Lenders and Agent arising hereunder and under the other Loan Documents; .2 Existing Indebtedness disclosed on Schedule 6.3(a) and anticipated Indebtedness disclosed on Schedule 6.3(b); .3 Indebtedness of any Subsidiary of FSI, provided that such Indebtedness is non-recourse as to FSI, TEC and TEC AcquiSub; .4 The acquisition of goods, supplies or merchandise on normal trade credit; .5 The endorsement of negotiable instruments received in the ordinary course of any Borrower's business as presently conducted; .6 Indebtedness incurred in respect of the deferred purchase price for an item of Equipment, but only to the extent that the incurrence of such Indebtedness is customary in the industry with respect to the purchase of this type of equipment (provided that such Indebtedness shall only be permitted under this clause (d) if, taking into account the incurrence of such Indebtedness, the Borrower incurring such Indebtedness shall not be in violation of any of the financial covenants set forth in Section 7 if measured as of the date of incurrence as determined by GAAP); .7 Any Guaranty Obligations of any Borrower in the form of performance guaranties undertaken on behalf of a Marine Subsidiary of such Borrower in favor of the charter party in connection with the leasing of a marine vessel on a time charter; and .8 Contingent Obligations (but excluding specifically Guaranty Obligations which shall be prohibited) of FSI solely in its capacity as a general partner or manager of the Equipment Growth Funds. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, use the proceeds of any Loan except for the purpose set forth in Recital D, above, and shall not, and shall not permit any such Marine Subsidiary or such Owner Trustee to, use the proceeds to repay any loans or advances made by any other Person. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, sell, assign or otherwise dispose of, any of its or their respective assets, except for full, fair and reasonable consideration, or enter into any sale and leaseback agreement covering any of its or their respective fixed or capital assets. . Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower to, enter into any transaction of merger, consolidation or recapitalization, directly or indirectly, whether by operation of law or otherwise, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, Property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, Property or assets of, or stock or other evidence of beneficial ownership of, any Person, except (a) sales of Equipment in the ordinary course of business (for the purposes of this Section 6.6, with respect to any Borrower and any Marine Subsidiary of such Borrower, ordinary course of business shall refer to the business of the Equipment Growth Funds and all Marine Subsidiaries, collectively), and (b) any Subsidiary of FSI (other than TEC AcquiSub) may be merged or consolidated with or into FSI or any wholly-owned Subsidiary of FSI, or be liquidated, wound up or dissolved, or all or substantially all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to, FSI or any wholly-owned Subsidiary of FSI; provided that, in the case of such a merger or consolidation, FSI or such wholly-owned Subsidiary shall be the continuing or surviving corporation. . Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates on terms that are less favorable to such Borrower or such Marine Subsidiary than those that might be obtained at the time from Persons who are not such Affiliates. . Each Borrower and FSI shall not, and FSI shall not permit any of its existing Subsidiaries to, engage in any business materially different than the business currently engaged in by such Person. . Each Borrower shall not make, pay or set apart any funds for the payment of distribution to its partners or members if such distribution would cause or result in an Event of Default or Potential Event of Default. . Each Borrower and FSI shall not take or omit to take any action, which act or omission would, with the lapse of time, or otherwise constitute (a) a default, event of default or Event of Default under any of the Loan Documents or (b) a default or an event of default under any other material agreement, contract, lease, license, mortgage, deed of trust or instrument to which either is a party or by which either or any of their Properties or assets is bound, which default or event of default would, with reasonable likelihood, have a Material Adverse Effect. . If any Borrower or FSI or any of their ERISA Affiliates incurs any obligation to contribute to any Pension Plan, then such Borrower or FSI, as the case may be, shall not (a) terminate, or permit such ERISA Affiliate to terminate, any Pension Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect or (b) make or permit such ERISA Affiliate to make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect. . Each Borrower and FSI shall not use or authorize others to use any Lender's name or marks in any publication or medium, including, without limitation, any prospectus, without such Lender's advance written authorization. . Each Borrower and FSI shall not change their fiscal year end from December 31, nor make any change in their accounting treatment and reporting practices except as permitted by GAAP; provided, however, that should any Borrower or FSI change its accounting treatment or reporting practices in a way that would cause a change in the calculation, or in the results of a calculation, of any of the financial covenants set forth in Section 7, below, then such Borrower or FSI, as applicable, shall continue to calculate such covenants as if such accounting treatment or reporting practice had not been changed unless otherwise agreed to by Requisite Lenders. . Each Borrower and FSI shall not, shall not cause to occur and shall not permit any amendment, modification or supplement of or to any of the terms or provisions of such Borrower's Limited Partnership Agreement or, in the case of Income Fund I, its Operating Agreement, which amendment, modification or supplement would affect, limit or otherwise impair such Borrower's ability to pay the Obligations or perform its obligations under this Agreement or any of the other Loan Documents. . 7. FINANCIAL COVENANTS OF BORROWER AND FSI Each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to each Borrower and as to itself, covenant and agree that, so long as the Commitments hereunder shall be available, and until full, complete and indefeasible payment and performance of the Obligations, including, without limitation, all Loans evidenced by the Notes, unless Requisite Lenders shall otherwise consent in writing, Borrowers and FSI shall perform the following financial covenants. Each Borrower and FSI agree and understand that (except as expressly provided herein) all covenants under this Section 7 shall be subject to quarterly compliance or compliance as of the date of any request for a Loan pursuant to Section 3.2.1 (as measured on the last day of each fiscal quarter of such Borrower, or FSI, as the case may be, or as of the date of any request for a Loan pursuant to Section 3.2.1), and in each case review by Lenders of the respective fiscal quarter's consolidated financial statements delivered to Agent by each Borrower and FSI pursuant to Section 5.1; provided, however, that the following financial covenants shall apply only as to those Borrowers requesting a Loan or as to which a Loan remains outstanding. . Each Borrower shall maintain a Funded Debt Ratio of not greater than 0.5:1.0. . Each Borrower shall maintain a Debt Service Ratio of not less than 1.75:1.0. . FSI shall maintain a Consolidated Tangible Net Worth of not less than $20,000,000. . The Equipment Growth Funds of which FSI is the sole general partner shall maintain aggregate unrestricted cash balances of $10,000,000. . 8. EVENTS OF DEFAULT AND REMEDIES . As to any Borrower, the occurrence of any one or more of the following shall constitute an Event of Default for each such Borrower individually: . Such Borrower, any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI fails to pay any sum due to Lenders or Agent arising under this Agreement, the Note of such Borrower or any of the other Loan Documents when and as the same shall become due and payable, whether by acceleration or otherwise and such failure shall not have been cured to Lenders' satisfaction within five (5) calendar days; or . (a) Such Borrower, any Marine Subsidiary of such Borrower, FSI, TEC, TEC AcquiSub or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower defaults in the repayment of any principal of or the payment of any interest on any Indebtedness of such Borrower, any such Marine Subsidiary, FSI, TEC, TEC AcquiSub or any such Owner Trustee, respectively, or breaches any term of any evidence of such Indebtedness or defaults in any payment in respect of any Contingent Obligation (excluding, as to FSI, any Contingent Obligation of FSI arising solely as a result of FSI's status as a general partner of any Person other than such Borrower), in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, or such Borrower, any Marine Subsidiary, FSI, TEC, TEC AcquiSub or any Owner Trustee breaches or violates any term or provision of any evidence of such Indebtedness or Contingent Obligation or of any such loan agreement, mortgage, indenture, guaranty or other agreement relating thereto if the effect of such breach is to permit acceleration under the applicable instrument, loan agreement, mortgage, indenture, guaranty or other agreement and such failure shall not have been cured within the applicable cure period, or there is an acceleration under the applicable instrument, loan agreement, mortgage, indenture, guaranty or other agreement; or (b) PLMI defaults in the repayment of any principal of or the payment of any interest on any Indebtedness or defaults in any payment in respect of any Contingent Obligation, in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, or PLMI breaches or violates any term or provision of any evidence of such Indebtedness or Contingent Obligation or of any such loan agreement, mortgage, indenture, guaranty or other agreement relating thereto with the result that such Indebtedness or Contingent Obligation becomes or is caused to become then due and payable in its entirety, whether by acceleration of otherwise; or . Such Borrower or FSI fails or neglects to perform, keep or observe any of the covenants contained in Sections 2.1.3, 5.2, 5.3, 5.9, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.13, or any of the financial covenants contained in Section 7 of this Agreement; or . Any representation or warranty made by or on behalf of such Borrower or FSI in this Agreement or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false, misleading or incomplete in any material respect when made; or . Except as provided in Sections 8.1.1 and 8.1.3, such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI fails or neglects to perform, keep or observe any covenant or provision of this Agreement or of any of the other Loan Documents or any other document or agreement executed by such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI in connection therewith and the same has not been cured to Requisite Lenders' satisfaction within thirty (30) calendar days after such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI shall become aware thereof, whether by written notice from Agent or any Lender or otherwise; or . Such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders shall (a) cease to be Solvent, (b) admit in writing its inability to pay its debts as they mature, (c) make an assignment for the benefit of creditors, (d) apply for or consent to the appointment of a receiver, liquidator, custodian or trustee for it or for a substantial part of its Properties or business, or such a receiver, liquidator, custodian or trustee otherwise shall be appointed and shall not be discharged within sixty (60) days after such appointment; or . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders or any order, judgment or decree shall be entered against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, any other Borrower (but only for so long as Obligations of such other Borrower remain or Commitments to such other Borrower are available under this Agreement), FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders decreeing its dissolution or division; provided, however, with respect to an involuntary petition in bankruptcy, such petition shall not have been dismissed within sixty (60) days after the filing of such petition; or . There shall have been a change in the assets, liabilities, financial condition, operations, affairs or prospects of such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC, PLMI or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI or any other guarantor of any of such Borrower's or FSI's obligations to Lenders which, in the reasonable determination of Requisite Lenders has, either individually or in the aggregate, had a Material Adverse Effect; or . There shall be a money judgment, writ or warrant of attachment or similar process entered or filed against such Borrower, any Marine Subsidiary of such Borrower, TEC AcquiSub, FSI, TEC or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI which (net of insurance coverage) remains unvacated, unbonded, unstayed or unpaid or undischarged for more than sixty (60) days (whether or not consecutive) or in any event later than five (5) calendar days prior to the date of any proposed sale thereunder, which, together with all such other unvacated, unbonded, unstayed, unpaid and undischarged judgments or attachments against such Borrower or any Marine Subsidiary of such Borrower exceeds in the aggregate $1,000,000; against FSI exceeds in the aggregate $500,000; against TEC or TEC AcquiSub exceeds in the aggregate $500,000; or against any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI exceeds in the aggregate $1,000,000; or against any combination of the foregoing Persons exceeds in the aggregate $1,000,000; or . Any of the Loan Documents shall for any reason other than the full, complete and indefeasible satisfaction of the Obligations thereunder cease to be, or be asserted by such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI not to be, a legal, valid and binding obligation of such Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI, respectively enforceable against such Person in accordance with its terms; or . The occurrence of any "Event of Default" as defined under the TEC AcquiSub Agreement or any other loan or security document related to the TEC AcquiSub Agreement; or . The occurrence of any "Event of Default" as defined under the AFG Agreement or any other loan or security document related to the AFG Agreement; or . FSI shall cease to be the sole general partner or the sole manager, as applicable, of such Borrower, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower; or . Requesting Borrower, TEC AcquiSub, FSI or their Subsidiaries shall cease to be the purchaser of Eligible Inventory for such Requesting Borrower. . A criminal proceeding shall have been filed in any court naming any Borrower, FSI or any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI as a defendant for which forfeiture is a potential penalty under applicable federal or state law which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect; or . Any Governmental Authority enters a decree, order or ruling ("Government Action") which will materially and adversely affect any Borrower's, any Marine Subsidiary of such Borrower's, FSI's, TEC's, TEC AcquiSub's or PLMI's financial condition, operations or ability to perform or pay such party's obligations arising under this Agreement or any instrument or agreement executed pursuant to the terms of this Agreement or which will similarly affect any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI. Such Borrower or FSI shall have thirty (30) days from the earlier of the date (a) Borrower or FSI, as applicable, first discovers it is the subject of Government Action or (b) a Lender or any agency gives notice of Government Action to take such steps as are necessary to obtain relief from the Government Action. For the purpose of this paragraph, "relief from Government Action" means to discharge or to obtain a dismissal of or release or relief from (i) any Government Action so that the affected party or parties do not incur monetary liability (A) of more than $1,000,000 in the case of any Borrower or any Marine Subsidiary of such Borrower, (B) of more than $500,000 in the case of FSI, (C) of more than $500,000 in the case of TEC, (D) of more than $250,000 in the case of TEC AcquiSub, (E) of more than $1,000,000 in the case of PLMI, or (F) of more than $1,000,000, in the aggregate, in the case of any combination of the foregoing Persons, or (ii) any disqualification of or other limitation on the operation of any Borrower, any Marine Subsidiary of such Borrower, FSI, TEC, TEC AcquiSub and PLMI, or any of them, which in the reasonable determination of Requisite Lenders may have a Material Adverse Effect; or . Any Governmental Authority, including, without limitation, the SEC, shall enter a decree, order or ruling prohibiting the Equipment Growth Funds from releasing or paying to FSI any funds in the form of management fees, profits or otherwise which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect. . An Event of Default may be waived only with the written consent of Requisite Lenders, or if expressly provided, of all Lenders. Any Event of Default so waived shall be deemed to have been cured and not to be continuing; but no such waiver shall be deemed a continuing waiver or shall extend to or affect any subsequent like default or impair any rights arising therefrom. . Upon the occurrence and continuance of any Event of Default or Potential Event of Default, Lenders shall have no further obligation to advance money or extend credit to or for the benefit of the defaulting Borrower or any other Borrower, regardless of whether such Event of Default or Potential Event of Default has occurred with respect to such Borrower or another Borrower. In addition, upon the occurrence and during the continuance of an Event of Default, except an Event of Default arising under Section 8.1.11 hereof (the remedies for which shall be limited to those set forth in the preceding paragraph), Lenders or Agent, on behalf of Lenders, may, as to such defaulting Borrower, or as to all Borrowers should such Event of Default result from the actions or inactions of FSI, at the option of Requisite Lenders, do any one or more of the following, all of which are hereby authorized by each Borrower and FSI: .1 Declare all or any of the Obligations of such Borrower under this Agreement, the Note of such Borrower, the other Loan Documents and any other instrument executed by such Borrower pursuant to the Loan Documents to be immediately due and payable, and upon such declaration such obligations so declared due and payable shall immediately become due and payable; provided that if such Event of Default is under part 8.1.6 or 8.1.7 of Section 8.1, then all of the Obligations of each Borrower shall become immediately due and payable forthwith without the requirement of any notice or other action by Lenders or Agent; .2 Terminate this Agreement as to any future liability or obligation of Agent or Lenders as to such Borrower or as to each Borrower if such Event of Default results from the actions, inactions or violation of any covenant of or by FSI (excluding, as to FSI, Events of Default under Section 8.1.2 arising in relation to Contingent Obligation of FSI arising solely as a result of FSI's status as a general partner of any Person other than such Borrower); and .3 Exercise in addition to all other rights and remedies granted hereunder, any and all rights and remedies granted under the Loan Documents or otherwise available at law or in equity. . 4 Set-Off .1 During the continuance of an Event of Default, any deposits or other sums credited by or due from any Lender to any Borrower or FSI (exclusive of deposits in accounts expressly held in the name of third parties or held in trust for benefit of third parties) may be set-off against the Obligations of such Borrower and any and all other liabilities, due or existing or hereafter arising and owing by such Borrower or FSI to Lenders. Each Lender agrees to notify promptly Borrowers and FSI and Agent of any such set-off; provided, that the failure to give such notice shall not affect the validity of any such set-off. .2 Each Lender agrees that if it shall, whether by right of set-off, banker's lien or similar remedy pursuant to Section 8.4.1, obtain any payment as a result of which the outstanding and unpaid principal portion of the Commitments of such Lender shall be less than such Lender's Pro Rata Share of the outstanding and unpaid principal portion of the aggregate of all Commitments, such Lender receiving such payment shall simultaneously purchase from each other Lender a participation in the Commitments held by such Lenders so that the outstanding and unpaid principal amount of the Commitments and participations in Commitments of such Lender shall be in the same proportion to the unpaid principal amount of the aggregate of all Commitments then outstanding as the unpaid principal amount under the Commitments of such Lender outstanding immediately prior to receipt of such payment was to the unpaid principal amount of the aggregate of all Commitments outstanding immediately prior to such Lender's receipt of such payment; provided, however, that if any such purchase shall be made pursuant to this Section 8.4.2 and the payment giving rise thereto shall thereafter be recovered, such purchase shall be rescinded to the extent of such recovery and the purchase price restored without interest. Each Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Commitment deemed to have been so purchased may exercise any and all rights of set-off, banker's lien or similar remedy with respect to any and all moneys owing by Borrower to such Lender as fully as if such Lender held a Commitment in the amount of such participation. . The enumeration of the rights and remedies of Agent and Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by Agent and Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Agent and Lenders in exercising any right, power or privilege shall operate as a waiver hereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default or Potential Event of Default. No course of dealing between any Borrower, FSI, Agent, or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the Loan Documents or to constitute a waiver of any Event of Default or Potential Event of Default. . 9. AGENT . Each of the Lenders hereby irrevocably designates and appoints First Union National Bank of North Carolina as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes First Union National Bank of North Carolina as the Agent for such Lender to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against Agent. To the extent any provision of this Agreement permits action by Agent, Agent shall, subject to the provisions of this Section 9, take such action if directed in writing to do so by Requisite Lenders. . Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. . Neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or for any failure of any Borrower to perform its obligations hereunder or thereunder. Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the Properties, books or records of any Borrower. . Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrowers), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any promissory note issued pursuant to this Agreement as the owner thereof for all purposes unless such promissory note shall have been transferred in accordance with Section 11.10 hereof. Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of Requisite Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action except for its own gross negligence or willful misconduct. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of Requisite Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders. . Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Potential Event of Default hereunder unless Agent has received notice from a Lender or any Borrower referring to this Agreement, describing such Event of Default or Potential Event of Default and stating that such notice is a "notice of default". In the event that Agent receives such a notice, Agent shall promptly give notice thereof to Lenders. The Agent shall take such action with respect to such Event of Default or Potential Event of Default as shall be reasonably directed by Requisite Lenders; provided that unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Potential Event of Default as it shall deem advisable in the best interests of Lenders. . Each Lender expressly acknowledges that neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by Agent hereinafter taken, including any review of the affairs of Borrower, shall be deemed to constitute any representation or warranty by Agent to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of each Borrower and FSI and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of each Borrower and FSI. Except for notices, reports and other documents expressly required to be furnished to the Lenders by Agent hereunder or by the other Loan Documents, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of each Borrower and FSI which may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. . Each Lender agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrowers and without limiting the obligation of Borrowers to do so), ratably according to the respective amounts of their Pro Rata Share of the Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's bad faith, gross negligence or willful misconduct. The agreements in this Section 9.7 shall survive the repayment of the Loans and all other amounts payable hereunder. . Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Borrower or FSI as though Agent were not Agent hereunder. With respect to Advances made or renewed by it, Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" and "Lenders" shall include Agent in its individual capacity. . Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Borrowers; provided, however, that the retiring Agent shall continue to serve until a successor Agent shall have been selected and approved pursuant to this Section 9.9. Upon any such notice, Agent shall have the right to appoint a successor Agent; provided, however, that if such successor shall not be a signatory to this Agreement, such appointment shall be subject to the consent of Requisite Lenders. Agent may be replaced by Requisite Lenders, with or without cause; provided, however, that any successor agent shall be subject to Borrowers' consent, which consent shall not be unreasonably withheld. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. . 10. EXPENSES AND INDEMNITIES . Borrowers and Lenders agree that, as the following costs, expenses, charges and other disbursements benefit each Borrower and as such costs, expenses, charges and other disbursements cannot easily be ratably allocated to the account of any Borrower or Borrowers, each Borrower, unless otherwise specified in this Section 10.1, shall pay, as its Obligation, promptly on demand, and in any event within thirty (30) days of the invoice date therefor, (a) all costs, expenses, charges and other disbursements (including, without limitation, all reasonable attorneys' fees and allocated expenses of outside counsel and in-house legal staff) incurred by or on behalf of Agent or any Lender in connection with the preparation of the Loan Documents and all amendments and modifications thereof, extensions thereto or substitutions therefor, and all costs, expenses, charges or other disbursements incurred by or on behalf of Agent or any Lender (including, without limitation all reasonable attorney's fees and allocated expenses of outside counsel and in-house legal staff) in connection with the furnishing of opinions of counsel (including, without limitation, any opinions requested by Lenders as to any legal matters arising hereunder) and of Borrowers' performance of and compliance with all agreements and conditions contained herein or in any of the other Loan Documents on its part to be performed or complied with; (b) all other costs, expenses, charges and other disbursements incurred by or on behalf of Agent or any Lender in connection with the negotiation, preparation, execution, administration, continuation and enforcement of the Loan Documents, and the making of the Loans hereunder; (c) all costs, expenses, charges and other disbursements (including, without limitation, all reasonable attorney's fees and allocated expenses of outside counsel and in-house legal staff) incurred by or on behalf of Agent or any Lender in connection with the assignment or attempted assignment to any other Person of all or any portion of any Lender's interest under this Agreement pursuant to Section 11.10; and (d) regardless of the existence of an Event of Default or Potential Event of Default, all legal, appraisal, audit, accounting, consulting or other fees, costs, expenses, charges or other disbursements incurred by or on behalf of Agent or any Lender in connection with any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lenders, Agent, any Borrower or any other Person) seeking to enforce any Obligations of, or collecting any payments due from, any Borrower under this Agreement and the Notes, all of which amounts shall be deemed to be part of the Obligations; provided, however, that Lenders shall be entitled to collect the full amount of such costs, expenses, charges and other disbursements only once. Notwithstanding anything to the contrary contained in this Section 10.1, so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, all appraisals of the Eligible Inventory shall be at the expense of Lenders. If an Event of Default or Potential Event of Default shall have occurred and be continuing, such appraisals shall be at the expense of the Requesting Borrower. . Whether or not the transactions contemplated hereby shall be consummated: . Each Borrower, as to itself, and FSI, jointly and severally as to itself and each Borrower, shall pay, indemnify, and hold each Lender, Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable attorney's fees and the allocated cost of in-house counsel) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Documents, or the transactions contemplated hereby and thereby, and with respect to any investigation, litigation or proceeding (including any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of debtors or any appellate proceeding) related to this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that Borrowers and FSI shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. . .2 Environmental Indemnity (a) Each Borrower, to the extent of its pro rata share of ownership of Property involved in any investigation, litigation or proceeding, as set forth below, and FSI hereby jointly and severally agree to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable attorneys' fees and the allocated cost of in-house counsel and of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim arising out of or related to any Property owned, leased or operated by such Borrower. No action taken by legal counsel chosen by Agent or any Lender in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall (except for actions which constitute fraud, willful misconduct, gross negligence or material violations of law) vitiate or in any way impair Borrowers' or FSI's obligation and duty hereunder to indemnify and hold harmless Agent and each Lender. Agent and all Lenders agree to use reasonable efforts to cooperate with Borrowers respecting the defense of any matter indemnified hereunder, except insofar as and to the extent that their respective interests may be adverse to Borrowers' or FSI's in Agent's or such Lender's sole discretion. (b) In no event shall any site visit, observation, or testing by Agent or any Lender be deemed a representation or warranty that Hazardous Materials are or are not present in, on, or under the site, or that there has been or shall be compliance with any Environmental Law. Neither Borrowers, FSI nor any other Person is entitled to rely on any site visit, observation, or testing by Agent or any Lender. Except as otherwise provided by law, neither Agent nor any Lender owes any duty of care to protect Borrowers, or any one of them, or any other Person against, or to inform Borrowers or any other party of, any Hazardous Materials or any other adverse condition affecting any site or Property. Neither Agent nor any Lender shall be obligated to disclose to Borrowers, FSI or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by Agent or any Lender. . The obligations in this Section 10.2 shall survive payment of all other Obligations. At the election of any Indemnified Person, Borrowers shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's reasonable discretion, at the sole cost and expense of Borrowers, which cost and expense shall be allocated to Borrowers according to such Borrower's pro rata share of ownership of any Property in relation to which such obligations arise. All amounts owing under this Section 10.2 shall be paid within thirty (30) days after written demand. . 11. MISCELLANEOUS . All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of the Loan Documents and the making of the Loans hereunder. . No failure or delay on the part of Agent or any Lender in the exercise of any power, right or privilege under this Agreement, the Note or any of the other Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. . Except as otherwise provided in this Agreement, any notice or other communication herein required or permitted to be given shall be in writing and may be delivered in person, with receipt acknowledged, or sent by telex, facsimile, telecopy, computer transmission or by United States mail, registered or certified, return receipt requested, or by Federal Express or other nationally recognized overnight courier service, postage prepaid and confirmation of receipt requested, and addressed as set forth on the signature pages to this Agreement or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which the same shall have been personally delivered, with receipt acknowledged, or sent by telex, facsimile, telecopy or computer transmission (with appropriate answerback), three (3) Business Days after the same shall have been deposited in the United States mail or on the next succeeding Business Day if the same has been sent by Federal Express or other nationally recognized overnight courier service. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. . Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. . Whenever possible, each provision of this Agreement, the Note and each of the other Loan Documents shall be interpreted in such a manner as to be valid, legal and enforceable under the applicable law of any jurisdiction. Without limiting the generality of the foregoing sentence, in case any provision of this Agreement, the Note or any of the other Loan Documents shall be invalid, illegal or unenforceable under the applicable law of any jurisdiction, the validity, legality and enforceability of the remaining provisions, or of such provision in any other jurisdiction, shall not in any way be affected or impaired thereby. . 6 Entire Agreement; Construction; Amendments And Waivers .1 This Agreement, the Notes and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement among Borrowers, Lenders and Agent and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. .2 This Agreement is the result of negotiations between and has been reviewed by each Borrower, FSI, and each Lender executing this Agreement as of the Closing Date and Agent and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrowers, FSI, Lenders or Agent. Borrowers, FSI, Lenders and Agent agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrowers', FSI's any Lender's or Agent's actual intentions. .3 No amendment, modification, discharge or waiver of or consent to any departure by any Borrower or FSI from, any provision in this Agreement or any of the other Loan Documents relating to (a) the definition of "Borrowing Base" or "Requisite Lenders," (b) any increase of the amount of any Commitment, (c) any reduction of principal, interest or fees payable hereunder, (d) any postponement of any date fixed for any payment or prepayment of principal or interest hereunder or (e) this Section 11.6.3 shall be effective without the written consent of all Lenders. Any and all other amendments, modifications, discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Requisite Lenders. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower or FSI in any case shall entitle any Borrower or FSI to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent effected in accordance with this Section 11.6 shall be binding upon each Lender then party hereto and each subsequent Lender, on Borrower, and on FSI. . All covenants, agreements, representations and warranties made herein by each Borrower or FSI shall, notwithstanding any investigation by Lenders or Agent be deemed to be material to and to have been relied upon by Lenders. . Lenders shall be under no obligation to marshall any assets in favor of any Borrower or any other person or against or in payment of any or all of the Obligations. To the extent that any Borrower makes a payment or payments to Lenders or Agent, or Lenders or Agent, on behalf of Lenders, enforce their or its Liens or exercises their or its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under Title 11 of the United States Code or under any other similar federal or state law, common law or equitable cause, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred. . All sums payable by Borrowers or FSI pursuant to this Agreement, the Note or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. . 10 Binding Effect, Assignment .1 This Agreement, the Note and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto and thereto and their respective successors and assigns, except that no Borrower nor FSI may assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of each Lender. Each Lender shall (a) have the right in accordance with this Section 11.10 to sell and assign to any Eligible Assignee all or any portion of its interest (provided that any such partial assignment shall not be for a principal amount of less than Five Million Dollars ($5,000,000)) under this Agreement, the Notes and the other Loan Documents, together with a ratable interest in the AFG Agreement and the TEC AcquiSub Agreement and the related Notes and other Loan Documents (as separately described and defined in those agreements), subject to the prior written consent of the affected Borrower, which consent shall not be unreasonably withheld, and (b) to grant any participation or other interest herein or therein, except that each potential participant to which a Lender intends to grant any rights under Sections 2.9, 2.10, 5.1 or 10.2 shall be subject to the prior written consent of the affected Borrower, which consent shall not be unreasonably withheld; provided, however, that no such sale, assignment or participation grant shall result in requiring registration under the Securities Act of 1933, as amended, or qualification under any state securities law. .2 Subject to the limitations of this Section 11.10.2, each Lender may sell and assign, from time to time, all or any portion of its Pro Rata Share of the Commitments to any of its Affiliates or, with the approval of the affected Borrower and FSI (which approval shall not be unreasonably withheld), to any other financial institution acceptable to Agent, subject to the assumption by such assignee of the share of the Commitments so assigned. The assignment to such Affiliate or other financial institution shall be evidenced by an Assignment and Assumption in the form of Exhibit I ("Assignment and Acceptance") executed by the assignor Lender (hereinafter from time to time referred to as the "Assignor Lender") and such Affiliate or other financial institution (which, upon such assignment shall become a Lender hereunder (hereinafter from time to time referred to as the "Assignee Lender")). The Assignment and Assumption need not include any of the economic or financial terms upon which such Assignee Lender receives the assignment from the Assignor Lender, and such terms need not be disclosed to or approved by such Borrower or FSI; provided only that such terms do not diminish the obligations undertaken by such Assignee Lender in the Assignment and Assumption or increase the obligations of Borrowers or FSI under this Agreement. Upon execution of such Assignment and Assumption, (a) the definition of "Commitments" in Section 1 hereof and the Pro Rata Shares set forth therein shall be deemed to be amended to reflect each Lender's share of the Commitments, giving effect to the assignment and (b) the Assignee Lender shall, from the effective date of the instrument of assignment and assumption, be subject to all of the obligations, and entitled to all of the rights, of a Lender hereunder, except as may be expressly provided to the contrary in the Assignment and Assumption. To the extent the obligations hereunder of the Assignor Lender are assumed by the Assignee Lender, the Assignor Lender shall be relieved of such obligations. Upon the assignment of any interest by any Assignor Lender pursuant to this Section 11.10.2, such Assignor Lender agrees to supplement Schedule 1.1 to show the date of such assignment, the Assignor Lender, the Assignee Lender, the Assignee Lender's address for notice purposes and the amount of the Commitments so assigned. .3 Subject to the limitations of this Section 11.10.3, any Lender may also grant, from time to time, participation interests in the interests of such Lender under this Agreement, the Notes and the other Loan Documents to any other financial institution without notice to, or approval of, any Borrower or FSI. The grant of such a participation interest shall be on such terms as the granting Lender determines are appropriate, provided only that (a) the holder of such participation interest shall not have any of the rights of a Lender under this Agreement except, if the participation agreement expressly provides, rights under Sections 2.9, 2.10, 5.1 and 10.2, and (b) the consent of the holder of such a participation interest shall not be required for amendments or waivers of provisions of the Loan Documents other than, if the participation agreement expressly provides, those which (i) increase the monetary amount of any Commitment, (ii) decrease any fee or any other monetary amount payable to Lenders, or (iii) extend the date upon which any monetary amount is payable to Lenders. . This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto or thereto, delivery of each such counterpart to Agent. . Borrowers and FSI recognize that, in the event any Borrower or FSI fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, the Notes or any of the other Loan Agreements, any remedy at law may prove to be inadequate relief to Lenders or Agent; therefore, Borrowers and FSI agree that Lenders or Agent, if Lenders or Agents so request, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. . EACH BORROWER AND FSI HEREBY AGREE THAT EACH SHALL GIVE PROMPT WRITTEN NOTICE OF ANY CLAIM OR CAUSE OF ACTION IT BELIEVES IT HAS, OR MAY SEEK TO ASSERT OR ALLEGE AGAINST ANY LENDER OR AGENT, WHETHER SUCH CLAIM IS BASED IN LAW OR EQUITY, ARISING UNDER OR RELATED TO THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR ANY ACT OR OMISSION TO ACT BY ANY LENDER OR AGENT WITH RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH PROMPT NOTICE TO AGENT WITH REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY. . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, EACH BORROWER AND FSI HEREBY AGREE THAT EACH SHALL NOT SEEK FROM LENDERS OR AGENT, UNDER ANY THEORY OF LIABILITY, INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY PUNITIVE DAMAGES. . The relationship between Borrowers and FSI, on the one hand, and Lenders and Agent, on the other, is, and at all time shall remain solely that of a borrower and lenders. Neither Lenders nor Agent shall under any circumstances be construed to be partners or joint venturers of Borrowers or FSI or any of their Affiliates; nor shall Lenders nor Agent under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrowers or FSI or any of their Affiliates, or to owe any fiduciary duty to any Borrower or any of its Affiliates. Lenders and Agent do not undertake or assume any responsibility or duty to Borrowers or FSI or any of their Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrowers or any of their Affiliates of any matter in connection with its or their Property, any collateral held by Agent or any Lender or the operations of Borrowers or FSI or any of their Affiliates. Borrowers and each of their Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by any Lender or Agent in connection with such matters is solely for the protection of Lenders and Agent and neither Borrowers nor any Affiliate is entitled to rely thereon. . Each Borrower and FSI agrees that its liability hereunder shall be the immediate, direct, and primary obligation of such Borrower or FSI, as the case may be, and shall not be contingent upon the Agent's or any Lender's exercise or enforcement of any remedy it may have against any other Borrower, FSI or any other person, or against any collateral or any security for the Obligations. Without limiting the generality of the foregoing, the Obligations shall remain in full force and effect without regard to and shall not be impaired or affected by, nor shall such Borrower or FSI be exonerated or discharged by, any of the following events: .1 Insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, death, liquidation, winding up or dissolution of any Borrower or any guarantor of the Obligations of any Borrower; .2 Any limitation, discharge, or cessation of the liability of any other Borrower or any guarantor for the Obligations of such other Borrower due to any statute, regulation or rule of law, or any invalidity or unenforceability in whole or in part of the documents evidencing the Obligations of such other Borrower or any guaranty of the Obligations of such other Borrower; .3 Any merger, acquisition, consolidation or change in structure of any Borrower or any guarantor of the Obligations of any Borrower or any sale, lease, transfer or other disposition of any or all of the assets, shares or interests in or of any Borrower or any guarantor of the Obligations of any Borrower; .4 Any assignment or other transfer, in whole or in part, of any Lender's interests in and rights under this Agreement or any of the other Loan Documents, including, without limitation, any assignment or other transfer, in whole or in part, of Banks' interests in and to any collateral; .5 Any claim, defense, counterclaim or setoff, other than that of prior performance, that any Borrower or any guarantor of the Obligations of any Borrower may have or assert, including, but not limited to, any defense of incapacity or lack of corporate or other authority to execute any documents relating to the Obligations of any Borrower or any collateral; .6 Agent's or any Lender's amendment, modification, renewal, extension, cancellation or surrender of any agreement, document or instrument relating to this Agreement, the Obligations of any Borrower or any collateral, or any exchange, release, or waiver of any collateral; .7 Agent's or any Lender's exercise or nonexercise of any power, right or remedy with respect to the Obligations of any Borrower or any collateral, including, but not limited to, the compromise, release, settlement or waiver with or of any Borrower or any other person; .8 Agent's or any Lender's vote, claim, distribution, election, acceptance, action or inaction in any bankruptcy case related to the Obligations of any Borrower or any collateral; and .9 Any impairment or invalidity of any collateral or any failure to perfect any of Agent's liens thereon. . Each Borrower and FSI hereby expressly waives (a) diligence, presentment, demand for payment and protest affecting any other Borrower's or FSI's liability under the Loan Documents; (b) discharge due to any disability of any Borrower or FSI; (c) any defenses of any other Borrower or FSI to obligations under the Loan Documents not arising under the express terms of the Loan Documents or from a material breach thereof by Agent or any Lender which under applicable law has the effect of discharging any other Borrower from the Obligations of any Borrower as to which this Agreement is sought to be enforced; (d) the benefit of any act or omission by Agent or any Lender which directly or indirectly results in or aids the discharge of any other Borrower from any of the Obligations of any such Borrower by operation of law or otherwise; (e) all notices whatsoever, including, without limitation, notice of acceptance of the incurring of the Obligations of any Borrower; (f) any right it may have to require Agent or any Lender to disclose to it any information that Agent or Lenders may now or hereafter acquire concerning the financial condition or any circumstances that bear on the risk of nonpayment by any other Borrower, including the release of such other Borrower from its Obligations hereunder; and (g) any requirement that Agent and Lenders exhaust any right, power or remedy or proceed against any other Borrower or any other security for, or any guarantor of, or any other party liable for, any of the Obligations of any Borrower, or any portion thereof (including without limitation any requirements set forth in Section 26-7 of the North Carolina General Statutes). Each Borrower specifically agrees that it shall not be necessary or required, and Borrowers shall not be entitled to require, that Agent or any Lender (i) file suit or proceed to assert or obtain a claim for personal judgment against any other Borrower for all or any part of the Obligations of any Borrower; (ii) make any effort at collection or enforcement of all or any part of the Obligations of any Borrower from any Borrower; (iii) foreclose against or seek to realize upon any collateral or any other security now or hereafter existing for all or any part of the Obligations of any Borrower; (iv) file suit or proceed to obtain or assert a claim for personal judgment against any Borrower or any guarantor or other party liable for all or any part of the Obligations of any Borrower; (v) exercise or assert any other right or remedy to which Agent or any Lender is or may be entitled in connection with the Obligations of any Borrower or any security or guaranty relating thereto to assert; or (vi) file any claim against assets of one Borrower before or as a condition of enforcing the liability of any other Borrower under this Agreement or the Notes. . Except as otherwise expressly provided in any of the Loan Documents, in all respects, including all matters of construction, validity and performance, this Agreement and the Obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. . Each Borrower and FSI hereby irrevocably consent to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Note and the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. Each Borrower hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by Agent or any Lender in connection with this Agreement or the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations, on behalf of itself or its Property, in the manner specified in Section 11.3. Nothing in this Section 11.19 shall affect the right of the Agent or any Lender to serve legal process in any other manner permitted by applicable law or affect the right of Agent or any Lender to bring any action or proceeding against any Borrower or its properties in the courts of any other jurisdictions. . This Agreement is not intended to be, and shall not be construed to create, a novation or accord and satisfaction, and, except as otherwise provided herein, the Growth Fund Agreement, as executed and delivered on September 27, 1995, shall remain in full force and effect. Without limiting the generality of the foregoing, Section 10.2 of the Growth Fund Agreement shall survive the effectiveness of the Agreement and shall remain enforceable against both the Borrowers and EGF II. . TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND FSI, BY EXECUTION HEREOF, AND THE AGENT AND EACH LENDER, BY ACCEPTANCE HEREOF, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY WITH RESPECT HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND EACH LENDER TO ACCEPT THIS AGREEMENT AND THE NOTES EXECUTED AND DELIVERED BY EACH BORROWER PURSUANT TO THIS AGREEMENT. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWER PLM EQUIPMENT GROWTH FUND III BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND IV BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND V BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------- J. Michael Allgood Chief Financial Officer PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By /s/ J. Michael Allgood ------------------------------ J. Michael Allgood Chief Financial Officer Notice to any Borrower to be sent to: [Insert name of Borrower] c/o PLM Financial Services, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: J. Michael Allgood Vice President of Finance and Chief Financial Officer Telephone: 415/974-1399 Telecopy: 415/882-0860 With a copy to: TEC AcquiSub, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: General Counsel Telephone: 415/896-1138 Facsimile: 415/882-0860 FSI PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood ----------------------------------- J. Michael Allgood Chief Financial Officer Notice to be sent to: PLM Financial Services, Inc. One Market Plaza Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: J. Michael Allgood Vice President of Finance and Chief Financial Officer Telephone: 415/974-1399 Telecopy: 415/882-0860 AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ----------------------------------- Bill A. Shirley Vice President Notice to be sent to: First Union National Bank of North Carolina One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson, Director Telephone: 704/383-5164 Facsimile: 704/374-4092 LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ----------------------------------- Bill A. Shirley Vice President Notice to be sent to: First Union National Bank of North Carolina One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson, Director Telephone: 704/383-5164 Facsimile: 704/374-4092 The undersigned acknowledges and agrees to Section 11.20 of this Agreement. PLM EQUIPMENT GROWTH FUND II BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood ----------------------------------- J. Michael Allgood Chief Financial Officer SCHEDULE A (COMMITMENTS) Pro Rate Lender Commitment Share First Union National Bank $35,000,000 35/35 x 100% of North Carolina EX-10 3 AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT (Growth Funds) THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT dated as of November 5, 1996 (the "Amendment"), is entered into by and among PLM EQUIPMENT GROWTH FUND IV, a California limited partnership ("EGF IV"), PLM EQUIPMENT GROWTH FUND V, a California limited partnership ("EGF V"), PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company ("Income Fund I") (EGF IV, EGF V, EGF VI, EGF VII and Income Fund I each individually being a "Borrower" and, collectively, the "Borrowers"), and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general partner, in the case of EGF IV, EGF V, EGF VI and EGF VII, and the sole manager, in the case of Income Fund I ("FSI"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB"), FLEET BANK, N.A. ("Fleet") and each other financial institution which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one financial institution individually, a "Lender," and collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Credit Agreement. RECITAL in respect of pledA.Annual Borrowers, PLM Equipment Growth Fund III, a California limited partnership ("EGF III"), Lenders and Agent have entered into that certain Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996 (the "Credit Agreement"), by and among Borrowers, EGF III, FUNB (as the sole Lender party thereto), and Agent pursuant to which Lenders have agreed to extend and make available to Borrowers certain advances of money. B. Borrowers desire that Lenders and Agent amend the Credit Agreement to increase the aggregate amount of the Commitments by $15,000,000, to extend the Commitment Termination Date, to remove EGF III as a borrower under the revolving credit facility, to add PLM International, Inc., a Delaware corporation ("PLMI"), as a guarantor of FSI's Obligations under the Credit Agreement and FSI's Guaranty Obligations under its Guaranty, as more fully set forth herein. C. FUNB is currently the sole Lender under the Credit Agreement. On the terms and conditions set forth below, Fleet desires to become a Lender under the Credit Agreement and to make Loans to Borrowers with an aggregate Commitment of $15,000,000. D. Subject to the representations and warranties of Borrowers and upon the terms and conditions set forth in this Amendment, Lenders and Agent are willing to so amend the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows: 2. AMENDMENTS. The Credit Agreement is hereby amended as follows: 1 Section 1.1 Defined Terms (Commitment). The definition of "Commitment" set forth in Section 1.1 of the Credit Agreement is amended by deleting Schedule A to the Credit Agreement entitled "Commitments" referred to in such definition in its entirety and replacing such Schedule A with the Schedule A attached to this Amendment, and the respective Commitment of each Lender in effect from and after the effective date of this Amendment shall be equal to the amount set forth opposite such Lender's name in Schedule A. 1.2 Section 1.1 Defined Terms (Commitment Termination Date). The definition of "Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Commitment Termination Date" means October 3, 1997. 2 Section 1.1 Defined Terms (Guaranty). The definition of "Guaranty" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Guaranty" means, collectively, that certain Guaranty dated as of June 30, 1993, executed by FSI in favor of Lenders and Agent and that certain Guaranty dated as of November 5, 1996, executed by PLMI in favor of Lenders and Agent. 3 Section 1.1 Defined Terms (Responsible Officer). The definition of "Responsible Officer" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Responsible Officer" means for (i) FSI, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI having authority to request Advances or perform other duties required hereunder, and (ii) Borrowers, any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of FSI as the sole general partner of EGF IV, EGF V, EGF VI or EGF VII, as the case may be, or sole manager of Income Fund I, in each case having authority to request Advances or perform other duties required hereunder. 4 Section 1.1 Defined Terms (Requisite Lenders). The definition of "Requisite Lenders" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Requisite Lenders" means any combination of Lenders whose combined Pro Rata Share (and voting interest with respect thereto) of all amounts outstanding under this Agreement, or, in the event there are no amounts outstanding, the Commitments, is greater than sixty-six and two-thirds percent (66 2/3%) of all such amounts outstanding or the total Commitments, as the case may be; provided, however, that in the event there are only two (2) Lenders, Requisite Lenders means both Lenders. 5 Section 2.2.1 Revolving Facility. The portion of Section 2.1.1 of the Credit Agreement preceding subsection (a) is deleted and replaced with the following: 2.1.1 Revolving Facility. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers set forth herein, Lenders hereby agree to make Advances (as defined below) of immediately available funds to Borrowers, on a revolving basis, from the Closing Date until the Business Day immediately preceding the commitment Termination Date, in the aggregate principal amount outstanding at any time not to exceed the lesser of (a) the total Commitments for the Facility less the aggregate principal amount then outstanding under the TEC AcquiSub Agreement and under the AFG Agreement or (b) for any one Borrower, its respective Borrowing Base or (c) $35,000,000 (such lesser amount being the "Maximum Availability"), as more fully set forth in this Section 2.1.1. The obligation of Borrowers to repay the Advances made to any Borrower shall be several but not joint. 6 Section 2.1.1(a)(i) Facility Commitments. Section 2.1.1(a)(i) of the Credit Agreement is deleted and replaced with the following: (i) On the Funding Date requested by any Borrower (the "Requesting Borrower"), after such Borrower shall have satisfied all applicable conditions precedent set forth in Section 3, each Lender shall advance immediately available funds to Agent (each such advance being an "Advance") evidencing such Lender's Pro Rata Share of a loan ("Loan"). Agent shall immediately advance such immediately available funds to such Borrower at the Designated Deposit Account (or such other deposit account at FUNB or such other financial institution as to which such Borrower and Agent shall agree at least three (3) Business Days prior to the requested Funding Date) on the Funding Date with respect to such Loan. The Requesting Borrower shall pay interest accrued on the Loan at the rates and in the manner set forth in Section 2.1.1(b). Subject to the terms and conditions of this Agreement, the unpaid principal amount of each Loan and all unpaid interest accrued thereon, together with all other fees, expenses, costs and other sums chargeable to the Requesting Borrower incurred in connection therewith shall be due and payable no later than the Maturity Date of such Loan. Each Loan advanced hereunder by each Lender shall be evidenced by the Requesting Borrower's revolving promissory note substantially in the form of Exhibit A (each a "Note"). 7 Section 3.3.1 General Partner or Manager. Section 3.3.1 of the Credit Agreement is deleted and replaced with the following: 3.3.1 General Partner Or Manager. FSI shall have ceased to be the sole general partner of any of EGF IV, EGF V, EGF VI or EGF VII or the sole manager of Income Fund I, whether due to the voluntary or involuntary withdrawal, substitution, removal or transfer of FSI from or of all or any portion of FSI's general partnership interest or capital contribution in such Borrower. 8 Section 5 Annual Statements. Section 5.1.2 of the Credit Agreement is deleted and replaced with the following: Annual Statements. As ( in the case of such consolidated financial statements, accompanied by a report thereon of an independent public accountant of recognized national standing selected by each Borrower and PLMI and satisfactory to Agent, which report shall contain an opinion which is not qualified in any manner or which otherwise is satisfactory to Requisite Lenders, in their sole discretion, and (B) in the case of such consolidating financial statements, certified by the Chief Financial Officer or Corporate Controller of PLMI; 9 Section 6 Borrowers' and FSI's Negative Covenants. Section 6 of the Credit Agreement is deleted and replaced with the following: SECTION 6. BORROWERS' AND FSI'S NEGATIVE COVENANTS. So long as any of the Commitments shall be available and until full, complete and indefeasible payment and performance of the Obligations, unless Requisite Lenders shall otherwise consent in writing, each Borrower, severally, as to itself, but not jointly as to the other Borrowers and FSI, and FSI, jointly and severally with each Borrower as to such Borrower and to itself, covenants and agrees as follows: 6.1 Liens; Negative Pledges; And Encumbrances. Each Borrower shall not create, incur, assume or suffer to exist, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Lien of any nature upon or with respect to any of their respective Property, whether now or hereafter owned, leased or acquired, except (collectively, the "Permitted Liens"): 6.1.1 Existing Liens disclosed on Schedule 6.1, provided that the obligations secured thereby are not increased; 6.1.2 Liens for Charges if payment shall not at the time be required to be made in accordance with Section 5.4; (a) in respect of pledg( under workers' compensation laws, unemployment insurance and other types of social security or similar legislation, (b) in connection with surety, appeal and similar bonds incidental to the conduct of litigation, (c) in connection with bid, performance or similar bonds and mechanics', laborers' and materialmen's and similar statutory Liens not then delinquent, or (d) incidental to the conduct of the business of such Borrower, any Marine Subsidiary of such Borrower, or any Owner Trustee or any of FSI's Subsidiaries and which were not incurred in connection with the borrowing of money or the obtaining of advances or credit; provided that the Liens permitted by this Section 6.1.3 do not in the aggregate materially detract from the value of any assets or property of or materially impair the use thereof in the operation of the business of such Borrower, any Owner Trustee or any of FSI's Subsidiaries; and provided further that the adverse determination of any claim or liability, contingent or otherwise, secured by any of such Liens would not either individually or in the aggregate, with reasonable likelihood, have a Material Adverse Effect; 6.1.4 Permitted Rights of Others; and 6.1.5 Liens granted in favor of Agent on behalf of Lenders under the TEC AcquiSub Agreement and the security agreement and other loan documents delivered by TEC AcquiSub pursuant thereto. 6.2 Acquisitions. Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, and FSI shall not permit TEC and TEC AcquiSub to, make any Acquisition or enter into any agreement to make any Acquisition, other than with respect to the purchase of Equipment in the ordinary course of business or the formation or acquisition of a Marine Subsidiary. 6.3 Limitations On Indebtedness. Each Borrower shall not create, incur, assume or suffer to exist, nor permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower to create, incur, assume or suffer to exist, and FSI shall not permit any of its Subsidiaries (including, without limitation, TEC and TEC AcquiSub) to create, incur, assume or suffer to exist, any Indebtedness or Contingent Obligation; provided, however, that this Section 6.3 shall not be deemed to prohibit: 6.3.1 The Obligations to Lenders and Agent arising hereunder and under the other Loan Documents; 6.3.2 Existing Indebtedness disclosed on Schedule 6.3(a) and anticipated Indebtedness disclosed on Schedule 6.3(b); 6.3.3 Indebtedness of any Subsidiary of FSI, provided that such Indebtedness is non-recourse as to FSI, TEC and TEC AcquiSub; 6.3.4 The acquisition of goods, supplies or merchandise on normal trade credit; 6.3.5 The endorsement of negotiable instruments received in the ordinary course of any Borrower's business as presently conducted; 6.3.6 Indebtedness incurred in respect of the deferred purchase price for an item of Equipment, but only to the extent that the incurrence of such Indebtedness is customary in the industry with respect to the purchase of this type of equipment (provided that such Indebtedness shall only be permitted under this Section 6.3.6 if, taking into account the incurrence of such Indebtedness, the Borrower incurring such Indebtedness shall not be in violation of any of the financial covenants set forth in Section 7 if measured as of the date of incurrence as determined by GAAP); and 6.3.7 Any Guaranty Obligations of any Borrower in the form of performance guaranties undertaken on behalf of a Marine Subsidiary of such Borrower in favor of the charter party in connection with the leasing of a marine vessel on a time charter; 6.4 Use Of Proceeds. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, use the proceeds of any Loan except for the purpose set forth in Recital C, above, and shall not, and shall not permit any such Marine Subsidiary or such Owner Trustee to, use the proceeds to repay any loans or advances made by any other Person. 6.5 Disposition Of Assets. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower or any Owner Trustee holding record title to any Eligible Inventory for the beneficial interest of such Borrower or FSI to, sell, assign or otherwise dispose of, any of its or their respective assets, except for full, fair and reasonable consideration, or enter into any sale and leaseback agreement covering any of its or their respective fixed or capital assets. 6.6 Restriction On Fundamental Changes. Each Borrower and FSI shall not, and shall not permit any Marine Subsidiary of such Borrower to, enter into any transaction of merger, consolidation or recapitalization, directly or indirectly, whether by operation of law or otherwise, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, Property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, Property or assets of, or stock or other evidence of beneficial ownership of, any Person, except sales (a) of Equipment in the ordinary course of business (for the purposes of this Section 6.6, with respect to any Borrower and any Marine Subsidiary of such Borrower, ordinary course of business shall refer to the business of the Equipment Growth Funds and all Marine Subsidiaries, collectively) and (b) any Subsidiary of FSI (other than TEC AcquiSub) may be merged or consolidated with or into FSI or any wholly-owned Subsidiary of FSI, or be liquidated, wound up or dissolved, or all or substantially all of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to, FSI or any wholly-owned Subsidiary of FSI; provided that, in the case of such a merger or consolidation, FSI or such wholly-owned Subsidiary shall be the continuing or surviving corporation. 6.7 Transactions With Affiliates. Each Borrower shall not, and shall not permit any Marine Subsidiary of such Borrower to, directly or indirectly, enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates on terms that are less favorable to such Borrower or such Marine Subsidiary than those that might be obtained at the time from Persons who are not such Affiliates. 6.8 Maintenance Of Business. Each Borrower shall not, and FSI shall not permit any of its existing Subsidiaries to, engage in any business materially different than the business currently engaged in by such Person. 6.9 No Distributions. Each Borrower shall not make, pay or set apart any funds for the payment of distribution to its partners or members if such distribution would cause or result in an Event of Default or Potential Event of Default. 6.10 Events Of Default. Each Borrower and FSI shall not take or omit to take any action, which act or omission would, with the lapse of time, or otherwise constitute (a) a default, event of default or Event of Default under any of the Loan Documents or (b) a default or an event of default under any other material agreement, contract, lease, license, mortgage, deed of trust or instrument to which either is a party or by which either or any of their Properties or assets is bound, which default or event of default would, with reasonable likelihood, have a Material Adverse Effect. 6.11 ERISA. If any Borrower or FSI or any of their ERISA Affiliates incurs any obligation to contribute to any Pension Plan, then such Borrower or FSI, as the case may be, shall not (a) terminate, or permit such ERISA Affiliate to terminate, any Pension Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect or (b) make or permit such ERISA Affiliate to make a complete or partial withdrawal (within the meaning of Section 4201 of ERISA) from any Multiemployer Plan so as to result in any liability that would, with reasonable likelihood, have a Material Adverse Effect. 6.12 No Use Of Any Lender's Name. Each Borrower and FSI shall not use or authorize others to use any Lender's name or marks in any publication or medium, including, without limitation, any prospectus, without such Lender's advance written authorization. 6.13 Certain Accounting Changes. Each Borrower shall not change its fiscal year end from December 31, nor make any change in its accounting treatment and reporting practices except as permitted by GAAP; provided, however, that should any Borrower change its accounting treatment or reporting practices in a way that would cause a change in the calculation, or in the results of a calculation, of any of the financial covenants set forth in Section 7, below, then such Borrower shall continue to calculate such covenants as if such accounting treatment or reporting practice had not been changed unless otherwise agreed to by Requisite Lenders. 6.14 Amendments Of Limited Partnership Or Operating Agreements. Each Borrower shall not, shall not cause to occur and shall not permit any amendment, modification or supplement of or to any of the terms or provisions of such Borrower's Limited Partnership Agreement or, in the case of Income Fund I, its Operating Agreement, which amendment, modification or supplement would affect, limit or otherwise impair such Borrower's ability to pay the Obligations or perform its obligations under this Agreement or any of the other Loan Documents. 11 Note. The forms of Note set forth as Exhibits A-1 through A-6 of the Credit Agreement are deleted and replaced with Exhibit A attached hereto. 12 Borrowing Base Certificate. The Borrowing Base Certificate set forth as Exhibit B of the Credit Agreement is deleted and replaced with Exhibit B attached hereto. 3. LIMITATIONS ON AMENDMENTS. 1 The amendments set forth in Section 1, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with any Loan Document. 2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived or amended, are hereby ratified and confirmed and shall remain in full force and effect. 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and Agent to enter into this Amendment, each Borrower represents and warrants to each Lender and Agent as follows: (a) Immediately after giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Default or Event of Default, or event which constitutes a Potential Event of Default, has occurred and is continuing; (b) Each Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party; (c) The articles of incorporation, bylaws and other organizational documents of each Borrower delivered to each Lender as a condition precedent to the effectiveness of the Credit Agreement are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; (d) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of such Borrower; (e) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting such Borrower, (ii) the articles of incorporation, bylaws, or other organizational documents of such Borrower, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on such Borrower, or (iv) any contractual restriction binding on or affecting such Borrower; (f) The execution and delivery by each Borrower of this Amendment and the performance by each Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on such Borrower, except as already has been obtained or made; and (g) This Amendment has been duly executed and delivered by each Borrower and is the binding Obligation of each Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. 5. REAFFIRMATION. Each Borrower hereby reaffirms its Obligations under each Loan Document to which it is a party. 6. EFFECTIVENESS. This Amendment shall become effective upon the last to occur of: (a) The execution and delivery of this Amendment, whether the same or different copies, by Borrowers, Lenders and Agent. (b) The execution and delivery of the Acknowledgement of Amendment and Reaffirmation of Guaranty attached to this Amendment by FSI. (c) Receipt by Agent, in form and substance satisfactory to Lenders, of a Guaranty of FSI's Obligations under the Credit Agreement and FSI's Guaranty Obligations under its Guaranty dated as of the date hereof executed by PLMI in favor of Lenders and Agent. (d) Receipt by Agent, in form and substance satisfactory to Lenders, of a certified copy of the records of all actions taken by each Borrower, FSI and PLMI, including all corporate resolutions of each Borrower, FSI and PLMI authorizing or relating to the execution, delivery and performance of this Amendment and the Guaranty, as the case may be. (e) Receipt by Agent, in form and substance satisfactory to Lenders, of Notes executed by each Borrower in favor of each Lender in the stated principal amount equal to each Lender's Pro Rata Share of the Commitments, which Notes will replace and supersede the existing Notes dated May 31, 1996, issued by Borrowers to Agent. (f) Receipt by Agent, in form and substance satisfactory to Lenders, of a supplemental fee letter (the "Supplemental Fee Letter") and a supplemental agent's side letter (the "Supplemental Agent's Side Letter"), each duly executed by each Borrower, AFG and TEC AcquiSub, and the Supplemental Arrangement Fee and the Supplemental Agent's Fee described in the Supplemental Fee Letter and the Supplemental Agent's Side Letter, respectively. (g) Receipt by Agent of an originally executed legal opinion of Stephen Peary, general counsel of each Borrower and Guarantor, on behalf of each Borrower and Guarantor, in form and substance satisfactory to Lenders, dated as of the effective date of this Amendment and addressed to Lenders, together with copies of any officer's certificate or legal opinion of other counsel or law firm specifically identified and expressly relied upon by such counsel. (h) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 2 to Amended and Restated Warehousing Credit Agreement dated as of the date hereof by and among TEC AcquiSub, Lenders and Agent. (i) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 1 to Warehousing Credit Agreement dated as of the date hereof by and among AFG, Lenders and Agent. 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. 8. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. EACH BORROWER HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF. 9. FLEET AS LENDER. Upon the execution and delivery of this Amendment, Fleet shall be a Lender and a party to the Credit Agreement, and shall be entitled to the rights and benefits of the Loan Documents and, to the extent of the percentage equivalent of Fleet's Commitment under the Facility divided by the aggregate Commitment of all Lenders under the Facility, have the rights and obligations of a Lender thereunder. 10. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. BORROWERS PLM EQUIPMENT GROWTH FUND IV BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND V BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood -------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH FUND VI BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PLM EQUIPMENT GROWTH & INCOME FUND VII BY PLM FINANCIAL SERVICES, INC., ITS GENERAL PARTNER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. BY PLM FINANCIAL SERVICES, INC., ITS MANAGER By /s/ J. Michael Allgood --------------------------- J. Michael Allgood Chief Financial Officer FSI PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood -------------------------- J. Michael Allgood Chief Financial Officer LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By /s/ Bill A. Shirley ------------------------- Bill A. Shirley Vice President FLEET BANK, N.A. By /s/ Felix Herrera ---------------------- Printed Name: Felix Herrera Title: Vice President AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By /s/ Bill A. Shirley ----------------------- Bill A. Shirley Vice President ACKNOWLEDGEMENT OF AMENDMENT AND REAFFIRMATION OF GUARANTY (Growth Funds) 11. PLM Financial Services, Inc. ("FSI") hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Amendment No. 1 to Second Amended and Restated Warehousing Credit Agreement ("Amendment"). 12. FSI hereby consents to this Amendment and agrees that its Guaranty of the Obligations of Borrower under the Credit Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Amendment or any other document or instrument delivered in connection herewith. 13. FSI represents and warrants that, after giving effect to this Amendment, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM FINANCIAL SERVICES, INC. By /s/ J. Michael Allgood ---------------------------- J. Michael Allgood Chief Financial Officer SCHEDULE A COMMITMENTS LENDER COMMITMENT PRO RATA SHARE First Union National Bank $35,000,000 35/50 x 100% of North Carolina Fleet Bank, N.A. $15,000,000 15/50 x 100% EXHIBIT A REVOLVING PROMISSORY NOTE [LENDER] $____________ San Francisco, California Date: November 5, 1996 [BORROWER], a _____________________ (the "Borrower"), FOR VALUE RECEIVED, hereby unconditionally promises to pay to the order of [LENDER] ("[_________________]"), in lawful money of the United States of America, the aggregate outstanding principal amount of [_________________]'s Pro Rata Share of all Loans made to the Borrower under the Credit Agreement referred to below, payable in the amounts, on the dates and in the manner set forth below. This revolving promissory note (this "Note") is one of the Notes referred to and defined in that certain Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, as amended by that certain Amendment No. 1 to Second Amended and Restated Warehousing Credit Agreement dated as of even date herewith (as the same may from time to time be further amended, modified, supplemented, renewed, extended or restated, the "Credit Agreement") by and among the Borrower, PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII, Professional Lease Management Income Fund I, L.L.C., PLM Financial Services, Inc. ("FSI"), First Union National Bank Of North Carolina, solely in its capacity as agent (solely in such capacity, the "Agent") for [_________________] and such other financial institutions as shall from time to time become "Lenders" pursuant to Section 11.10 of the Credit Agreement (such entities, together with their respective successors and assigns being collectively referred to herein as the "Lenders"), and the Lenders, and amends, restates and replaces that certain Revolving Promissory Note dated May 31, 1996, executed and delivered by the Borrower in favor of and to the Agent, on behalf of the Lenders. All capitalized terms used but not defined herein shall have the same meaning as given to them in the Credit Agreement. 14. Principal Payments. Subject to the terms and conditions of the Credit Agreement, including, without limitation, terms relating to mandatory prepayments of principal (Section 2.2.3), the entire principal amount outstanding under each Loan evidenced by this Note shall be due and payable on the Maturity Date with respect to such Loan, with any and all unpaid and not previously due and payable principal amounts under each such Loan being due and payable on the Commitment Termination Date. 15. Interest Rate. The Borrower further promises to pay interest on the sum of the daily unpaid principal balance of all Loans evidenced by this Note outstanding on each day in lawful money of the United States of America, from the Closing Date until all such principal amounts shall have been repaid in full, which interest shall be payable at the rates per annum and on the dates determined pursuant to the Credit Agreement. 16. Place Of Payment. All amounts payable hereunder shall be payable to the Agent, on behalf of [_________________], at the office of First Union National Bank of North Carolina, One First Union Center, 301 South College Street, Charlotte, North Carolina 28288, Attention: Elisha Sabido, or such other place of payment as may be specified by the Agent in writing. 17. Application Of Payments; Acceleration. Payments on this Note shall be applied in the manner set forth in the Credit Agreement. The Credit Agreement contains provisions for acceleration of the maturity of the Loans upon the occurrence of certain stated events and also provides for mandatory and optional prepayments of principal prior to the stated maturity on the terms and conditions therein specified. Each Advance made by [_________________] to the Borrower constituting [_________________]'s Pro Rata Share of a Loan made to the Borrower pursuant to the Credit Agreement shall be recorded by [_________________] on its books and records. The failure of [_________________] to record any such Advance or any repayment or prepayment made on account of the principal balance thereof shall not limit or otherwise affect the obligation of the Borrower under this Note and under the Credit Agreement to pay the principal, interest and other amounts due and payable thereunder. 18. Default. The Borrower's failure to pay timely any of the principal amount due under this Note or any accrued interest or other amounts due under this Note on or within five (5) calendar days after the date the same becomes due and payable shall constitute a default under this Note. Upon the occurrence of a default hereunder or an Event of Default under the Credit Agreement with respect to the Borrower, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of the Required Lenders, be immediately collectible by the Lenders and the Agent pursuant to the Credit Agreement and applicable law. 19. Waivers. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred by or on behalf of the Lenders, including, without limitation, reasonable attorneys' fees, costs and other expenses as provided in the Credit Agreement. 20. Governing Law. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 21. Successors And Assigns. The provisions of this Note shall inure to the benefit of and be binding on any successor to the Borrower and shall extend to any holder hereof. BORROWER [BORROWER] By: PLM FINANCIAL SERVICES, INC., a Delaware corporation its general partner/manager By J. Michael Allgood Chief Financial Officer EXHIBIT B BORROWING BASE CERTIFICATE [Insert Borrower's Name] __________________, 199_ First Union National Bank of North Carolina, as Agent One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson Re: Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996, as amended by Amendment No. 1 to Second Amended and Restated Warehousing Agreement dated as of November 5, 1996 (as the same may from time to time be further amended, modified, supplemented or restated, the "Credit Agreement"), by and among PLM Equipment Growth Fund IV, a California limited partnership, PLM Equipment Growth Fund V, a California limited partnership, PLM Equipment Growth Fund VI, a California limited partnership, PLM Equipment Growth & Income Fund VII, a California limited partnership, Professional Lease Management Income Fund I, L.L.C., a Delaware limited partnership (any one individually, a "Borrower," and collectively "Borrowers"), PLM Financial Services, Inc., a Delaware corporation and the sole general partner or manager of the Borrowers ("FSI"), First Union National Bank of North Carolina ("FUNB"), Fleet Bank, N.A. and each other lender whose name is set forth on the signature pages to the Agreement or which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Agreement (any one individually, a "Lender," and collectively, "Lenders") and FUNB as Agent, on behalf of Lenders Ladies and Gentlemen: Reference is made to the Credit Agreement. The capitalized terms used in this Borrowing Base Certificate and not defined herein have the same meaning as given to them in the Credit Agreement. Pursuant to Section 5.1.3 of the Credit Agreement, the undersigned Borrower hereby certifies as follows: 22. The information furnished in Schedule 1 attached hereto was true, accurate and complete as of the last day of the calendar month immediately preceding the date of this Borrowing Base Certificate; provided, however, that if such certificate is being delivered with respect to a requested borrowing of a Loan under the Credit Agreement, then if expressly provided, so stated in Schedule 1, such information shall be true, accurate and complete through the requested Funding Date. The calculation of each item is subject to the more detailed description thereof set forth in the Credit Agreement. 23. Except as disclosed in Schedule 2 attached hereto, the representations and warranties set forth in Section 4 of the Credit Agreement are true, accurate and complete as of the date hereof; provided, however, that those representations and warranties expressly referring to another date shall be deemed to be made as of such date; and 24. The Borrower does not have knowledge of the existence, as of the date hereof, of any Event of Default or Potential Event of Default, except for such conditions or events listed on Schedule 2 attached hereto and incorporated herein by this reference, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto. IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the undersigned this ____ day of , 199 . [INSERT BORROWER NAME] By: PLM FINANCIAL SERVICES, INC., a Delaware corporation, its general partner/manager By: Printed Name: Title: Received by: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, in its capacity as Agent under the Credit Agreement By: Printed Name: Title: Date: SCHEDULE 1 TO BORROWING BASE CERTIFICATE Dated , 199
Calculated separately for each Borrower: $---------- 1. Fifty percent (50.0%) of the unrestricted cash available for purchase of Eligible Inventory by Borrower 25. The lesser of Line 2(a)(vi) or Line 2(b)(vi): $__________ (a) (i) The aggregate net book value of all Eligible Inventory $__________ (including the item(s) of Eligible Inventory being financed with this Loan if this certificate is supplied in connection with a Loan request) owned of record by Borrower or a Marine Subsidiary or of record by an Owner Trustee for the beneficial interest of Borrower or any Marine Subsidiary .1 The aggregate net book value of all Eligible Inventory listed $__________ in Line 2(a)(i) that is off-lease or that is subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due .2 Fifteen percent (15.0%) of Line 2(a)(i) $__________ .3 The amount, if any, by which Line 2(a)(ii) exceeds Line $__________ 2(a)(iii) .4 Line 2(a)(i) minus Line 2(a)(iv) $__________ .5 Seventy percent (70.0%) of Line 2(a)(v) $__________ or 2 (i) The aggregate net fair market value of all Eligible Inventory $__________ (including the item(s) of Eligible Inventory being financed with this Loan if this certificate is supplied in connection with a Loan request) owned of record by Borrower or a Marine Subsidiary or of record by an Owner Trustee for the beneficial interest of Borrower or any Marine Subsidiary .1 The aggregate net fair market value of all Eligible Inventory $__________ listed in Line 2(b)(i) that is off-lease or that is subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due .2 Fifteen percent (15.0%) of Line 2(b)(i) $__________ .3 The amount, if any, by which Line 2(b)(ii) exceeds Line $__________ 2(b)(iii) .4 Line 2(b)(i) minus Line 2(a)(iv) $__________ .5 Fifty percent (50.0%) of Line 2(b)(v) 3. The aggregate Consolidated Funded Debt of Borrower excluding the $__________ principal amount of any Loans outstanding to Borrower under the Credit Agreement 4. Line 1 plus Line 2 minus Line 3 $__________ NOTE: Lines 1, 2 and 3 to be computed (a) with respect to any requested Loan, as of the requested Funding Date, and (b) with respect to the delivery of any monthly Borrowing Base Certificate to be furnished pursuant to Section 5.1.3, as of the last day of the calendar month for which such Borrowing Base Certificate is furnished (provided, that for the purpose of computing the Borrowing Base under this Line 1, in the event that Borrower or a Marine Subsidiary shall own less than one hundred percent (100.0%) of the record or beneficial interests in any item of Eligible Inventory, with one or more of the other Equipment Growth Funds owning of record or beneficially the remaining interests, there shall be included only Borrower's or such Marine Subsidiary's, as the case may be, ratable interest in such item of Eligible Inventory) 26. Aggregate amount outstanding under TEC AcquiSub Agreement and the AFG $__________ Agreement 27. Aggregate amount outstanding under the Credit Agreement for all $__________ Borrowers (include any amounts to be drawn or proposed to be drawn by any other Borrower as of the date of this certificate and not reflected as outstanding under the Credit Agreement) 28. $50,000,000 less Line 5 plus 6 $__________ 29. Lesser of (a) Line 4 and (b) Line 7 $__________ 30. Lesser of Line 8 and $35,000,000 $__________ 31. Amount request to be advanced (must not be greater than Line 9) $__________
SCHEDULE 2 TO BORROWING BASE CERTIFICATE Dated ________________, 199_ LIST OF EXCEPTIONS Condition(s) or event(s) constituting an Event of Default or Potential Event of Default: Period of existence: Remedial action with respect to such condition or event: EX-10 4 Draft of December 30, 1996 PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. NOTE AGREEMENT Dated as of December 15, 1996 Re: $25,000,000 7.33% Senior Notes Due December 31, 2006 TABLE OF CONTENTS (Not a Part of the Agreement) SECTION HEADING PAGE SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT..............1 Section 1.1. Description of Notes.........................1 Section 1.2. Commitment, Execution Date, Closing Dates....1 Section 1.3. Commitment Fee...............................2 SECTION 2. PREPAYMENT OF NOTES..............................3 Section 2.1. Required Prepayments.........................3 Section 2.2. Optional Prepayments.........................3 Section 2.3. Prepayment in Certain Extraordinary Events...5 Section 2.5. Notice of Prepayments........................7 Section 2.6. Allocation of Prepayments....................7 Section 2.7. Direct Payment...............................7 SECTION 3. REPRESENTATIONS..................................8 Section 3.1. Representations of the Company...............8 Section 3.2. Representations of the Purchaser.............8 SECTION 4. CLOSING CONDITIONS...............................10 Section 4.1. Closing Certificate..........................10 Section 4.2. Legal Opinions...............................10 Section 4.3. Existence and Authority......................10 Section 4.4. Private Placement Number.....................10 Section 4.5. Insurance Certificate........................10 Section 4.6. Payment of Commitment Fee....................10 Section 4.7. Funding Instructions.........................11 Section 4.8. Satisfactory Proceedings.....................11 Section 4.9. Waiver of Conditions.........................11 SECTION 5. COMPANY COVENANTS................................11 Section 5.1. Existence, Etc...............................11 Section 5.2. Insurance....................................11 Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws.........................12 Section 5.4. Maintenance, Etc.............................12 Section 5.5. Nature of Business...........................12 Section 5.6. Special Provisions for Marine Vessels and Aircraft.....................................13 Section 5.7. Fixed Charge Coverage........................14 Section 5.8. Sale and Leaseback...........................14 Section 5.9. Limitations on Indebtedness..................14 Section 5.10. Limitation on Liens..........................15 Section 5.11. Distributions, Certain Payments..............17 Section 5.12. Limitation on Long-Term Leases and Joint Ownership of Equipment.......................17 Section 5.13. Mergers, Consolidations and Sales of Assets..17 Section 5.14. Guaranties...................................18 Section 5.15. Repurchase of Notes..........................19 Section 5.16. Transactions with Affiliates and Affiliated Entities..........................19 Section 5.17. Investments..................................19 Section 5.18. Termination of Pension Plans.................20 Section 5.19. Reports and Rights of Inspection.............20 Section 5.20. Certain Appraisals...........................24 SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR..........25 Section 6.1. Events of Default............................25 Section 6.2. Notice to Holders............................27 Section 6.3. Acceleration of Maturities...................27 Section 6.4. Rescission of Acceleration...................27 SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS.................28 Section 7.1. Consent Required.............................28 Section 7.2. Solicitation of Holders......................28 Section 7.3. Effect of Amendment or Waiver................29 SECTION 8. INTERPRETATION OF AGREEMENT......................29 Section 8.1. Definitions..................................29 Section 8.2. Accounting Principles........................39 Section 8.3. Directly or Indirectly.......................40 SECTION 9. MISCELLANEOUS....................................40 Section 9.1. Registered Notes.............................40 Section 9.2. Exchange of Notes............................40 Section 9.3. Loss, Theft, Etc. of Notes...................40 Section 9.4. Expenses, Stamp Tax Indemnity................41 Section 9.5. Powers and Rights Not Waived.................41 Section 9.6. Notices......................................42 Section 9.7. Successors and Assigns.......................42 Section 9.8. Survival of Covenants and Representations....42 Section 9.9. Severability.................................42 Section 9.10. Governing Law................................42 Section 9.11. Submission to Jurisdiction...................42 Section 9.12. Captions.....................................42 Section 9.13. Limitation of Liability......................43 Signature...................................................................44 ATTACHMENTS TO NOTE AGREEMENT: Schedule I -- Name and Address of Purchaser Schedule II -- Existing Liens Schedule III -- Names of Appraisers Exhibit A -- Form of 7.33% Senior Note due December 31, 2006 Exhibit B -- Closing Certificate of the Company Exhibit C -- Description of Special Counsel's Closing Opinion Exhibit D -- Description of Closing Opinion of Counsel to the Company PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. One Market Steuart Street Tower Suite 900 San Francisco, CA 94105-1301 NOTE AGREEMENT Re: $25,000,000 7.33% Senior Notes Due December 31, 2006 Dated as of December 15, 1996 Keyport Life Insurance Company c/o Stein Roe & Farnham Incorporated 1 South Wacker Drive Chicago, Illinois 60606 Ladies and Gentlemen: The undersigned, PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company (the "Company"), agrees with you as follows: SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. Section 1.1. Description of Notes. The Company will authorize the issue and sale of $25,000,000 aggregate principal amount of its 7.33% Senior Notes (the "Notes") to be dated the date of issue, to bear interest from such date at the rate of 7.33% per annum, payable semiannually in arrears on the last day of each June and December in each year (commencing June 30, 1997) and at maturity and to bear interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the rate of 9.33% per annum after maturity or the due date thereof, as applicable, whether by acceleration or otherwise, until paid, to be expressed to mature on December 31, 2006, and to be substantially in the form attached hereto as Exhibit A. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in Section 2 of this Agreement. The term "Notes" as used herein shall include each Note delivered pursuant to this Agreement. You are hereinafter sometimes referred to as the "Purchaser". Section 1.2. Commitment, Execution Date, Closing Dates. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company and you agree to execute and deliver this Agreement on the Execution Date hereafter mentioned. The Company further agrees to issue and sell to you, and you further agree to purchase from the Company, Notes of the Company in the aggregate principal amount set forth opposite your name in Schedule I, at a price of 100% of the principal amount thereof allocated as requested by the Company to the Closing Dates hereinafter mentioned. Execution and delivery of the Agreement will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603 on December 30, 1996, or such later date as shall be mutually agreed upon by the Company and the Purchaser (the "Execution Date"). Delivery of the Notes will be made at the offices of Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, against payment therefor in Federal or other funds current and immediately available at the principal office of First Union National Bank, Charlotte, North Carolina, ABA Routing No. 053000219, in the amount of the purchase price for credit to the Company's account identified by the Company in the funding instructions delivered pursuant to ss.4.7 at 10:00 A.M., Chicago time, on up to two separate dates (not later than March 31, 1997) as shall be mutually agreed upon by the Company and the Purchaser; provided, that the Company shall provide you with written notice in the manner provided in ss.9.6 of its desire to consummate each such closing and the principal amount of Notes it desires to sell at each such Closing (in the aggregate, equaling $25,000,000) not less than three Business Days prior to the date of each closing (each, a "Closing Date" and, collectively, the "Closing Dates"). The Notes delivered to you on each Closing Date will be delivered to you in the form of a single registered Note for the full amount of your purchase (unless different denominations are specified by you), registered in your name or in the name of such nominee as you may specify and in substantially the form attached hereto as Exhibit A, all as you may specify at any time prior to the date fixed for delivery. Section 1.3. Commitment Fee. In consideration of your agreement to enter into this Agreement on the Execution Date and to delay your actual purchase of the Notes until the respective Closing Dates as set forth in ss.1.2 hereof, the Company agrees to pay to you on each Closing Date a commitment fee (the "Commitment Fee") in an amount equal to 0.125% per month of the aggregate principal amount of the Notes to be purchased by you, computed monthly based on actual days elapsed, and payable for each month or portion thereof elapsing from and after the Execution Date to and including the final Closing Date. On the first Closing Date, the Commitment Fee shall be payable with respect to the aggregate principal amount of the Notes to be purchased by you on both Closing Dates, accruing from the Execution Date to and including the first Closing Date. On the second Closing Date, the Commitment Fee shall be payable with respect to the remaining aggregate principal amount of the Notes to be purchased by you on the second Closing Date, accruing from the first Closing Date to and including the second Closing Date. Two Business Days prior to each Closing Date, the Company shall telecopy to the Purchaser at the telecopy number set forth in Schedule I the computation of the Commitment Fee to be paid on such Closing Date in reasonable detail for approval by the Purchaser. SECTION 2. PREPAYMENT OF NOTES. Section 2.1. Required Prepayments. The Company agrees that on each of the dates set forth in the table below, it will prepay and apply and there shall become due and payable on the principal indebtedness evidenced by the Notes the lesser of (a) the amount set opposite such date in the table below and (b) the then outstanding aggregate principal amount of the Notes: REQUIRED PREPAYMENT DATES PRINCIPAL PREPAYMENT December 31, 2000 $3,000,000 December 31, 2001 $3,000,000 December 31, 2002 $3,000,000 December 31, 2003 $3,000,000 December 31, 2004 $3,000,000 December 31, 2005 $5,000,000 The entire unpaid principal amount of the Notes shall become due and payable on December 31, 2006. No premium shall be payable in connection with any required prepayment made pursuant to this ss.2.1. For the purposes of this ss.2.1, any prepayment of less than all of the outstanding Notes if made pursuant to ss.2.2 or ss.2.3 or otherwise shall be deemed to be applied pro rata to the payment of all remaining principal payments required by this ss.2.1, so that each such remaining payment of principal shall thereupon be reduced in the same proportion that the principal amount of Notes outstanding immediately preceding the payment pursuant to ss.2.3 was reduced by such prepayment. Section 2.2. Optional Prepayments. (a) In addition to the payments required by ss.2.1, upon compliance with ss.2.4, the Company shall have the privilege at any time and from time to time, of prepaying the outstanding Notes, either in whole or in part (but if in part, then in units in excess of $100,000) by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the Make-Whole Amount, determined two Business Days prior to the date of such prepayment. "Make-Whole Amount" shall mean, in connection with any prepayment, the excess, if any, of (a) the aggregate present value as of the date of such prepayment of each dollar of principal being prepaid (taking into account the application of such prepayment required by ss.2.1) and the amount of interest (exclusive of interest accrued to the date of prepayment) that would have been payable in respect of such dollar if such prepayment had not been made, determined by discounting such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (b) 100% of the principal amount of the outstanding Notes being prepaid. If the Reinvestment Rate is equal to or higher than 7.33%, the Make-Whole Amount shall be zero. "Reinvestment Rate" shall mean the sum of (a) the Applicable Spread plus the yield reported on page "USD" of the Bloomberg Financial Markets Services Screen (or, if not available, any other nationally recognized trading screen reporting on-line intraday trading in actively traded marketable United States Treasury fixed interest rate Securities selected by the Company and acceptable to the Majority Holders) at 9:00 a.m. (Chicago, Illinois time) for actively traded marketable United States Treasury fixed interest rate Securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the principal of the Notes being prepaid or paid, or (b) in the event that no such nationally recognized trading screen reporting on-line intraday trading in United States Treasury fixed interest rate Securities is available, Reinvestment Rate shall mean the Applicable Spread plus the arithmetic mean of the yields for the two columns under the heading "Week Ending" published in the Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to such Weighted Average Life to Maturity of the principal of the Notes then being prepaid or paid. If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the two published maturities most closely corresponding to such Weighted Average Life to Maturity of the principal of the Notes then being prepaid or paid shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate for the Notes shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate of the Notes pursuant to clause (b) above, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Applicable Spread" shall mean (a) 1.00% in the case of any computation of the Make-Whole Amount for purposes of ss.2.4, and (b) 0.50% in the case of any other computation of the Make-Whole Amount for purposes of this Agreement. "Statistical Release" shall mean the then most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded U.S. Government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the Majority Holders. "Weighted Average Life to Maturity" of the principal amount of the Notes being prepaid or paid shall mean, as of the time of any determination thereof, the number of years obtained by dividing the then Remaining Dollar-Years of such principal by the aggregate amount of such principal. The term "Remaining Dollar-Years" of such principal shall mean the amount obtained by (a) multiplying (x) the remainder of (i) the amount of principal that would have become due on each scheduled payment date if such prepayment or payment had not been made, less (ii) the amount of principal on the Notes scheduled to become due on such date after giving effect to such prepayment or payment and the application thereof in accordance with the provisions of ss.2.1, by (y) the number of years (calculated to the nearest one-twelfth of a year) which will elapse between the date of determination and such scheduled payment date, and (b) totaling the products obtained in (a). (b) In addition to the privilege of optionally prepaying the Notes as set forth in ss.2.2(a), upon compliance with ss.2.5, the Company shall have the privilege at any time and from time to time on or after January 1, 2005, of prepaying the outstanding Notes, either in whole or in part (but if in part, then in units in excess of $100,000) by payment of the principal amount of the Notes, or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, but without premium; provided that such optional prepayment is made solely from the proceeds of the sale or other disposition by the Company or a Restricted Subsidiary of all or any portion of the Equipment (other than the Encumbered Equipment) and not from the refinancing or refunding of Debt of the Company or a Restricted Subsidiary or with funds from any other source. Section 2.3. Prepayment in Certain Extraordinary Events. (a) In the event that (i) any Material Agreement shall be canceled or terminated for any reason whatsoever or shall be modified or amended in a manner materially adverse to the rights of the Company thereunder, (ii) the Company shall be dissolved or its existence otherwise terminated, or (iii) Class A Members holding more than 50% of the Class A Units in the Company shall vote to dissolve the Company (each herein a "Change Event") and the Company has knowledge of a Change Event or an impending Change Event, the Company will give written notice (herein called a "Change Notice") of such fact to all holders of the Notes then outstanding. Such Change Notice shall be delivered at least 60 days and no more than 90 days prior to the occurrence of such Change Event; provided, however that if the Company shall not then have knowledge of such fact, such Change Notice shall be delivered within two Business Days after receipt of such knowledge by the Company. In addition to notifying the holders of the Notes of a Change Event or a proposed Change Event, the Change Notice shall state that the occurrence of such Change Event entitles said holders to declare the Notes held by them to become due and payable pursuant to this ss.2.3(a) and the date by which said holders must respond to such Change Notice pursuant to clause (ii) of the next succeeding paragraph if they desire to waive such right. The Company shall not be required to prepay any Notes pursuant to this ss.2.3(a) unless and until such Change Event shall be consummated. Upon the receipt of such Change Notice or, if no Change Notice is given, upon the occurrence of a Change Event, any holder of Notes shall have the privilege, upon written notice (the "Declaration Notice") to the Company, of either (i) declaring all Notes held by such holder serving such Declaration Notice due and payable or (ii) waiving the right of such holder to declare the Notes held by it to be due and payable. In the event that a Change Notice is given and a holder of the Notes fails to waive such right in accordance with this ss.2.3(a), the Notes held by such holder shall irrevocably be deemed to be and the same shall on the Payment Date (as hereinafter defined) become due and payable as a result of such Change Event. All Notes declared due and payable shall become due and payable and paid on such date (the "Payment Date") as the Company shall specify in a written notice delivered to the holder or holders which have declared their Notes due and payable (which notice shall be delivered by the Company to such holder or holders not later than 10 days prior to the Payment Date) and the Payment Date shall be prior to the consummation of such Change Event, in the event that such Declaration Notice is served at least 10 days prior to the date of the consummation of such Change Event or 10 days after the date such Declaration Notice is served, if such Declaration Notice is not at least 10 days prior to the date of such Change Event. The Company covenants and agrees to prepay in full on the Payment Date all Notes held by such holder serving such Declaration Notice to the Company declaring such Notes due and payable. In the event that any holder of the Notes shall have declared all of the Notes held by it to become due and payable pursuant to ss.2.3(a), then the Company shall promptly, but in any event within five days after the receipt of the Declaration Notice, deliver written notice of such declaration (the "Notification of Declaration") to each other holder of the Notes and, notwithstanding anything to the contrary contained in this Agreement, each such other holder which has previously waived its right to declare the Notes held by it to be due and payable pursuant to ss.2.3(a)(ii) shall then have the right to declare all of the Notes held by it to become due and payable pursuant to ss.2.3(a)(i) until the later to occur of (x) 60 days after receipt by such holders of the Change Notice or (y) 20 days after receipt by such holders of a Notification of Declaration, with respect to a Declaration Notice made by holders of Notes. (b) In the event that PLM Financial Services, Inc., a Delaware corporation, or PLM Investment Management, Inc., a California corporation, or any successor to either such entity shall give notice of its intention to resign or withdraw or transfer its interest as Manager or Fund Manager, as the case may be or shall receive notice that it is to be removed as Manager or Fund Manager, as the case may be (such event being herein referred to as a "Withdrawal Event"), then, in such event, the Company will promptly, but in any event within three days after the giving or receipt of such notice, as the case may be, give written notice thereof (a "Withdrawal Notice") to the holders of all outstanding Notes, which notice shall make specific reference to this Section and to the rights of the holders hereunder. If, within 90 days after the Withdrawal Notice, the Company procures a successor entity qualified and experienced in performing functions such as those performed by the Manager or Fund Manager, as the case may be, the Company shall promptly, but in any event within five days, send notice thereof to the holders of all outstanding Notes. Should the holders of 50% or more in aggregate principal amount of the Notes then outstanding object to such successor entity within 10 days of the receipt of such notice, or should the Company not be able to procure such successor within such 90-day period, each holder of outstanding Notes shall have the right by written notice to the Company given not earlier than five days nor later than 45 days after the expiration of such period (the "Withdrawal Event Prepayment Election Period"), to either (i) demand that the Company prepay all of the Notes then held by such holder or (ii) notify the Company that such holder has waived its right to have the Notes held by it prepaid. In the event that a Withdrawal Notice is given and a holder of the Notes fails to provide such written notice within the Withdrawal Event Prepayment Election Period, the Notes held by such holder shall irrevocably be deemed to be and the same shall on a date five days following the expiration of the Withdrawal Event Prepayment Election Period become due and payable. With respect to any prepayment, the prepayment date shall be specified in writing to each holder by the Company and shall be the same date as the date established for the prepayment of Notes held by all holders exercising their rights under this ss.2.3(b) by reason of the occurrence of the Withdrawal Event. The Company will also promptly notify the holders of the Notes of the receipt of any demand by any Note holder for the prepayment of its Note pursuant to this ss.2.3(b). (c) All prepayments on the Notes pursuant to this ss.2.3 shall be made by the payment of the aggregate principal amount remaining unpaid on the Notes to be prepaid and accrued interest thereon to the date of such prepayment, together with a Make-Whole Amount (computed in the manner described in ss.2.2(a)). Section 2.4. Special Prepayment Relating to Covenant Compliance. (a) In the event that a Default or Event of Default shall occur under ss.5.9(b) solely as a result of a decline in the Equipment Value of Aggregate Equipment (herein a "Covenant Compliance Event") or the Company shall have knowledge of any impending Covenant Compliance Event, the Company will give written notice (the "Covenant Compliance Notice") of such fact in the manner provided in ss.9.6 hereof to the holders of the Notes. The Covenant Compliance Notice shall be delivered promptly upon receipt of such knowledge by the Company and in any event no later than two Business Days following the occurrence of any Covenant Compliance Event. The Covenant Compliance Notice shall (1) describe the facts and circumstances of such Covenant Compliance Event in reasonable detail, (2) make reference to this ss.2.4 and the obligation of the Company to prepay the Notes to the extent and on the terms and conditions provided for in this ss.2.4, (3) set forth in reasonable detail the computations which reflect the minimum aggregate principal amount of Notes necessary (the "Permitted Prepayment Amount") to be prepaid in order to result in the Company again being in compliance with the terms of ss.5.9(b), (4) offer in writing to prepay on a pro rata basis the outstanding Notes to the extent of the Permitted Prepayment Amount, together with accrued interest to the date of prepayment and a premium equal to the applicable Make-Whole Amount, and (5) specify a date for such prepayment (the "Compliance Event Prepayment Date"), which Compliance Event Prepayment Date shall be not more than 45 days nor less than 15 days following the date of such Covenant Compliance Notice. Each holder of the then outstanding Notes shall have the right to accept such offer and require prepayment of such holder's pro rata share of the Notes to be prepaid by written notice to the Company given not later than 10 days after receipt of the Covenant Compliance Notice. The Company shall on the Compliance Event Prepayment Date prepay the Notes held by holders which have so accepted such offer of prepayment to the extent and only to the extent of the Permitted Prepayment Amount. The Company shall not be permitted to prepay Notes under this ss.2.4(a) in excess of the Permitted Prepayment Amount. The prepayment price of the Notes payable upon the occurrence of any Covenant Compliance Event shall be an amount equal to 100% of the outstanding principal amount of the Notes so to be prepaid and accrued interest thereon to the date of such prepayment, together with a premium equal to the applicable Make-Whole Amount determined as of two Business Days prior to the date of such prepayment pursuant to this ss.2.4(a). (b) Compliance with the provisions of ss.2.4(a) shall not be deemed to constitute a waiver of, or consent to, any Default or Event of Default under the provisions of ss.5.9(b) unless and until the Company does in fact prepay the Notes as provided in ss.2.4(a). Section 2.5. Notice of Prepayments. The Company will give notice of any prepayment of the Notes (other than the prepayments required by ss.2.1, ss.2.3 or ss.2.4) to each holder thereof not less than 30 days nor more than 60 days before the date fixed for such optional prepayment specifying (a) such date, (b) the section of this Agreement under which the prepayment is to be made, (c) the principal amount of the holder's Notes to be prepaid on such date, and (d) the estimated premium, if any, and accrued interest applicable to the prepayment. Such notice of prepayment shall also certify all facts which are conditions precedent to any such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes specified in such notice, together with the premium, if any, and accrued interest thereon shall become due and payable on the prepayment date. The Company will also give written notice to each holder of the Notes, by telecopy or other same day written communication, setting forth the computation and amount of any premium payable in connection with such prepayment two Business Days prior to the date of such prepayment. Section 2.6. Allocation of Prepayments. Except for prepayment of less than all of the Notes at the time outstanding pursuant to ss.2.3 or ss.2.4, all partial prepayments shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof but only in units of $1,000, and to the extent that such ratable application shall not result in an even multiple of $1,000, adjustment may be made by the Company to the end that successive applications shall result in substantially ratable payments. Section 2.7. Direct Payment. Notwithstanding anything to the contrary in this Agreement or the Notes, in the case of any Note owned by you or your nominee or owned by any subsequent institutional holder who has given written notice to the Company requesting that the provisions of this Section shall apply, the Company will promptly and punctually pay when due the principal thereof and premium, if any, and interest thereon, without any presentment thereof directly to you, to your nominee or to such subsequent holder at your address or your nominee's address set forth in Schedule I or at such other address as you, your nominee or such subsequent holder may from time to time designate in writing to the Company or, if a bank account is designated for you or your nominee on Schedule I hereto or in any written notice to the Company from you, your nominee or any such subsequent holder, the Company will make such payments in immediately available funds to such bank account no later than 12:00 Noon Chicago, Illinois time on the date due, marked for attention as indicated, or in such other manner or to such other account of you, your nominee or such holder in any bank in the United States as you, your nominee or any such subsequent holder may from time to time direct in writing. If for any reason whatsoever the Company does not make any such payment by such 12:00 Noon Chicago, Illinois time on the date due, such payment shall be deemed to have been made on the next following Business Day and such payment shall bear interest at the overdue rate as provided herein. The holder of any Notes to which this Section applies agrees that in the event it shall sell or transfer any such Notes it will, prior to the delivery of such Notes (unless it has already done so), make a notation thereon of all principal, if any, prepaid on such Notes and will also note thereon the date to which interest has been paid on such Notes. With respect to Notes to which this Section applies, the Company shall be entitled to presume conclusively that the original or such subsequent institutional holder as shall have requested the provisions hereof to apply to its Notes remains the holder of such Notes until (a) the Company shall have received notice of the transfer of such Notes, and of the name and address of the transferee, or (b) such Notes shall have been presented to the Company as evidence of the transfer. SECTION 3. REPRESENTATIONS. Section 3.1. Representations of the Company. The Company represents and warrants that all representations set forth in the form of certificate attached hereto as Exhibit B are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. Section 3.2. Representations of the Purchaser. (a) You represent, and in entering into this Agreement the Company understands, that (i) you are an "accredited investor" within the meaning of Regulation D promulgated by the Securities and Exchange Commission and (ii) you are acquiring the Notes for the purpose of investment and not with a view to the distribution thereof, and that you have no present intention of selling, negotiating or otherwise disposing of the Notes; provided that the disposition of your Property shall at all times be and remain within your control. (b) You further represent that at least one of the following statements concerning each source of funds to be used by you to purchase the Notes is accurate as of each of the Closing Dates: (i) the source of funds to be used by you to pay the purchase price of the Notes is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption 95-60 ("PTE") (issued July 12, 1995) and the purchase of the Notes by you is eligible for and satisfies the requirements of PTE 95-60; (ii) all or a part of such funds constitute assets of one or more separate accounts, trusts or a commingled pension trust maintained by you, and you have disclosed to the Company names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase (for the purpose of this clause (ii), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (iii) all or part of such funds constitute assets of a bank collective investment fund maintained by you, and you have disclosed to the Company names of such employee benefit plans whose assets in such collective investment fund exceed 10% of the total assets or are expected to exceed 10% of the total assets of such fund as of the date of such purchase (for the purpose of this clause (iii), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (iv) all or part of such funds constitute assets of one or more employee benefit plans, each of which has been identified to the Company in writing; (v) you are acquiring the Notes for the account of one or more pension funds, trust funds or agency accounts, each of which is a "governmental plan" as defined in Section 3(32) of ERISA; (vi) the source of funds is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, and during the immediately preceding one year has exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to this clause (vi) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (vii) if you are other than an insurance company, all or a portion of such funds consists of funds which do not constitute "plan assets". The Company shall deliver a certificate on each of the Closing Dates which certificate shall either state that (A) it is neither a "party in interest" (as defined in Title I, Section 3(14) of ERISA) nor a "disqualified person" (as defined in Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with respect to any plan identified pursuant to paragraphs (ii), (iii) or (iv) above, or (B) with respect to any plan identified pursuant to paragraph (vi) above, neither it nor any "affiliate" (as defined in Section V(c) of PTE 84-14) is described in the proviso to said paragraph (vi). As used in this ss.3.2(b), the terms "separate account" and "employee benefit plan" shall have the respective meanings assigned to them in ERISA and the term "plan assets" shall have the meaning assigned to it in Department of Labor Regulation 29 C.F.R. ss.2510.3-101. SECTION 4. CLOSING CONDITIONS. Your obligation to execute and deliver this Agreement on the Execution Date and to purchase the Notes on each of the Closing Dates shall be subject to the performance by the Company of its agreements hereunder which by the terms hereof are to be performed at or prior to the time of the execution and delivery of the Agreement or the issuance and delivery of the Notes, as the case may be, and to the following further conditions precedent: Section 4.1. Closing Certificate. Concurrently with the execution and delivery of this Agreement on the Execution Date and the delivery of Notes to you on each of the Closing Dates, you shall have received a certificate dated the Execution Date or such Closing Date, as the case may be, signed by an authorized officer of the Manager substantially in the form attached hereto as Exhibit B, the truth and accuracy of which shall be a condition to your obligation to execute and deliver this Agreement or to purchase the Notes proposed to be sold to you, as the case may be. Section 4.2. Legal Opinions. Concurrently with the delivery of Notes to you on each of the Closing Dates, you shall have received from Chapman and Cutler, who are acting as your special counsel in this transaction, and from Stephen Peary, General Counsel of the Company, their respective opinions dated such Closing Date, in form and substance satisfactory to you, and covering the matters set forth in Exhibits C and D, respectively, hereto. Section 4.3. Existence and Authority. On or prior to the Execution Date, you shall have received, in form and substance reasonably satisfactory to you and your special counsel, such documents and evidence with respect to the Company and the Manager as you may reasonably request in order to establish to the existence and good standing of the Company and the Manager and the authorization of the transactions contemplated by this Agreement. Section 4.4. Private Placement Number. A Private Placement Number relating to the Notes shall have been duly ordered from Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"). Section 4.5. Insurance Certificate. On or prior to the Execution Date, the Company will furnish to you and to your special counsel a report signed by an independent insurance broker satisfactory to you with respect to the insurance maintained under this Agreement (including, without limitation, as to each policy, its number, the amount, the insurer, the named assureds, the type of risk, the loss payees and the expiration date) and stating the opinion of said broker that such insurance is in such amounts, against such risks, and with such insurers as to adequately protect the Company. Section 4.6. Payment of Commitment Fee. On each of the Closing Dates, the Company shall have paid to the Purchaser the Commitment Fee referred to in ss.1.3 by bank wire transfer of Federal or other immediately available funds to the account specified for such Purchaser in Schedule I. Section 4.7. Funding Instructions. At least three Business Days prior to each of the Closing Dates, you shall have received written instructions executed by an authorized officer of the Manager directing the manner of payment of funds and setting forth (1) the name of the transferee bank, (2) such transferee bank's ABA number, (3) the account name and number into which the purchase price for the Notes is to be deposited, and (4) the name and telephone number of the account representative responsible for verifying the receipt of the funds. Section 4.8. Satisfactory Proceedings. On each of the Execution Date and the Closing Dates, all proceedings taken in connection with the transactions contemplated by this Agreement, and all documents necessary to the consummation thereof, shall be satisfactory in form and substance to you and your special counsel, and you shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. Section 4.9. Waiver of Conditions. If on the Execution Date the Company fails to execute and deliver this Agreement or on either of the Closing Dates the Company fails to tender to you the Notes to be issued to you on such date, or if on the Execution Date or either of the Closing Dates the conditions specified in this ss.4 have not been fulfilled, you may thereupon elect to be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in this ss.4 have not been fulfilled, you may waive compliance by the Company with any such condition to such extent as you may in your sole discretion determine. Nothing in this ss.4.9 shall operate to relieve the Company of any of its obligations hereunder or to waive any of your rights against the Company. SECTION 5. COMPANY COVENANTS. From and after the Execution Date and continuing so long as any amount remains unpaid on any Note: Section 5.1. Existence, Etc. (a) The Company will preserve and keep in force and effect, and will cause each Restricted Subsidiary to preserve and keep in force and effect, its existence and all licenses and permits necessary to the proper conduct of its business, provided that the foregoing shall not prevent any transaction permitted by ss.5.13. (b) The Company will take, or will cause to be taken, all such actions as shall be necessary to preserve its tax treatment as a partnership. (c) The Company will cause the Manager to retain at all times its status as a Class B Member. Section 5.2. Insurance. The Company will maintain, or cause to be maintained, and will cause each Restricted Subsidiary to maintain, or cause to be maintained, insurance coverage on the Equipment by financially sound and reputable hull and other underwriters or protection and indemnity clubs, or Lloyds of London or a foreign insurer certified by a reputable insurance broker as a financially sound insurance carrier or domestic insurers accorded a rating by A.M. Best Company, Inc. of A+ or better at the time of issuance of any policy in such forms and amounts and against such risks as are customary for businesses of established reputation engaged in the same or a similar business and owning and operating similar Properties. Without limiting the foregoing, the Company will maintain, or cause to be maintained, insurance coverage against third-party bodily injury and property damage liability in connection with equipment ownership and operation and will also maintain or cause to be maintained, insurance coverage with a limit of liability of not less than $500,000 per occurrence, to insure the Company and its Subsidiaries against loss caused by the fraud or dishonesty of any of its employees and the employees of the Manager and its Affiliates. Section 5.3. Taxes, Claims for Labor and Materials, Compliance with Laws. (a) The Company will promptly pay and discharge, and will cause each Restricted Subsidiary promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon the Company or such Restricted Subsidiary, respectively, or upon or in respect of all or any part of the Property or business of the Company or such Restricted Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid might become a Lien or charge upon any Property of the Company or such Restricted Subsidiary; provided the Company or such Restricted Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Property of the Company or such Restricted Subsidiary or any material interference with the use thereof by the Company or such Restricted Subsidiary, and (ii) the Company or such Restricted Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. (b) The Company will promptly comply and will cause each Subsidiary to comply with all laws, ordinances or governmental rules and regulations to which it is subject, including, without limitation, the Delaware Limited Liability Company Act, the Occupational Safety and Health Act of 1970, ERISA and any Environmental Law, the violation of which would materially and adversely affect the properties, business, prospects, profits or condition of the Company and its Subsidiaries, taken as a whole, or would result in any Lien or charge upon any Property of the Company or any Subsidiary not permitted by ss.5.10. Section 5.4. Maintenance, Etc. The Company will maintain, preserve and keep, or cause to be maintained, preserved and kept, all Properties which are used or useful in the conduct of the business of the Company and its Restricted Subsidiaries (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof shall be maintained. Section 5.5. Nature of Business. The Company and its Restricted Subsidiaries taken as a whole will not engage in any business other than the business of owning and leasing a diversified equipment portfolio consisting primarily of used transportation and transportation-related equipment all as more fully described in Section 1.05 of the Operating Agreement as in effect on the date hereof. Section 5.6. Special Provisions for Marine Vessels and Aircraft. Without limiting the foregoing provisions of ss.5.2 and ss.5.4, the Company shall cause any Vessels or Aircraft owned by it or in which it has an ownership interest to be maintained and insured as provided in this ss.5.6. (a) Maintenance of Marine Vessels. The Company will at all times cause any Vessel to be maintained and preserved in good condition, working order and repair as will entitle her to retain the highest classification and rating for vessels of the same age and type in the American Bureau of Shipping, Det Norske Veritas, Bureau Veritas, Lloyds Register, Nippon Kaiji Kyokai, Germanischer Lloyd or classification societies of similar stature. (b) Insurance on Marine Vessels. The Company will at all times cause the following insurance to be carried and maintained with respect to any Vessel: (i) Marine insurance in an amount at least equal to the Equipment Value of such Vessel covering the hull and all equipment and appurtenances of the Vessel, against all usual marine risks; (ii) Insurance covering the customary protection and indemnity risks in an amount at least equal to the higher of (1) an amount customary with operations conducted by any such Vessel and (2) the Equipment Value of such Vessel; (iii) Insurance against liability arising out of pollution, spillage or leakage in connection with operations conducted by any Vessel in an amount not less than the usual and customary coverage amounts carried in the international shipping industry for comparable marine vessels handling or transporting similar cargo; provided that in no event shall such insurance be maintained in an amount less than that required by the laws of any jurisdiction in which any such Vessel is operated for so long as such Vessel is operated under the laws of such jurisdiction; and (iv) War risk insurance, if available at commercially reasonable rates. (c) Certificate of Financial Responsibility. When required for access to U.S. ports, the Company shall obtain a Certificate of Financial Responsibility issued by the United States pursuant to the Federal Water Pollution Control Act to the extent that the same may be required by law or regulation. (d) Maintenance and Servicing of Aircraft. The Company will at all times cause: (i) any Aircraft to be serviced, repaired, maintained, tested and overhauled so as to keep such Aircraft in such operating condition as may be necessary to enable the airworthiness certification of the Aircraft to be maintained in good standing at all times under the Federal Aviation Act or the governmental authority having jurisdiction over such Aircraft; (ii) all records, logs and other materials required to be maintained by the Federal Aviation Administration, or the governmental authority having jurisdiction over any Aircraft, to be maintained in respect of each Aircraft (including any item of Equipment included therein); and (iii) any Aircraft to comply with all airworthiness directives issued by any governmental authority having jurisdiction over any Aircraft. (e) Public Liability and Property Damage Liability Insurance for Aircraft. The Company will at all times cause third party aircraft liability insurance, passenger legal liability insurance, if applicable, and property damage liability insurance to be carried with respect to any Aircraft. (f) Insurance Against Loss or Damage to the Aircraft. The Company shall at all times cause the following to be maintained with respect to any Aircraft: (i) all-risk ground and flight aircraft hull insurance covering the airframe and engines of any such Aircraft; (ii) fire, transit and extended coverage with respect to any engines or parts while removed from such Aircraft; and (iii) war risk insurance, including, hijacking (air piracy), governmental confiscation and expropriation insurance. Section 5.7. Fixed Charge Coverage. The Company will keep and maintain as of the end of each fiscal quarter the ratio of Consolidated Cash Flow Available for Fixed Charges for the Four-Quarter Period then ended to Consolidated Fixed Charges for such Four-Quarter Period at not less than 3.00 to 1.00 (it being understood that any such failure to comply with this covenant at the end of any fiscal quarter shall be deemed to continue until such time as the Company shall be in full compliance with this covenant at the end of a subsequent fiscal quarter). Section 5.8. Sale and Leaseback. The Company will not, and will not permit any Restricted Subsidiary to, enter into any arrangement whereby the Company or any Restricted Subsidiary shall sell or transfer any Property owned by the Company or any Restricted Subsidiary to any Person other than the Company or a Restricted Subsidiary and thereupon the Company or any Restricted Subsidiary shall lease or intend to lease, as lessee, the same Property, except that the Company shall be permitted to enter into such arrangements to the extent that the related lease would be permitted under ss.5.12. Section 5.9. Limitations on Indebtedness. (a) The Company will not, and will not permit any Restricted Subsidiary to, create, assume or incur or in any manner be or become liable in respect of any Debt (including, without limitation, any extension, renewal or replacement thereof), except: (i) the Notes; (ii) unsecured Debt of the Company in an aggregate principal amount not to exceed $2,000,000, incurred in the ordinary course of business, having an original maturity less than one year and not renewable at the option of the Company for a term of one year or greater beyond the date of original issuance, issued and outstanding in compliance with clause (b) hereof, provided that in each case at the time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist, provided, further, that such Debt shall be subordinated to the Notes upon terms reasonably acceptable to the Requisite Holders; (iii) Debt of a Restricted Subsidiary to the Company or to a Wholly-Owned Restricted Subsidiary, provided that at the time of issuance thereof and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist; and (iv) Short Term Warehouse Debt in an aggregate principal amount not to exceed the lesser of (1) $10,000,000 or (2) 50% of the aggregate principal amount of the Notes outstanding at the time of issuance thereof; provided that at the time of such issuance and after giving effect thereto and to the application of the proceeds thereof, no Default or Event of Default would exist under this Agreement and no default or event of default would exist under the Warehousing Credit Agreement (without giving effect to any consent, waiver or amendment waiving or in effect waiving any default or event of default which would otherwise arise from such issuance under the Warehousing Credit Agreement). (b) The Company will not at any time permit Consolidated Debt to exceed the lesser of (i) $25,000,000 or (ii) 33-1/3% of the sum of Consolidated Assets. (c) The Company will not at any time permit any individual borrowing by the Company under or pursuant to the Warehousing Credit Agreement to remain outstanding for more than 180 days from the initial issuance thereof or to permit any extension, renewal or refunding of any such individual borrowing. (d) Any corporation, limited liability company or partnership which becomes a Restricted Subsidiary after the date hereof shall for all purposes of this ss.5.9 be deemed to have created, assumed or incurred at the time it becomes a Restricted Subsidiary all Debt of such entity existing immediately after it becomes a Restricted Subsidiary. Accordingly, the Company shall cause each such corporation, limited liability company or partnership to retire all of such Debt (except Debt permitted by ss.5.9(a)(iii)) prior to such corporation, limited liability company or partnership becoming a Restricted Subsidiary. Section 5.10. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any mortgage, pledge, security interest, encumbrance, Lien or charge of any kind on its or their Property or assets, whether now owned or hereafter acquired, or assigned, or upon any income or profits therefrom, or transfer any Property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any Property or assets upon conditional sales agreements or other title retention devices, except: (a) Liens for Property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, provided that payment thereof is not at the time required by ss.5.3; (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Restricted Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; provided, however, that (i) the Company or such Restricted Subsidiary shall have made adequate reserves for said judgment or award in their financial statements and (ii) such Liens shall not cause interference with the use of any Equipment; (c) Liens incidental to the conduct of business or the ownership of Properties and assets (including warehousemen's and attorneys' Liens and statutory landlords' Liens) and deposits, pledges or Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, provided in each case, the obligation secured is not overdue or, if overdue, (i) is being contested in good faith by appropriate actions or proceedings, (ii) adequate reserves therefor have been set up on the financial statements of the Company or a Restricted Subsidiary, and (iii) such Liens shall not cause interference with the use of any Equipment; (d) minor survey exceptions or minor encumbrances, easements or reservations, or rights of others for rights-of-way, utilities and other similar purposes, or zoning or other restrictions as to the use of real Properties, which are necessary for the conduct of the activities of the Company and its Restricted Subsidiaries or which customarily exist on properties of corporations engaged in similar activities and similarly situated and which do not in any event materially impair their use in the operation of the business of the Company and its Restricted Subsidiaries; (e) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary; (f) Liens in favor of lessees consisting of, or granted to secure purchase options contained in or related to leases of Equipment owned by the Company or a Restricted Subsidiary; provided that the consideration payable pursuant to any such option shall in no event be less than the fair market value of the Equipment subject thereto; (g) Liens securing the Short Term Warehouse Debt; provided that such Short Term Warehouse Debt has been incurred within the limitations of ss.5.9(a)(iv); and (h) Liens existing on the Execution Date and described on Schedule II hereto. Section 5.11. Distributions, Certain Payments. The Company will not directly or indirectly, or through any Subsidiary, make any payment to the Manager or any Affiliate or Affiliated Entity on account of Management Fees in excess of the amount provided for in the Operating Agreement or the Equipment Management Agreement as each such agreement is in effect on the Execution Date, or make or declare any Distribution, if in each such case, either prior to or after giving effect thereto, a Default or an Event of Default shall have occurred and be continuing. Section 5.12. Limitation on Long-Term Leases and Joint Ownership of Equipment. (a) The Company will not, and will not permit any Restricted Subsidiary to, become obligated, as lessee, under any Long-Term Lease if at the time of entering into any such Long-Term Lease and after giving effect thereto, the aggregate Rentals payable by the Company and all of its Restricted Subsidiaries on a consolidated basis in any one fiscal year thereafter under all Long-Term Leases would exceed 10% of the aggregate amount of all capital accounts of the Members of the Company determined in accordance with generally accepted accounting principles. (b) The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise permit or suffer to exist on or with respect to any Equipment any right of first refusal or any purchase option other than purchase options in favor of the lessees of such Equipment for consideration payable which is not less than the Current Fair Market Value of the related Equipment at the time such option is exercised. Section 5.13. Mergers, Consolidations and Sales of Assets. (a) The Company will not, and will not permit any Restricted Subsidiary to: (i) consolidate with or be a party to a merger with any other Person or (ii) license, transfer, sell or otherwise dispose of (herein a "Disposition") all or any substantial part of the assets of the Company and its Restricted Subsidiaries, provided, however, that: (1) any Restricted Subsidiary may merge or consolidate with or into the Company, any Wholly-owned Restricted Subsidiary or any other Person so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing entity and in the case of any merger or consolidation with any other Person, such Person shall, after giving effect to such merger or consolidation, be a Wholly-owned Restricted Subsidiary; (2) any Restricted Subsidiary may sell or otherwise dispose of all or any part of its assets to the Company or any Wholly-owned Restricted Subsidiary; and (3) the Company or any Restricted Subsidiary may sell or otherwise dispose of any of its assets in the ordinary course of business for fair value. (b) The Company will not permit any Restricted Subsidiary to issue or sell any Equity Capital of such Restricted Subsidiary to any Person other than the Company or a Wholly-owned Restricted Subsidiary, except: (1) for the purpose of qualifying directors or the equivalent thereof; or (2) in satisfaction of the validly pre-existing preemptive rights of minority shareholders or the equivalent thereof in connection with the simultaneous issuance of Equity Capital to the Company and/or a Restricted Subsidiary whereby the Company and/or such Restricted Subsidiary maintain their same proportionate interest in such Restricted Subsidiary; or (3) to Affiliated Entities in connection with the formation of a Restricted Subsidiary which is organized as an investment entity by the Company and such Affiliated Entities and the activities of which are limited solely to the ownership of Equipment. (c) The Company will not sell, transfer or otherwise dispose of any Equity Capital in any Restricted Subsidiary (except to qualify directors or the equivalent thereof) or any Indebtedness of any Restricted Subsidiary, and will not permit any Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the Company or a Wholly-owned Restricted Subsidiary) any Equity Capital or any Indebtedness of any other Restricted Subsidiary, unless: (1) simultaneously with such sale, transfer, or disposition, all shares of Equity Capital and all Indebtedness of such Restricted Subsidiary at the time owned by the Company and by every other Subsidiary shall be sold, transferred or disposed of as an entirety; (2) the Manager shall have determined, as evidenced by a resolution of the Board of Directors thereof, that the retention of such Equity Capital and Indebtedness is no longer in the best interests of the Company; (3) such Equity Capital and Indebtedness is sold, transferred or otherwise disposed of to a Person, for a cash consideration and on terms reasonably deemed by the Manager to be adequate and satisfactory; and (4) the Restricted Subsidiary being disposed of shall not have any continuing investment in the Company or any other Subsidiary not being simultaneously disposed of. Section 5.14. Guaranties. The Company will not, and will not permit any Restricted Subsidiary, to become or be liable in respect of any Guaranty except Guaranties by the Company of the obligations of any Restricted Subsidiary as a lessor of Aircraft or Vessels so long as the obligation of the Company as Guarantor is not in excess of that which the Company would have were it the lessor of such Aircraft or Vessels. Section 5.15. Repurchase of Notes. Neither the Company nor any Restricted Subsidiary or Affiliate, directly or indirectly, may repurchase or make any offer to repurchase any Notes unless the offer has been made to repurchase Notes, pro rata, from all holders of the Notes at the same time and upon the same terms. In case the Company repurchases any Notes, such Notes shall thereafter be cancelled and no Notes shall be issued in substitution therefor. Section 5.16. Transactions with Affiliates and Affiliated Entities. The Company will not, and will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate or Affiliated Entity (including, without limitation, the purchase from, sale to or exchange of Property with, or the rendering of any service by or for, any Affiliate or Affiliated Entity), except in the ordinary course of, and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's, business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than it would obtain in a comparable arm's-length transaction with a Person other than an Affiliate or Affiliated Entity; provided, however, that nothing contained in this ss.5.16 shall prohibit any transaction or arrangement otherwise permitted under Section 2.02(r) of the Operating Agreement as in effect on the Execution Date. Section 5.17. Investments. The Company will not, and will not permit any Restricted Subsidiary to, make any investments in or loans, advances or extensions of credit to, any Person, except: (a) investments, loans and advances by the Company and its Restricted Subsidiaries in and to Restricted Subsidiaries, including any investment in a Person which, after giving effect to such investment, will become a Restricted Subsidiary; (b) investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or any Restricted Subsidiary, is accorded the highest rating by Standard & Poor's, Moody's Investors Service, Inc. or other nationally recognized credit rating agency of similar standing; (c) investments in direct obligations of the United States of America, or any agency thereof, maturing in twelve months or less from the date of acquisition thereof and which are backed by the full faith and credit of the United States; (d) investments in direct obligations of the federal government of Canada, or any agency thereof, maturing in twelve months or less from the date of acquisition thereof and which are backed by the full faith and credit of the federal government of Canada; (e) investments in demand deposits and/or certificates of deposit maturing within one year from the date of acquisition thereof issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and substantially all of whose assets are located in the United States; provided that at the time of acquisition thereof by the Company or a Restricted Subsidiary, the senior unsecured long-term deposits of such bank or trust company or the senior unsecured long-term debt of the holding company of such bank or trust company (in the event no such rating exists for such bank or trust company) is rated "A" or better by Standard & Poor's or "A2" or better by Moody's Investors Service, Inc.; (f) investments by the Company and its Restricted Subsidiaries in Property and Equipment (including investments in Unconsolidated Special Purpose Entities) to be used in the ordinary course of business; and (g) short-term receivables arising from the sale of goods and services in the ordinary course of business of the Company and its Restricted Subsidiaries. For purposes of this ss.5.17, at any time when a corporation, a limited liability company or a partnership becomes a Restricted Subsidiary, all investments of such corporation, limited liability company or partnership at such time shall be deemed to have been made by such corporation, such limited liability company or such partnership, as a Restricted Subsidiary, at such time. Section 5.18. Termination of Pension Plans. The Company will not and will not permit any Subsidiary to permit any employee benefit plan maintained by it to be terminated in a manner which could result in the imposition of a lien on any Property of the Company or any Subsidiary pursuant to Section 4068 of ERISA. Section 5.19. Reports and Rights of Inspection. The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in which full and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Company or such Subsidiary, in accordance with generally accepted principles of accounting consistently maintained (except for changes disclosed in the financial statements furnished to you pursuant to this ss.5.19 and concurred with by the independent public accountants referred to in ss.5.19(b) hereof), and will furnish to you so long as you are the holder of any Note and to each other institutional holder of the then outstanding Notes (in duplicate if so specified below or otherwise requested): (a) Quarterly Statements. As soon as available and in any event within 60 days after the end of each quarterly fiscal period (except the last) of each fiscal year, duplicate copies of: (1) a consolidated balance sheet of the Company and its Restricted Subsidiaries as of the close of such quarter setting forth in comparative form the consolidated figures for the end of the preceding fiscal year, (2) consolidated statements of operations and changes in members' equity of the Company and its Restricted Subsidiaries for such quarterly period and for the portion of the fiscal year ending with such quarter, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, (3) consolidated statements of cash flows of the Company and its Restricted Subsidiaries for such quarterly period and for the portion of the fiscal year ending with such quarter, setting forth in comparative form the consolidated figures for the corresponding period of the preceding fiscal year, and (4) a list of all Equipment, all purchases of additional Equipment and of any Equipment which has become the subject of a total loss, in any such case during such quarterly period and the percentage of all Equipment that is being leased from the Company as at the end of such quarterly period, all in reasonable detail and certified as complete and correct, by an authorized financial officer of the Company or the Manager; (b) Annual Statements. As soon as available and in any event within 90 days after the close of each fiscal year of the Company, duplicate copies of: (1) a consolidated balance sheet of the Company and its Restricted Subsidiaries as of the close of such fiscal year, and (2) consolidated statements of operations and changes in members' equity and cash flows of the Company and its Restricted Subsidiaries for such fiscal year, in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by a report thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements have been prepared in accordance with generally accepted accounting principles and present fairly, in all material respects, the financial condition of the Company and its Restricted Subsidiaries and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and accordingly includes such tests of the accounting records and such other auditing procedures as were considered necessary to provide a reasonable basis for the opinion expressed in the report; (c) Audit Reports. Promptly upon receipt thereof, one copy of each interim or special audit made by independent accountants of the books of the Company or any Restricted Subsidiary; (d) SEC and Other Reports. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to members generally and of each regular or periodic report, and any registration statement or prospectus filed by the Company or any Subsidiary or the Manager with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings to which the Company or any of its Subsidiaries or the Manager is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company or any of its Subsidiaries or the Manager; (e) Requested Information. With reasonable promptness, all such information which at the time you or any successor qualified institutional buyer (as defined in Rule 144A of the General Rules and Regulations of the Securities and Exchange Commission) may need to comply with said Rule 144A upon a sale of Notes pursuant to said Rule as well as such other data and information as you or any such institutional holder may reasonably request; (f) Officer's Certificates. Within the periods provided in paragraphs (a) and (b) above, a certificate of an authorized financial officer of the Company or the Manager stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and any computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of ss.5.7 through ss.5.18, inclusive, at the end of the period covered by the financial statements then being furnished, (ii) whether there existed as of the date of such financial statements and whether, to the best of such officer's knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto, and (iii) the Equipment Value of Aggregate Equipment as of the end of such period; (g) Accountants Certificates. Within the period provided in paragraph (b) above, a report of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed ss.ss.5.7, 5.8, 5.9, 5.11, 5.12 and ss.5.17 of this Agreement and stating further whether, in making their audit, such accountants have become aware of any Default or Event of Default under any of the terms or provisions of this Agreement insofar as any of such terms or provisions pertain to or involve accounting matters or determinations, and if any such condition or event then exists, specifying the nature and period of existence thereof; (h) Unrestricted Subsidiaries. Within the respective periods provided in paragraph (b) above, financial statements of the character and for the dates and periods as in said paragraph (b) provided covering each Unrestricted Subsidiary (or groups of Unrestricted Subsidiaries on a consolidated basis); (i) Reports to Members. Promptly upon their becoming available copies of all financial statements and reports other than tax reports sent by the Company to its Members generally, including without limitation, copies of the annual comparison report prepared by the Manager pursuant to Section 2.06(e) of the Operating Agreement; and (j) Annual Insurance Certificates. Within 90 days after the end of each fiscal year of the Company, a certificate signed by Carpenter Moore Insurance Services Inc. or any other independent insurance broker satisfactory to the Majority Holders containing a statement of the insurance maintained by the Company pursuant to ss.5.6 (including as to each policy, its number, the amount, the insurer, the named assureds, the type of risk, the loss payees and the expiration date) and a statement that such insurance is in such amounts, against such risks and with such insurers as to adequately protect the Company; and (k) Accounting Controls. Promptly upon becoming available, and in any event within three Business Days after receipt, copies of any report outlining any material inadequacies in the accounting controls of the Company, the Manager or the Fund Manager submitted by independent accountants in connection with any audit of the Company, any Restricted Subsidiary, the Manager or the Fund Manager. Without limiting the foregoing, the Company will permit you, so long as you are the holder of any Note, and each institutional holder of 10% or more of the aggregate principal amount of the then outstanding Notes (or such Persons as either you or such holder may designate), to visit and inspect, under the Company's guidance, any of the properties of the Company or any Subsidiary, to examine all their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision the Company authorizes said accountants to discuss with you the finances and affairs of the Company and its Subsidiaries) all at such reasonable times and as often as may be reasonably requested; provided, however, that any inspections of Equipment shall only be permitted to be conducted at such times and in such manner as shall not interfere with the normal and customary use of such Equipment by the lessee thereof. The Company shall not be required to pay or reimburse you or any such holder for expenses which you or any such holder may incur in connection with any such visitation or inspection unless a Default or Event of Default shall have occurred and be continuing, in which case, any such visitation or inspection shall be at the sole expense of the Company. You agree that all non-public information furnished to you pursuant to this Agreement shall be treated as confidential information by you and that you will use reasonable efforts to refrain from disclosing such information to any other Person (excluding any of your officers, employees, agents, auditors and counsel), provided that (a) you shall not be liable to the Company or any other Person in damages for any failure to comply with the foregoing covenant except in any case involving gross negligence, willful misconduct or fraudulent misconduct on your part, (b) you may disclose any or all of such information if in your judgment such disclosure is necessary or advisable in connection with the preservation or protection of your interests as a holder of any Notes or in connection with selling, or otherwise realizing upon your interest in, the Notes, and (c) you may disclose any such information to, or in response to the order or request of, any governmental agency, regulatory or supervisory authority (including for this purpose the National Association of Insurance Commissioners) or court or any nationally recognized rating agency in connection with its rating of the holder of the Notes. The restrictions contained herein shall not apply to information which (i) is or becomes generally available to the public other than as a result of a disclosure by you or your representatives, (ii) becomes available to you on a non-confidential basis from a source other than the Company or one of its agents or (iii) was known to you on a non-confidential basis prior to its disclosure to you by the Company or one of its agents. The foregoing provisions of this ss.5.19 notwithstanding, the Company shall not be required to furnish any of the above information which is not otherwise generally available to the public to any holder of the Notes which is engaged in the transportation equipment leasing or service business. Section 5.20. Certain Appraisals. (a) The Requisite Holders shall have the right, exercisable not more than two times from and after the first Closing Date, to require that, at the expense of the Company, an appraisal be made of the Current Fair Market Value of the Equipment (the "Appraised Value"). In addition to such required appraisals at the Company's expense, the Requisite Holders shall have the further right from time to time to cause the Appraised Value to be determined (the "Additional Appraisals"); provided, that upon any determination of the Appraised Value pursuant to any Additional Appraisal, (1) if the Appraised Value demonstrates that the Company is in compliance with ss.5.9(b), the holders of the Notes shall bear the expense of such Additional Appraisal, or (2) if the Appraised Value demonstrates that the Company is not in compliance with ss.5.9(b), the Company shall bear the expense of such Additional Appraisal. In any such event, the Company shall promptly notify all of the holders of the Notes of the request to have the Appraised Value determined and the Appraised Value shall thereupon be determined in accordance with the Appraisal Procedure set forth below. The Company shall make available to any appraiser who so requests all information regarding the Equipment reasonably requested by any appraiser. Any appraisal made pursuant to this ss.5.20 shall be limited to an appraisal of only such Equipment designated by the Company as is necessary to demonstrate compliance with ss.5.6, ss.5.9 or ss.5.12. "Appraisal Procedure" shall mean the following procedure for determining the Current Fair Market Value of any Equipment: If the Requisite Holders shall have given written notice to the Company requesting determination of such value by the Appraisal Procedure, the Company shall designate which nationally recognized appraiser(s) listed on Schedule III hereto shall conduct the Appraisal Procedure. The Requisite Holders shall have the right to cause any appraiser listed on Schedule III to be removed from such Schedule III if such holders shall indicate their objection to any such appraiser to the Company and state a reasonable basis therefor. If the Company shall seek to designate any appraiser other than one listed on Schedule III, the Company and such requesting holders shall consult for the purpose of appointing a qualified independent appraiser skilled in the valuation of Property such as the Equipment by mutual agreement. If no such appraiser is so appointed within 15 days after such notice is given, the Company and such holders shall each appoint a qualified independent appraiser within 20 days after such notice is given. If one party appoints an appraiser pursuant to the preceding sentence, the appraisal shall be made by such appraiser if the other party fails to appoint a second appraiser within the applicable time limit. If both parties appoint appraisers, the two appraisers so appointed shall within 30 days after such notice is given, appoint a third independent appraiser. If no such third appraiser is appointed within 30 days after such notice is given, either party may apply to the American Arbitration Association to make such appointment, and both parties shall be bound by any such appointment. If the parties shall have appointed a single appraiser, his determination of Current Fair Market Value shall be final. If three appraisers shall be appointed, the Current Fair Market Value determined by the three appraisers shall be averaged, the determination which differs most from such average shall be excluded, the remaining two determinations shall be averaged and such average shall be final and shall constitute the Appraised Value. SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR. Section 6.1. Events of Default. Any one or more of the following shall constitute an "Event of Default" as the term is used herein: (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five days; or (b) Default shall occur in the making of any required prepayment on any of the Notes as provided in ss.2.1; or (c) Default shall occur in the making of any other payment of the principal of any Note or the premium thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; or (d) Default shall be made in the payment of the principal of or interest or premium, if any, on any Indebtedness of the Company or any Restricted Subsidiary for borrowed money aggregating in excess of $1,000,000, as and when the same shall become due and payable by the lapse of time, by declaration, by call for redemption or otherwise, and such default shall continue beyond the grace period, if any, allowed with respect thereto; provided however, this ss.6.1(d) shall not apply to alleged defaults under contracts or leases (other than relating to Indebtedness for borrowed money) that are being contested in good faith; or (e) Default or the happening of any event shall occur under any indenture, agreement, or other instrument under which any Indebtedness of the Company or any Restricted Subsidiary for borrowed money aggregating in excess of $1,000,000 may be issued and such default or event shall continue for a period of time sufficient to permit the acceleration of the maturity of any Indebtedness of the Company or any Restricted Subsidiary outstanding thereunder; provided however, this ss.6.1(e) shall not apply to alleged defaults under contracts or leases (other than relating to Indebtedness for borrowed money) that are being contested in good faith; or (f) Default shall occur in the observance or performance of any covenant or agreement contained in ss.5.7 through ss.5.16 (excluding ss.5.9(b)), inclusive, hereof, or in the Letter Agreement dated the Execution Date between the Company and the Purchaser; or (g) Default shall occur in the observance or performance of the provisions of ss.5.9(b) which is not remedied within the earlier of (1) 45 days of the occurrence thereof or (2) 10 days after any officer of the Manager shall have received actual knowledge of such Default; or (h) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after any officer of the Manager shall have received actual knowledge of such Default; or (i) Any representation or warranty made by the Company herein, or made by the Company in any statement or certificate furnished by the Company in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or (j) The Company or any Restricted Subsidiary becomes insolvent or bankrupt, is generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Restricted Subsidiary applies for or consents to the appointment of a custodian, trustee or receiver for the Company or such Restricted Subsidiary or for the major part of the Property of either; or (k) A custodian, trustee or receiver is appointed for the Company or any Restricted Subsidiary or for the major part of the Property of either and is not discharged within 30 days after such appointment; or (l) Final judgment or judgments for the payment of money aggregating in excess of $1,000,000 is or are outstanding against the Company or any Restricted Subsidiary or against any Property or assets of either and any one of such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 30 days from the date of its entry; or (m) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company or any Restricted Subsidiary and, if instituted against the Company or any Restricted Subsidiary, are consented to or are not dismissed within 60 days after such institution; or (n) Any of the Events of Dissolution described in clauses (a) through (d) and clause (f) of Section 10.01 of the Operating Agreement as in effect on the Execution Date shall occur or the Company shall be terminated. Notwithstanding the foregoing, if any one or more of the events described in (j), (k), (l) or (m) above shall have occurred and be continuing involving one or more Restricted Subsidiaries, it shall not be deemed to constitute an Event of Default unless the Restricted Subsidiary or Subsidiaries so involved own, in the aggregate, 5% or more of the Tangible Assets at the time owned by the Company and its Restricted Subsidiaries. Section 6.2. Notice to Holders. When any Event of Default described in the foregoing ss.6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness of the Company gives any notice or takes any other action with respect to a claimed default, the Company agrees to give notice within three Business Days of such event to all holders of the Notes then outstanding, such notice to be in writing and sent by registered or certified mail or by telegram. Section 6.3. Acceleration of Maturities. When any Event of Default described in paragraph (a), (b) or (c) of ss.6.1 has happened and is continuing, any holder of any Note may, and when any Event of Default described in paragraphs (d) through (l), inclusive, of said ss.6.1 has happened and is continuing, the holder or holders of 40% or more of the principal amount of Notes at the time outstanding may, by notice in writing sent by registered or certified mail to the Company, declare the entire principal and all interest accrued on all Notes to be, and all Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (m) or (n) of ss.6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the holders of the Notes the entire principal and interest accrued on the Notes and, to the extent permitted by law, an amount, payable as liquidated damages and not as a penalty, equal to the amount which would be payable if the Company then had elected to prepay the Notes at a premium pursuant to ss.2.2. No course of dealing on the part of the holder or holders of any Note nor any delay or failure on the part of any holder of the Notes to exercise any right shall operate as a waiver of such right or otherwise prejudice such holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the holder or holders of the Notes all costs and expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such holder's or holders' attorneys for all services rendered in connection therewith. Section 6.4. Rescission of Acceleration The provisions of ss.6.3 are subject to the condition that if the principal of and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (l), inclusive, of ss.6.1, the Majority Holders may, by written instrument filed with the Company, waive such default and rescind and annul such declaration and the consequences thereof, provided that at the time such declaration is annulled and rescinded: (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under ss.6.3) shall have been duly paid; and (c) each and every Default and Event of Default shall have been made good, cured or waived pursuant to ss.7.1; and provided further, that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS. Section 7.1. Consent Required. Any term, covenant, agreement or condition of this Agreement may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), if the Company shall have obtained the consent in writing of the Majority Holders; provided that without the written consent of the holders of all of the Notes then outstanding, no such waiver, modification, alteration or amendment shall be effective (a) which will change the time of payment (including any prepayment required by ss.2.1) of the principal of or the interest on any Note or reduce the principal amount thereof or change the rate of interest thereon, or (b) which will change any of the provisions with respect to optional prepayments, (c) which will change any of the provisions of ss.6, or (d) which will change the percentage of holders of the Notes required to consent to any such amendment, alteration or modification or any of the provisions of this ss.7. Section 7.2. Solicitation of Holders. The Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment of any of the provisions of this Agreement or the Notes unless each holder of the Notes (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver or consent effected pursuant to the provisions of this ss.7.2 shall be delivered by the Company to each holder of outstanding Notes forthwith following the date on which the same shall have been executed and delivered by the holder or holders of the requisite percentage of outstanding Notes. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any holder of the Notes in consideration for or as an inducement to any waiver or amendment of any of the terms and provisions of this Agreement unless such remuneration is concurrently paid, on the same terms, ratably to the holders of all of the Notes then outstanding. Section 7.3. Effect of Amendment or Waiver. Any such amendment or waiver shall apply equally to all of the holders of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS. Section 8.1. Definitions. Unless the context otherwise requires, the terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "Affiliate" shall mean any Person (other than an Affiliated Partnership or a Wholly-owned Restricted Subsidiary) (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (b) which beneficially owns or holds 10% or more of any class of the Equity Capital of the Company, (c) 10% or more of the Voting Equity Capital of which is beneficially owned or held by the Company or a Subsidiary, or (d) Officers and members of the Board of Directors of the Manager. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Equity Capital, by contract or otherwise. "Affiliated Entity" shall mean all partnerships of which the Manager is a controlling general partner or with respect to which the general partner is controlled by the Company or any other Affiliated Entity and all limited liability companies of which the Manager is a controlling manager or with respect to which the manager is controlled by the Company or any other Affiliated Entity and, in any such case, which are engaged in the business of owning and leasing a diversified equipment portfolio consisting primarily of used transportation and transportation related equipment with a secondary emphasis on new equipment. "Agreement" shall mean this Note Agreement dated as of December 15, 1996 between the Company and the Purchaser, as the same may from time to time be supplemented or amended. "Aircraft" shall mean any corporate, commuter, or commercial aircraft or helicopters, purchased, owned and leased or held for lease to others or otherwise used by or on behalf of the Company or any Restricted Subsidiary as described in the Operating Agreement, together with all 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-alone basis, title to which vests in the Company or any Restricted Subsidiary or in a trust or other entity of which the Company or any Restricted Subsidiary is the sole or a participating beneficiary or owner. "Appraised Value" shall have the meaning ascribed thereto in ss.5.20. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in San Francisco, California or Chicago, Illinois, are required by law to close or are customarily closed. "Capitalized Lease" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with generally accepted accounting principles. "Capitalized Rentals" shall mean as of the date of any determination the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which the Company or any Restricted Subsidiary is a lessee would be reflected as a liability on a consolidated balance sheet of the Company and its Restricted Subsidiaries. "Cash Equivalents" shall mean those investments described in clauses (b) and (c) of ss.5.17 and those investments described in clause (e) of ss.5.17 which mature within 90 days from the date of acquisition thereof. "Change Event" shall have the meaning ascribed thereto in ss.2.3(a). "Change Notice" shall have the meaning ascribed thereto in ss.2.3(a). "Class A Member" shall mean any Person or Persons who, at the time of any determination thereof, is a Class A Member of the Company under and pursuant to the terms of the Operating Agreement. "Class B Member" shall mean any Person or Persons who, at the time of any determination thereof, is a Class B Member of the Company under and pursuant to the terms of the Operating Agreement. "Closing Date" and "Closing Dates" shall have the meanings ascribed thereto in ss.1.2. "Commitment Fee" shall have the meaning ascribed thereto in ss.1.3. "Company" shall have the meaning ascribed thereto in the Preamble. "Consolidated Assets" as of any date of determination shall mean the sum of (a) cash, (b) Cash Equivalents and (c) Equipment Value of Aggregate Equipment. "Consolidated Cash Flow Available for Fixed Charges" for any period shall mean the sum of (a) Consolidated Net Income during such period plus (to the extent deducted in determining Consolidated Net Income), (b) all provisions for any Federal, state or other income taxes made by the Company and its Restricted Subsidiaries during such period, (c) all provisions for depreciation and amortization made during such period (other than such provisions made with respect to Encumbered Equipment), (d) any loss arising as the result of revaluation of Equipment (net of revaluation gains) during such period (other than any such loss relating to Encumbered Equipment), (e) cash payments received from Unconsolidated Special Purpose Entities (other than Unconsolidated Special Purpose Entities which constitute Encumbered Equipment) during such period, and (f) Consolidated Fixed Charges during such period. "Consolidated Debt" shall mean all Debt of the Company and its Restricted Subsidiaries (other than Short Term Warehouse Debt), determined on a consolidated basis eliminating intercompany items. "Consolidated Fixed Charges" for any period shall mean on a consolidated basis the sum of (a) all Rentals (other than Rentals on Capitalized Leases) payable during such period by the Company and its Restricted Subsidiaries, and (b) all Interest Charges on all Indebtedness (including the imputed interest applicable to Capitalized Rentals) of the Company and its Restricted Subsidiaries (other than Interest Charges relating to Short Term Warehouse Debt). "Consolidated Net Income" for any period shall mean the gross revenues of the Company and its Restricted Subsidiaries for such period less all expenses and other proper charges (including taxes on income), determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied and after eliminating earnings or losses attributable to outstanding Minority Interests, but excluding in any event: (a) the proceeds of any life insurance policy; (b) net earnings and losses of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary; (c) net earnings and losses of any corporation (other than a Restricted Subsidiary), substantially all the assets of which have been acquired in any manner, realized by such other corporation prior to the date of such acquisition; (d) net earnings and losses of any corporation (other than a Restricted Subsidiary) with which the Company or a Restricted Subsidiary shall have consolidated or which shall have merged into or with the Company or a Restricted Subsidiary prior to the date of such consolidation or merger; (e) net earnings of any business entity (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an ownership interest unless such net earnings shall have actually been received by the Company or such Subsidiary in the form of cash distributions; (f) any portion of the net earnings of any Restricted Subsidiary which for any reason is unavailable for payment of dividends to the Company or any other Restricted Subsidiary; (g) earnings resulting from any reappraisal, revaluation or write-up of assets; (h) any deferred or other credit representing any excess of the equity in any Subsidiary at the date of acquisition thereof over the amount invested in such Subsidiary; (i) any gain arising from the acquisition of any Securities of the Company or any Restricted Subsidiary; (j) any reversal of any contingency reserve (other than maintenance reserves and engine reserves paid by lessees of Equipment into restricted accounts which, upon the occurrence of a default under, or expiration of, the related lease, such reserves are paid to the Company), except to the extent that provision for such contingency reserve shall have been made from income arising during such period; and (k) earnings generated by or attributable to Encumbered Equipment. "Current Fair Market Value" with respect to any item of Equipment shall mean the fair market value thereof as determined by an equally willing and informed buyer and seller, neither under a short time constraint or compulsion to buy or sell, for a single unit cash transaction with no hidden value or liability, as adjusted by prevailing market conditions (whether at, above or below fair market value), including without limitation: the status of the economy in which such item of Equipment is used, the status of supply and demand for items of equipment which are the same as such item of Equipment, the value of recent transactions involving similar items of equipment and the opinions of informed buyers and sellers with no immediate constraint or compulsion to buy or sell. "Debt" of any Person shall mean and be limited to Indebtedness of such Person for and in respect of money borrowed, as well as Indebtedness of such Person of the types described in clauses (a) through (e) of the definition of Indebtedness set forth below. "Declaration Notice" shall have the meaning ascribed thereto in ss.2.3(a). "Default" shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default as defined in ss.6.1. "Disposition" shall have the meaning ascribed thereto in ss.5.13(a). "Distributions" shall mean and include (a) any payment or distribution of income or profits of the Company (other than payments of Management Fees), (b) any other payment or other distribution of Property (including, without limitation, cash distributions) made by or on behalf of the Company to any of its Members which under generally accepted accounting principles would be required to be deducted from the capital account for such Member on the books of the Company, and (c) any payment or other distribution to any Person to purchase, redeem or retire any warrant, option or other right to acquire any Unit or other interest as a Member of the Company. "Encumbered Equipment" shall mean all items of Equipment the acquisition of which are financed with borrowings under the Warehousing Credit Agreement, whether or not secured by any Lien. "Environmental Law" shall mean any current or future treaty, convention, statute, law, regulation, ordinance, permit, governmental approval, injunction, judgment, order, consent decree or other legal requirement pertaining to (a) the protection of health, safety and the indoor or outdoor environment, (b) the conservation, management or use of natural resources and wildlife, (c) the protection or use of surface water and groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any hazardous material (including asbestos and crude oil or any fraction thereof) or (e) pollution (including any release to air, land, surface water and groundwater), and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. ss.ss.9601 et seq., Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. ss.ss.6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. ss.ss.1251 et seq., Clean Air Act of 1966, as amended, 42 U.S.C. ss.ss.7401 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. ss.ss.2601 et seq., Hazardous Materials Transportation Act, 49 U.S.C. App. ss.ss.1801 et seq., Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. ss.ss.651 et seq., Oil Pollution Act of 1990, 33 U.S.C. ss.ss.2701 et seq., Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss.11001 et seq., National Environmental Policy Act of 1969, 42 U.S.C. ss.ss.4321 et seq., Safe Drinking Water Act of 1974, as amended, 42 U.S.C. ss.ss.300(f) et seq., any similar, implementing or successor law, and any amendment, rule, regulation, order or directive issued thereunder. "Equipment" shall mean each item of and all of the transportation equipment and other personal Property purchased, owned, and leased or held for lease to others or otherwise used by or on behalf of the Company or any Restricted Subsidiary as described in the Operating Agreement, together with all appliances, parts, instruments, appurtenances, accessories, furnishings or other equipment included therein (including any and all engines originally installed thereon), and all substitutions, renewals or replacements of, and all additions, improvements and accessions to, any and all thereof, title to which vests in the Company or any Restricted Subsidiary or in a trust or other entity of which the Company or any Restricted Subsidiary is the sole or a participating beneficiary or owner. "Equipment Management Agreement" shall mean the Equipment Management Agreement dated as of January 24, 1995, entered into on behalf of the Company by the Manager with its Affiliate, PLM Investment Management, Inc., pursuant to Section 2.02(k) of the Operating Agreement. "Equipment Value" when used with reference to an item of Equipment shall mean, as of any date of determination thereof, the Current Fair Market Value (determined in good faith by the Manager or, if an appraisal shall have been made within one year of the date of determination pursuant to ss.5.20, the Appraised Value) of such item of Equipment owned and leased or available for lease (as lessor) by the Company and its Restricted Subsidiaries. "Equipment Value of Aggregate Equipment" shall mean, as of any date of determination thereof, the Current Fair Market Value (determined in good faith by the Manager or, if an appraisal shall have been made within one year of the date of determination pursuant to ss.5.20, the Appraised Value) of all of the Equipment owned and leased or available for lease (as lessor) by the Company and its Restricted Subsidiaries, including the Company's proportionate share of Equipment owned jointly through the Company's investments in Unconsolidated Special Purpose Entities, it being understood and agreed that nothing contained in this definition of "Equipment Value of Aggregate Equipment" shall be deemed or construed to relieve the Company of its obligation pursuant to ss.5.6 to maintain the full amount of insurance required pursuant thereto in respect of Vessels, Mobile Offshore Drilling Units and Aircraft notwithstanding that the Company and its Subsidiaries may own less than 100% of any such item of Equipment. For the purposes of all computations of Equipment Value of Aggregate Equipment pertaining to ss.5.9(b), there shall be excluded therefrom the Equipment Value of (a) any item of Equipment which at the time of the computation of Equipment Value of Aggregate Equipment has not been subject to a lease with a Person which is not an Affiliate or an Affiliated Entity for more than 120 days and (b) Encumbered Equipment. "Equity Capital" shall mean in the case of a corporation, shares of stock of any class, including as stock any warrants, rights or options to purchase or otherwise acquire stock or other Securities exchangeable for or convertible into stock, and in the case of any limited liability company, partnership or other entity shall mean any membership interest, partnership interest or like interest constituting equity, and in the case of each of the foregoing, any part or portion thereof. "ERISA" is defined in ss.3.2. "Event of Default" shall have the meaning ascribed thereto in ss.6.1. "Execution Date" shall have the meaning ascribed thereto in ss.1.2. "Four-Quarter Period" shall mean a period of four, full, consecutive quarter-annual fiscal periods, taken together as one accounting period. "Fund Manager" shall mean PLM Investment Management, Inc., a California corporation, or any Person or Persons who, at the time of reference thereto, shall have been appointed as successor to PLM Investment Management, Inc. "Guaranties" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any Property or assets constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation, (ii) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, or (iii) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (c) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "Indebtedness" of any Person shall mean and include all obligations of such Person which in accordance with generally accepted accounting principles shall be classified upon a balance sheet of such Person as liabilities of such Person, and in any event shall include, without duplication, all (a) obligations of such Person for borrowed money or which has been incurred in connection with the acquisition of Property or assets, (b) obligations secured by any lien or other charge upon Property or assets owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, excluding, however, any lien which is being contested in good faith and the continued existence thereof shall not cause any material interference with the use of the Property, (c) obligations created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of Property, excluding, however, any arrangement for the acquisition of Property by such Person where the risk of loss of such Property has not passed to such Person (d) Capitalized Rentals under any Capitalized Lease and (e) Guarantees. "Interest Charges" for any period shall mean all interest and all amortization of debt discount and expense on any particular Debt for which such calculations are being made and shall include the imputed interest portion of Capitalized Rentals. Computations of Interest Charges on a pro forma basis for Debt having a variable interest rate shall be calculated at the rate in effect on the date of any determination. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting Property but shall not include the interests of any Affiliated Entity, or any subsidiary of the Manager in any Equipment owned jointly by the Company, such Affiliated Entity and any subsidiary of the Manager through a trust, a limited liability company or a partnership. For the purposes of this Agreement, the Company or a Restricted Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "Long-Term Lease" shall mean any lease of real or personal Property (other than a Capitalized Lease) having an original term, including any period for which the lease may be renewed or extended at the option of the lessor, of more than three years. "Majority Holders" shall mean as of any date of determination thereof the holders of not less than 50.1% in aggregate principal amount of outstanding Notes. "Management Fees" shall mean (a) the Equipment Management Fee, the Re-Lease Fee, the Equipment Liquidation Fee (as such terms are defined in the Operating Agreement) and any premiums, commissions or fees for providing insurance and risk management services, all as provided in the Operating Agreement as in effect on the Execution Date, and (b) all fees payable to the Fund Manager pursuant to the Equipment Management Agreement as in effect on the Execution Date. "Manager" shall mean PLM Financial Services, Inc., a Delaware corporation, or any Person or Persons who, at the time of reference thereto, has become the Manager of the Company pursuant to the Operating Agreement and if there is more than one such Manager, the terms "Manager" shall mean the Manager of the Company vested under the provisions of the Operating Agreement with the responsibility and authority for the management and direction of the business and operations of the Company. "Material Agreement" shall mean the Equipment Management Agreement and the Operating Agreement. "Member" shall mean any member, of any class or kind, of the Company. "Minority Interests" shall mean any Equity Capital of a Restricted Subsidiary (other than directors' qualifying shares of stock as required by law) that are not owned by the Company and/or one or more of its Restricted Subsidiaries. Minority Interests shall be valued by valuing (a) Minority Interests constituting preferred stock at the voluntary or involuntary liquidating value of such preferred stock, whichever is greater, (b) Minority Interests constituting common stock at the book value of capital and surplus applicable thereto adjusted, if necessary, to reflect any changes from the book value of such common stock required by the foregoing method of valuing Minority Interests in preferred stock and (c) Minority Interests constituting membership interests or limited or general partnership interests at the book value thereof determined in accordance with generally accepted accounting principles in the United States. "Mobile Offshore Drilling Unit" shall mean any jack-up rig, semi-submersible rig or platform drilling rig, purchased, owned and leased or held for lease to others or otherwise used by or on behalf of the Company or any Restricted Subsidiary as described in the Operating Agreement, together with all appliances, parts, instruments, appurtenances, accessories, furnishings or other equipment included therein and all substitutions, renewals or replacements of, and all additions, improvements and accessions to, any and all thereof, title to which vests in the Company or any Restricted Subsidiary or in a trust or other entity of which the Company or any Restricted Subsidiary is the sole or a participating beneficiary or owner. "Notes" shall have the meaning ascribed thereto in ss.1.1(a). "Notification of Declaration" shall have the meaning ascribed thereto in ss.2.3(a). "Officer" shall mean any officer as provided in the by-laws of the Manager. "Operating Agreement" shall mean the Fifth Amended and Restated Operating Agreement of Professional Lease Management Income Fund I, L.L.C. dated as of January 24, 1995, by and among PLM Financial Services, Inc., as the manager and the initial Class B Member, Denise M. Kirchubel, as the initial Class A Member, and the other Class A Members named therein, as amended by the First Amendment dated as of March 18, 1996, and as the same may be further amended, modified, supplemented or restated from time to time. "Payment Date" shall have the meaning ascribed thereto in ss.2.3(a). "Person" shall mean an individual, limited liability company, partnership, corporation, trust, joint venture or unincorporated organization, and a government or agency or political subdivision thereof. "Prohibited Transferee" shall mean Bank of America National Trust & Savings Association and its direct subsidiaries. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Rentals" shall mean and include all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by the Company or a Restricted Subsidiary, as lessee or sublessee under a lease of real or personal Property, but shall be exclusive of any amounts required to be paid by the Company or a Restricted Subsidiary (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "Requisite Holders" shall mean as of any date of determination thereof the holders of not less than 66-2/3% in aggregate principal amount of outstanding Notes. "Restricted Subsidiary" shall mean (a) those Subsidiaries designated as such on the Execution Date and whose names are set forth on Annex A to Exhibit B and (b) any Subsidiary designated as such by the Manager in a written notice to the holders of the Notes. Any Subsidiary which has been designated as a Restricted Subsidiary may not thereafter be designated as an Unrestricted Subsidiary. The Company shall, notwithstanding the foregoing definition of "Restricted Subsidiary", include any profits or losses of any Affiliated Entity in any computation pursuant to ss.5.7 to the extent of, but only to the extent of, the Equity Capital of such Affiliated Entity owned by the Company, provided that any such computation pursuant to said ss.5.7 shall so include such profits and losses to the extent of the Equity Capital of such Affiliated Entity so owned by the Company for so long as 100% of the Equity Capital of such Affiliated Entity is owned by the Company and other Affiliated Entities. "Security" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "Short Term Warehouse Debt" shall mean and include all Indebtedness of the Company due within one year from the date of the issuance thereof under the Warehousing Credit Agreement. "Standard & Poor's" shall have the meaning ascribed thereto in ss.4.4. The term "subsidiary" shall mean, as to any particular parent entity, any corporation, limited liability company, partnership or other entity of which more than 50% of the Voting Equity Capital, and more than 50% of the Equity Capital shall be owned by such parent entity and/or one or more entities which are themselves subsidiaries of such parent entity. The term "Subsidiary" shall mean a subsidiary of the Company. "Tangible Assets" shall mean, as of the date of any determination thereof, the total amount of all assets of the Company and its Restricted Subsidiaries determined in accordance with generally accepted accounting principles (less depreciation, depletion and other properly deductible valuation reserves), after deducting goodwill, patents, trade names, trade marks, copyrights, franchises, experimental expense, organization expense, unamortized debt discount and expense, deferred assets other than prepaid insurance and prepaid taxes, the excess of cost of shares acquired over book value of related assets and such other assets as are properly classified as "intangible assets" in accordance with generally accepted accounting principles. "Unconsolidated Special Purpose Entity" shall mean any entity which is organized solely for the purpose of owning and operating or leasing long-lived, low obsolescence transportation or oil drilling equipment in a manner consistent with the purpose of the Company articulated in the Operating Agreement with an aggregate purchase price of $5,000,000 or more in which the Company and one or more Affiliates are co-investors and which investment may not, under generally accepted accounting principles, be consolidated in the preparation of the financial statements of the Company. "Units" shall have the same meaning as in the Operating Agreement. "Unrestricted Subsidiary" shall mean any Subsidiary which is not a Restricted Subsidiary. "Vessel" shall mean any marine dry or liquid bulk carrier or tanker purchased, owned and leased or held for lease to others or otherwise used by or on behalf of the Company or any Restricted Subsidiary as described in the Operating Agreement, together with all appliances, parts, instruments, appurtenances, accessories, furnishings or other equipment included therein (including any and all engines installed thereon), and all substitutions, renewals or replacements of, and all additions, improvements and accessions to, any and all thereof, title to which vests in the Company or any Restricted Subsidiary or in a trust or other entity of which the Company or any Restricted Subsidiary is the sole or a participating beneficiary or owner. "Voting Equity Capital" shall mean Securities, membership interests or partnership interests of any class or classes, the owners or holders of which are entitled to elect a majority of the corporate directors (or Persons performing similar functions). "Warehousing Credit Agreement" shall mean that certain Second Amended and Restated Warehousing Credit Agreement dated as of May 31, 1996 (including any extension, renewal or replacement thereof), as amended by Amendment No. 1 dated as of November 5, 1996, among the Company and certain Affiliates, First Union National Bank of North Carolina, as Agent, and the Lenders named therein, established to finance, on a short term basis, the Company's and certain other Affiliates' purchases of transportation assets, as the same may be further amended or restated or replaced on substantially similar terms. "Wholly-owned" when used in connection with any Subsidiary shall mean a Subsidiary of which all of the issued and outstanding Equity Capital (except shares of stock required as directors' qualifying shares) and all Indebtedness for borrowed money shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries. "Withdrawal Event Prepayment Election Period" shall have the meaning ascribed thereto in ss.2.3(b). Section 8.2. Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, the same shall be done in accordance with generally accepted accounting principles in the United States, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. Section 8.3. Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. SECTION 9. MISCELLANEOUS. Section 9.1. Registered Notes. The Company shall cause to be kept at its principal office a register for the registration and transfer of the Notes, and the Company will register or transfer or cause to be registered or transferred, as hereinafter provided and under such reasonable regulations as it may prescribe, any Note issued pursuant to this Agreement. At any time and from time to time the holder of any Note which has been duly registered as hereinabove provided may transfer such Note to any person other than a Prohibited Transferee upon surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the holder of such Note or its attorney duly authorized in writing. The Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any Note shall be made to or upon the written order of such holder. Section 9.2. Exchange of Notes. At any time and from time to time, upon not less than ten days' notice to that effect given by the holder of any Note initially delivered or of any Note substituted therefor pursuant to ss.9.1, this ss.9.2 or ss.9.3, and, upon surrender of such Note at its office, the Company will deliver in exchange therefor, without expense to the holder, except as set forth below, a Note for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered or Notes for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered in minimum denominations of $1,000,000 (or such lesser amount as shall constitute 100% of the Notes of such holder) or any amount in excess thereof as such holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, payable to such Person or Persons, or registered assigns, as may be designated by such holder, and otherwise of the same form and tenor as the Notes so surrendered for exchange. The Company may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. Section 9.3. Loss, Theft, Etc. of Notes. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity to the Company in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Note, the Company will make and deliver without expense to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser or any subsequent institutional holder is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of the Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Company. Section 9.4. Expenses, Stamp Tax Indemnity. Whether or not the transactions herein contemplated shall be consummated, the Company agrees to pay directly all of your out-of-pocket expenses in connection with the preparation, execution and delivery of this Agreement and the transactions contemplated hereby, including but not limited to the reasonable charges and disbursements of Chapman and Cutler, your special counsel, duplicating and printing costs and charges for shipping the Notes, adequately insured to you at your home office or at such other place as you may designate, any cost or expense incurred in obtaining the Private Placement Number referred to in ss.4.4 hereof, and all such expenses relating to any amendment, waivers or consents pursuant to the provisions hereof, including, without limitation, any amendments, waivers or consents resulting from any work-out, restructuring or similar proceedings relating to the performance by the Company of its obligations under this Agreement and the Notes. The Company agrees that it will pay the charges and disbursements of Chapman and Cutler not later than fifteen Business Days from the date of presentation of an invoice therefor subsequent to each of the Closing Dates. Without limiting the foregoing, the Company also agrees to pay, within fifteen Business Days of receipt thereof, supplemental statements of Chapman and Cutler for disbursements unposted or not incurred as of each of the Closing Dates. The Company further agrees that it will pay and save you harmless against any and all liability with respect to stamp and other taxes, if any (other than taxes measured by income), which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement or the Notes, whether or not any Notes are then outstanding. The Company agrees to protect and indemnify you against any liability for any and all brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement. Section 9.5. Powers and Rights Not Waived; Remedies Cumulative. No delay or failure on the part of the holder of any Note in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of the holder of any Note are cumulative to and are not exclusive of any rights or remedies any such holder would otherwise have, and no waiver or consent, given or extended pursuant to ss.7 hereof, shall extend to or affect any obligation or right not expressly waived or consented to. Section 9.6. Notices. All communications provided for hereunder shall be in writing and, if to you, delivered or mailed by registered or certified mail, by overnight air courier, or by facsimile transmission (in which case, such communication shall be concurrently sent by registered or certified mail or overnight air courier) in each case prepaid and addressed to you at your address appearing on Schedule I to this Agreement or such other address as you or the subsequent holder of any Note initially issued to you may designate to the Company in writing, and if to the Company, delivered or mailed by registered or certified mail, by overnight air courier, or by facsimile transmission (in which case, such communication shall be concurrently sent by registered or certified mail or overnight air courier) in each case prepaid and addressed to the Company c/o PLM Financial Services, Inc. at One Market, Steuart Tower, Suite 800, San Francisco, CA 94105-1301, Telephone No. (415) 974-1399, Telecopier No. (415) 882-0860, Attention: Vice President - Chief Financial Officer, or to such other address as the Company may in writing designate to you or to a subsequent holder of the Note initially issued to you. Section 9.7. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to your benefit and to the benefit of your successors and assigns, including each successive holder or holders of any Notes. Section 9.8. Survival of Covenants and Representations. All covenants, representations and warranties made by the Company herein and in any certificates delivered pursuant hereto, whether or not in connection with the Execution Date or either of the Closing Dates, shall survive the closing and the delivery of this Agreement and the Notes. Section 9.9. Severability. Should any part of this Agreement for any reason be declared invalid, such decision shall not affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. Section 9.10. Governing Law. This Agreement and the Notes issued and sold hereunder shall be governed by and construed in accordance with the internal laws of the State of Illinois. Section 9.11. Submission to Jurisdiction. Any legal action or proceeding with respect to this Agreement or the Notes or any document related thereto shall be brought in the courts of the State of Illinois or of the United States of America for the Northern District of Illinois in no other courts, and, by execution and delivery of this Agreement, the Company hereby accepts for itself and in respect of its property generally and unconditionally, the jurisdiction of the aforesaid courts. The Company hereby irrevocably and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens which it may now or hereafter have to the bringing of any action or proceeding in such respective jurisdiction. Section 9.12. Captions. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. Section 9.13. Limitation of Liability. Except in the event of fraud on the part of the Manager or any of its Affiliates in connection with the transactions contemplated by this Agreement, no holder of any Note shall have any right at any time to seek recovery of the Indebtedness evidenced by the Notes from the assets of the Manager. The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Agreement may be executed in any number of counterparts, each executed counterpart constituting an original but all together only one agreement. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. By: PLM Financial Services, Inc., Its Manager By /s/ J. Michael Allgood -------------------------- Its Manager Accepted as of December __, 1996 KEYPORT LIFE INSURANCE COMPANY By: Stein Roe & Farnham Incorporated, as agent By /s/ Richard A. Hegwood -------------------------- Its Senior Vice President SCHEDULE I (to Note Agreement) PRINCIPAL AMOUNT NAME AND ADDRESSES OF NOTES TO BE OF PURCHASER PURCHASED KEYPORT LIFE INSURANCE COMPANY $25,000,000 c/o Stein Roe & Farnham Incorporated 1 South Wacker Drive Chicago, Illinois 60606 Attention: Private Placements Telecopier Number: (312) 368-8100 Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Professional Lease Management Income Fund I, L.L.C., 7.33% Senior Notes, due 2006, PPN 74316@ AA 0, principal or interest") to: Bank of Boston/Cust (ABA #011-000-390) For further credit to: A/C 50757004 - Keyport Clearance Number 009-8527 Attention: Amy Hansbury, Mail Stop 45-02-03 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: Hare & Co. Taxpayer I.D. Number: 05-0302931 SCHEDULE II (to Note Agreement) EXISTING LIENS on the Execution Date NONE SCHEDULE III (to Note Agreement) NAMES OF APPRAISERS List of Approved Appraisal Firms: GENERAL 1. American Appraisal Associates 2. Marshal & Stevens 3. Valuation Research 4. Manufacturers Appraisal 5. Strategis Asset Valuation & Management (Alexander & Alexander - Appraisal Division) 6. Valuation Engineering Associates CONTAINERS 1. Independent Equipment Company 2471 McMullen Booth Rd. Suite 309 Clearwater, Florida 34619 (813) 796-7733 2. International Equipment Marketing, Inc. Two Lombard Street San Francisco, California 94111 (415) 362-0874 3. Unicon TRAILERS 1. Arrow Truck Sales, Inc. 3200 Manchester Traffic Way Kansas City, Missouri 64129 (816) 923-5000 2. Taylor & Martin, Inc. MARINE VESSELS 1. A.L. Burbank - Fort Lee, New Jersey 2. American Marine Advisers 3. Bassoe - Oslo, Norway 4. Fearnleys - Oslo, Norway 5. Clarkson - London, England 6. Jacques Pierot & Sons - New York, NY 7. Victoria Ships Brokers - Hong Kong 8. R.S. Platou (USA) Co. - Houston, Texas 9. R.S. Platou A/S - Oslo, Norway AIRCRAFT 1. AV Solutions 7518 B. Diplomat Drive Manassas, VA 22110 (703) 330-0461 2. Avitas Aviation 835 Alexander Bell Drive Reston, Virginia 22091 (703) 476-2300 3. Aircraft Information Service, Inc. as successor to Airclaims Information Services, Inc. 23232 Peralta Drive Suite 115 Laguna Hills, California 92653 (714) 830-0101 ROLLING STOCK 1. Mr. Robert E. Krause Railmark, Inc. 10661 Bridger Canyon Road Bozeman, Montana 59715 (406) 586-3566 2. James D. Husband R.L. Banks & Associates, Inc. 1717 K. Street, NW Washington, DC 20006 (202) 296-6700 MOBILE OFFSHORE DRILLING UNITS 1. Bassoe Offshore Consultants Jonathan B. Fairbanks & Erland Bassoe 2000 West Loop South, Suite 2110 Houston, Texas 77027 (713) 850-9002 2. R.S. Platou (USA) Inc. Mike Smith - President 3535 Briarpark Drive, Suite 201 Houston, Texas 77042 (713) 974-5505 3. Normarine Offshore Consultants A.S. Stein Schie Dronningen 1, Postboks A Bygdoy, 0211 Oslo Norway 47 22 55 44 55 4. Normarine Offshore Consultants, Inc. Andrew Simpson & Steve Lawrence Weslayan Tower, Suite 1620 24 Greenway Plaza Houston, Texas 77046 EXHIBIT A (to Note Agreement) PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. 7.33% Senior Note Due December 31, 2006 No. R- ___________, 199__ $ PPN 74316@ AA 0 PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware limited liability company (the "Company"), for value received, hereby promises to pay to or registered assigns, on the thirty-first day of December, 2006 the principal amount of DOLLARS ($________) and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.33% per annum from the date hereof until maturity, payable semi-annually on the last day of each June and December in each year commencing June 30, 1997, and at maturity. The Company agrees to pay interest on overdue principal (including any overdue required or optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the rate of 9.33% per annum after maturity or the due date thereof, as applicable, whether by acceleration or otherwise, until paid. Both the principal hereof and interest hereon are payable at the principal office of the Company in San Francisco, California in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. If any amount of principal, premium, if any, or interest on or in respect of this Note becomes due and payable on any day which is not a Business Day, such amount shall be payable on the immediately succeeding Business Day, provided that interest shall be due and payable through and including such succeeding Business Day. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in San Francisco, California or Chicago, Illinois are required by law to close or are customarily closed. This Note is one of the 7.33% Senior Notes of the Company in the aggregate principal amount of $25,000,000 issued or to be issued under and pursuant to the terms and provisions of the Note Agreement dated as of December 15, 1996 (the "Note Agreement", words and phrases not otherwise defined in this Note having the meanings ascribed thereto in said Note Agreement) entered into by the Company with the original purchaser therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Agreement to all the benefits and security provided for thereby or referred to therein, to which Note Agreement reference is hereby made for the statement thereof. This Note and the other Notes outstanding under the Note Agreement may be declared due prior to their expressed maturity dates and certain prepayments are required to be made thereon, all in the events, on the terms and in the manner and amounts as provided in the Note Agreement. Except in the event of fraud on the part of the Manager or any of its Affiliates in connection with the transaction contemplated by the Note Agreement, no holder of this Note shall have any right at any time to seek recovery of the Indebtedness evidenced by this Note from the assets of the Manager. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in Section 2 of the Note Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. This Note and said Note Agreement are governed by and construed in accordance with the internal laws of the State of Illinois. PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. By: PLM FINANCIAL SERVICES, INC., Its Manager By Its THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT. UNDER THE TERMS OF THE NOTE AGREEMENT, THE COMPANY IS NOT REQUIRED TO DELIVER CERTAIN FINANCIAL INFORMATION TO HOLDERS ENGAGED IN THE TRANSPORTATION EQUIPMENT LEASING OR SERVICING BUSINESS. UNDER THE TERMS OF THE NOTE AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED TO CERTAIN PROHIBITED TRANSFEREES. EXHIBIT B (to Note Agreement) PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. CLOSING CERTIFICATE Keyport Life Insurance Company c/o Stein Roe & Farnham Incorporated 1 South Wacker Drive Chicago, Illinois 60606 Ladies and Gentlemen: This certificate is delivered to you in compliance with the requirements of the Note Agreement dated as of December 15, 1996 (the "Agreement"), entered into by the undersigned, Professional Lease Management Income Fund I, L.L.C., a Delaware limited liability company (the "Company"), with you, and as an inducement to and as part of the consideration for your purchase on this date of $25,000,000 aggregate principal amount of the 7.33% Senior Notes due December 31, 2006 (the "Notes") of the Company pursuant to the Agreement. The terms which are capitalized herein shall have the same meanings as in the Agreement. The Company represents and warrants to you as follows: 1. Subsidiaries. Annex A attached hereto states the name of each of the Company's Restricted Subsidiaries, its jurisdiction of organization and the percentage of its Voting Equity Capital or other Equity Capital owned by the Company and/or its Subsidiaries. The Company and each Restricted Subsidiary has good and marketable title to all of the Voting Equity Capital or other Equity Capital it purports to own of each Restricted Subsidiary, free and clear in each case of any Lien. All such Voting Equity Capital and other Equity Capital has been duly issued and are fully paid and non-assessable. The Company has no Subsidiary which is not a Restricted Subsidiary. 2. Organization and Authority. (a) The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company's Manager is PLM Financial Services, Inc. The Manager and each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. (b) The Company, the Manager and each Subsidiary (i) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted; and (ii) is duly licensed or qualified and is in good standing in each jurisdiction wherein the nature of the business transacted by it or the nature of the Property owned or leased by it makes such licensing or qualification necessary, except where the failure to be duly licensed or qualified or to be in good standing would not have a materially adverse effect on the business or financial condition of the Company. 3. Business and Property. You have heretofore been furnished with a copy of the Private Placement Offering Memorandum dated October 1996 (the "Memorandum") prepared by First Union Capital Markets Corp. which generally sets forth the business conducted and proposed to be conducted by the Company and its Subsidiaries and the principal properties of the Company and its Subsidiaries. As disclosed in the Prospectus of the Company dated January 24, 1995, as supplemented by the Prospectus Supplement dated November 6, 1995, it is and has been since the inception of the Company the intention of the Company to incur Indebtedness in order to finance in part the purchase of Equipment to be held for lease by the Company. The issue and sale of the Notes constitutes an incurrence of Indebtedness which is consistent with the business of the Company as described in the Operating Agreement and such Prospectus. 4. Financial Statements. (a) The consolidated balance sheet of the Company and its Subsidiaries as of December 31, 1995, and the statement of operations and changes in members' capital and the statement of cash flows for the fiscal year ended on said date accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Company and otherwise without qualification except as therein noted, by KPMG Peat Marwick LLP, have been prepared in accordance with generally accepted accounting principles consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Company and its Subsidiaries as of such date and the results of their operations and changes in members' capital and cash flows for such period. The unaudited consolidated balance sheets of the Company and its Subsidiaries as of September 30, 1996, and the unaudited statement of operations and changes in members' capital and the statement of cash flows for the nine-month period ended on said date prepared by the Company have been prepared in accordance with generally accepted accounting principles consistently applied, are correct and complete and present fairly the financial position of the Company and its Subsidiaries as of said date and the results of their operations and changes in members' capital and cash flows for such period. (b) Since December 31, 1995, there has been no change in the condition, financial or otherwise, of the Company and its Subsidiaries as shown on the consolidated balance sheet as of such date except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. 5. Indebtedness. (a) Annex B attached hereto correctly describes all Debt, including without limitation Debt secured by Liens within the limitations of ss.5.10, Capitalized Leases anD Long-Term Leases of the Company and its Restricted Subsidiaries outstanding on the Execution Date (the "Scheduled Matters"). Annex C-1 and Annex C-2, to be attached hereto on each of the Closing Dates, correctly describes the Scheduled Matters outstanding on such respective Closing Dates. (b) On the date hereof, the aggregate principal amount of the Notes does not exceed 20% of the aggregate cost of all Equipment owned by the Company by more than _____%. Within [90] days of the date hereof, the aggregate principal amount of the Notes shall not exceed 20% of the aggregate cost of all Equipment then owned by the Company. 6. Full Disclosure. The financial statements referred to in paragraph 4 do not, nor does the Memorandum or any other written statement furnished by the Company to you in connection with the negotiation of the sale of the Notes (including the Memorandum), contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact peculiar to the Company or its Subsidiaries which the Company has not disclosed to you in writing which materially affects adversely nor, so far as the Company can now foresee, will materially affect adversely the properties, business, prospects, profits or condition (financial or otherwise) of the Company and its Subsidiaries. 7. Pending Litigation. There are no proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary in any court or before any governmental authority or arbitration board or tribunal which involve the possibility of materially and adversely affecting the properties, business, prospects, profits or condition (financial or otherwise) of the Company and its Subsidiaries. Neither the Company nor any Subsidiary is in default with respect to any order of any court or governmental authority or arbitration board or tribunal. 8. Title to Properties. The Company and each Subsidiary has good and marketable title in fee simple (or its equivalent under applicable law) to all the real Property and has good title to all the other Property it purports to own, including that reflected in the most recent balance sheet referred to in paragraph 4, except as sold or otherwise disposed of in the ordinary course of business and except for material liens disclosed in notes to the financial statements referred to in paragraph 4 hereof or otherwise permitted by the Agreement. 9. Patents and Trademarks. The Company and each Subsidiary owns or possesses all the patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others. 10. Sale is Legal and Authorized. The sale of the Notes and the execution and delivery of, and performance by the Company and the Manager of their respective obligations under, the Agreement and the Notes have been duly authorized by all requisite action and will not violate any provision of law, any order, judgment or decree of any court or other agency of corporate or other government, the Certificate of Formation of the Company, the Operating Agreement (including, without limitation, Section 2.02(c) thereof), or the corporate charter or by-laws of the Manager, or any indenture, agreement or other instrument to which the Company or the Manager is a party, or by which the Company or the Manager is bound, or be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, or result in the creation or imposition of any Lien of any nature whatsoever upon any of the Property or assets of the Company or the Manager pursuant to, any such indenture, agreement or instrument except as permitted by the Agreement. 11. No Defaults. No Default or Event of Default as defined in the Agreement has occurred and is continuing. The Company is not in default in the payment of principal or interest on any Indebtedness for borrowed money and is not in default under any instrument or instruments or agreements under and subject to which any Indebtedness for borrowed money has been issued and no event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. 12. Governmental Consent. (a) No approval, consent or withholding of objection on the part of any regulatory body, state, Federal or local, is necessary in connection with the execution and delivery by the Company of the Agreement or the Notes or compliance by the Company with any of the provisions of the Agreement or the Notes. (b) The Registration Statement filed with the SEC relating to the sale of the Class A Units became effective January 23 1995, and no stop-orders were issued in connection therewith. 13. Taxes. All tax returns required to be filed by the Company or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Company or any Subsidiary or upon any of their respective properties, income or franchises, which are shown to be due and payable in such returns have been paid, except any such returns for the failure to file would not have a material adverse effect on the business or financial condition of the Company and its Restricted Subsidiaries, taken as a whole. The Company does not know of any proposed additional tax assessment against it for which adequate provision has not been made in its accounts, and no material controversy in respect of additional Federal or state income taxes is pending or to the knowledge to the Company threatened. The provisions for taxes on the books of the Company and each Subsidiary are adequate for all open years, and for its current fiscal period. 14. Use of Proceeds. The net proceeds from the sale of the Notes will be used to finance the purchase of additional transportation-related equipment, the refinancing of existing indebtedness of the Company and other corporate purposes. None of the transactions contemplated in the Agreement (including, without limitation thereof, the use of proceeds from the issuance of the Notes) will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulations G, T and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Neither the Company nor any Subsidiary owns or intends to carry or purchase any "margin stock" within the meaning of said Regulation G. None of the proceeds from the sale of the Notes will be used to purchase, or refinance any borrowing, the proceeds of which were used to purchase any "security" within the meaning of the Securities Exchange Act of 1934, as amended. 15. Private Offering. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security or has solicited or will solicit an offer to acquire the Notes or any similar Security from or has otherwise approached or negotiated or will approach or negotiate in respect of the Notes or any similar Security with any Person other than you and not more than 20 other institutional investors, each of whom was offered a portion of the Notes at private sale for investment. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security or has solicited or will solicit an offer to acquire the Notes or any similar Security from any Person so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act of 1933, as amended. 16. Employee Retirement Income Security Act of 1974. The consummation of the transactions provided for in the agreement and compliance by the Company with the provisions thereof and the Notes issued thereunder will not involve any prohibited transaction within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as amended. The Company does not maintain any "employee pension benefit plans", as defined in ERISA. 17. Compliance with Law. Neither the Company nor any Restricted Subsidiary (i) is in violation of any law, ordinance, franchise, governmental rule or regulation to which it is subject (including, without limitation, the filing requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended); or (ii) has failed to obtain any license, permit, franchise or other governmental authorization necessary to the ownership of its Property or to the conduct of its business, which violation or failure to obtain could materially adversely affect the business, prospects, profits, properties or condition (financial or otherwise) of the Company and its Restricted Subsidiaries, taken as a whole, or the ability of the Company to perform its obligations contained in the Agreement or the Notes. 18. Compliance with Environmental Laws. The Company is not in violation of any applicable Environmental Law which violation could have a material adverse effect on the business, prospects, profits, properties or condition (financial or otherwise) of the Company and its Restricted Subsidiaries, taken as a whole. The Company does not know of any liability or class of liability of the Company or any Restricted Subsidiary under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.). 19. Fungible Securities. When issued, the Notes will constitute "securities" within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act") and will not be of the same class as securities listed on a national security exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system, and will not be convertible or exchangeable into any such securities. 20. Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment holding company" or "affiliated company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Dated: PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C. By PLM FINANCIAL SERVICES, INC., Its Manager By Its ANNEX A (to Closing Certificate) SUBSIDIARIES OF THE COMPANY RESTRICTED SUBSIDIARIES: SUBSIDIARY % OWNED BY COMPANY Spear Vessel Inc. 50% United Marine Vessel Inc. 100% ANNEX B (to Closing Certificate) DESCRIPTION OF DEBT AND LEASES ON THE EXECUTION DATE 1. Unsecured Debt as of the Execution Date: None 2. Debt Secured by Liens within the Limitations of ss.5.10, other than Capitalized Leases, as of thE Execution Date: None 3. Capitalized Leases as of the Execution Date: None 4. Long-Term Leases as of the Execution Date: None ANNEX C-1 (to Closing Certificate) [TO BE COMPLETED ON FIRST CLOSING DATE] DESCRIPTION OF DEBT AND LEASES ON THE FIRST CLOSING DATE 1. Unsecured Debt as of the First Closing Date: 2. Debt Secured by Liens within the Limitations of ss.5.10, other than Capitalized Leases, as of the FirsT Closing Date: 3. Capitalized Leases as of the First Closing Date: 4. Long-Term Leases as of the First Closing Date: ANNEX C-2 (to Closing Certificate) [TO BE COMPLETED ON SECOND CLOSING DATE] DESCRIPTION OF DEBT AND LEASES ON THE SECOND CLOSING DATE 1. Unsecured Debt as of the Second Closing Date: 2. Debt Secured by Liens within the Limitations of ss.5.10, other than Capitalized Leases, as of the SeconD Closing Date: 3. Capitalized Leases as of the Second Closing Date: 4. Long-Term Leases as of the Second Closing Date: EXHIBIT C (to Note Agreement) DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION The closing opinion of Chapman and Cutler, special counsel to the Purchaser, called for by ss.4.2 of thE Note Agreement, shall be dated the first Closing Date or second Closing Date, as the case may be, and addressed to the Purchaser, and shall be satisfactory in form and substance to the Purchaser and shall be to the effect that: (1) The Company is a limited liability company, duly organized and validly existing under the laws of the State of Delaware, has the power and the authority to execute and deliver the Note Agreement and to issue the Notes. (2) The Note Agreement has been duly authorized by all necessary action on the part of the Company, has been duly executed and delivered by an authorized officer of the Manager and constitutes a legal, valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (3) The Notes have been duly authorized by all necessary action on the part of the Company, have been duly executed and delivered by an authorized officer of the Manager and constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally, and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (4) The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreement does not, under existing law, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. The opinion of Chapman and Cutler shall also state that the opinion of Stephen Peary, Esq. is satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchaser is justified in relying thereon and shall cover such other matters relating to the sale of the Notes as the Purchaser may reasonably request. In rendering the opinion set forth in paragraph 1 above, Chapman and Cutler may rely, as to matters referred to in paragraph 1, solely upon an examination of the Fifth Amended and Restated Operating Agreement certified by an authorized officer of the Manager. The opinion of Chapman and Cutler is limited to the laws of the State of Illinois and the Federal laws of the United States. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Company and upon representatives of the Company and the Purchaser delivered in connection with the issuance of the Notes. EXHIBIT D (to Note Agreement) DESCRIPTION OF CLOSING OPINION OF GENERAL COUNSEL TO THE COMPANY The closing opinion of Stephen Peary, Esq., general counsel of the Manager, which is called for by ss.4.2 of the Note Agreement, shall be dated the first Closing Date or the second Closing Date, as the case may be, shall be addressed to the Purchaser and shall be satisfactory in form and substance to the Purchaser to the effect that: (1) The Company is a limited liability company, duly organized and validly existing under the laws of the State of Delaware, has all requisite power and authority and is duly authorized to enter into and perform the Note Agreement and to issue the Notes and incur the Indebtedness to be evidenced thereby and has full power and authority to conduct the activities in which it is now engaged and is duly licensed or qualified and is in good standing as a foreign limited liability company in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be duly licensed or qualified or to be in good standing would not have a materially adverse effect on the business or financial condition of the Company. (2) Each Restricted Subsidiary that is a corporation, a limited liability company or a partnership is a corporation, limited liability company or partnership, as the case may be, duly organized, legally existing and in good standing under the laws of its jurisdiction of organization and is duly licensed or qualified and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except where the failure to be duly licensed or qualified or to be in good standing would not have a materially adverse effect on the business or financial condition of the Company; and all of the issued and outstanding shares of capital stock of each such Restricted Subsidiary that is a corporation have been duly issued, are fully paid and non-assessable and are owned by the Company, by one or more Restricted Subsidiaries, or by the Company and one or more Restricted Subsidiaries or an Affiliated Partnership. (3) The Note Agreement has been duly authorized by all necessary action on the part of the Company, has been duly executed and delivered by an authorized officer of the Manager and constitutes a legal, valid, binding and enforceable contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (4) The Notes have been duly authorized by all necessary action on the part of the Company, have been duly executed and delivered by an authorized officer of the Manager and constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law). (5) The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Note Agreement do not (i) conflict with or contravene any law, rule or regulation applicable to the Company or (ii) conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any lien or encumbrance upon any of the property of the Company pursuant to the provisions of the Operating Agreement or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company may be bound except as permitted by the Note Agreement. (6) The courts of the State of Delaware will give effect to those provisions of the Note Agreement and the Notes which stipulate that such documents shall be governed, and construed in accordance with, the laws of the State of Illinois. (7) The execution and delivery of the Note Agreement and the issue and sale of the Notes does not conflict with or violate any of the provisions of the Operating Agreement. (8) The payment by the Company of all amounts required to be paid with respect to the Notes in accordance with the terms and conditions of the Note Agreement will not violate the provisions of any applicable state or federal law limiting or regulating the payment of interest on obligations. (9) Neither the Company nor any of its Subsidiaries is an "investment holding company" or "affiliated company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (10) The transaction contemplated by the Note Agreement (including, without limitation, the use of the proceeds of the Notes) will not violate Section 7 of the Securities and Exchange Act of 1934 or the provisions of Regulation G, Regulation T or Regulation U promulgated by the Board of Governors of the Federal Reserve System. (11) The issuance, sale and delivery of the Notes under the circumstances contemplated by the Note Agreement is an exempt transaction under the Securities Act of 1933, as amended, and does not under existing law, as at the date of closing, require the registration of the Notes under the Securities Act of 1933, as amended, or the qualification of an indenture in respect thereof under the Trust Indenture Act of 1939, as amended. (12) To the knowledge of such counsel, there are no actions, suits or proceedings pending or threatened against or affecting the Company, the Manager or any Subsidiary, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which are likely to result, either individually or collectively, in any material adverse change in the business, Properties, operations or condition, financial or otherwise, of the Company or of the Company and its Restricted Subsidiaries taken as a whole, impair the ability of the Company and its Restricted Subsidiaries to carry on their business substantially as now conducted, impair the ability of the Company to perform its obligations under the Note Agreement or under the Notes. (13) No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any governmental body, Federal, State or local, is necessary in connection with the execution and delivery of the Note Agreement or the Notes. The opinion of Stephen Peary, Esq. shall cover such other matters relating to the sale of the Notes as the Purchaser may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Company. EX-24 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., 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 Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 25th day of February, 1997. /s/ Douglas P. Goodrich - ------------------------------------- Douglas P. Goodrich POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., 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 Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 27th day of February, 1997. /s/ Robert L. Pagel - ----------------------------------- Robert L. Pagel POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby constitute and appoint Robert N. Tidball, Stephen Peary, J. Michael Allgood and David J. Davis, jointly and severally, his true and lawful attorneys-in-fact, each with power of substitution, for him in any and all capacities, to do any and all acts and things and to execute any and all instruments which said attorneys, or any of them, may deem necessary or advisable to enable PLM Financial Services, Inc., as Manager of Professional Lease Management Income Fund I, L.L.C., 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 Professional Lease Management Income Fund I, L.L.C., including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned, in any and all capacities, to such annual reports, to any and all amendments thereto, and to any and all documents or instruments filed as a part of or in connection therewith; and the undersigned hereby ratifies and confirms all that each of the said attorneys, or his substitute or substitutes, shall do or cause to be done by virtue hereof. This Power of Attorney is limited in duration until May 1, 1997 and shall apply only to the annual reports and any amendments thereto filed with respect to the fiscal year ended December 31, 1996. IN WITNESS WHEREOF, the undersigned has subscribed these presents this 27th day of February, 1997. /s/ J. Alec Merriam - ----------------------------------- J. Alec Merriam EX-27 6
5 12-MOS DEC-31-1996 DEC-31-1996 1,691,650 0 1,534,297 35,887 0 0 70,333,099 12,189,573 87,755,105 0 0 0 0 0 86,288,561 87,755,105 0 9,939,148 0 13,422,730 0 0 8,902 (2,392,494) 0 (2,392,494) 0 0 0 (2,392,494) 0 0
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