-----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, AiO5PXQ7g+slc+zyqJjttkl2G+6moedrlB1g2XEH8In49+7EL2+sqT4F7qt79yEW NGUxPra25Z97Xf5HGn0NLg== 0000814677-95-000014.txt : 19951102 0000814677-95-000014.hdr.sgml : 19951102 ACCESSION NUMBER: 0000814677-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951101 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLM INTERNATIONAL INC CENTRAL INDEX KEY: 0000814677 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943041257 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09670 FILM NUMBER: 95586515 BUSINESS ADDRESS: STREET 1: STEUART ST TOWER STE 900 STREET 2: ONE MARKET PLZ CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 4159741399 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------------- FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal quarter ended September 30, 1995. or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from to Commission file number 1-9670 ------------------------------- PLM INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 94-3041257 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Market, Steuart Street Tower, Suite 900, San Francisco, CA 94105-1301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 974-1399 ---------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock - $.01 Par Value; Outstanding as of November 1, 1995 - 11,568,357 shares PLM INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1995 1994 ---------------------------------------- (in thousands) ASSETS Cash and cash equivalents $ 15,077 $ 16,131 Receivables 5,965 5,747 Receivables from affiliates 7,893 7,001 Assets held for sale 12,900 17,644 Equity interest in affiliates 25,713 18,374 Transportation equipment held for operating leases 121,871 141,469 Less accumulated depreciation (66,758) (77,744) ---------------------------------------- 55,113 63,725 Restricted cash and cash equivalents 10,727 1,409 Other 7,183 10,341 ---------------------------------------- Total assets $ 140,571 $ 140,372 ======================================== LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY Liabilities: Short-term secured debt $ -- $ 6,404 Senior secured debt 35,000 35,000 Other secured debt 1,267 2,119 Subordinated debt 23,000 23,000 Payables and other liabilities 10,623 11,589 Deferred income taxes 19,824 16,165 ---------------------------------------- Total liabilities 89,714 94,277 Minority interest 431 400 Shareholders' Equity: Common stock, $.01 par value, 50,000,000 shares authorized, 11,568,357 issued and outstanding at September 30, 1995 and 11,699,673 at December 31, 1994 (excluding 1,018,034 and 871,057 shares held in treasury at September 30, 1995 and December 31, 1994, respectively) 117 117 Paid in capital, in excess of par 77,743 77,699 Treasury stock (3,325) (2,831) ---------------------------------------- 74,535 74,985 Accumulated deficit (24,109) (29,290) ---------------------------------------- Total shareholders' equity 50,426 45,695 ---------------------------------------- Total liabilities, minority interest, and shareholders' equity $ 140,571 $ 140,372 ======================================== See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
For the three months For the nine months ended September 30, ended September 30, 1995 1994 1995 1994 ---------------------------------------------------------------- Revenues: Operating leases $ 5,311 $ 6,855 $ 17,942 $ 22,102 Management fees 2,909 2,757 8,231 8,342 Partnership interests and other fees 1,410 743 3,739 2,584 Acquisition and lease negotiation fees 2,467 493 4,797 2,219 Commissions -- 1,140 1,322 3,881 Aircraft brokerage and services 1,383 1,214 3,700 3,361 Gain (loss) on the sale or disposition of assets, net 730 (109) 5,911 (574) Other 540 230 1,062 856 ---------------------------------------------------------------- Total revenues 14,750 13,323 46,704 42,771 Costs and expenses: Operations support 6,050 6,149 18,602 17,731 Depreciation and amortization 2,104 3,106 6,491 9,411 Commissions (51) 1,194 1,417 4,067 General and administrative 2,579 3,096 7,646 7,861 Reduction in carrying value of certain assets -- 4,247 -- 4,247 ---------------------------------------------------------------- Total costs and expenses 10,682 17,792 34,156 43,317 ---------------------------------------------------------------- Operating income (loss) 4,068 (4,469) 12,548 (546) Interest expense 1,609 2,602 5,540 7,310 Other income (expense), net 591 (2,619) 537 (2,349) Interest income 566 963 1,491 2,643 ---------------------------------------------------------------- Income (loss) before income taxes 3,616 (8,727) 9,036 (7,562) Provision for (benefit from) income taxes 1,559 (3,485) 3,884 (3,963) ---------------------------------------------------------------- Net income (loss) before cumulative effect of accounting change 2,057 (5,242) 5,152 (3,599) Cumulative effect of accounting change -- -- -- 5,130 ---------------------------------------------------------------- Net income (loss) 2,057 (5,242) 5,152 (8,729) Preferred dividend imputed on allocated shares -- 562 -- 1,686 ---------------------------------------------------------------- Net income (loss) to common shares $ 2,057 $ (5,804) $ 5,152 $ (10,415) ================================================================ Earnings (loss) per common share outstanding $ 0.18 $ (0.46) $ 0.44 $ (0.83) ================================================================ See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Year Ended December 31, 1994 and the Nine Months Ended September 30, 1995 (in thousands)
Loan to Employee Common Stock -------------------------------------------- Preferred Stock Paid-in Retained Stock at Ownership Capital in Earnings Total Paid-in Plan At Excess Treasury Accumulated Shareholders' Amount (ESOP) Par of Par Stock (Deficit) Equity ----------------------------------------------------------------------------------------------------------- Balances, December 31, 1993 $ 63,569 $ (50,280) $ 109 $ 55,557 $ (131) $ (17,691) $ 51,133 Net loss (6,641) (6,641) Cumulative effect of change in accounting on unearned compensation 7,130 7,130 Common stock repurchases (2,997) (2,997) Conversion of preferred stock (192) 161 31 -- Allocation of shares (4,091) 6,044 1,953 Current year imputed dividend on allocated ESOP shares (2,430) (2,430) Prior year preferred dividend not charged to equity until paid (2,565) (2,565) Cancellation of preferred stock and issuance of common stock upon termination of the ESOP (59,286) 37,106 8 21,906 266 -- Exercise of stock options 75 75 Translation gain 37 37 ----------------------------------------------------------------------------------------------------------- Balances, December 31, 1994 -- -- 117 77,699 (2,831) (29,290) 45,695 Net income 5,152 5,152 Common stock repurchases (494) (494) Exercise of stock options 44 44 Translation gain 29 29 =========================================================================================================== Balances, September 30, 1995 $ -- $ -- $ 117 $ 77,743 $ (3,325) $ (24,109) $ 50,426 =========================================================================================================== See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
For the nine months ended September 30, 1995 1994 --------------------------------- Operating activities: Net income (loss) $ 5,152 $ (8,729) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,491 9,411 Foreign currency translations 29 -- Cumulative effect of accounting change -- 5,130 Increase (decrease) in deferred income taxes 3,659 (4,573) Compensation expense for ESOP -- 255 (Gain) loss on sale or disposition of assets, net (5,911) 574 Reduction in carrying value of certain assets -- 4,247 Undistributed residual value interests (201) 405 Minority interest in net income of subsidiaries 31 56 Decrease in payables and other liabilities (472) (5,872) (Increase) decrease in receivables and receivables from affiliates (2,063) 4,374 Cash distributions from affiliates in excess of income accrued 580 488 (Increase) decrease in other assets (906) 950 Purchase of equipment for lease (7,420) (821) Proceeds from sale of equipment for lease 11,498 10,056 Purchase of assets held for sale (34,034) (11,455) Proceeds from sale of assets held for sale 38,462 5,190 Financing of assets held for sale to affiliates 9,800 2,953 Repayment of financing of assets held for sale to affiliates (16,204) (2,953) --------------------------------- Net cash provided by operating activities 8,491 9,686 --------------------------------- Investing activities: Additional investment in affiliates (7,718) (210) Purchase of residual option (200) -- Proceeds from the disposition of residual options 2,059 89 Proceeds from the sale of leveraged leased assets 4,530 -- Proceeds from the maturity and sale of restricted marketable securities -- 30,872 Purchase of restricted marketable securities -- (15,436) Increase in restricted cash and restricted cash equivalents (9,318) (15,716) Acquisition of subsidiaries net of cash acquired -- (1,013) --------------------------------- Net cash used in investing activities (10,647) (1,414) --------------------------------- Financing activities: Proceeds from long-term equipment loans 657 45,366 Principal payments under loans (33) (51,237) Cash dividends paid on Preferred Stock -- (7,007) Payments received from ESOP Trustee 928 4,739 Repurchase of treasury stock (494) -- Proceeds from exercise of stock options 44 68 --------------------------------- Net cash provided by (used in) financing activities 1,102 (8,071) --------------------------------- Net (decrease) increase in cash and cash equivalents (1,054) 201 Cash and cash equivalents at beginning of period 16,131 19,685 ================================= Cash and cash equivalents at end of period $ 15,077 $ 19,886 ================================= Supplemental information: Interest paid during the period $ 4,878 $ 7,674 ================================= Income taxes paid during the period $ 595 $ 4,007 ================================= See accompanying notes to these consolidated financial statements.
PLM INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 1. General In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 1995, the statements of operations for the three and nine months ended September 30, 1995 and 1994, the statements of cash flows for the nine months ended September 30, 1995 and 1994, and the statements of changes in shareholders' equity for the year ended December 31, 1994 and the nine months ended September 30, 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the accompanying consolidated financial statements. For further information, reference should be made to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, on file at the Securities and Exchange Commission. Certain amounts in the 1994 financial statements have been reclassified to conform to the 1995 presentation. The Company is involved as plaintiff or defendant in various legal actions incident to its business. Management does not believe that any of these actions will be material to the financial condition of the Company. 2. Equipment The Company classifies assets as held for sale if the particular asset is subject to a pending contract for sale, or is held for sale to one or more affiliated parties or third parties. At September 30, 1995, $12.9 million in transportation equipment was held for sale to one or more affiliated parties or third parties. During the last three years, the Company has significantly downsized the equipment portfolio through the sale or disposal of underperforming and nonperforming assets. The Company will continue to identify underperforming and nonperforming assets for sale or disposal as necessary. Periodically, the Company will purchase groups of assets whose ownership may be allocated among affiliated partnerships and the Company. Generally in these cases, only assets that are on-lease will be purchased by the affiliated partnerships. The Company 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 the Company's knowledge and assessment of the relevant equipment market, third party industry sources, and recent transactions or published fair market value references. During the nine months ended September 30, 1995, the Company realized $1.2 million of gains on sales of railcars and aircraft purchased by the Company as part of a group of assets. 3. Debt Assets acquired and held on an interim basis for placement with affiliated partnerships have, from time to time, been partially funded by a $25.0 million short-term equipment acquisition loan facility. The Company amended this facility on September 27, 1995. The amendment extended the facility until September 30, 1996. The Company had no borrowings on this facility at September 30, 1995. This facility, which is shared with Equipment Growth Funds (EGFs) II, III, IV, V, VI, VII and the LLC, allows the Company to purchase equipment prior to a designated program or partnership being identified, or prior to having raised sufficient capital to purchase the equipment. This facility provides 80% financing if the Company is the borrower and working capital is used for the nonfinanced costs of these acquisitions. The Company can PLM INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 3. Debt (continued) hold purchased assets under this bridge facility for up to 150 days. Interest accrues at prime or LIBOR plus 2.5% at the option of the borrower at the time of the advance under the facility. As provided for in the program offering documents, the Company retains the difference between the net lease revenue earned and the carrying costs incurred during the interim holding period as the Company's capital is at risk. The Company has entered into a securitization facility to borrow up to $80 million on a nonrecourse basis for a one year period that will be secured primarily by finance type leases which generally have terms of four to five years. The securitized debt is expected to bear interest at treasury rate plus 1%. As of September 30, 1995, there were no borrowings under this facility. 4. Shareholders' Equity Effective February 1995, the Company adopted the Directors' 1995 Non-qualified Stock Option Plan which reserves 120,000 shares of the Company's common stock for issuance to directors who are nonemployees of the Company. All options outstanding are exercisable at prices equal to the closing price as of the date of grant. Vesting of options occurs in three equal installments of 33 1/3% per year, initiating from the date of the grant. During the nine months ended September 30, 1995, 40,000 options were granted under this plan at $2.63 per share. In February 1995, the Company announced that its Board of Directors authorized the repurchase of up to $0.5 million of the Company's common stock. The shares could be purchased in the open market or through private transactions with working capital and existing cash reserves. Shares repurchased could be used for corporate purposes, including option plans, or they could be retired. The Company had purchased 146,977 shares under this program for $0.5 million as of September 30, 1995. The total common shares outstanding at September 30, 1995, were 11,568,357, a decrease from the 11,699,673 outstanding at December 31, 1994. Net income (loss) per common share was computed by dividing net income (loss) to common shares by common stock equivalents which included the weighted average number of shares and stock options deemed outstanding during the period. The weighted average number of shares and stock options deemed outstanding during the three months ended September 30, 1995 and 1994, were 11,755,658 and 12,682,432, respectively. The weighted average number of shares and stock options deemed outstanding during the nine months ended September 30, 1995 and 1994, were 11,799,894 and 12,521,313, respectively. 5. Limited Liability Company Interests In January 1995, the registration statement for the Professional Lease Management Income Fund I, L.L.C. (LLC) became effective. PLM Financial Services, Inc. (FSI) serves as the manager for the new program. This program, organized as a limited liability company with a no front-end fee structure, began syndication in the first quarter of 1995. There is no compensation paid to FSI, or any of its subsidiaries, for the organization and syndication of interests in the LLC, the acquisition of equipment, nor the negotiation of the leases by the LLC. FSI is funding the cost of organization, syndication and offering through use of operating cash and is capitalizing these costs as its investment in the LLC. The Company will amortize its investment in the LLC over the life of the program. In return for its investment, FSI is entitled to a 15% interest in the cash distributions and earnings of the LLC subject to certain allocation provisions. FSI's interest in the cash distributions and earnings of the LLC will increase to 25% after the investors have received distributions equal to their invested capital. The Company is also entitled to monthly fees for equipment management services and reimbursement for certain accounting and administrative services provided by the Company. As of the date of this report, the LLC had raised $43 million in equity and had met the legal requirements for breaking impound and entering the equipment investment phase of the program. PLM INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 6. Management Agreement In January 1995, the Company entered into an agreement, through a new equipment leasing and management subsidiary, to manage the operations of Boston-based, privately-held American Finance Group, L.P. (AFG). The new entity, as a wholly-owned subsidiary of FSI, will acquire AFG's proprietary software and provide equipment management and investor relations services to AFG's existing investor programs. The Company has the right to terminate the contract subject to certain terms and conditions. Affiliates of AFG will continue to be the general partners of the existing AFG programs. AFG currently manages a portfolio of approximately $864 million of capital equipment (at original cost), subject to primarily full payout leases, for its own account and approximately 50,000 investors. 7. Recent Developments The Company is in negotiations with its subordinated debt lender to prepay a portion of the notes in 1995. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company owns a diversified portfolio of transportation equipment from which it earns operating lease revenue and incurs operating expenses. The Company's transportation equipment held for operating leases, which consists of aircraft, marine containers, trailers, railcars and storage vaults at September 30, 1995, is mainly equipment built prior to 1988. As equipment ages, the Company continues to monitor the performance of its assets on lease and market conditions for leasing equipment in general in order to seek the best opportunities for investment. Failure to replace equipment may result in shorter lease terms and higher costs of maintaining and operating aged equipment and, in certain instances, limited remarketability. The Company also syndicates investment programs from which it earns various fees and equity interests. The Company is currently marketing an investment program structured as a limited liability company (LLC) with a no front-end fee structure. The previously syndicated limited partnership programs have allowed the Company to receive fees for the acquisition and initial lease of the equipment. The LLC program does not provide for acquisition and lease negotiation fees. The Company invests the equity raised through syndication in transportation equipment which is then managed on behalf of the investors. The equipment management activities for this type of program generate equipment management fees for the Company over the life of the program, typically 10 to 12 years. The limited partnership agreements generally entitle the Company to receive a 1% or 5% interest in the cash distributions and earnings of the partnership subject to certain allocation provisions. The LLC agreement entitles the Company to a 15% interest in the cash distributions and earnings of the program subject to certain allocation provisions which will increase to 25% after the investors have received distributions equal to their original invested capital. For the Three Months Ended September 30, 1995 versus September 30, 1994 The following analysis reviews the operating results of the Company: Revenue: For the three months ended September 30, 1995 1994 ---- ---- (in thousands) Operating leases $ 5,311 $ 6,855 Management fees 2,909 2,757 Partnership interests and other fees 1,410 743 Acquisition and lease negotiation fees 2,467 493 Commissions -- 1,140 Aircraft brokerage and services 1,383 1,214 Gain (loss) on the sale or disposition of assets, net 730 (109) Other 540 230 -------- -------- Total revenues $ 14,750 $ 13,323 The fluctuations in revenues for the three months ended September 30, 1995 from the same period in 1994 are summarized and explained below. Operating lease revenue: For the three months ended September 30, 1995 1994 ---- ---- (in thousands) By equipment type or subsidiary: Trailers $ 2,508 $ 3,606 Aircraft 1,514 2,381 Marine vessels (13) 393 Marine containers 156 226 Storage vaults 263 193 Railcars 190 56 AFG 693 -- ------- ------- $ 5,311 $ 6,855 As of September 30, 1995, the Company owned transportation equipment held for operating leases with an original cost of $121.9 million, which was $58.2 million less than the original cost of equipment owned and held for operating leases at September 30, 1994. The reduction in equipment, on an original cost basis, is a consequence of the Company's strategic decision to dispose of certain underperforming and nonperforming assets resulting in a 100% reduction in its marine vessel fleet, a 54% net reduction in its marine container portfolio, a 39% net reduction in its aircraft portfolio, a 13% net reduction in its trailer portfolio, and a 48% net reduction in its railcar portfolio compared to September 30, 1994. Operating lease revenue is also impacted by the level of assets held for sale and the AFG lease originations which can earn lease revenue for the Company. The reduction in equipment available for lease is the primary reason marine vessel, trailer, marine container, and aircraft revenue were all reduced as compared to the prior year. The decrease in operating lease revenues as a result of the reduction in equipment available for lease was partially offset by a $0.7 million increase in operating lease revenues generated by AFG-related leases prior to being sold to third parties, a $0.1 million increase in railcar lease revenues, and a $0.1 million increase in storage vault revenues. The increase in railcar revenue of $0.1 million for the quarter is comprised primarily of revenues on railcars acquired by the Company of which the majority have been sold to both affiliated programs and third parties as of September 30, 1995. Storage vault revenue increased $0.1 million for the quarter ended September 30, 1995, compared to the same quarter of the prior year, due to additions of $0.6 million in new storage vaults made during the fourth quarter of 1994. Management fees:
For the three months Year ended September 30, Liquidation 1995 1994 Phase Begins ------------------------------------------------------ (in thousands) Management fees by fund were: EGF I $ 331 $ 396 1998 EGF II 204 301 1999 EGF III 274 427 2000 EGF IV 287 291 1999 EGF V 468 449 2000 EGF VI 445 433 2002 EGF VII 259 137 2003 AFG programs 240 -- -- Other programs 401 323 -- -------------------------- $ 2,909 $ 2,757
Management fees are, for the most part, based on the gross revenues generated by equipment under management. The managed equipment portfolio for new programs grows correspondingly with new syndication activity. Affiliated partnership and investment program surplus operating cash flows and loan proceeds invested in additional equipment favorably influence management fees. The original cost of the equipment under management, excluding equipment managed under the AFG programs, (measured at original cost) amounted to $1.10 billion and $1.11 billion at September 30, 1995 and 1994, respectively. The increase in management fees of $0.2 million resulted from an increase of $0.2 million in management fees from the January 1995 agreement with AFG to provide management services to their existing programs, and from an increase of $0.2 million in management fees generated from the new LLC program, partially offset by a net decrease in management fees generated by gross revenues from the other programs which fell due to a net decrease in managed equipment and a decrease in lease rates for certain types of equipment. Partnership interests and other fees: The Company records as revenues its equity interest in the earnings of the Company's affiliated partnerships. The net earnings and distribution levels from the affiliated partnerships were $1.4 million and $0.7 million for the quarters ended September 30, 1995 and 1994, respectively. In 1995, the equity interest recorded was impacted by net increases of $0.6 million in the Company's recorded residual values which included $0.4 million in residual income for the equipment purchased for the LLC, and $0.2 million in residual income for the AFG programs. A net decrease in the recorded residual values related to other existing programs of $0.2 million was recorded for the same period in 1994. Residual income is recognized on residual interests based upon the general partner's share of the present value of the estimated disposition proceeds of the equipment portfolio of the affiliated partnership. Net decreases in the recorded residual values result when partnership assets are sold and the reinvestment proceeds are less than the original investment in the sold equipment. Acquisition and lease negotiation fees: During the quarter ended September 30, 1995, a total of $41.2 million of equipment was purchased on behalf of the equipment growth funds compared to $9.0 million during the same quarter of the prior year, resulting in an increase in acquisition and lease negotiation fees of $1.8 million. In addition, $0.2 million in acquisition and lease negotiation fees were generated by AFG-related purchases during the quarter ended September 30, 1995. There were no AFG-related transactions during the same quarter of 1994. As a result of the Company's decision to market a new investment program with a no front-end fee structure, acquisition and lease negotiation fees will be significantly reduced in the future unless a new program with a front-end fee structure is brought to market. Commissions: Commission revenue represents syndication placement fees, generally 9% of equity raised for the equipment growth funds, earned upon the sale of partnership units to investors. During the quarter ended September 30, 1995, there was no program equity raised for the equipment growth funds compared to $12.9 million of equity raised during the quarter ended September 30, 1994, resulting in a decrease in placement commissions of $1.1 million. The Company closed PLM Equipment Growth & Income Fund VII (EGF VII) syndication activities on April 30, 1995. As a result of the Company's decision to market a new investment program with a no front-end fee structure, which raised $25.9 million in equity during the quarter, commission revenue will be eliminated unless a new program with a front-end fee is brought to market. Aircraft brokerage and services: Aircraft brokerage and services revenue increased $0.2 million during the quarter ended September 30, 1995 compared to the comparable prior year quarter, and represents revenue earned by Aeromil Australia, the Company's aircraft leasing, spare parts brokerage, and related services subsidiary, acquired in February 1994. Gain (loss) on the sale or disposition of assets, net: During the quarter ended September 30, 1995, the Company purchased a commuter aircraft for $0.7 million and sold the aircraft for a gain of $0.1 million, net of selling costs. Additional net gains on the sale or disposition of assets for the quarter ended September 30, 1995 of $0.6 million resulted mainly from the sale or disposition of 68 marine containers, one commuter aircraft, three helicopters, 91 railcars, 12 storage vaults, and 101 trailers. The $0.1 million net loss for the same period in 1994 resulted from the sale or disposition of trailers and marine containers. Other: Other revenues increased $0.3 million during the quarter ended September 30, 1995, compared to the comparable prior year quarter, due to increased revenue earned for data processing services provided to the Company's affiliated programs and due to an increase in brokerage fees. Costs, Expenses and Other:
For the three months ended September 30, 1995 1994 ----------------------------- (in thousands) Operations support $ 6,050 $ 6,149 Depreciation and amortization 2,104 3,106 Commissions (51) 1,194 General and administrative 2,579 3,096 Reduction in carrying value of certain assets -- 4,247 Interest expense 1,609 2,602 Other income (expense), net 591 (2,619) Interest income 566 963
Operations support: Operations support expense (including salary and office-related expenses for operational activities, provision for doubtful accounts, equipment insurance, repair and maintenance costs, and equipment remarketing costs) decreased $0.1 million (2%) for the quarter ended September 30, 1995, from the same quarter in 1994. The decrease resulted from $0.8 million in lower operating and repair and maintenance costs due to the sale of the Company's entire owned vessel portfolio and the sale of other equipment, a $0.4 million decrease in the provision for bad debts, a $0.3 million decrease in compensation expense booked in 1994 related to the adoption of Statement of Position 93-6 ("SOP 93-6") "Employers' Accounting for Employee Stock Ownership Plans", and a $0.2 million decrease in bonus expense, offset partially by increased costs of $1.3 million and $0.3 million associated with the operation of AFG and Aeromil, respectively. Depreciation and amortization: Depreciation and amortization expense decreased $1.0 million (32%) for the quarter ended September 30, 1995, as compared to the quarter ended September 30, 1994. The decrease resulted from the reduction in depreciable equipment discussed in the operating lease revenue section. Commissions: Commission expenses are primarily incurred by the Company in connection with the syndication of investment partnerships and represent payments to brokers and financial planners for sales of investment program units. Commissions are also paid to certain of the Company's employees directly involved in syndication and leasing activities. Historically, commission costs related to the equipment growth funds have been expensed as incurred. Since syndication efforts related to EGF VII have ended, commission expense for the quarter decreased $1.2 million (104%) from the same period in 1994. Commission costs related to the LLC will be capitalized as part of the Company's investment in the LLC program as equity is raised for the LLC and commissions paid. General and administrative: General and administrative expense decreased $0.5 million (17%) during the quarter ended September 30, 1995, compared to the same quarter in 1994, due to a decrease in the management bonus recorded in the third quarter, and a decrease in professional services and fees. Reduction in carrying value of certain assets: As a result of the Company's regular analysis of its transportation equipment portfolio, no adjustments to the carrying value of equipment were made during the quarter ended September 30, 1995. Valuation adjustments to the estimated net realizable value of certain equipment totaling $4.2 million were made during the quarter ended September 30, 1994, consisting of adjustments to certain aircraft ($2.1 million), trailers ($1.1 million), storage vaults ($0.2 million), containers ($0.1 million), and one marine vessel ($0.7 million). Interest expense: Interest expense decreased $1.0 million (38%) during the quarter ended September 30, 1995, compared to the same quarter in 1994, due to the reduction in senior and subordinated debt levels in 1995 from the third quarter of 1994, partially offset by increased interest rates. Other income (expense), net: Other income (expense), net was income of $0.6 million for the three months ended September 30, 1995, which represented a receipt of an account receivable from a previously bankrupt debtor. For the same quarter of 1994, other expense of $2.6 million was due to the write-off of unamortized loan fees related to the termination of the Company's ESOP and reductions in the carrying value of certain marketable securities. Interest income: Interest income decreased $0.4 million (41%) in the quarter ended September 30, 1995, compared to the same quarter in 1994 from a reduction in interest income earned on the ESOP cash collateral account which existed prior to the termination of the Company's ESOP at the end of 1994. Income taxes: For the three months ended September 30, 1995, the provision for income taxes was $1.6 million, which represented an effective rate of 43%. For the same quarter in 1994, the $3.5 million tax benefit reflected the benefit for the Company's losses and the tax benefit on the ESOP dividend. Net income (loss): As a result of the foregoing, for the three months ended September 30, 1995 net income was $2.1 million resulting in net income per common share of $0.18. For the same quarter in 1994, net loss was $5.2 million. In addition, $0.6 million was required in 1994 for the imputed preferred dividend allocated on ESOP shares resulting in a $5.8 million net loss to common shareholders, or $0.46 loss per common share outstanding. For the Nine Months Ended September 30, 1995 versus September 30, 1994 The following analysis reviews the operating results of the Company: Revenue:
For the nine months ended September 30, 1995 1994 ------------------------------- (in thousands) Operating leases $ 17,942 $ 22,102 Management fees 8,231 8,342 Partnership interests and other fees 3,739 2,584 Acquisition and lease negotiation fees 4,797 2,219 Commissions 1,322 3,881 Aircraft brokerage and services 3,700 3,361 Gain (loss) on the sale or disposition of assets, net 5,911 (574) Other 1,062 856 ------------------------------- Total revenues $ 46,704 $ 42,771
The fluctuations in revenues for the nine months ended September 30, 1995 from the same period in 1994 are summarized and explained below. Operating lease revenue:
For the nine months ended September 30, 1995 1994 ------------------------------- (in thousands) By equipment type or subsidiary: Trailers $ 7,888 $ 10,700 Aircraft 4,587 7,115 Marine vessels 1,079 2,782 Marine containers 456 722 Storage vaults 763 557 Railcars 1,453 226 AFG 1,716 -- ------------------------------- $ 17,942 $ 22,102
As of September 30, 1995, the Company owned transportation equipment held for operating leases with an original cost of $121.9 million, which was $58.2 million less than the original cost of equipment owned and held for operating leases at September 30, 1994. The reduction in equipment, on an original cost basis, is a consequence of the Company's strategic decision to dispose of certain underperforming and nonperforming assets resulting in a 100% reduction in its marine vessel fleet, a 54% net reduction in its marine container portfolio, a 39% net reduction in its aircraft portfolio, a 13% net reduction in its trailer portfolio, and a 48% net reduction in its railcar portfolio compared to 1994. Operating lease revenue is also impacted by the level of assets held for sale and the AFG lease originations which can earn lease revenue for the Company. The reduction in equipment available for lease is the primary reason marine vessel, trailer, marine container, and aircraft revenue were all reduced as compared to the prior year. The decrease in operating lease revenues as a result of the reduction in equipment available for lease was partially offset by a $1.7 million increase in operating lease revenues generated by AFG-related leases, a $1.2 million increase in railcar lease revenues, and a $0.2 million increase in storage vault revenues. The increase in railcar revenue of $1.2 million for the nine months is comprised primarily of revenues on railcars acquired by the Company of which the majority have been sold to both affiliated programs and third parties as of September 30, 1995. Storage vault revenue increased $0.2 million for the nine months ended September 30, 1995, compared to the same period in the prior year, due to additions of $0.6 million in new storage vaults made during the fourth quarter of 1994. Management fees:
For the nine months Year ended September 30, Liquidation 1995 1994 Phase Begins ------------------------------------------------------ (in thousands) Management fees by fund were: EGF I $ 1,014 $ 1,052 1998 EGF II 638 912 1999 EGF III 838 1,363 2000 EGF IV 806 963 1999 EGF V 1,354 1,505 2000 EGF VI 1,307 1,306 2002 EGF VII 663 311 2003 AFG programs 599 -- -- Other programs 1,012 930 -- -------------------------- $ 8,231 $ 8,342
Management fees are, for the most part, based on the gross revenues generated by equipment under management. The managed equipment portfolio grows correspondingly with new syndication activity. Affiliated partnership and investment program surplus operating cash flows and loan proceeds invested in additional equipment favorably influence management fees. The original cost of the equipment under management, excluding equipment managed under the AFG programs, (measured at original cost) amounted to $1.10 billion and $1.11 billion at September 30, 1995 and 1994, respectively. The decrease in management fees of $0.1 million resulted from a decrease in management fees generated by gross revenues of the equipment growth funds, which fell due to a net decrease in managed equipment and a decrease in lease rates for certain types of equipment, partially offset by $0.6 million increase from the January 1995 agreement with AFG to provide management services to their existing investor programs and from a $0.2 million increase in management fees generated by the new LLC program. Partnership interests and other fees: The Company records as revenues its equity interest in the earnings of the Company's affiliated partnerships. The net earnings and distribution levels from the affiliated partnerships were $3.7 million and $2.6 million for the periods ended September 30, 1995 and 1994, respectively, which were impacted by net increases/decreases in the Company's recorded residual values. In 1995, the equity interest recorded was impacted by net increases of $1.2 million in the Company's recorded residual values which included $1.5 million in residual income recorded for the equipment purchased for the LLC, and $0.7 million in residual income for the AFG programs, offset partially by a decrease in residual income related to other existing programs. A net decrease in the recorded residual values of $0.4 million was recorded for the same period in 1994. Residual income is recognized on residual interests based upon the general partners' share of the present value of the estimated disposition proceeds of the equipment portfolios of the affiliated partnerships. Net decreases in the recorded residual values result when partnership assets are sold and the reinvestment proceeds are less than the original investment in the sold equipment. During the nine months ended September 30, 1994, the Company also recorded $0.2 million in debt financing fees earned for debt placed in affiliated partnerships. Acquisition and lease negotiation fees: During the nine months ended September 30, 1995, a total of $69.8 million of equipment was purchased on behalf of the equipment growth funds compared to $40.9 million during the same period in 1994, resulting in an increase in acquisition and lease negotiation fees of $1.6 million. In addition, $1.0 million in acquisition and lease negotiation fees were generated by AFG-related purchases during the nine months ended September 30, 1995. There were no AFG-related transactions during the same period in 1994. As a result of the Company's decision to market a new investment program with a no front-end fee structure, acquisition and lease negotiation fees will be significantly reduced in the future unless a new program with a front-end fee structure is brought to market. Commissions: Commission revenue represents syndication placement fees, generally 9% of equity raised for the equipment growth funds, earned upon the sale of partnership units to investors. During the nine months ended September 30, 1995, program equity raised for the equipment growth funds totaled $14.6 million compared to $43.5 million during the same period during 1994, resulting in a decrease in placement commissions of $2.6 million. The Company closed EGF VII syndication activities on April 30, 1995. As a result of the Company's decision to market a new investment program with a no front-end fee structure, which raised $43.1 million in equity during the nine months ended September 30, 1995, commission revenue will be eliminated unless a new program with a front-end fee is brought to market. Aircraft brokerage and services: Aircraft brokerage and services revenue increased $0.3 million during the nine months ended September 30, 1995, compared to the same period of 1994. The increase represents revenue earned by Aeromil Australia, the Company's aircraft leasing, spare parts brokerage, and related services subsidiary, acquired in February 1994. Gain (loss) on the sale or disposition of assets, net: The $5.9 million net gain recorded during the nine months ended September 30, 1995 included gains from the sale of three option contracts for railcar equipment, and the disposition of one marine vessel, 578 marine containers, two commercial aircraft, two commuter aircraft, four helicopters, 307 railcars, 22 storage vaults and 326 trailers. Additionally, during the nine months ended September 30, 1995, the Company purchased three commuter aircraft and sold them for an aggregate gain of $0.5 million, net of selling costs. The $0.6 million net loss for the same period in 1994 resulted from the sale or disposition of trailers and marine containers. Other: Other revenues increased $0.2 million in the nine months ended September 30, 1995, from the same period in 1994, due to an increase in revenue earned for data processing services provided to the Company's affiliated programs. Costs, Expenses and Other:
For the nine months ended September 30, 1995 1994 ------------------------------- (in thousands) Operations support $ 18,602 $ 17,731 Depreciation and amortization 6,491 9,411 Commissions 1,417 4,067 General and administrative 7,646 7,861 Reduction in carrying value of certain assets -- 4,247 Interest expense 5,540 7,310 Other income (expense), net 537 (2,349) Interest income 1,491 2,643
Operations support: Operations support expense (including salary and office-related expenses for operational activities, provision for doubtful accounts, equipment insurance, repair and maintenance costs, and equipment remarketing costs) increased $0.9 million (5%) for the nine months ended September 30, 1995, from the same period in 1994. The increase resulted from $3.5 million in costs associated with the operation of AFG, a $0.6 million increase in accrued compensation expense primarily to compensate employees for lost benefits resulting from the termination of the Company's 401(k) plan, and a $0.6 million increase in Aeromil expenses due to higher operational expenses and revenues in the current year, offset partially by a $2.1 million decrease in operating costs and repair and maintenance expenses due to the sale of the entire owned marine vessel portfolio and other equipment, a $0.8 million decrease in the provision for bad debts, and a $0.9 million decrease in compensation expenses booked in 1994 related to the adoption of SOP 93-6. Depreciation and amortization: Depreciation and amortization expense decreased $2.9 million (31%) for the nine months ended September 30, 1995, as compared to the nine months ended September 30, 1994. The decrease resulted from the reduction in depreciable equipment discussed in the operating lease revenue section. Commissions: Commission expenses are primarily incurred by the Company in connection with the syndication of investment partnerships and represent payments to brokers and financial planners for sales of investment program units. Commissions are also paid to certain of the Company's employees directly involved in syndication and leasing activities. Historically, commission costs related to the equipment growth funds have been expensed as incurred. Since syndication efforts related to EGF VII have ended, commission expense for the nine months ended September 30, 1995 decreased $2.7 million (65%) from the same period in 1994. Commission costs related to the LLC will be capitalized as part of the Company's investment in the LLC program as equity is raised for the LLC and commissions paid. General and administrative: General and administrative expenses decreased $0.2 million (3%) during the nine months ended September 30, 1995, compared to the same period in 1994. The decrease resulted from a decrease in professional services and fees, offset partially by an increase in accrued compensation expense primarily to compensate employees for lost benefits resulting from the termination of the Company's 401(k) plan. Reduction in carrying value of certain assets: As a result of the Company's regular analysis of its transportation equipment portfolio, no adjustments in the carrying value of equipment were made in 1995. Valuation adjustments to the estimated net realizable value of certain equipment totaling $4.2 million were made in 1994, consisting of adjustments to certain aircraft ($2.1 million), trailers ($1.1 million), storage vaults ($0.2 million), containers ($0.1 million), and one marine vessel ($0.7 million). Interest expense: Interest expense decreased $1.8 million (24%) during the nine months ended September 30, 1995, compared to the same period in 1994 due to the reduction in senior and subordinated debt levels in 1995 from the same period in 1994, partially offset by increased interest rates. Other income (expense), net: Other income (expense), net was income of $0.5 million in the nine months ended September 30, 1995 mainly due to receipt of an account receivable from a previously bankrupt debtor. For the same period in 1994, other expense of $2.3 million was due to the write-off of unamortized loan fees related to the termination of the Company's ESOP and a reduction in the carrying value of certain marketable securities. Interest income: Interest income decreased $1.2 million (44%) in the nine months ended September 30, 1995, compared to the same period in 1994 from a reduction in interest income earned on the ESOP cash collateral account which existed prior to the termination of the Company's ESOP at the end of 1994. Income taxes: For the nine months ended September 30, 1995, the provision for income taxes was $3.9 million, which represented an effective rate of 43%. For the same period in 1994, the $4.0 million tax benefit reflected the benefit for the Company's losses and the tax benefit on the ESOP dividend. Cumulative effect of accounting change: The adoption of SOP 93-6 in the nine months ended September 30, 1994, resulted in a noncash charge to earnings of $5.1 million for the impact of the change in accounting principle and is reflected as the "Cumulative effect of accounting change" in the Consolidated Statements of Operations. Net income (loss): As a result of the foregoing, for the nine months ended September 30, 1995 net income was $5.2 million resulting in net income per common share of $0.44. For the same period in 1994, net loss was $8.7 million. In addition, $1.7 million was required in 1994 for the imputed preferred dividend allocated on ESOP shares resulting in a $10.4 million net loss to common shareholders, or $0.83 loss per common share outstanding. Liquidity and Capital Resources: Cash requirements historically have been satisfied through cash flow from operations, borrowings, or sales of transportation equipment. Liquidity in 1995 will depend, in part, on continued remarketing of the equipment portfolio at similar lease rates, management of existing and newly sponsored programs, effectiveness of cost control programs, and possible additional equipment sales. Management believes the Company can accomplish the preceding and will have sufficient liquidity and capital resources for the future. Specifically, future liquidity is influenced by the following: (a) Debt Financing: Senior Debt: On June 30, 1994, the Company closed a $45.0 million senior loan facility with a syndicate of insurance companies and repaid the prior facility. The Company has pledged substantially all of its equipment as collateral to the loan facility. The facility provides that equipment sale proceeds, from pledged equipment, or cash deposits be placed into collateral accounts or used to purchase additional equipment. The facility requires quarterly interest only payments through March 31, 1997, with quarterly principal payments of $2.1 million plus interest charges beginning June 30, 1997, through the termination of the loan in June 2001. In December 1994, the Company repaid $10.0 million of its senior debt through the use of cash collateral from the sale of pledged equipment. Bridge Financing: Assets acquired and held on an interim basis for placement with affiliated partnerships have, from time to time, been partially funded by a $25.0 million short-term equipment acquisition loan facility. The Company amended this facility on September 27, 1995. The amendment extended the facility until September 30, 1996, and provides for a $5.0 million letter of credit facility as part of the $25.0 million facility. This facility, which is shared with EGFs II, III, IV, V, VI, VII and the LLC, allows the Company to purchase equipment prior to the designated program or partnership being identified, or prior to having raised sufficient capital to purchase the equipment. This facility provides 80% financing if the Company is the borrower and working capital is used for the nonfinanced costs of these acquisitions. The Company can hold assets under this bridge facility for up to 150 days. Interest accrues at prime or LIBOR plus 2.5% at the option of the borrower at the time of the advance under the facility. As provided for in the program offering documents, the Company retains the net lease revenue earned and pays the carrying costs incurred during the interim holding period since its capital is at risk. As of November 1, 1995, the Company had no borrowings and EGFs VI and VII had $1.7 million and $9.6 million in borrowings, respectively. Subordinated Debt: The Company is in negotiations with its subordinated debt lender to prepay a portion of the notes in 1995. If successful, the Company's liquidity will be negatively impacted in the short term with a subsequent cash flow increase due to reduced interest costs. Securitized Debt: The Company has entered into a securitization facility to borrow up to $80 million on a non-recourse basis for a one year period that will be secured primarily by finance type leases which generally have terms of four to five years. The securitized debt is expected to bear interest at treasury rate plus 1%. As of November 1,1995, there were no borrowings on this facility. (b) Portfolio Activities: During the nine months ended September 30, 1995, the Company generated proceeds of $7.4 million from the sale of equipment for lease. These net proceeds were placed in a collateral account as required by the senior secured term loan agreement. In March 1995, the lender consented to the Company's request to release $10.8 million in funds from the cash collateral account primarily relating to asset sales in 1994. The request to release funds and the subsequent approval were based on the appraised fair market value of the equipment portfolio and the related collateral coverage ratio. Over the last three years, the Company has downsized the equipment portfolio through the sale or disposal of underperforming and nonperforming assets. The Company will continue to identify underperforming and nonperforming assets for sale or disposal as necessary. (c) Syndication Activities: The Company earned fees from syndication activities related to EGF VII during the first four months of 1995. Total equity raised since inception for this partnership was $107.4 million through April 30, 1995 when the program closed. There will be no more equity raised for this partnership. The overall limited partnership syndication market has been contracting. The Company's management is concerned with the continued contraction of the equipment leasing syndication market and its effect on the volume of partnership equity that can be raised. The Company's newly registered and currently marketed no front-end fee syndication product (LLC) was developed to capture a larger share of the syndication market. The no front-end fee structure of the LLC requires the Company to pay offering and organizational costs, including payment of broker-dealer commissions, as syndicated equity is raised. In previous investor programs sponsored by the Company, most offering and organizational expenses were reimbursed to the Company. Since May 1995 through October 31, 1995, the LLC has raised 43 million in equity investment from the public. This is 89% higher than the equity raised for EGF VII during the same period of 1994. Though the Company receives a higher share of LLC distributions versus its share of Equipment Growth Fund program distributions, the no front-end fee investments required by the Company in the form of expense payments on behalf of the LLC will negatively impact the Company's liquidity during the investment phase of the program. Management believes that through debt and equity financing, possible sales of transportation equipment, and cash flows from operations, the Company will have sufficient liquidity and capital resources to meet its projected future operating needs. PART II - OTHER INFORMATION Item 1. Legal Proceedings See Note 1 of Notes to Consolidated Financial Statements. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits 10.1 Amended and restated Warehousing Credit Agreement, dated as of September 27, 1995. 10.2 Asset Purchase Agreement, dated as of July 1, 1995. 10.3 Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1, 1995. (B) Reports on Form 8-K None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLM INTERNATIONAL, INC. /s/ David J. Davis ------------------ David J. Davis Vice President and Corporate Controller Date: November 1, 1995 EX-10 2 AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT AMONG TEC ACQUISUB, 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 SEPTEMBER 27, 1995 WAREHOUSING CREDIT AGREEMENT TABLE OF CONTENTS Page SECTION 1. DEFINITIONS.....................................1 1.1 Defined Terms.............................................1 1.2 Accounting Terms..........................................17 1.3 Other Terms...............................................18 1.4 Schedules and Exhibits....................................18 SECTION 2. AMOUNT AND TERMS OF CREDIT......................18 2.1 Commitment to Lend........................................18 2.1.1 Revolving Facility..............................18 (a) Facility Commitments....................18 (b) Each Loan...............................19 2.1.2 Funding.........................................20 2.1.3 Utilization of the Loans........................20 2.2 Repayment and Prepayment..................................20 2.2.1 Repayment.......................................20 2.2.2 Voluntary Prepayment............................20 2.2.3 Mandatory Prepayments...........................21 2.3 Calculation of Interest; Post-Maturity Interest...........22 2.4 Manner of Payments........................................22 2.5 Payment on Non-Business Days..............................22 2.6 Application of Payments...................................22 2.7 Procedure for the Borrowing of Loans......................23 2.7.1 Notice of Borrowing.............................23 2.7.2 Unavailability of LIBOR Loans...................23 2.8 Conversion and Continuation Elections.....................23 2.8.1 Election........................................23 2.8.2 Notice of Conversion............................24 2.8.3 Interest Period.................................24 2.8.4 Unavailability of LIBOR Loans...................24 2.9 Discretion of Lenders as to Manner of Funding.............24 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.25 2.13 Capital Requirements......................................25 2.14 Taxes.....................................................26 2.14.1 No Deductions...........................26 2.14.2 Miscellaneous Taxes.....................26 2.14.3 Indemnity...............................26 2.14.4 Required Deductions.....................26 2.14.5 Evidence of Payment.....................27 2.14.6 Foreign Persons.........................27 i. TABLE OF CONTENTS (continued) Page 2.14.7 Income Taxes............................28 2.14.8 Reimbursement of Costs..................28 2.14.9 Jurisdiction............................28 2.15 Illegality................................................28 2.15.1 LIBOR Loans.............................28 2.15.2 Prepayment..............................29 2.15.3 Prime Rate Borrowing....................29 2.16 Increased Costs...........................................29 2.17 Inability to Determine Rates..............................29 2.18 Prepayment of LIBOR Loans.................................29 SECTION 3. CONDITIONS PRECEDENT............................30 3.1 Effectiveness of this Agreement...........................30 3.1.1 Corporate Documents.............................30 3.1.2 Note............................................30 3.1.3 Opinion of Counsel..............................31 3.1.4 Reaffirmation of Guaranty.......................31 3.1.5 Growth Fund Agreement...........................31 3.1.6 Bringdown Certificate...........................31 3.1.7 Other Documents.................................31 3.2 All Loans.................................................31 3.2.1 Notice of Borrowing.............................31 3.2.2 Invoices........................................31 3.2.3 Title to Equipment..............................32 3.2.4 Approval of Loan................................32 3.2.5 Leases..........................................32 3.2.6 No Event of Default.............................32 3.2.7 Officer's Certificate...........................32 3.2.8 Officer's Certificate - Leases..................32 3.2.9 Insurance.......................................33 3.2.10 Warranty of TEC AcquiSub................33 3.2.11 Other Instruments.......................34 3.3 Further Conditions to All Loans...........................34 3.3.1 General Partner or Manager......................34 3.3.2 Removal of General Partner or Manager...........34 3.3.3 Cash Balances...................................34 3.3.4 Purchaser.......................................34 SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES.......34 4.1 Existence and Power.......................................34 4.2 Loan Documents and Note Authorized; Binding Obligations...35 ii. TABLE OF CONTENTS (continued) Page 4.3 No Conflict; Legal Compliance.............................35 4.4 Financial Condition.......................................35 4.5 Executive Offices.........................................35 4.6 Litigation................................................35 4.7 Material Contracts........................................36 4.8 Consents and Approvals....................................36 4.9 Other Agreements..........................................36 4.10 Employment and Labor Agreements...........................36 4.11 ERISA.....................................................36 4.12 Labor Matters.............................................36 4.13 Margin Regulations........................................36 4.14 Taxes.....................................................37 4.15 Environmental Quality.....................................37 4.16 Trademarks, Patents, Copyrights, Franchises and Licenses..38 4.17 Full Disclosure...........................................38 4.18 Other Regulations.........................................38 4.19 Solvency..................................................38 4.20 Survival of Representations and Warranties................38 SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS................38 5.1 Records and Reports.......................................38 5.1.1 Quarterly Statements............................38 5.1.2 Annual Statements...............................39 5.1.3 Borrowing Base Certificate......................39 5.1.4 Compliance Certificate..........................39 5.1.5 Reports.........................................39 5.1.6 Insurance Reports...............................40 5.1.7 Certificate of Responsible Officer..............40 5.1.8 Employee Benefit Plans..........................40 5.1.9 ERISA Notices...................................40 5.1.10 Pension Plans...........................41 5.1.11 SEC Reports.............................41 5.1.12 Tax Returns.............................41 5.1.13 Additional Information..................41 5.2 Existence; Compliance with Law............................41 5.3 Insurance.................................................41 5.4 Taxes and Other Liabilities...............................42 5.5 Inspection Rights; Assistance.............................42 5.6Maintenance of Facilities; Modifications; Performance of Leases.42 5.6.1 Maintenance of Facilities.......................42 5.6.2 Certain Modifications to the Equipment..........42 iii. TABLE OF CONTENTS (continued) Page 5.6.3 Performance of Leases...........................43 5.7 Supplemental Disclosure...................................43 5.8 Further Assurances........................................43 5.9 Lockbox...................................................43 5.10 Environmental Laws........................................43 5.11 Equipment Purchase Agreement..............................43 SECTION 6. BORROWER'S NEGATIVE COVENANTS...................43 6.1 Liens; Negative Pledges; and Encumbrances.................43 6.2 Acquisitions..............................................44 6.3 Limitations on Indebtedness...............................44 6.4 Use of Proceeds...........................................44 6.5 Disposition of Assets.....................................45 6.6 Restricted Payments.......................................45 6.7 Restriction on Fundamental Changes........................45 6.8 Transactions with Affiliates..............................45 6.9 No Loans to Affiliates....................................46 6.10 No Investment.............................................46 6.11 Maintenance of Business...................................46 6.12 No Modification to Leases.................................46 6.13 No Subsidiaries...........................................46 6.14 Amendments of Charter Documents...........................46 6.15 Events of Default.........................................46 6.16 ERISA.....................................................46 6.17 No Use of Any Lender's Name...............................47 6.18 Certain Accounting Changes................................47 SECTION 7. FINANCIAL COVENANTS OF BORROWER.................47 7.1 Minimum Consolidated Tangible Net Worth...................47 SECTION 8. EVENTS OF DEFAULT AND REMEDIES..................47 8.1 Events of Default.........................................47 8.1.1 Failure to Make Payments........................47 8.1.2 Other Agreements................................48 8.1.3 Breach of Covenants.............................48 8.1.4 Breach of Representations or Warranties.........48 8.1.5 Failure to Cure.................................48 8.1.6 Insolvency......................................49 8.1.7 Bankruptcy Proceedings..........................49 8.1.8 Material Adverse Effect.........................49 8.1.9 Judgments, Writs and Attachments................49 iv. TABLE OF CONTENTS (continued) Page 8.1.10 Legal Obligations.................................49 8.1.11 Growth Fund Agreement.............................49 8.1.12 Board of Directors................................50 8.1.13 Criminal Proceedings..............................50 8.1.14 Action by Governmental Authority..................50 8.1.15 Governmental Decrees..............................50 8.2 Waiver of Default.........................................50 8.3 Remedies..................................................51 8.4 Set-Off...................................................51 8.5 Rights and Remedies Cumulative............................52 SECTION 9. AGENT...........................................52 9.1 Appointment...............................................52 9.2 Delegation of Duties......................................53 9.3 Exculpatory Provisions....................................53 9.4 Reliance by Agent.........................................53 9.5 Notice of Default.........................................53 9.6 Non-Reliance on Agent and Other Lenders...................54 9.7 Indemnification...........................................54 9.8 Agent in Its Individual Capacity..........................54 9.9 Resignation and Appointment of Successor Agent............55 SECTION 10. EXPENSES AND INDEMNITIES........................55 10.1 Expenses..................................................55 10.2 Indemnification...........................................56 10.2.1 General Indemnity.......................56 10.2.2 Environmental Indemnity.................56 10.2.3 Survival; Defense.......................57 SECTION 11. MISCELLANEOUS...................................57 11.1 Survival..................................................57 11.2 No Waiver by Agent or Lenders.............................57 11.3 Notices...................................................57 11.4 Headings..................................................58 11.5 Severability..............................................58 11.6 Entire Agreement; Construction; Amendments and Waivers....58 11.7 Reliance by Lenders.......................................59 11.8 Marshalling; Payments Set Aside...........................59 11.9 No Set-Offs by Borrower...................................59 11.10 Binding Effect, Assignment......................59 11.11 Counterparts....................................60 v. TABLE OF CONTENTS (continued) Page 11.12 Equitable Relief................................61 11.13 Written Notice of Claims; Claims Bar............61 11.14 Waiver of Punitive Damages......................61 11.15 Governing Law...................................61 11.16 Consent to Jurisdiction.........................61 11.17 Waiver of Jury Trial............................62 vi. INDEX OF EXHIBITS Exhibit A Form of Revolving Promissory Note Exhibit B Form of Borrowing Base Certificate Exhibit C Form of Compliance Certificate Exhibit D Form of Growth Fund Agreement Exhibit E Form of Opinion of Counsel (Stephen Peary) Exhibit F Form of Lockbox Agreement Exhibit G Form of Notice of Borrowing Exhibit H Form of Notice of Conversion/Continuation vii. INDEX OF SCHEDULES Schedule A Commitments Schedule 1.1 Amendments to Schedule A Schedule 4.5 Executive Offices and Principal Places of Business Schedule 4.6 Litigation Schedule 4.7 Material Contracts Schedule 4.8 Consent and Approvals Schedule 4.15 Environmental Disclosures Schedule 6.1 Existing Liens viii. AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT THIS AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into as of September 27, 1995, by and between TEC ACQUISUB, INC., a California special purpose corporation ("Borrower"), 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 (any one individually, a "Lender," and collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). RECITALS A. Borrower, Lenders and Agent have entered into that Warehousing Credit Agreement dated as of June 30, 1993, as amended by that as amended by that Amendment No. 1 to Warehousing Credit Agreement dated as of December 20, 1993, that Amendment No. 2 to Warehousing Credit Agreement dated as of June 28, 1994 and that Amendment No. 3 to Warehousing Credit Agreement dated as of May 5, 1995 and that Amendment No. 4 to Warehousing Credit Agreement dated as of June 30, 1995 (the "TEC AcquiSub Agreement"). B. The Agreement amends and restates the TEC AcquiSub Agreement in 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: SECTION 1. DEFINITIONS. 1.1 Defined Terms. As used herein, the following terms have the following meanings: "Acquisition" means any transaction, or any series of related transactions, by which Borrower directly or indirectly (a) acquires any ongoing business or all or substantially all of the assets of any Person or any 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. 1. "Adjustable 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: The Adjusted LIBOR shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Advance" means any Advance made or to be made by any Lender to 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 Borrower 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. "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. "Agreement" means this Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995, 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 and propellers, and any engines, rotables or propellers used on a stand-alone basis. "Applicable Margin" means: (a) with respect to Prime Rate Loans, zero percent (0.00%); and (b) with respect to LIBOR Loans, two and one-half of one percent (2.50%). 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 at and for any date of determination, an amount not to exceed the lesser of: (a) an amount equal to eighty percent (80.0%) of the aggregate Invoice Price of all Eligible Inventory then owned of record by Borrower or any Marine Subsidiary or of record by an Owner Trustee for the beneficial interest of Borrower or any Marine Subsidiary (provided, however, that there shall be excluded from this clause (a) the aggregate Invoice Price of all items of Eligible Inventory subject to a Lease under which any applicable lease or rental payment is more than ninety (90) days past due), 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 if any portion of Borrower's, such Marine Subsidiary's or such Owner Trustee's ownership interest in any such item of Eligible Inventory is sold or assigned to one or more of the Equipment Growth Funds such that Borrower, such Marine Subsidiary or such Owner Trustee continues to retain less than the entire record or beneficial ownership interest therein, then for the purpose of computing the Borrowing Base under this clause (a), the Invoice Price of such item of Eligible Inventory shall be deemed to be equal to Borrower's or such Marine Subsidiary's ratable portion of the Invoice Price of such item of Eligible Inventory); or (b) an amount equal to one hundred percent (100.0%) of the unrestricted cash available for purchase of Equipment by Equipment Growth Funds, computed (x) with respect to any requested Loan, as of the requested Funding Date (and shall include the aggregate Invoice Price of all item(s) of Eligible Inventory to be acquired with the proceeds of the requested Loan), and (y) 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 Borrower, any Marine Subsidiary or any Owner Trustee 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 only Borrower's, such Marine Subsidiary's or such Owner Trustee's, as the case may be, ratable interest in such item of Equipment). "Borrowing Base Certificate" means a certificate with appropriate insertions setting forth the components of the Borrowing Base as of the last day of the month for which such 3. 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 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 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 hereunder, (b) Borrower's employees, payroll, income or gross receipts, (c) Borrower's ownership or use of any of its Properties or assets or (d) any other aspect of 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 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. "Collateral" means the Collateral described in the Security Agreement. "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 September 30, 1996. 4. "Compliance Certificate" means a certificate signed by a Responsible Officer of Borrower, substantially in the form set forth in Exhibit C, with such changes therein as the Required Lenders 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 Funded Debt" means for any Person, as measured at any date of determination on a consolidated basis, the total amount of all interest bearing obligations (including Indebtedness for borrowed money), capital lease obligations as a lessee and the stated amount of all issued and undrawn letters of credit. "Consolidated Intangible Assets" means for any Person, on a consolidated basis, as at any date of determination, all intangible assets of such Person, as determined and computed in accordance with GAAP. "Consolidated Net Worth" means, on a consolidated basis, as at any date of determination, the difference between Consolidated Total Assets and Consolidated Total Liabilities. "Consolidated Tangible Net Worth" means, as at any date of determination, the difference between Consolidated Net Worth and Consolidated Intangible Assets. "Consolidated Total Assets" means for any Person, on a consolidated basis, as at any date of determination, all assets of such Person, as determined and computed in accordance with GAAP. "Consolidated Total Liabilities" means for any Person, on a consolidated basis, as at any date of determination, all liabilities of such Person, as determined and computed in accordance with GAAP. "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. 5. "Default Rate" has the meaning set forth in Section 2.3. "Designated Deposit Account" means a demand deposit account maintained by Borrower with FUNB designated by written notice from Borrower 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" means PLM Equipment Growth Fund IV, a California limited partnership. "EGF V" means PLM Equipment Growth Fund V, a California limited partnership. "EGF VI" means PLM Equipment Growth Fund VI, a California limited partnership. "EGF VII" means PLM Equipment Growth Fund VII, a California limited partnership. "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 all Trailers (less than ten 10 years old), Aircraft and Aircraft engines (complying with (a) Stage III noise reduction requirements or (b) with Stage II noise reduction requirements if the present value of the Lease payments with respect to such Aircraft, discounted at a rate equal to the Prime Rate, exceeds seventy percent (70.0%) of the purchase price for such Aircraft paid by Borrower); and Railcars (less than twenty (20) years old), cargo containers (less than ten (10) years old), marine vessels (less than fifteen (15) years old) and, if approved by the Requisite Lenders, other related Equipment, in each case that (a) is owned of record by Borrower or a Marine Subsidiary or, subject to the approval of Agent, any owner trust of which Borrower is the sole beneficiary or owner, 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 Borrower or a Marine Subsidiary is the sole beneficiary or direct or indirect owner; (b) is purchased in whole or in part by Borrower or such owner trust of which Borrower is the sole beneficiary (or nominee entity of which Borrower is the sole beneficiary or direct or indirect owner) with Loans from Lenders under this Agreement; (c) is subject to a Lease acceptable to Agent in its sole discretion (as reviewed in full in connection with each requested borrowing hereunder), which Lease shall, at 6. a minimum, (A) be non-cancelable, (B) be with a lessee of acceptable credit quality as determined by Agent, and (C) be of a firm term in excess of one (1) year, except that cargo- containers and Trailers may be on Utilization Leases; (d) has a value and marketability reasonably satisfactory to the Agent; (e) was not previously financed with the proceeds of a Loan under this Agreement; (f) would, except for the fact such item of Equipment is not owned of record or beneficially by any Growth Fund, qualify as "Eligible Inventory" under and as defined in the Growth Fund Agreement; and (g) is free and clear of all Liens, except (i) any interest of a lessee thereof pursuant to a Lease entered into with Borrower or a Marine Subsidiary or Borrower's or such Marine Subsidiary's predecessor in interest or such owner trust or nominee entity, as lessor, or (ii) as otherwise permitted by Section 6.1, provided that any Liens of the type permitted under clause (ii) encumbering any item of Equipment shall not secure obligations in amounts which materially impair the equity value in such item of Equipment. Requisite Lenders in their sole discretion, on a case by case basis, may approve other items or types of Equipment for credit under "Eligible Inventory" from time to time. "Eligible Inventory" shall include only Equipment purchased by Borrower or such owner trust (or nominee entity) of which Borrower is sole beneficiary, whether by sale or assignment or otherwise, from independent third-parties not related to PLMI or its Affiliates. Borrower may sell or assign a partial ownership interest in any item of Eligible Inventory to one or more of the Equipment Growth Funds in consideration of a purchase price, paid in cash, equal to the ratable portion of the Invoice Price paid by Borrower for such item of Eligible Inventory so sold or assigned without causing the underlying item of Equipment to lose its status as Eligible Inventory by virtue of such sale on the condition that, and only on the condition that, (x) a portion of the cash purchase price, ratably related to the percentage of the Invoice Price of such item of Eligible Inventory financed by a Loan advanced by Lenders hereunder, shall be used to prepay such Loan in accordance with Section 2.2.3(c) and (y) Agent shall continue to retain possession of the Lease in respect of such item of Equipment. Subject to the immediately preceding sentence, Equipment which is Eligible Inventory will cease to be Eligible Inventory at any time it no longer continues to meet all of the above requirements. Eligible Inventory shall not include any Equipment that was included in the borrowing base against which loans shall have previously been made to Growth Funds under the Growth Fund Agreement. "Employee Benefit Plan" means any Pension Plan and any employee welfare benefit plan, as defined in Section 3(1) of ERISA, that is maintained for the employees of Borrower or any ERISA Affiliate of Borrower. "Environmental Claims" means 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 7. or not owned by Borrower, 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 4.15.2. "Equipment" means all items of transportation-related equipment owned directly or beneficially by Borrower, by any Marine Subsidiary or by any Growth Fund 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 Borrower, any Marine Subsidiary or Growth Funds 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. "Equipment Purchase Agreement" means an equipment purchase agreement, in form and substance satisfactory to Agent, between Borrower and any Growth Fund, entered into for the benefit of Lenders, providing for the purchase by such Growth Fund of the Equipment upon which a Loan has been made. "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. 8. "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 Borrower according to each Lender's Pro Rata Share. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such previous day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotation, the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System and any successor thereto. "Form 1001" has the meaning set forth in Section 2.14.6. "Form 4224" has the meaning set forth in Section 2.14.6. "FSI" means PLM Financial Services, Inc., a Delaware corporation of which Borrower is an indirect Subsidiary. "Funding Date" means with respect to any proposed borrowing hereunder, the date funds are advanced to Borrower for any Loan. "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. 9. "Growth Funds" means any and all of EGF II, EGF III, EGF IV, EGF V, EGF VI, EGF VII and Income Fund I. "Growth Fund Agreement" means the Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995, by and among each of the Growth Funds, and Lenders, and Agent substantially in the form of Exhibit D hereto, as the same may from time to time be amended, modified, supplemented, renewed, extended or restated. "Guaranties" means those certain Guaranties each dated as of June 30, 1993, executed by FSI and TEC 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 Eligible Inventory, 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. "Income Fund I" means Professional Lease Management Income Fund I, L.L.C., a Delaware limited liability company. "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 10. 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 10.2.1. "Indemnified Person" has the meaning set forth in Section 10.2.1. "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. "Interest Period" means, with respect to any LIBOR Loan, the one-month, two-month or three-month period selected by the 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" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of any other Person or by means of loan or advance (other than advances to employees for moving or travel expenses, drawing accounts and similar expenditures in the ordinary course of business), capital contribution, guaranty or other debt or equity participation or interest, or otherwise, in any other Person, including any partnership and joint venture interests of such Person in any other Person or in any item of transportation-related equipment, owned by a Person unaffiliated with Borrower and on lease to another third party, in which Borrower acquires a right to share, directly or indirectly. "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. "Invoice Price" means the sum of the purchase price (including modifications, as applicable), delivery charges, third party brokerage fees and other reasonable closing costs, if any (provided that delivery charges, third party brokerage fees and closing costs shall be 11. included in the computation of the "Invoice Price" only to the extent that they do not, in the aggregate, exceed five percent (5.0%) of the total purchase price), and all applicable taxes, paid by Borrower for or with respect to any item of Eligible Inventory. "IRS" means the Internal Revenue Service and any successor thereto. "Lease" means each and every item of chattel paper, installment sales agreement, equipment lease or rental agreement (including progress payment authorizations) relating to an item of Equipment of which Borrower or any Growth Fund is the 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 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 Borrower 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. "Loan" has the meaning set forth in Section 2.1.1(a)(i). "Loan Document" when used in the singular and "Loan Documents" when used in the plural means any and all of this Agreement, the Note, the Security Agreement, the Lockbox Agreement and the Guaranties and any and all other agreements, documents and instruments executed and delivered by or on behalf or support of Borrower to Agent or any Lender or any of their respective authorized designees evidencing or otherwise relating to the Advances and 12. 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 Borrower, FUNB and Agent on behalf of Lenders, substantially in the form of Exhibit F, relating to the Lockbox. "Marine Subsidiary" means a wholly-owned Subsidiary of Borrower organized for the purpose of holding record or beneficial title to one or more marine vessels or aircraft rotables and spare parts; provided that such Subsidiary shall continue to be deemed a Marine Subsidiary if Borrower shall thereafter sell and transfer partial, but not the entire, record or beneficial ownership interest therein to one or more Equipment Growth Funds (but for purposes of computing the Borrowing Base, such Marine Subsidiary's record or beneficial title to its owned Equipment shall be deemed to be limited to Borrower's continuing ratable ownership interest in such Marine Subsidiary). "Material Adverse Effect" means 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 Borrower, FSI or TEC (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower, FSI or TEC 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 fifty (150) days after the Funding Date of such Loan or such earlier or later date as requested by Borrower and approved by the 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 a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which Borrower or any ERISA Affiliate of Borrower 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, extensions, substitutions and renewals thereof. "Notice of Borrowing" means a notice given by Borrower to Agent in accordance with Section 2.7, substantially in the form of Exhibit G, with appropriate insertions. 13. "Notice of Conversion/Continuation" means a notice given by Borrower to Agent in accordance with Section 2.8, substantially in the form of Exhibit H, with appropriate insertions. "Obligations" means all loans, advances, liabilities and obligations for monetary amounts owing by 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 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 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 opinions of Stephen Peary, general counsel of FSI and TEC, substantially in the form of Exhibits E, respectively, 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 Section 2.1.1(a)(iii). "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 Borrower or FSI. "PBGC" means the Pension Benefit Guaranty Corporation and any successor thereto. "Pension Plan" means any employee pension benefit plan, as defined in Section 3(2) of ERISA, that is maintained for the employees of Borrower or any ERISA Affiliate of Borrower, 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. 14. "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 even date herewith, executed by FSI and TEC in favor of Lenders reaffirming their obligations under their respective Guaranties. "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. "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, 15. 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 any of the President, Executive Vice President, Chief Financial Officer, Secretary or Corporate Controller of Borrower having authority to request Loans or perform other duties required hereunder. "SEC" means the Securities and Exchange Commission and any successor thereto. "Security Agreement" means the Security Agreement entered into as of June 30, 1993 between Borrower and Agent, on behalf of Lenders, including all amendments, modifications and supplements thereto and all appendices, exhibits and schedules to any of the foregoing, and shall refer to the Security Agreement as the same may be in effect from time to time. "Security Documents" means the Security Agreement, each chattel mortgage, ship mortgage or similar security agreement, mortgage or other agreement or document entered into with respect to this Agreement, each UCC-1 financing statement delivered pursuant hereto and any and all other related documents. "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 (other than Equipment Growth Funds) or other business entity of which an aggregate of fifty percent (50.0%) or more of the beneficial interest (in the case of a partnership) or fifty percent (50.0%) 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. 16. "TEC" means PLM Transportation Equipment Corporation, a California corporation and a wholly-owned Subsidiary of FSI and of which Borrower is a special purpose Subsidiary. "Termination Event" means (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 Borrower, FSI or any of FSI's other 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 the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of North Carolina, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Utilization Leases" means Leases for Equipment held for lease in pooling or similar arrangements where the actual rental payments under such Lease is based on and for the actual period of utilization of such item of Equipment rather than the Lease term. 1.2 Accounting Terms. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial data required to be submitted by this Agreement shall be prepared and computed, unless otherwise specifically provided herein, in accordance with GAAP. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. In the event that GAAP changes during the term of this Agreement such that the covenants contained in Section 7 would then be calculated in a different manner or with different components, (a) the parties hereto agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Borrower's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (b) 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 Borrower would have been in compliance therewith under GAAP as in effect immediately prior to such change. 17. 1.3 Other Terms. All other undefined terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the UCC to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, all of which are by this reference incorporated into this Agreement, as the same may from time to time be amended, modified or supplemented, and not to any particular section, subsection or clause contained in this Agreement. The term "including" shall not be limiting or exclusive, unless specifically indicated to the contrary. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and the neuter. 1.4 Schedules and Exhibits. Any reference to a "Sections", "Subsection", "Exhibit", or "Schedule" shall refer to the relevant Section or Subsection of or Exhibit or Schedule to this Agreement, unless specifically indicated to the contrary. SECTION 2. AMOUNT AND TERMS OF CREDIT. 2.1 Commitment to Lend. 2.1.1 Revolving Facility. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower set forth herein, Lenders hereby agree to make Advances (as defined below) of immediately available funds to Borrower, 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 Growth Fund Agreement or (b) the Borrowing Base (such lesser amount being the "Maximum Availability"), as more fully set forth in this Section 2.1.1. (a) Facility Commitments. (i) On the Funding Date requested by Borrower, after 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 Borrower at the Designated Deposit Account (or such other deposit account at FUNB or such other financial institution as to which 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. 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 Borrower incurred in connection therewith shall be due and payable no later than the Maturity Date of such Loan. 18. Each Loan advanced hereunder shall be evidenced by Borrower's revolving promissory note, substantially in the form of Exhibit A (the "Note"). (ii) The obligation of Lenders to make any Loan from time to time hereunder shall be limited to the then applicable Maximum Availability. For the purpose of determining the amount of the Borrowing Base available at any one time, the amount available shall be the total amount of the Borrowing Base as set forth in the Borrowing Base Certificate delivered to Agent pursuant to Section 3.2.1 with respect to each 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 Pro Rata Share 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 Borrowing Base, or (2) taking into account such Lender's Pro Rata Share of the principal amounts outstanding under this Agreement and under the Growth Fund 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 shall exceed the Maximum Availability (the amount of such excess, if any, being an "Overadvance"), 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 either clause (c) or (d), then, to the extent of such decrease, 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 or extend any credit hereunder so long as such Overadvance condition shall remain in effect. (iv) Amounts borrowed by Borrower 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. (v) Each request for a Loan hereunder shall constitute a reaffirmation by Borrower and the Responsible Officer requesting the same that the representations and warranties contained in this Agreement are true, correct and complete in all material respects to the same extent as though made on and as of the date of the request, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date. (b) Each Loan. Each Loan made by Lenders hereunder shall, at 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 19. 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 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 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 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 under the Note. 2.1.2 Funding. Promptly following the receipt of such documents required pursuant to Section 3.2.1 and approval of a Loan by the Agent, Agent shall notify by telephone, telecopier, facsimile or telex each Lender of the principal amount (including Lender's Pro Rata Share thereof) and Funding Date of the Loan requested by 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 Borrower in the amount of its Pro Rata Share of the Loan being requested by Borrower. Upon satisfaction of the applicable conditions precedent set forth in Section 3, all Advances shall be credited in immediately available funds to the Designated Deposit Account. 2.1.3 Utilization of the Loans. The Loans made under the Facility may be used solely for the purpose of acquiring the specific items of Eligible Inventory approved by Requisite Lenders, in their sole discretion, and against which Lenders have made Advances; provided, however, in no event shall the proceeds of any Loan be used to finance more than eighty percent (80.0%) of the Invoice Price of any item of Eligible Inventory to be purchased with the proceeds of such Loan. The parties hereto understand and contemplate that the Loans are being requested to finance the acquisition of items of Eligible Inventory and that only upon the funding of such Loans and the acquisition of record title by Borrower or a Marine Subsidiary or by an Owner Trustee for the beneficial interest of Borrower or a Marine Subsidiary in a single or back-to-back transaction will the ownership requirements of Eligible Inventory be satisfied. 2.2 Repayment and Prepayment. 2.2.1 Repayment. Unless prepaid pursuant to Section 2.2.2, the principal amount of each Loan hereunder shall be repaid by Borrower to Lenders not later than the Maturity Date of such Loan. 20. 2.2.2 Voluntary Prepayment. Subject to Section 2.18, Borrower may in the ordinary course of Borrower's business, upon at least three (3) Business Days' written notice, or telephonic notice promptly confirmed in writing to Agent, which notice shall be irrevocable, prepay any Loan in whole or in part. Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Prime Rate Loans or LIBOR Loans, or any combination thereof. Such prepayment of Loans, together with any amounts required pursuant to Section 2.18, shall be in immediately available funds and delivered to Agent not later than 1:00 p.m., North Carolina time, on the date for prepayment stated in such notice (the "Prepayment Date"). With respect to any prepayment under this Section 2.2.2, all interest on the amount prepaid accrued up to but excluding the date of such prepayment shall be due and payable on the Prepayment Date. 2.2.3 Mandatory Prepayments. (a) In the event that any item of Eligible Inventory shall be sold or assigned by Borrower or any Marine Subsidiary, or the ownership interests (whether Stock or otherwise) of Borrower in any Marine Subsidiary owning record or beneficial title to any item of Eligible Inventory shall be sold or transferred, then 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 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 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 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, 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 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 Borrower as provided in Section 2.2.1. (c) In the event Borrower, any Marine Subsidiary or any Owner Trustee shall sell or assign any partial (i.e., less than one hundred percent (100.0%)) interest in any item of Eligible Inventory pursuant to Section 6.5, Borrower shall immediately prepay the Loan made with respect to such Eligible Inventory in which an interest has been so sold or assigned in an amount equal to that portion of the purchase price paid for such partial interest which is ratably related to the percentage of the Invoice Price paid by Borrower, such Marine Subsidiary or Owner Trustee for such item of Eligible Inventory when originally financed by such Loan, together with all interest accrued on such Loan to the date of prepayment. For example, if Borrower paid an Invoice Price of $10,000,000 for an item of Eligible Inventory, of which $8,000,000 was financed with a Loan hereunder, if Borrower subsequently sells to an Equipment Growth Fund a forty percent (40.0%) interest in such item of Eligible Inventory for 21. a purchase price of $4,000,000, Borrower shall prepay the related Loan in the principal amount of $3,200,000. (d) In the event that the Growth Fund Agreement shall be terminated for any reason as to any one or more of the Growth Funds, then Borrower shall immediately prepay any and all amounts outstanding under this Agreement and the Lenders' Commitments shall, without notice, immediately and automatically terminate. 2.3 Calculation of Interest; Post-Maturity Interest. Interest on the Loans shall be computed on the basis of a 365/366-day year for all Prime Rate Loans and a 360-day year for all LIBOR Loans and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Loan, the date of the making of such Loan shall be included and the date of payment shall be excluded. Each change in the interest rate of the 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 Borrower notice of any such change in the Prime Rate; provided, however, that any failure by Agent to provide Borrower 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 (2.0%) to the Applicable Margin for such Loan (the "Default Rate"). This may result in the compounding of interest. The imposition of a Default Rate will not constitute a waiver of any Event of Default. 2.4 Manner of Payments. All repayments or prepayments of principal and all payments of interest, fees, costs, expenses and other sums chargeable to Borrower under this Agreement, the Note or any of the other Loan Documents shall be in lawful money of the United States of America in immediately available funds and delivered to Agent, for the account of Lenders, not later than 1:00 p.m., North Carolina time, on the date due at First Union National Bank of North Carolina, One First Union Center, 301 South College Street, Charlotte, North Carolina 28288, Attention: Hannah Carmody, or such other place as shall have been designated in writing by Agent. 2.5 Payment on Non-Business Days. Whenever any payment to be made under this Agreement, the Note or any of the other Loan Documents shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of the payment of interest thereon; provided, however, that no Loan shall have remained outstanding after the Maturity Date of such Loan. 2.6 Application of Payments. All payments to or for the benefit of Lenders hereunder shall be applied in the following order: (a) at the direction of Borrower or upon prior notice given to Borrower by Agent, then due and payable fees, expenses and costs; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable 22. 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 Borrower as Lenders may deem advisable. To the extent 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 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. 2.7 Procedure for the Borrowing of Loans. 2.7.1 Notice of Borrowing. Each borrowing of Loans shall be made upon Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Borrowing, executed by a Responsible Person of Borrower, with appropriate insertions (which Notice of Borrowing must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, three (3) Business Days prior to the requested Funding Date) specifying: (a) the amount of the requested borrowing, which, if a LIBOR Loan is requested, shall be not less than One Million Dollars ($1,000,000); (b) the requested Funding Date, which shall be a Business Day; (c) whether the borrowing is to be comprised of one or more LIBOR Loans or Prime Rate Loans; and (d) the duration of the Interest Period applicable to any such LIBOR Loans included in such Notice of Borrowing. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any borrowing comprised of LIBOR Loans, such Interest Period shall be three (3) months. 2.7.2 Unavailability of LIBOR Loans. Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrower may not elect to have a Loan made as a LIBOR Loan. 2.8 Conversion and Continuation Elections. 2.8.1 Election. 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 23. (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 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 Borrower to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate. 2.8.2 Notice of Conversion. Each conversion or continuation of Loans shall be made upon Borrower's irrevocable written notice delivered to Agent in the form of a Notice of Conversion/Continuation, executed by a Responsible Person of Borrower, with appropriate insertions (which Notice of Conversion/Continuation must be received by Lender prior to 12:00 noon, Charlotte, North Carolina time, at least three (3) Business Days in advance of the proposed conversion date or continuation date specifying: (a) the proposed conversion date or continuation date; (b) the aggregate amount of Loans to be converted or continued; (c) the nature of the proposed conversion or continuation; and (d) the duration of the requested Interest Period. 2.8.3 Interest Period. If upon the expiration of any Interest Period applicable to any LIBOR Loan, Borrower has failed to select a new Interest Period to be applicable to such LIBOR Loan, Borrower shall be deemed to have elected to convert such LIBOR Loan into a Prime Rate Loan effective as of the last day of such current Interest Period. 2.8.4 Unavailability of LIBOR Loans. Unless Agent shall otherwise consent, during the existence of an Event of Default or Potential Event of Default, Borrower may not elect to have a Loan converted into or continued as a LIBOR Loan. 2.9 Discretion of Lenders as to Manner of Funding. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of its LIBOR Loans in any manner it elects, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if such Lender actually funded and maintained each LIBOR Loan through the purchase of deposits having a maturity corresponding to the maturity of the LIBOR Loan and bearing an interest rate equal to the LIBOR rate (whether or not, in any instance, Lender shall have granted any participations in such Loan). Each Lender may, if it so elects, fulfill any commitment to make LIBOR Loans by causing a foreign branch or affiliate to make or continue such LIBOR Loans; provided, however, that in such event such Loans shall be deemed for the purposes of this Agreement to have been made by such Lender, and the obligation of Borrower to repay such Loans shall 24. nevertheless be to such Lender and shall be deemed held by such Lender, to the extent of such Loans, for the account of such branch or affiliate. 2.10 Distribution of Payments. Agent shall immediately distribute to each Lender, at such address as each Lender shall designate, its respective interest in all repayments and prepayments of principal and all payments of interest and all fees, expenses and costs received by Agent on the same day and in the same type of funds as payment was received. In the event Agent does not distribute such payments on the same day received, if such payments are received by Agent by 1:00 p.m., North Carolina time, or if received after such time, on the next succeeding Business Day, such payment shall accrue interest at the Federal Funds Rate. 2.11 Agent's Right to Assume Funds Available for Advances. Unless Agent shall have been notified by any Lender no later than the Business Day prior to the respective Funding Date of a Loan that such Lender does not intend to make available to Agent an Advance in immediately available funds equal to such Lender's Pro Rata Share of the total principal amount of such Loan, Agent may assume that such Lender has made such Advance to Agent on the date of the Loan and Agent may, in reliance upon such assumption, make available to Borrower a corresponding Advance. If Agent has made funds available to 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 Borrower and 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 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 Borrower may have against such Lender as a result of any default by such Lender under this Agreement. 2.12 Agent's Right to Assume Payments Will be Made by Borrower. Unless Agent shall have been notified by Borrower prior to the date on which any payment to be made by Borrower hereunder is due that Borrower does not intend to remit such payment, Agent may, in its sole discretion, assume that 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 Borrower has not in fact remitted such payment to Agent, each Lender shall forthwith on demand repay to Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each date from and including the date such amount was made available by Agent to such Lender to the date such amount is repaid to Agent at the Federal Funds Rate. 2.13 Capital Requirements. If any Lender determines that compliance with any law or regulation or with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a 25. 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 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 such additional amounts as shall be sufficient to compensate such Lender or other corporation for such reduction. A certificate submitted by such Lender to 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 Borrower and Agent of any circumstances that would cause Borrower to pay additional amounts pursuant to this section, provided that the failure to give such notice shall not affect Borrower's obligation to pay any such additional amounts. 2.14 Taxes. 2.14.1 No Deductions. Subject to Subsection 2.14.7, any and all payments by Borrower to each Lender or Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's net income (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). 2.14.2 Miscellaneous Taxes. In addition, Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). 2.14.3 Indemnity. Subject to Subsection 2.14.7, 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 and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within thirty (30) days from the date any Lender or Agent makes written demand therefor. 2.14.4 Required Deductions. If 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 26. 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) Borrower shall make such deductions, and (c) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. 2.14.5 Evidence of Payment. Within thirty (30) days after the date of any payment by Borrower of Taxes or Other Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to Agent. 2.14.6 Foreign Persons. Each Lender which is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) shall: (a) No later than the date upon which such Lender becomes a party hereto deliver to Borrower 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 Borrower 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 Borrower 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 Borrower's or Agent's reasonable request to that effect, deliver to 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. 27. 2.14.7 Income Taxes. Borrower 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 Borrower 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 Borrower 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 Borrower 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 Borrower hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 1001. 2.14.8 Reimbursement of Costs. If, at any time, Borrower requests any Lender to deliver any forms or other documentation pursuant to Subsection 2.14.6(d), then Borrower shall, on demand of such Lender through Agent, reimburse such Lender for any costs and expenses (including reasonable attorney fees) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation. 2.14.9 Jurisdiction. If 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 Borrower which may thereafter accrue if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. 2.15 Illegality. 2.15.1 LIBOR Loans. If any Lender shall determine that the introduction of any Requirement of Law, or any change in any Requirement of Law or in the interpretation or administration thereof, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for such Lender or its Lending Office to make LIBOR 28. Loans, then, on notice thereof by Lender to Borrower, the obligation of such Lender to make LIBOR Loans shall be suspended until such Lender shall have notified Borrower that the circumstances giving rise to such determination no longer exists. 2.15.2 Prepayment. If a Lender shall determine that it is unlawful to maintain any LIBOR Loan, Borrower shall prepay in full all LIBOR Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Loans, together with any amounts required to be paid in connection therewith pursuant to Section 2.18. 2.15.3 Prime Rate Borrowing. If Borrower is required to prepay any LIBOR Loan immediately as provided in Section 2.2.3, then concurrently with such prepayment, Borrower shall borrow, in the amount of such prepayment, a Prime Rate Loan. 2.16 Increased Costs. If any Lender shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) in or in the interpretation of any Requirement of Law or (b) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any LIBOR Loans, then Borrower shall be liable, and shall from time to time, upon demand therefor by such Lender, pay to such Lender such additional amounts as are sufficient to compensate such Lender for such increased costs. 2.17 Inability to Determine Rates. If Agent shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan or that the LIBOR applicable for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to Lenders of funding such Loan, Agent will forthwith give notice of such determination to Borrower 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 the Requisite Lenders, revokes such notice in writing. Upon receipt of such notice, Borrower may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted. If Borrower does not revoke such notice, Lenders shall make, convert or continue the Loans, as proposed by Borrower, in the amount specified in the applicable notice submitted by Borrower, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans, as the case may be. 2.18 Prepayment of LIBOR Loans. Borrower agrees that in the event that 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. Borrower and Lenders hereby agree that such funding losses shall consist of the sum of the discounted monthly differences for 29. each month during the applicable or requested Interest Period, calculated as follows for each such month: 2.18.1 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 2.18.2 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. SECTION 3. CONDITIONS PRECEDENT. 3.1 Effectiveness of this Agreement. The effectiveness of this amended and restated Agreement is subject to the satisfaction of the following conditions precedent: 3.1.1 Corporate Documents. Agent shall have received, in form and substance satisfactory to Lenders and their respective counsel, the following: (a) A certified copy of the records of all actions taken by Borrower, TEC and FSI, including all corporate resolutions of Borrower, TEC and FSI authorizing or relating to the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated hereby and thereby; (b) A certificate of a Responsible Officer each of Borrower, TEC and FSI, respectively, stating that (A) the articles or certificate of incorporation, as the case may be, bylaws and any other formation documents of Borrower, TEC and FSI, previously delivered to Agent in relation to the TEC AcquiSub Agreement are true and accurate, remain in full force and effect and have not been amended since the date thereof and (B) each of Borrower, TEC and FSI are in good standing under the laws of the state of its formation and each other jurisdiction where its ownership of Property and assets or conduct of business requires such qualification; (c) Certificates of incumbency and signature with respect to the authorized representatives of Borrower, TEC and FSI executing the Loan Documents and requesting Loans; and (d) Such other documents relating to Borrower, TEC or FSI as Lenders reasonably may request. 3.1.2 Note. Agent shall have received the Note, in form and substance satisfactory to Lenders, duly executed and delivered by Borrower. 30. 3.1.3 Opinion of Counsel. Agent shall have received an originally executed legal opinion of Stephen Peary, general counsel of Borrower, FSI and TEC, on behalf of Borrower, FSI and TEC, in form and substance satisfactory to Lenders, dated as of the Closing Date and addressed to Lenders, together with copies of any officer's certificate or legal opinion of other counsel or law firm specifically identified and expressly relied upon by such counsel. 3.1.4 Reaffirmation of Guaranty. Agent shall have received the Reaffirmation of Guaranty duly executed and delivered by FSI and by TEC. 3.1.5 Growth Fund Agreement. Agent shall have received the Growth Fund Agreement, duly executed and delivered by each of the Growth Funds and all conditions precedent to the effectiveness of the Growth Fund Agreement shall have been satisfied. 3.1.6 Bringdown Certificate. A certificate or certificates, dated as of the Closing Date, of the Chief Financial Officer or Corporate Controller of Borrower to the effect that (i) the representations and warranties of Borrower contained in Section 4 are true, accurate and complete in all material respects as of the Closing Date as though made on such date and (ii) no Event of Default or Potential Event of Default under this Agreement has occurred. 3.1.7 Other Documents. Agent shall have received such other documents, information and items from Borrower and FSI as reasonably requested by Agent. 3.2 All Loans. Unless waived in writing by Requisite Lenders, the obligation of any Lender to make any Advance is subject to the satisfaction of the following further conditions precedent: 3.2.1 Notice of Borrowing. At least three (3) Business Days before each Loan hereunder with respect to any acquisition of Equipment by Borrower, Agent shall have received (a) a Notice of Borrowing; (b) a Borrowing Base Certificate; (c) a description of the transaction, including (i) a listing of all Equipment against which Borrower is requesting that a Loan be made, identifying each item of Equipment by serial number, registration number or other identifying mark, as applicable, and indicating whether each such item is owned by Borrower or by an Owner Trustee for the benefit of Borrower (and if the latter, identifying such Owner Trustee and date of any applicable trust or similar agreement), (ii) the lessee, the date of the lease and the lease termination date, (iii) lessee financial information, and (iv) the terms of the underlying lease; and (d) other information as may be requested by the Agent to confirm that such Equipment satisfies the criteria for Eligible Inventory. 3.2.2 Invoices. At least five (5) Business Days before each Loan hereunder with respect to any acquisition of Equipment by Borrower, Agent shall have received invoice and such other information related to the purchase of each item of Equipment as Agent shall reasonably request to confirm that the proceeds of the requested Loan will not be used to finance more than eighty percent (80.0%) of the Invoice Price of such Equipment. 31. 3.2.3 Title to Equipment. At least five (5) Business Days before each Loan hereunder with respect to any acquisition of Equipment by Borrower, Agent shall have received such documents and copies of instruments of title as Agent shall reasonably request to confirm that upon the consummation of such acquisition, Borrower shall have acquired of record (or if such Equipment is to be acquired of record by an Owner Trustee, the beneficial interest in) such Equipment, free and clear of any Liens or other encumbrances on title (other than Permitted Liens). 3.2.4 Approval of Loan. Approval of such requested Loan by Agent, after review of the lessee, Equipment, Lease and any other material circumstances relating to the Loan. 3.2.5 Leases. Prior to the Funding Date of any such Loan, if available, and in no event later than five (5) Business Days following such Funding Date, Borrower shall have delivered to Agent, on behalf of Lenders, the original executed counterparts of each Lease or schedules thereto or other chattel paper, if any, relating to such Equipment and Eligible Inventory (other than with respect to Railcars if such Railcars are leased pursuant to a master lease, in which event Borrower shall deliver to Agent the applicable schedule(s) to such master lease), against which the Loan is to be made. 3.2.6 No Event of Default. No event shall have occurred and be continuing or would result from the making of any Loan on such Funding Date which constitutes an Event of Default or Potential Event of Default under this Agreement or under (and as separately defined in) the Growth Fund 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 Growth Fund Agreement. 3.2.7 Officer's Certificate. Agent shall have received a certificate, dated as of the Funding Date, of the Chief Financial Officer or Corporate Controller of Borrower to the effect that (i) all representations and warranties contained in the Loan Documents are 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), (ii) Borrower shall have either available cash or have received a capital contribution from TEC for the purpose of funding at least twenty percent (20.0%) of the Invoice Price of the Equipment to be financed with such requested Loan, and if such a capital contribution has been made, attaching a certificate of the Chief Financial Officer or Corporate Controller of TEC to the effect that the making of such capital contributions has not caused TEC to cease to be Solvent and (iii) from the perspective of prudent portfolio diversity and management, given the Growth Funds' then existing portfolio, such Equipment is of a type, model, age and condition consistent with the investment objectives of the Growth Funds. 3.2.8 Officer's Certificate - Leases. Agent shall have received a certificate, dated as of the Funding Date of the Chief Financial Officer or Corporate Controller of Borrower 32. with respect to each Lease relating to an item of Equipment being financed with such Loan to the effect that: (a) The Lease constitutes the entire agreement of the parties thereto and no party thereto shall be bound except in accordance therewith; (b) No amendments, modifications, supplements or addenda have been made to, or schedules attached to, the Lease except as disclosed in such certificate and the sole original thereof having been delivered to Agent; (c) No material default exists under the Lease as of the date of the Loan; (d) The Lease constitutes the valid contract of Borrower and each lessee that is a party to the Lease, and shall at all times be enforceable against each such lessee in accordance with its terms, subject to the limitations on enforceability imposed by bankruptcy and creditors' rights laws and the general principles of equity, and each party thereto has executed the Lease with full power, authority and capacity to contract; (e) Borrower is the sole owner and lessor of the Equipment covered by the Lease; (f) The lessee is responsible for the payment of all taxes, insurance and similar charges so that all Lease payments will be net to Borrower (except with respect to Leases covering time charters for marine vessels, railcars and trailers consistent with industry standards for such type of leases); (g) Borrower has not and will not give or loan to any lessee that is a party to the Lease, directly or indirectly, any unpaid rent or other amount due or to become due under the Lease; and (h) No rentals, fees, costs, expenses or charges paid or payable by any lessee under the Lease violate any known statute, rule, regulation, court ruling or other regulation or limitation relating to the maximum fees, costs, expenses or charges permitted in any state in which the Equipment is located or in which the lessee is located, resides or is domiciled, or in which the transaction was consummated, or in any other state which has jurisdiction of the Equipment, Lease or lessee. 3.2.9 Insurance. The insurance required to be maintained by Borrower pursuant to the Loan Documents shall be in full force and effect. 3.2.10 Warranty of TEC AcquiSub. Agent shall have received from Borrower its written representation and warranty that upon delivery of the purchase price and the executed bill of sale or similar instrument of title, a true and correct copy of which is to be attached, Borrower (or if an Owner Trustee or Marine Subsidiary is to acquire record title, such Owner 33. Trustee or Marine Subsidiary) shall acquire good title to the item of Equipment against which the Loan is to be made, free and clear of all Liens and other encumbrances on title (other than Permitted Liens). 3.2.11 Other Instruments. Agent shall have received such other instruments and documents as it may have reasonably requested from Borrower in connection with the Loans to be made on such date. 3.3 Further Conditions to All Loans. Notwithstanding anything to the contrary contained in this Agreement, unless waived in writing by Requisite Lenders, no Lender shall have any obligation hereunder to make any Advance if any of the following events shall occur: 3.3.1 General Partner or Manager. FSI shall have ceased to be the sole general partner of any Growth Fund 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 in any Growth Fund or capital contribution in Income Fund I. 3.3.2 Removal of General Partner or Manager. Twenty five percent (25.0%) or more of the limited partners (measured by such partners' percentage interest) of any Equipment Growth Fund shall at any time vote to remove FSI as the general partner of such Equipment Growth Fund or a majority in interest of Class A members, as that term is defined in the Operating Agreement of Income Fund I, of Income Fund I shall at any time vote to remove FSI as the manager of Income Fund I, in each case, regardless of whether FSI is actually removed. 3.3.3 Cash Balances. The Equipment Growth Funds of which FSI is the sole general partner shall at any time fail to maintain unrestricted cash balances totalling, in the aggregate, $10,000,000. 3.3.4 Purchaser. Borrower or its Subsidiaries, Growth Funds, FSI or its Subsidiaries shall have ceased to be the purchaser of Eligible Inventory for any Growth Fund. SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower hereby warrants and represents to Agent and each Lender as follows, and agrees that each of said warranties and representations shall be deemed to continue until full, complete and indefeasible payment and performance of the Obligations and shall apply anew to each borrowing hereunder: 4.1 Existence and Power. Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the State of California and is duly qualified and licensed as a foreign corporation and authorized to do business in each jurisdiction within the United States where its ownership of Property and assets or conduct of business requires such qualification. Borrower has the corporate power and authority, rights and franchises to own its 34. Property and assets and to carry on its business as now conducted. Borrower has the corporate power and authority to execute, deliver and perform the terms of the Loan Documents (to the extent either is a party thereto) and all other instruments and documents contemplated hereby or thereby. 4.2 Loan Documents and Note Authorized; Binding Obligations. The execution, delivery and performance of this Agreement and each of the other Loan Documents to which Borrower is a party and payment of the Note have been duly authorized by all necessary and proper corporate action on the part of Borrower. The Loan Documents constitute legally valid and binding obligations of Borrower, enforceable against Borrower, to the extent Borrower is a party thereto, in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. 4.3 No Conflict; Legal Compliance. The execution, delivery and performance of this Agreement, and each of the other Loan Documents and the execution, delivery and payment of the Note will not: (a) contravene any provision of Borrower's articles of incorporation or bylaws; (b) 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 a Material Adverse Effect; or (c) violate or result in the breach of, or constitute a default under any indenture or other loan or credit agreement, or other agreement or instrument to which Borrower is a party or by which Borrower, or its Property and assets may be bound or affected. Borrower is not in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which it is a party, the non-compliance with, the violation or breach of or the default under which would, with reasonable likelihood, have a Material Adverse Effect. 4.4 Financial Condition. FSI's audited consolidated financial statements as of December 31, 1994, and Borrower's and FSI's unaudited consolidated financial statements as of June 30, 1995, copies of which heretofore have been delivered to Agent by Borrower, and all other financial statements and other data submitted in writing by Borrower 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 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 Borrower or FSI since June 30, 1995. 4.5 Executive Offices. The current location of Borrower's chief executive offices and principal places of business is set forth on Schedule 4.5. 4.6 Litigation. Except as set forth in Schedule 4.6, there are no claims, actions, suits, proceedings or other litigation pending or, to the best of Borrower's knowledge, after due inquiry, threatened against Borrower, at law or in equity before any Governmental Authority or, 35. to the best of Borrower's knowledge, after due inquiry, any investigation by any Governmental Authority of Borrower's Properties or assets. Borrower has no Contingent Obligations. 4.7 Material Contracts. Schedule 4.7 lists all currently effective contracts and agreements (whether written or oral) to which Borrower is a party. There are no material defaults under any such contract or agreement by Borrower. Borrower has delivered to Agent true and correct copies of all such contracts or agreements (or, with respect to oral contracts or agreements, written descriptions of the material terms thereof). 4.8 Consents and Approvals. No approval, authorization or consent of any trustee or holder of any indebtedness or obligation of Borrower or of any other Person under any such material agreement, contract, lease or license or similar document or instrument to which Borrower is a party or by which Borrower is bound, is required to be obtained by Borrower in order to make or consummate the transactions contemplated under the Loan Documents. Except as set forth in Schedule 4.8, all consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by Borrower in order to make or consummate the transactions contemplated under the Loan Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect. 4.9 Other Agreements. Borrower is not a party to and is not bound by any agreement, contract, lease, license or instrument, and is not 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. Borrower has not entered into and, as of the Closing Date does not contemplate entering into, any material agreement or contract with any Affiliate of Borrower on terms that are less favorable to Borrower than those that might be obtained at the time from Persons who are not such Affiliates. 4.10 Employment and Labor Agreements. There are no employment agreements covering management of Borrower and there are no collective bargaining agreements or other labor agreements covering any employees of Borrower. 4.11 ERISA. Borrower does not have any Employee Benefit Plan which is subject to ERISA. 4.12 Labor Matters. There are no strikes or other labor disputes against or threatened against Borrower. All payments due from Borrower 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 Borrower. 4.13 Margin Regulations. Borrower does not 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 36. 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. Borrower will not take or permit any agent acting on its behalf to take any action which might cause this Agreement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. 4.14 Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed by Borrower 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 Borrower 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 Borrower 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. Borrower has paid when due and payable all material Charges upon the books of Borrower and no Government Authority has asserted any Lien against Borrower with respect to unpaid Charges. Proper and accurate amounts have been withheld by Borrower from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. 4.15 Environmental Quality. 4.15.1 Except as specifically disclosed in Schedule 4.15, the on-going operations of Borrower comply in all material respects with all Environmental Laws. 4.15.2 Except as specifically disclosed in Schedule 4.15, Borrower 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 Borrower is in compliance with all material terms and conditions of such Environmental Permits. 4.15.3 Except as specifically disclosed in Schedule 4.15, neither Borrower nor any of its 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. 4.15.4 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 Borrower that would reasonably be expected to give rise to any Environmental Claim with a potential liability of Borrower in excess of $100,000 in the aggregate from any such condition, circumstance or Property. 37. 4.16 Trademarks, Patents, Copyrights, Franchises and Licenses. Borrower possesses and owns all necessary trademarks, trade names, copyrights, patents, patent rights, franchises and licenses which are material to the conduct of its business as now operated. 4.17 Full Disclosure. As of the Closing Date, no information contained in this Agreement, the other Loan Documents or any other documents or written materials furnished by or on behalf of Borrower to Agent or any Lender pursuant to the terms of this Agreement or any of the other Loan Documents contains any untrue or inaccurate statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein not misleading in light of the circumstances under which made. 4.18 Other Regulations. Borrower is not: (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 Borrower and the performance of the transactions contemplated by this Agreement and the other Loan Documents will not violate any provision of the Investment Company Act or the Public Utility Holding Company Act, or any rule, regulation or order issued by the SEC thereunder. 4.19 Solvency. Borrower is Solvent. 4.20 Survival of Representations and Warranties. So long as any of the Commitments shall be available and until payment and performance in full of the Obligations, the representations and warranties contained herein shall have a continuing effect as having been true when made. SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees 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, Borrower shall do or cause to have done all of the following: 5.1 Records and Reports. Maintain a system of accounting administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP, and deliver to Agent or caused to be delivered to Agent: 5.1.1 Quarterly Statements. As soon as practicable and in any event within sixty (60) days after the end of each quarterly accounting period of 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 38. 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' equity of Borrower and FSI and the related consolidated statements of income, stockholders' 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 Borrower, FSI and PLMI that they (i) are complete and fairly present the financial condition of 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 Borrower, FSI and PLMI that are required to be reflected or reserved against under GAAP, whether liquidated or unliquidated, fixed or contingent and (iii) have been prepared in accordance with GAAP, subject to changes resulting from audit and normal year-end adjustment; 5.1.2 Annual Statements. As soon as practicable and in any event within one hundred twenty (120) days after the end of each fiscal year of Borrower, FSI and PLMI, consolidated and consolidating balance sheets of FSI and PLMI and a balance sheet of 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' equity and cash flows of Borrower, 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 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; 5.1.3 Borrowing Base Certificate. As soon as practicable, and in any event not later than fifteen (15) days after the end of each calendar month in which a Loan has been, or is outstanding, a Borrowing Base Certificate dated as of the last day of such month, duly executed by a Chief Financial Officer or Corporate Controller of Borrower, with appropriate insertions; 5.1.4 Compliance Certificate. As soon as practicable, and in any event not later than forty-five (45) days after the end of each fiscal quarter of Borrower, a Compliance Certificate dated as of the last day of such fiscal quarter, duly executed by the Chief Financial Officer or Corporate Controller of Borrower, with appropriate insertions; 5.1.5 Reports. At Agent's request, promptly upon receipt thereof, copies of all reports submitted to Borrower, FSI, TEC or PLMI by independent public accountants in connection with each annual, interim or special audit of the financial statements of Borrower, FSI, TEC or PLMI made by such accountants; 39. 5.1.6 Insurance Reports. (i) On the date six (6) months after the Closing Date and thereafter upon Agent's reasonable request, which request shall not be made more than once during any calendar year (unless an Event of Default shall have occurred and be continuing, in which event such limitation shall not apply), a report from Borrower's insurance broker, in such detail as Agent may reasonably request, as to the insurance maintained or caused to be maintained by 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 Borrower, a written confirmation of such policy's renewal from Borrower's insurance broker; provided, however, that Borrower shall give Agent prompt written notice if changes affecting risk coverage will be made to the insurance policy or if the policy will be cancelled; 5.1.7 Certificate of Responsible Officer. Promptly upon any officer of Borrower obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Potential Event of Default under this Agreement, (ii) that any Person has given any notice to Borrower, FSI, TEC 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, (iii) 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 Borrower of any amount and of FSI, TEC or PLMI equal to or greater than $500,000 or any adverse judgment in any litigation involving a potential liability of Borrower of any amount and of FSI, TEC or PLMI equal to or greater than $500,000, or (iv) of a material adverse change in the business, operations, properties, assets or condition (financial or otherwise) of Borrower, FSI, TEC or PLMI, a certificate of a Responsible Officer of Borrower, 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 Borrower, FSI, TEC or PLMI has taken, is taking and proposes to take with respect thereto; 5.1.8 Employee Benefit Plans. Promptly upon becoming aware of the occurrence of any (i) Termination Event in connection with any Pension Plan or (ii) "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 Borrower or any of its ERISA Affiliates has taken, is taking or proposes to take with respect thereto, and, when known, any action taken or threatened by the IRS or the PBGC with respect thereto; 5.1.9 ERISA Notices. With reasonable promptness, copies of (i) all notices received by Borrower or any of its ERISA Affiliates of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (ii) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Borrower or any of its ERISA Affiliates with the IRS with respect to each Pension Plan covering employees of Borrower, and (iii) all notices received by Borrower or any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA; 40. 5.1.10 Pension Plans. Promptly upon receipt by Borrower any challenge by the IRS to the qualification under Section 401 or 501 of the Code of any Pension Plan; 5.1.11 SEC Reports. As soon as available and in no event later than five (5) days after the same shall have been filed with the SEC, a copy of each Form 8-K Current Report, Form 10-K Annual Report, Form 10-Q Quarterly Report, Annual Report to Shareholders, Proxy Statement and Registration Statement of PLMI; 5.1.12 Tax Returns. Upon the request of Agent, copies of all federal, state, local and foreign tax returns and reports in respect of income, franchise or other taxes on or measured by income (excluding sales, use or like taxes) filed by or on behalf of Borrower, FSI, TEC and PLMI; and 5.1.13 Additional Information. Such other information respecting the condition or operations, financial or otherwise, of 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 Borrower from time to time receives or Agent or any Lender reasonably requests. All financial statements of Borrower, FSI and PLMI to be delivered by Borrower, FSI and PLMI to Agent pursuant to this Section 5.1 will be complete and correct and present fairly the financial condition of Borrower, FSI and PLMI as of the date thereof; will disclose all liabilities of 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 Borrower, FSI and PLMI will, to the best of Borrower's, FSI's and PLMI's knowledge, after due inquiry, be true and correct. Borrower, FSI and PLMI hereby agree that each time either submits a financial statement or tax return to Agent, Borrower, FSI and PLMI shall be deemed to represent and warrant to Lenders that such financial statement or tax return complies with all of the preceding requirements set forth in this paragraph. 5.2 Existence; Compliance with Law. Borrower shall preserve and maintain its existence and all of its licenses, permits, governmental approvals, rights, privileges and franchises necessary or desirable in the normal conduct of its business as now conducted or presently proposed to be conducted (including, without limitation, its qualification to do business in each jurisdiction in which such qualification is necessary or desirable in view of its business); to conduct its business in an orderly and regular manner; and comply with (a) the provisions of its articles of incorporation and bylaws and (b) the requirements of all applicable laws, rules, regulations or orders of any Governmental Authority and requirements for the maintenance of Borrower's insurance, licenses, permits, governmental approvals, rights, privileges and franchises, except, in either case, to the extent that the failure to comply therewith would not, in the aggregate, with reasonable likelihood, have a Material Adverse Effect. 5.3 Insurance. Borrower shall maintain and keep in force insurance of the types and in amounts then customarily carried in lines of business similar to that of Borrower including, 41. 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 the 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 Borrower than provided as of the Closing Date by the existing blanket policies of insurance for PLMI and its Subsidiaries. All such policies of property insurance carry endorsements naming Agent as principal loss payee as to any property owned by Borrower and all such policies as to liability insurance shall carry endorsements naming Agent and each Lender as an additional insured, and in each case indicating that (i) 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 Borrower; (ii) there shall be no recourse against any Lender for payment of premiums or other amounts with respect thereto, and (iii) at least fifteen (15) days' prior written notice of cancellation, lapse or material change in coverage shall be given to Agent by the insurer. 5.4 Taxes and Other Liabilities. Promptly pay and discharge 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. Borrower shall promptly notify Agent of any material challenge, contest or proceeding pending by or against Borrower or against PLMI or any of its other Subsidiaries before any taxing authority. 5.5 Inspection Rights; Assistance. At any reasonable time and from time to time during normal business hours, permit Agent or any Lender or any agent, representative or employee thereof, to examine and make copies of and abstracts from the financial records and books of account of Borrower and other documents in the possession or under the control of Borrower relating to any obligation of Borrower arising under or contemplated by this Agreement, and to visit the offices of Borrower to discuss the affairs, finances and accounts of Borrower with any of the officers of Borrower, 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 the Equipment. Such audits and appraisals shall be subject to the lessee's right to quiet enjoyment as set forth in the respective Lease. 5.6 Maintenance of Facilities; Modifications; Performance of Leases. 5.6.1 Maintenance of Facilities. Borrower shall keep its Properties which are useful or necessary to Borrower in good repair and condition, normal wear and tear excepted, and from time to time make necessary repairs thereto, and renewals and replacements thereof so that Borrower's Properties shall be fully and efficiently preserved and maintained. 5.6.2 Certain Modifications to the Equipment. Subject to Section 5.6.1, Borrower 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. 42. 5.6.3 Performance of Leases. Borrower shall timely perform in all material respects each of its covenants and obligations under the Leases to which it is a party. 5.7 Supplemental Disclosure. From time to time as may be necessary (in the event that such information is not otherwise delivered by Borrower 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 Borrower 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 Borrower hereunder or thereunder or in connection herewith which has been rendered inaccurate thereby. 5.8 Further Assurances. In addition to the obligations and documents which this Agreement expressly requires Borrower to execute, deliver and perform, Borrower shall execute, deliver and perform any and all further acts or documents which Agent or Lenders may reasonably require to effectuate the purposes of this Agreement or any of the other Loan Documents. 5.9 Lockbox. 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 Borrower to the obligor relating to Lease payments shall designate the Lockbox as the place to which such payments shall be made. 5.10 Environmental Laws. Borrower shall conduct its operations and keep and maintain its Property in material compliance with all Environmental Laws. 5.11 Equipment Purchase Agreement. Borrower shall, upon the request of Agent, which request may be made with respect to any Loan on or after the date which is one hundred twenty (120) days after the Funding Date of such Loan, deliver to Agent an Equipment Purchase Agreement with respect to the Equipment against which such Loan was made. SECTION 6. BORROWER'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, Borrower covenants and agrees as follows: 6.1 Liens; Negative Pledges; and Encumbrances. Borrower shall not create, incur, assume or suffer to exist, and shall not permit any Marine Subsidiary or Owner Trustee 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"): 43. 6.1.1 Liens granted in favor of Agent on behalf of Lenders under the Security Agreement and the other Security Documents; 6.1.2 Liens for Charges if payment shall not at the time be required to be made in accordance with Section 5.4; 6.1.3 Liens in respect of pledges, obligations or deposits (i) under workers' compensation laws, unemployment insurance and other types of social security or similar legislation, (ii) in connection with surety, appeal and similar bonds incidental to the conduct of litigation, (iii) in connection with bid, performance or similar bonds and mechanics', laborers' and materialmen's and similar statutory Liens not then delinquent; or (iv) incidental to the conduct of the business of Borrower, any Marine Subsidiary or any Owner Trustee 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 Borrower or any Owner Trustee; 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; and 6.1.4 Permitted Rights of Others. 6.2 Acquisitions. Borrower shall not, and shall not permit any Marine Subsidiary to, make any Acquisition or enter into any agreement to make any Acquisition, except with respect to the formation of Marine Subsidiaries and the purchase of Equipment in the ordinary course of its or their respective business. 6.3 Limitations on Indebtedness. Borrower shall not, and shall not permit any Marine Subsidiary or Owner Trustee 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 under this Agreement and the other Loan Documents; and 6.3.2 With the prior written consent of Agent, Indebtedness incurred in respect of the deferred purchase price for an item of Eligible Inventory to be financed with the proceeds of a Loan hereunder, 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 (b) if, taking into account the incurrence of such Indebtedness, Borrower 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). 6.4 Use of Proceeds. Borrower and FSI shall not, and shall not permit any Marine Subsidiary or Owner Trustee holding record title to any Eligible Inventory for the beneficial 44. interest of Borrower or FSI to, use the proceeds of any Loan except for the purpose set forth in Recital B 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. Borrower shall not, and shall not permit any Marine Subsidiary or any Owner Trustee to, sell, assign or otherwise dispose of, any of its or their respective assets, except for full, fair and reasonable consideration, or enter or permit any Marine Subsidiary or Owner Trustee to enter into any sale and leaseback agreement covering any of its fixed or capital assets. In this regard, Borrower shall not sell, assign or dispose of, and shall not permit any Marine Subsidiary or Owner Trustee to sell, assign or dispose of, any partial record or beneficial ownership interest in any Eligible Inventory, except upon the payment in cash of a purchase price equal to the ratable portion of the Invoice Price paid by Borrower or such Marine Subsidiary or Owner Trustee for such item of Eligible Inventory so sold, assigned or otherwise disposed of, which cash purchase price will be subject to mandatory prepayment pursuant to Section 2.2.3(c). 6.6 Restricted Payments. Borrower shall not declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that Borrower may, (a) following the resale of any item of Eligible Inventory to PLMI, any Equipment Growth Fund or any third party and after having repaid in full the Loan advanced by Lender to finance the acquisition of such Eligible Inventory, dividend the remaining proceeds of such resale to TEC and (b) no more frequently than monthly and in no event prior to such time has Borrower shall have made payment in full of all interest on the Loans funded hereunder accrued through the last day of the previous calendar month, Borrower may dividend its net profits (revenues less interest and operating expenses) to TEC. 6.7 Restriction on Fundamental Changes. Borrower shall not, and shall not permit any Marine Subsidiary 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 for the formation of Marine Subsidiaries, the sale and transfer of all of its ownership interest (whether Stock or otherwise) in any Marine Subsidiary to an Equipment Growth Fund and the acquisition or resale of Equipment in the ordinary course of business and as contemplated by this Agreement. 6.8 Transactions with Affiliates. Borrower shall not, and shall not permit any Marine Subsidiary 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 Borrower 45. or such Marine Subsidiary than those that might be obtained at the time from Persons who are not such Affiliates. 6.9 No Loans to Affiliates. Borrower shall not make any loans to any of its Affiliates other than to its Marine Subsidiaries. 6.10 No Investment. Borrower shall not make or suffer to exist, or permit or suffer any of its Marine Subsidiaries to make or suffer to exist, any Investment except the sharing arrangements with respect to Equipment which are shared with Equipment Growth Funds. 6.11 Maintenance of Business. Borrower shall not engage in any business other than the purchase of transportation equipment and the operation, leasing, remarketing and resale of such equipment. 6.12 No Modification to Leases. Borrower shall not modify or agree to modify any material term of any Lease to which it is a party without the written consent of Agent, which consent will not be unreasonably withheld. For purposes of this Section 6.12, material Lease terms shall include, without limitation, terms relating to lease payments, maturity and the amount and scope of the lessee's insurance coverage. 6.13 No Subsidiaries. Borrower shall not create any Subsidiaries except Marine Subsidiaries. 6.14 Amendments of Charter Documents. Borrower shall not amend its articles of incorporation, bylaws and any other charter documents or permit any Marine Subsidiary to amend its articles of incorporation, bylaws or other charter documents. 6.15 Events of Default. Borrower 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 it is a party or by which it or any of its Properties or assets is bound, which default or event of default would, with reasonable likelihood, have a Material Adverse Effect. 6.16 ERISA. 6.16.1 Borrower shall not incur any obligation to contribute to a Pension Plan required by a collective bargaining agreement or as a consequence of the acquisition of an ERISA Affiliate, unless (i) Borrower shall notify Agent in writing that it intends to incur such obligation and (ii) after Agent's receipt of such notice, Requisite Lenders consent to the establishment or maintenance of, or Borrower's incurring an obligation to contribute to, the Pension Plan, which consent may not unreasonably be withheld but may be subject to such reasonable conditions as Requisite Lenders may require. 46. 6.16.2 If Borrower or any ERISA Affiliate of Borrower incurs any obligation to contribute to any Pension Plan, then Borrower shall not (i) 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 (ii) 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. 6.17 No Use of Any Lender's Name. Borrower 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. 6.18 Certain Accounting Changes. 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 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 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. SECTION 7. FINANCIAL COVENANTS OF BORROWER. Borrower covenants and agrees 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 Note, unless Requisite Lenders shall otherwise consent in writing, Borrower shall perform the following financial covenants. Borrower agrees and understands that (except as expressly provided herein) all covenants under this Section 7 shall be subject to quarterly compliance (as measured on the last day of each fiscal quarter of Borrower), and in each case review by Lenders of the respective fiscal quarter's consolidated financial statements delivered to Agent by Borrower pursuant to Section 5.1. 7.1 Minimum Consolidated Tangible Net Worth. Borrower shall at all times maintain a Consolidated Tangible Net Worth of not less than twenty percent (20.0%) of the net book value of Eligible Inventory. SECTION 8. EVENTS OF DEFAULT AND REMEDIES. 8.1 Events of Default. The occurrence of any one or more of the following shall constitute an Event of Default: 8.1.1 Failure to Make Payments. Borrower, FSI or any Owner Trustee fails to pay any sum due to Lenders or Agent arising under this Agreement, the Note 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 47. 8.1.2 Other Agreements. (a) Borrower or any Marine Subsidiary or any Owner Trustee thereof defaults in the repayment of any principal of or the payment of any interest on any Indebtedness of Borrower or such Marine Subsidiary or Owner Trustee, or breaches any term of any evidence of such Indebtedness or defaults in any payment in respect of any Contingent Obligation, (b) FSI, TEC or any Owner Trustee thereof defaults in the repayment of any principal of or the payment of any interest on any Indebtedness of FSI or TEC, respectively, or breaches any term of any evidence of such Indebtedness or defaults in any payment in respect of any Contingent Obligations (excluding, as to FSI, any Contingent Obligations of FSI arising solely as a result of FSI's status as a general partner of any Person other than Borrower), in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, (c) Borrower, any Marine Subsidiary, FSI, TEC 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 (d) PLMI defaults in the repayment of any principal of or the payment of any interest on any Indebtedness, including, without limitation, Indebtedness arising under or in respect of the Senior Agreement or defaults in any payment in respect of any Contingent Obligation, in each case exceeding, in the aggregate outstanding principal amount, $2,000,000, or PLMI breaches or violates any term or provision of any evidence of such Indebtedness or Contingent Obligation or of any such loan agreement, mortgage, indenture, guaranty or other agreement relating thereto with the result that such Indebtedness or Contingent Obligation becomes or is caused to become then due and payable in its entirety, whether by acceleration of otherwise; or 8.1.3 Breach of Covenants. Borrower fails or neglects to perform, keep or observe any of the covenants contained in Sections 2.1.3, 5.2, 5.3, 5.9, 5.11, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13 and 6.14, or any of the financial covenants contained in Section 7 of this Agreement; or 8.1.4 Breach of Representations or Warranties. Any representation or warranty made by or on behalf of Borrower or FSI in this Agreement or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false, misleading or incomplete in any material respect when made; or 8.1.5 Failure to Cure. Except as provided in Sections 8.1.1 and 8.1.3, Borrower, FSI or any Marine Subsidiary or Owner Trustee 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 Borrower, FSI or any Marine Subsidiary or Owner Trustee in connection therewith and the same has not been cured to Requisite Lenders' satisfaction within thirty (30) calendar days after Borrower, FSI or any Marine Subsidiary or Owner Trustee shall become aware thereof, whether by written notice from Agent or any Lender or otherwise; or 48. 8.1.6 Insolvency. Borrower, any Marine Subsidiary, FSI, TEC, PLMI or any Owner Trustee or any other guarantor of any of Borrower's or FSI's obligations to Lenders shall (i) cease to be Solvent, (ii) admit in writing its inability to pay its debts as they mature, (iii) make an assignment for the benefit of creditors, (iv) apply for or consent to the appointment of a receiver, liquidator, custodian or trustee for it or for a substantial part of its Properties or business, or such a receiver, liquidator, custodian or trustee otherwise shall be appointed and shall not be discharged within sixty (60) days after such appointment; or 8.1.7 Bankruptcy Proceedings. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower, any Marine Subsidiary, FSI, TEC, PLMI or any Owner Trustee or any other guarantor of any of Borrower's or FSI's obligations to Lenders or any order, judgment or decree shall be entered against Borrower, any Marine Subsidiary, FSI, TEC, PLMI or any Owner Trustee or any other guarantor of any of Borrower's or FSI's obligations to Lenders decreeing its dissolution or division; provided, however, with respect to an involuntary petition in bankruptcy, such petition shall not have been dismissed within sixty (60) days after the filing of such petition; or 8.1.8 Material Adverse Effect. There shall have been a change in the assets, liabilities, financial condition, operations, affairs or prospects of Borrower, any Marine Subsidiary, FSI, TEC, PLMI or any Owner Trustee or any other guarantor of any of Borrower's or FSI's obligations to Lenders which, in the reasonable determination of Requisite Lenders has, either individually or in the aggregate, had a Material Adverse Effect; or 8.1.9 Judgments, Writs and Attachments. There shall be a money judgment, writ or warrant of attachment or similar process entered or filed against Borrower, any Marine Subsidiary, FSI, TEC or any Owner Trustee 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 Borrower or any Marine Subsidiary in any amount; against FSI exceeds in the aggregate $500,000; against TEC exceeds in the aggregate $500,000; or against any Owner Trustee exceeds in the aggregate $1,000,000; or against any combination of the foregoing Persons exceeds in the aggregate $1,000,000; or 8.1.10 Legal Obligations. Any of the Loan Documents shall for any reason other than the full, complete and indefeasible satisfaction of the Obligations thereunder cease to be, or be asserted by Borrower, FSI, TEC or any Marine Subsidiary or Owner Trustee not to be, a legal, valid and binding obligation of Borrower, FSI, TEC or any such Marine Subsidiary or Owner Trustee, respectively, enforceable against such Person in accordance with its terms; or 8.1.11 Growth Fund Agreement. Without limiting the generality of, and in addition to the events described in Section 8.1.1, the occurrence of any "Event of Default" as 49. defined under the Growth Fund Agreement or any other loan or security document related to the Growth Fund Agreement; or 8.1.12 Board of Directors. Borrower shall at any time fail either (i) to have at least one member of its board of directors be an outside independent director, not employed or otherwise engaged as an officer, employee, consultant, director or in any other capacity by PLMI or any of its Subsidiaries or (ii) to have (1) at least one member of its board of directors be a Person who is not a member of the board of directors of PLMI or any of its other Subsidiaries and (2) at least one additional member of its board of directors be a Person who is not an inside director, whether employed as an officer or employee, of PLMI or any of its other Subsidiaries and is not the Chairman of the Board of PLMI; or 8.1.13 Criminal Proceedings. A criminal proceeding shall have been filed in any court naming Borrower or any Marine Subsidiary or Owner Trustee as a defendant for which forfeiture is a potential penalty under applicable federal or state law which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect; or 8.1.14 Action by Governmental Authority. Any Governmental Authority enters a decree, order or ruling ("Government Action") which will materially and adversely affect Borrower's, any Marine Subsidiary's, FSI's, TEC'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. 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 (v) any monetary liability in the case of Borrower or any Marine Subsidiary, (w) monetary liability of more than $500,000 in the case of FSI, (x) monetary liability of more than $500,000 in the case of TEC, (y) monetary liability of more than $1,000,000 in the case of PLMI, or (z) monetary liability 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 Borrower, any Marine Subsidiary, FSI, TEC, and PLMI, or any of them, which in the reasonable determination of the Requisite Lenders may have a Material Adverse Effect; or 8.1.15 Governmental Decrees. Any Governmental Authority, including, without limitation, the SEC, shall enter a decree, order or ruling prohibiting the Equipment Growth Funds from releasing or paying to FSI any funds in the form of management fees, profits or otherwise which, in the reasonable determination of Requisite Lenders, may have a Material Adverse Effect. 8.2 Waiver of Default. An Event of Default may be waived only with the written consent of Requisite Lenders, or if expressly provided, of all Lenders. Any Event of Default so waived shall be deemed to have been cured and not to be continuing; but no such waiver shall 50. be deemed a continuing waiver or shall extend to or affect any subsequent like default or impair any rights arising therefrom. 8.3 Remedies. Upon the occurrence and continuance of any Event of Default or Potential Event of Default, Lenders shall have no further obligation to advance money or extend credit to or for the benefit of Borrower. In addition, upon the occurrence and during the continuance of an Event of Default, Lenders or Agent, on behalf of Lenders, may, at the option of Requisite Lenders, do any one or more of the following, all of which are hereby authorized by Borrower: 8.3.1 Declare all or any of the Obligations of Borrower under this Agreement, the Note, the other Loan Documents and any other instrument executed by 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 Section 8.1.6 or 8.1.7, then all of the Obligations shall become immediately due and payable forthwith without the requirement of any notice or other action by Lenders or Agent; 8.3.2 Terminate this Agreement as to any future liability or obligation of Agent or Lenders; and 8.3.3 Exercise in addition to all other rights and remedies granted hereunder, any and all rights and remedies granted under the Loan Documents or otherwise available at law or in equity. 8.4 Set-Off. 8.4.1 During the continuance of an Event of Default, any deposits or other sums credited by or due from any Lender to Borrower, TEC 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 and any and all other liabilities, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of Borrower, TEC or FSI to Lenders. Each Lender agrees to notify promptly Borrower, TEC or FSI and Agent of any such set-off; provided, that the failure to give such notice shall not affect the validity of any such set-off. 8.4.2 Each Lender agrees that if it shall, whether by right of set-off, banker's lien or similar remedy pursuant to Section 8.4.1, obtain any payment as a result of which the outstanding and unpaid principal portion of the Commitments of such Lender shall be less than such Lender's Pro Rata Share of the outstanding and unpaid principal portion of the aggregate of all Commitments, such Lender receiving such payment shall simultaneously purchase from each other Lender a participation in the Commitments held by such Lenders so that the outstanding and unpaid principal amount of the Commitments and participations in Commitments of such Lender shall be in the same proportion to the unpaid principal amount of the aggregate 51. 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. Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in a Commitment deemed to have been so purchased may exercise any and all rights of set-off, banker's lien or similar remedy with respect to any and all moneys owing by Borrower to such Lender as fully as if such Lender held a Commitment in the amount of such participation. 8.5 Rights and Remedies Cumulative. The enumeration of the rights and remedies of Agent and Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by Agent and Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Agent and Lenders in exercising any right, power or privilege shall operate as a waiver hereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default or Potential Event of Default. No course of dealing between Borrower, Agent or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the Loan Documents or to constitute a waiver of any Event of Default or Potential Event of Default. SECTION 9. AGENT. 9.1 Appointment. Each of the Lenders hereby irrevocably designates and appoints First Union National Bank of North Carolina as the Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes First Union National Bank of North Carolina as the Agent for such Lender to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against Agent. To the extent any provision of this Agreement permits action by Agent, Agent shall, subject to the provisions of this Section 9, take such action if directed in writing to do so by the Requisite Lenders. 52. 9.2 Delegation of Duties. Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any Lender for any recitals, statements, representations or warranties made by 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 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 Borrower. 9.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to Borrower), 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 the 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 the Requisite Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders. 9.5 Notice of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default or Potential Event of Default hereunder unless Agent has received notice from a Lender or 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 53. Default as shall be reasonably directed by the Requisite Lenders; provided that unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default or Potential Event of Default as it shall deem advisable in the best interests of Lenders. 9.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly acknowledges that neither Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by Agent hereinafter taken, including any review of the affairs of Borrower, shall be deemed to constitute any representation or warranty by Agent to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of 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 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 Borrower and FSI which may come into the possession of Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. Each Lender agrees to indemnify Agent in its capacity as such (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), ratably according to the respective amounts of their Pro Rata Share of the Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent's bad faith, gross negligence or willful misconduct. The agreements in this Section 9.7 shall survive the repayment of the Loans and all other amounts payable hereunder. 9.8 Agent in Its Individual Capacity. Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with Borrower or FSI as though Agent were not Agent hereunder. With respect to Advances made or renewed by it, 54. Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not Agent, and the terms "Lender" and "Lenders" shall include Agent in its individual capacity. 9.9 Resignation and Appointment of Successor Agent. Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Borrower; 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 the Requisite Lenders, with or without cause; provided, however, that any successor agent shall be subject to Borrower's consent, which consent shall not be unreasonably withheld. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 10. EXPENSES AND INDEMNITIES. 10.1 Expenses. Borrower agrees to pay 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 Borrower's 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 FUNB 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, Borrower or any other Person) seeking to enforce any Obligations of, or collecting any 55. payments due from, Borrower under this Agreement and the Note, all of which amounts shall be deemed to be part of the Obligations. 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 Borrower. 10.2 Indemnification. Whether or not the transactions contemplated hereby shall be consummated: 10.2.1 General Indemnity. 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 Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. 10.2.2 Environmental Indemnity. (a) Borrower hereby agrees 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 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 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 (except for actions which constitute fraud, willful misconduct, gross negligence or material violations of law) shall vitiate or in any way impair Borrower's obligation and duty hereunder to indemnify and hold harmless Agent and each Lender. Agent and Lenders agree to use reasonable efforts to cooperate with Borrower respecting the defense of any matter indemnified hereunder, except insofar as and to the extent that their respective interests may be adverse to Borrower's, in Agent's and each Lenders' sole discretion. 56. (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 Borrower 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 Borrower or any other Person against, or to inform Borrower 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 Borrower or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by Agent or any Lender. 10.2.3 Survival; Defense. The obligations in this Section 10.2 shall survive payment of all other Obligations. At the election of any Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's sole discretion, at the sole cost and expense of Borrower. All amounts owing under this Section 10.2 shall be paid within thirty (30) days after written demand. SECTION 11. MISCELLANEOUS. 11.1 Survival. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of the Loan Documents and the making of the Loans hereunder. 11.2 No Waiver by Agent or Lenders. No failure or delay on the part of Agent or any Lender in the exercise of any power, right or privilege under this Agreement, the Note or any of the other Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 11.3 Notices. Except as otherwise provided in this Agreement, any notice or other communication herein required or permitted to be given shall be in writing and may be delivered in person, with receipt acknowledged, or sent by telex, facsimile, telecopy, computer transmission or by United States mail, registered or certified, return receipt requested, or by Federal Express or other nationally recognized overnight courier service, postage prepaid and confirmation of receipt requested, and addressed as set forth on the signature pages to this Agreement or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which the same shall have been personally delivered, with receipt acknowledged, or sent by telex, facsimile, telecopy or computer transmission (with appropriate answerback), three (3) Business Days after the same shall have been deposited in the United States mail or on the next succeeding Business Day if the same has been sent by Federal Express or other nationally recognized overnight courier service. Failure or delay in delivering copies of any notice, 57. demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 11.4 Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 11.5 Severability. Whenever possible, each provision of this Agreement, the Note and each of the other Loan Documents shall be interpreted in such a manner as to be valid, legal and enforceable under the applicable law of any jurisdiction. Without limiting the generality of the foregoing sentence, in case any provision of this Agreement, the Note or any of the other Loan Documents shall be invalid, illegal or unenforceable under the applicable law of any jurisdiction, the validity, legality and enforceability of the remaining provisions, or of such provision in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.6 Entire Agreement; Construction; Amendments and Waivers. 11.6.1 This Agreement, the Note and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement among Borrower, Lenders and Agent and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. 11.6.2 This Agreement is the result of negotiations between and has been reviewed by each of Borrower, the Lenders 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 Borrower, Lenders or Agent. Borrower, 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 Borrower's, any Lender's or Agent's actual intentions. 11.6.3 No amendment, modification, discharge or waiver of or consent to any departure by Borrower or FSI from, any provision in this Agreement or any of the other Loan Documents relating to (i) the definition of "Borrowing Base" or "Requisite Lenders," (ii) any increase of the amount of any Commitment, (iii) any reduction of principal, interest or fees payable hereunder, (iv) any postponement of any date fixed for any payment or prepayment of principal or interest hereunder or (v) 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 the 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 Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent 58. effected in accordance with this Section 11.6 shall be binding upon each Lender then party hereto and each subsequent Lender, and on Borrower. 11.7 Reliance by Lenders. All covenants, agreements, representations and warranties made herein by Borrower shall, notwithstanding any investigation by Lenders or Agent be deemed to be material to and to have been relied upon by Lenders. 11.8 Marshalling; Payments Set Aside. Lenders shall be under no obligation to marshall any assets in favor of Borrower or any other person or against or in payment of any or all of the Obligations. To the extent that Borrower makes a payment or payments to Lenders or Agent, or Lenders or Agent, on behalf of Lenders, enforce their or its Liens or exercises their or its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under Title 11 of the United States Code or under any other similar federal or state law, common law or equitable cause, then to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or set-off had not occurred. 11.9 No Set-Offs by Borrower. All sums payable by Borrower pursuant to this Agreement, the Note or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. 11.10 Binding Effect, Assignment. 11.10.1 This Agreement, the Note and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto and thereto and their respective successors and assigns, except that Borrower may not assign its rights hereunder or thereunder or any interest herein or therein without the prior written consent of each Lender. Each Lender shall (i) 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 under this Agreement, the Note and the other Loan Agreements subject to the prior written consent of Borrower, which consent shall not be unreasonably withheld, and (ii) 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 Borrower, which consent shall not be unreasonably withheld; provided, however, that no such sale, assignment or participation grant shall result in requiring registration under the Securities Act of 1933, as amended, or qualification under any state securities law. 11.10.2 Subject to the limitations of this Section 11.10.2, each Lender may sell and assign, from time to time, all or any portion of its Pro Rata Share of the Commitments to any of its Affiliates or, with the approval of Borrower (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 59. or other financial institution shall be evidenced by a written instrument of assignment and assumption 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")) containing terms mutually acceptable to them and approved in writing as to form by Borrower (which approval shall not be unreasonably withheld). The instrument of 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 Borrower; provided only that such terms do not diminish the obligations undertaken by such Assignee Lender in the instrument of assignment and assumption or increase the obligations of Borrower under this Agreement. Upon execution of such instrument of assignment and assumption, (i) 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 (ii) 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 instrument of 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(b), such Assignor Lender agrees to supplement Schedule 1.1 to show the date of such assignment, the Assignor Lender, the Assignee Lender, the Assignee Lender's address for notice purposes and the amount of the Commitments so assigned. 11.10.3 Subject to the limitations of this Section 11.10.3, any Lender may also grant, from time to time, participation interests in the interests of such Lender under this Agreement, the Note and the other Loan Documents to any other financial institution without notice to, or approval of, Borrower. The grant of such a participation interest shall be on such terms as the granting Lender determines are appropriate, provided only that (i) 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 (ii) 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 (A) increase the monetary amount of any Commitment, (B) decrease any fee or any other monetary amount payable to Lenders, or (C) extend the date upon which any monetary amount is payable to Lenders. 11.11 Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto or thereto, delivery of each such counterpart to Agent. 60. 11.12 Equitable Relief. Borrower recognize that, in the event Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, the Note or any of the other Loan Agreements, any remedy at law may prove to be inadequate relief to Lenders or Agent; therefore, Borrower agrees that Lenders or Agent, if Lenders or Agents so request, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 11.13 Written Notice of Claims; Claims Bar. BORROWER HEREBY AGREES THAT IT 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 NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR ANY ACT OR OMISSION TO ACT BY ANY LENDER OR AGENT WITH RESPECT HERETO OR THERETO, AND THAT IF IT SHALL FAIL TO GIVE SUCH PROMPT NOTICE TO AGENT WITH REGARD TO ANY SUCH CLAIM OR CAUSE OF ACTION, IT SHALL BE DEEMED TO HAVE WAIVED, AND SHALL BE FOREVER BARRED FROM BRINGING OR ASSERTING SUCH CLAIM OR CAUSE OF ACTION IN ANY SUIT, ACTION OR PROCEEDING IN ANY COURT OR BEFORE ANY GOVERNMENTAL AUTHORITY. 11.14 Waiver of Punitive Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, BORROWER HEREBY AGREES THAT IT SHALL NOT SEEK FROM LENDERS OR AGENT, UNDER ANY THEORY OF LIABILITY, INCLUDING, WITHOUT LIMITATION, ANY THEORY IN TORTS, ANY PUNITIVE DAMAGES. 11.15 Governing Law. Except as otherwise expressly provided in any of the Loan Documents, in all respects, including all matters of construction, validity and performance, this Agreement and the Obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of North Carolina applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. 11.16 Consent to Jurisdiction. Borrower hereby irrevocably consents 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. 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 11.16 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 61. Lender to bring any action or proceeding against Borrower or its properties in the courts of any other jurisdictions. 11.17 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW, 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 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 TEC ACQUISUB, INC. By Printed Name: Title: Notice to be sent to: TEC AcquiSub, Inc. One Market Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: J. Michael Allgood Vice President of Finance and Chief Financial Officer Telephone: 415/896-1138 Facsimile: 415/882-0860 62. With a copy to: TEC AcquiSub, Inc. One Market Steuart Street Tower, Suite 900 San Francisco, CA 94105 Attention: General Counsel Telephone: 415/896-1138 Facsimile: 415/882-0860 AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA By Printed Name: Title: Notice to be sent to: First Union National Bank of North Carolina One First Union Center 301 South College Street Charlotte, NC 28288 Attention: Milton Anderson, Director Telephone: 704/383-5164 Facsimile: 704/374-4092 LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By Printed Name: Title: 63. 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 64. ACKNOWLEDGEMENT AND REAFFIRMATION OF GUARANTY SECTION 1. PLM Financial Services, Inc. ("FSI") and PLM Transportation Equipment Corporation ("TEC") each hereby acknowledge and confirm that it has reviewed and approved the terms and conditions of this Agreement. SECTION 2. FSI and TEC each hereby consent to this Agreement and agree that its respective joint and several Guaranty of the Obligations of Borrower under the 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 Agreement or any other document or instrument delivered in connection herewith. SECTION 3. FSI and TEC each severally represent and warrant that, after giving effect to this Agreement, that all representations and warranties contained in its respective Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM FINANCIAL SERVICES, INC. By: Printed Name: Title: GUARANTOR PLM TRANSPORTATION EQUIPMENT CORPORATION By: Printed Name: Title: EX-10 3 - ----------------------------------------------------------------- ASSET PURCHASE AGREEMENT ------------------------ between AMERICAN FINANCE GROUP, INC. and AFG CREDIT CORPORATION ------------------------ Dated as of July 1, 1995 - ----------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS............1 1.1 Definitions.......................................................1 1.2 Other Definitional Provisions.........................................5 (a) Terms Used in Related Documents................................5 (b) Accounting Terms...............................................5 (c) "Hereof", etc..................................................5 ARTICLE II SALE OF ORIGINAL ASSETS; SALE OF ADDITIONAL ASSETS;..........................................6 2.1 Sale of Original Assets...............................................6 (a) Sale............................................................6 (b) Purchase Price..................................................6 (c) Recordation.....................................................6 (d) Marking of Original Leases......................................7 (e) Custody of Lease Files..........................................7 (f) Title to Equipment..............................................7 2.2 Contribution or Sale of Additional Assets.............................7 (a) Additional Sales and Contributions..............................7 (b) Purchase Price..................................................7 (c) Recordation.....................................................8 (d) Marking of Additional Leases....................................8 (e) Custody of Lease Files..........................................8 (f) Title to Equipment..............................................8 ARTICLE III AFG TO ACT AS AGENT FOR AFG CREDIT; ORIGINATION OF LEASES BY AFG CREDIT.............................9 3.1 Agency Agreement......................................................9 (a) Origination of AFG Credit Leases................................10 (b) Custody of Lease Files..........................................10 ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................................11 4.1 Representations and Warranties of AFG.................................11 (a) Representations and Warranties with Respect to the Assets..................................................11 -1- Page (b) Representations and Warranties with Respect to the AFG Credit Leases........................................12 (c) Representations and Warranties as to AFG........................13 4.2 Representations and Warranties of AFG Credit...........................15 (a) Organization and Good Standing..................................15 (b) Due Qualification...............................................15 (c) Due Authorization...............................................16 (d) No Conflict.....................................................16 (e) No Violation....................................................16 (f) All Consents Required...........................................16 4.3 Purchase of Ineligible Leases and Equipment by AFG..................................................................16 4.4 Indemnification........................................................17 ARTICLE V COVENANTS OF AFG AND AFG Credit.......................................17 5.1 AFG Covenants..........................................................17 (a) Lease Files.....................................................18 (b) Compliance with Law.............................................18 (c) Preservation of Ownership Interest..............................18 (d) Obligations with Respect to Leases..............................18 (e) No Bankruptcy Petition..........................................18 (f) Security Interests..............................................19 (g) Location of Records.............................................19 (h) Agency Relationship.............................................19 (i) Indemnification.................................................19 5.2 Consent to Assignment..................................................19 ARTICLE VI CONDITIONS PRECEDENT............................................. 20 6.1 Conditions to AFG Credit's Obligations.................................20 (a) Representations and Warranties..................................20 (b) Other Information...............................................20 (c) Obligations.....................................................20 (d) Corporate Proceedings...........................................20 6.2 Conditions to AFG's Obligations........................................20 (a) Representations and Warranties..................................21 (b) Corporate Proceedings...........................................21 ARTICLE VII TERMINATION................................................. 21 7.1 Termination............................................................21 7.2 Effect of Termination..................................................21 -2- ARTICLE VIII MISCELLANEOUS PROVISIONS........................................... 22 8.1 Amendment............................................................22 8.2 Governing Law........................................................22 8.3 Notice...............................................................22 8.4 Severability of Provisions...........................................22 8.5 Assignment...........................................................22 8.6 Further Assurances...................................................22 8.7 No Waiver; Cumulative Remedies.......................................23 8.8 Counterparts.........................................................23 8.9 Third-Party Beneficiaries............................................23 8.10 Merger and Integration..............................................23 8.11 Headings............................................................23 8.12 Schedules and Exhibits..............................................23 Exhibits Exhibit A Form of Assignment for Original Assets Exhibit B Form of Assignment for Additional Assets Schedules 1. Original Lease Schedule 2. Portfolio Parameters Schedule -3- Page ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT, dated as of July 1, 1995 (this "Agreement"), is entered into between American Finance Group, Inc. ("AFG"), a Delaware corporation, and AFG Credit Corporation ("AFG Credit"), a Delaware corporation. AFG in the ordinary course of its business originates equipment and other leases, and purchases equipment and other leases originated by other Persons, in the United States and abroad. AFG desires, on the date hereof, to transfer the Original Leases, its interests in the related Equipment and other assets (as such capitalized terms are defined pursuant to Article I below) to AFG Credit upon the terms and conditions set forth in this Agreement. It is contemplated that, from time to time after the date hereof, AFG and AFG Credit may agree that AFG will transfer additional Leases, its interests in the related Equipment and other assets to AFG Credit upon the terms and conditions set forth in this Agreement. It is contemplated that, following such transfers, AFG, in its capacity as Servicer pursuant to the Pooling and Servicing Agreement and Indenture of Trust, will continue to administer and service the Leases and Equipment transferred to AFG Credit. AFG and AFG Credit desire that from time to time on or after the date hereof, AFG Credit will purchase Property and originate equipment and other leases, and that in connection therewith AFG will act as agent on behalf of AFG Credit, as principal, upon the terms and conditions set forth in this Agreement. It is contemplated that, following such origination of leases by AFG Credit, AFG, in its capacity as Servicer pursuant to the Pooling and Servicing Agreement and Indenture of Trust, will continue to administer and service the leases and Equipment originated by AFG Credit. In consideration of the mutual covenants set forth in this Agreement, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, AFG and AFG Credit agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. (a) Capitalized terms used in this Agreement shall have the respective meanings assigned to such terms in the Pooling and Servicing Agreement (as defined in this Section 1.1) unless otherwise defined herein. -4- Page (b) Whenever used in this Agreement, the following words and phrases will have the following meanings: "Additional Assets" shall mean all right, title and interest of AFG in, to, and under (i) the Additional Leases (including AFG's obligations under the Additional Leases) and all monies due or to become due thereunder after the related Additional Cut-Off Date and all Collections in respect thereof, (ii) the related Equipment, (iii) the related Lease Files, (iv) the Insurance Policies and any Insurance Proceeds related to the Additional Leases and (v) all income and proceeds of the foregoing or relating thereto. "Addition Date" shall have the meaning set forth in Section 2.2(a) of this Agreement. "Additional Lease Schedule" shall have the meaning set forth in Section 2.2(d) of this Agreement. "Additional Cut-Off Date" shall mean each date as of which an Additional Lease is to be contributed or sold to AFG Credit. "Additional Leases" shall mean the Leases listed on any Additional Lease Schedule created pursuant to Section 2.2(d) of this Agreement. "AFG Credit Assets" shall mean all right, title and interest of AFG Credit in, to, and under (i) the AFG Credit Leases (including AFG Credit's obligations under the AFG Credit Leases) and all monies due or to become due thereunder after the related Origination Cut-Off Date and all Collections in respect thereof, (ii) the related Equipment, (iii) the related Lease Files, (iv) the Insurance Policies and any Insurance Proceeds related to the AFG Credit Leases and (v) all income and proceeds of the foregoing or relating thereto. "AFG Credit Lease" shall mean each agreement, including, as applicable, schedules, subschedules, summary schedules, supplements and amendments to a master lease, that is entered into by AFG as agent on behalf of AFG Credit as lessor thereunder, and pursuant to which AFG Credit, as lessor, leases specified assets to a Lessee at a specified monthly or quarterly or semi-annual rental, and which is identified in the AFG Credit Lease Schedule; provided, that, from and after the date on which an AFG Credit Lease is purchased from AFG Credit by AFG pursuant to Section 4.3 of this Agreement or an AFG Credit Lease is otherwise transferred by AFG Credit to AFG, such AFG Credit Lease shall no longer be an AFG Credit Lease for purposes of this Agreement. -5- "AFG Credit Lease Schedule" shall have the meaning set forth in Section 3.2(a) of this Agreement. "Assets" shall mean the Original Assets and any Additional Assets. "Assignee" shall mean, at any time, any Person to whom the Assets and the AFG Credit Assets have been assigned, whether absolutely or by way of the grant of a security interest therein under any then existing Transfer Agreement and to which AFG Credit's rights under this Agreement have been assigned, and shall initially refer to AFG Master Trust created pursuant to the Pooling and Servicing Agreement. "Business Day" shall mean each day which is neither a Saturday, a Sunday nor any other day on which banking institutions in New York, New York, or San Francisco, California are authorized or obligated by law or required by executive order to be closed. "Closing Date" shall mean _____ __, 1995. "Cut-Off Date" shall mean _____ __, 1995. "Equipment" shall mean the assets (including office or other equipment) leased to a Lessee pursuant to a Lease or AFG Credit Lease, as the case may be, and/or, unless the context otherwise requires, a security interest in such assets. "Filing Locations" shall mean the States of California and Massachusetts. "Ineligible Lease" shall have the meaning set forth in Section 4.3 of this Agreement. "Lease" shall mean each agreement, including, as applicable, schedules, subschedules, summary schedules, supplements and amendments to a master lease, pursuant to which the Originator, as lessor, leases specified assets to a Lessee at a specified monthly or quarterly or semi-annual rental, and which is identified in the Lease Schedule, including all Original Leases and Additional Leases; provided, that, from and after the date on which a Lease is repurchased by AFG pursuant to Section 4.3 of this Agreement or a Lease is otherwise transferred by AFG Credit to AFG, such Lease shall no longer be a Lease for purposes of this Agreement. "Lease Files" shall mean, with respect to each Lease and each AFG Credit Lease, the fully executed original counterpart (for UCC purposes) of such Lease, the original certificate of title or other title document with respect to -6- the related Equipment (if applicable), and otherwise such documents, if any, that AFG keeps on file in accordance with its customary procedures, indicating ownership of such Equipment. "Lease Schedule" shall mean the Original Lease Schedule and all Additional Lease Schedules, as amended to show the deletion of Leases repurchased by AFG pursuant to Section 4.3 or otherwise transferred by AFG Credit to AFG. "Opinion of Counsel" shall mean a written opinion of counsel, who may be counsel (including internal counsel) to AFG, and who shall be reasonably acceptable to AFG Credit. "Original Assets" shall mean all right, title and interest of AFG in, to, and under (i) the Original Leases (including AFG's obligations under the Original Leases) and all monies due or to become due thereunder after the Cut-Off Date and all Collections in respect thereof, (ii) the related Equipment, (iii) the related Lease Files, (iv) the Insurance Policies and any Insurance Proceeds related to the Original Leases and (v) all income and proceeds of the foregoing or relating thereto. "Original Leases" shall mean the Leases listed on the Original Lease Schedule attached hereto. "Original Lease Schedule" shall have the meaning set forth in Section 2.1(d) of this Agreement. "Origination Cut-Off Date" shall mean each date as of which an AFG Credit Lease is to be originated by AFG as agent on behalf of AFG Credit as lessor thereunder. "Pooling and Servicing Agreement" shall mean, at any time, any agreement then in effect pursuant to which any Person has agreed to service the Assets (as such agreement is then in effect), and shall initially refer to the Pooling and Servicing Agreement and Indenture of Trust dated as of the date hereof, among AFG Credit, AFG, as Servicer, and the Trustee. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. "Responsible Officer" shall mean, with respect to AFG and AFG Credit, any officer of such entity with direct responsibility for the administration of this Agreement and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. The term "Responsible Officer", when used herein with -7- respect to any Person other than either AFG or AFG Credit, shall mean an officer or employee of such Person corresponding to any officer or employee described in the preceding sentence. "Servicer" shall mean, at any time, any Person then acting as servicer under a servicing agreement, and shall initially refer to AFG in its capacity as servicer under the Pooling and Servicing Agreement. "Transfer Agreement" shall mean, at any time, any then existing agreement pursuant to which AFG Credit has assigned its rights in the Assets and the AFG Credit Assets, whether absolutely or by way of the grant of a security interest therein (as such agreement is then in effect), and shall initially refer to the Pooling and Servicing Agreement. "Trustee" shall mean the institution executing the Pooling and Servicing Agreement as trustee, or its successor in interest, or any successor trustee appointed as therein provided. "Warranty Purchase Price" shall mean, with respect to any Lease or AFG Credit Lease and the related Equipment to be repurchased or purchased, respectively, by AFG, (a) the amount set forth as such in any then applicable Transfer Agreement, or (b) if no such amount is set forth or no Transfer Agreement is then in effect, an amount agreed to by AFG and AFG Credit as reflecting the fair market value therefor, determined on the same basis as the purchase price for sales of Original Leases and Additional Leases has been determined hereunder. 1.2 Other Definitional Provisions. (a) Terms Used in Related Documents. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. (b) Accounting Terms. As used in this Agreement or in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Section 1.1, and accounting terms partially defined in Section 1.1 to the extent not defined, shall have the meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained herein shall control. (c) "Hereof", etc. The words "hereof"; "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any -8- particular provision of this Agreement; and Section, Schedule and Exhibit references contained in this Agreement are references to Sections, Schedules and Exhibits in or to this Agreement, unless otherwise specified. ARTICLE II SALE OF ORIGINAL ASSETS; SALE OF ADDITIONAL ASSETS; 2.1 Sale of Original Assets. (a) Sale. On the Closing Date, AFG will sell, assign, transfer and convey to AFG Credit the Original Assets and will deliver to AFG Credit an executed assignment substantially in the form of Exhibit A. Except for the obligations of AFG pursuant to Section 4.3, the sale of the Original Assets will be without recourse to AFG. (b) Purchase Price. The purchase price for the Original Assets shall be paid in immediately available funds on the Closing Date from AFG Credit to AFG and shall be equal to the sum of (i) the sum of the discounted values of the Original Leases, as estimated by AFG at the Cut-Off Date in accordance with its normal valuation procedures, on a cumulative basis, plus (ii) the sum of the anticipated residual values of each piece of Equipment related to an Original Lease upon the expiration of each such Original Lease in accordance with its terms (as such residual values are estimated by AFG on or about the date on which each such Lease was created in accordance with its normal valuation procedures), but not in excess of any purchase option price with respect thereto set forth in each such Lease, on a cumulative basis. (c) Recordation. AFG shall record and file, at its own expense, financing statements (including any continuation statements with respect to such financing statements when applicable) with respect to the Original Assets meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale of the Original Leases from AFG to AFG Credit, and to deliver file-stamped copies of such financing statements or continuation statements or other evidence of such filings (which may, for purposes of this Section 2.1, consist of telephone confirmations of such filings with the file-stamped copy to be provided to AFG Credit as soon as practicable after receipt thereof by AFG) to AFG Credit (and copies to the Assignee) on or prior to the Closing Date, and in the case of any continuation statements filed pursuant to this Section 2.1(c), as soon as practicable after receipt thereof by AFG. -9- (d) Marking of Original Leases. AFG shall, at its own expense, on or prior to the Closing Date in the case of the Original Leases (A) indicate in its books and records, including the appropriate computer files relating to the Original Leases, that such Leases have been sold to AFG Credit pursuant to this Agreement and stamp such Leases or otherwise mark such Leases with a legend to the effect that such Leases have been assigned to the Assignee under the Pooling and Servicing Agreement and (B) on or prior to the Closing Date, deliver to AFG Credit a computer file or microfiche or written list (the "Original Lease Schedule") containing a true and complete list of all Original Leases then being sold to AFG Credit, identified by account number and by the Discounted Lease Balance as of the Cut-Off Date. The Original Lease Schedule is attached to this Agreement as Schedule 1. (e) Custody of Lease Files. AFG shall, at its own expense, on or prior to the Initial Closing Date in the case of the Original Leases deliver to the Custodian the related Lease Files to be held by the Custodian in accordance with the Custodian Agreement. (f) Title to Equipment. AFG shall, at its own expense, on or prior to the Closing Date in the case of the Original Leases, with respect to any item of related Equipment with respect to which title thereto or a security interest therein is required to be noted on a certificate of title or otherwise recorded, take such steps as shall be necessary or appropriate, in the reasonable judgement of AFG, to fully vest all right, title and interest in such Equipment in the Assignee. 2.2 Contribution or Sale of Additional Assets. (a) Additional Sales and Contributions. From time to time after the date hereof, AFG Credit may request to purchase additional assets from AFG, and AFG may agree to so sell, assign, transfer and convey such additional assets. From time to time after the date hereof, in connection with a sale of Additional Assets or otherwise, AFG may contribute to AFG Credit as a contribution to capital, Additional Assets. The date on which any such sale or contribution of any Additional Assets to be purchased by AFG Credit takes place is herein referred to as an "Addition Date". On each Addition Date, AFG will deliver to AFG Credit an executed assignment substantially in the form of Exhibit B. Except for the obligations of AFG pursuant to Section 4.3, the sale and contribution of the Additional Assets will be without recourse to AFG. (b) Purchase Price. If AFG agrees to sell, assign, transfer and convey any additional assets as described in Section 2.2(a) above, the purchase price for any Additional Assets shall be payable in immediately available funds on the Additional Closing Date from AFG Credit to AFG and shall be equal to the sum -10- of (i) the sum of the discounted values of the Additional Leases, as estimated by AFG at the related Additional Cut-Off Date in accordance with its normal valuation procedures, on a cumulative basis, plus (ii) the sum of the anticipated residual values of each piece of Equipment related to an Additional Lease upon the expiration of each such Additional Lease in accordance with its terms (as such residual values are estimated by AFG on or about the date on which each such Lease was created in accordance with its normal valuation procedures), but not in excess of any purchase option price with respect thereto set forth in each such Lease, on a cumulative basis. (c) Recordation. In connection with any sale or contribution of Additional Assets, AFG shall record and file, at its own expense, financing statements (including any continuation statements with respect to such financing statements when applicable) with respect to the Additional Assets meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the sale or contribution of the Additional Leases from AFG to AFG Credit, and to deliver file-stamped copies of such financing statements or continuation statements or other evidence of such filings (which may, for purposes of this Section 2.2, consist of telephone confirmations of such filings with the file-stamped copy to be provided to AFG Credit as soon as practicable after receipt thereof by AFG) to AFG Credit (and copies to the Assignee) on or prior to the Addition Date, and in the case of any continuation statements filed pursuant to this Section 2.2(c), as soon as practicable after receipt thereof by AFG. (d) Marking of Additional Leases. In connection with any contribution or sale of Additional Assets, AFG shall, at its own expense, on or prior to the Addition Date (A) indicate in its books and records, including the appropriate computer files relating to the Additional Leases, that such Leases have been sold or contributed to AFG Credit pursuant to this Agreement and stamp such Leases or otherwise mark such Leases with a legend to the effect that such Leases have been assigned to the Assignee under a Transfer Agreement and (B) on or prior to the Addition Date, deliver to AFG Credit a computer file or microfiche or written list (an "Additional Lease Schedule") containing a true and complete list of all Additional Leases then being sold or contributed to AFG Credit, identified by account number and by the Discounted Lease Balance as of the related Additional Cut-Off Date. Each Additional Lease Schedule shall be attached to the related assignment as a schedule thereto. (e) Custody of Lease Files. AFG shall, at its own expense, on or prior to the related Addition Date in the case of the Additional Leases deliver to the Custodian the related Lease Files to be held by the Custodian in accordance with the Custodian Agreement. -11- (f) Title to Equipment. AFG shall, at its own expense, on or prior to the related Addition Date in the case of Additional Leases, with respect to any item of related Equipment with respect to which title thereto or a security interest therein is required to be noted on a certificate of title or otherwise recorded, take such steps as shall be necessary or appropriate, in the reasonable judgement of AFG, to fully vest all right, title and interest in such Equipment in the Assignee. ARTICLE III AFG TO ACT AS AGENT FOR AFG CREDIT; ORIGINATION OF LEASES BY AFG CREDIT 3.1 Agency Agreement. (a) Appointment of Agent. AFG and AFG Credit contemplate that from time to time on or after the date hereof, AFG and AFG Credit may agree that AFG Credit will purchase Property and originate equipment and other leases with Lessees, and that in connection therewith, AFG will act as agent on behalf of AFG Credit as principal. AFG Credit hereby appoints AFG to act as its agent and grants to AFG the power and authority to act on its behalf and to take whatever actions are deemed by AFG to be necessary in connection with such purchases of Property and origination of leases by AFG Credit. AFG hereby accepts such appointment as agent on the terms and conditions and for the purposes set forth herein. (b) Duties of Agent. AFG, as agent for AFG Credit, will be wholly responsible for performing such functions as are necessary in connection with all matters relating to the purchase of Property by AFG Credit and the origination of the AFG Credit Leases by AFG Credit, including reviewing and preparing contracts, certificates, legal opinions and other instruments and performing due diligence, providing and receiving all notices and other documentation and otherwise fulfilling all ongoing duties and responsibilities that may be required under any documents that are entered into by AFG Credit through AFG, as its agent, and fulfilling and complying with, in all material respects, all obligations on the part of the "lessor" to be fulfilled or complied with under or in connection with each AFG Credit Lease. (c) Power of Attorney. In connection with the appointment of AFG to act as agent on its behalf, AFG Credit hereby appoints AFG to act as AFG Credit's attorney-in-fact for the purposes of entering into purchase or similar agreements with vendors in connection with the purchase by AFG Credit of Property, entering into the AFG Credit Leases with Lessees with respect to the leasing of Equipment by AFG Credit, and executing any certificates, reports, filings, instruments or other documents incident to the foregoing. AFG and AFG Credit hereby -12- agree that the power of attorney granted hereby shall be limited to those documents incident to the specific transactions to be entered into by AFG as agent for AFG Credit as contemplated by Section 3.1(a). AFG Credit will execute such powers of attorney as are requested by AFG to evidence the appointment of AFG as its attorney-in-fact. 3.2 The AFG Credit Leases. (a) Origination of AFG Credit Leases. AFG and AFG Credit contemplate that from time to time on or after the date hereof, AFG and AFG Credit may agree that AFG Credit will originate leases as lessor and that AFG will act as agent on AFG Credit's behalf in connection therewith pursuant to the agency relationship established in Section 3.1(a) above. The date on which any such origination of an AFG Credit lease takes place is herein referred to as an "Origination Date". In connection with the origination of the AFG Credit Leases by AFG as agent for AFG Credit, AFG shall, at its own expense, on or prior to the Origination Date, deliver to AFG Credit a computer file or microfiche or written list (an "AFG Credit Lease Schedule") containing a true and complete list of all AFG Credit Leases then being originated by AFG as agent on behalf of AFG Credit, identified by account number and by the Discounted Lease Balance as of the related Origination Cut-Off Date. (b) Custody of Lease Files. AFG shall, at its own expense, on or prior to the related Origination Date in the case of the AFG Credit Leases deliver to the Custodian the related Lease Files to be held by the Custodian in accordance with the Custodian Agreement. (c) Criteria for AFG Credit Leases. AFG agrees that it will, in evaluating and selecting Lessees to be parties to the AFG Credit Leases, utilize the same credit guidelines, eligibility and other criteria that it customarily utilizes in selecting lessees for Leases that AFG enters into as lessor on its own behalf. 3.3 Payment; Compensation. (a) Purchase of Property by AFG Credit. AFG Credit hereby authorizes AFG, as agent on its behalf, to pay to the vendor thereof the full purchase price of any Property purchased by AFG as agent on behalf of AFG Credit pursuant to Section 3.1. AFG shall promptly notify AFG Credit and send AFG Credit an invoice for any such payments made by AFG on AFG Credit's behalf. AFG Credit hereby agrees to reimburse AFG, promptly upon receipt of an invoice, fully for any amounts paid by AFG, as agent on behalf of AFG Credit, to a vendor for the purchase of Property by AFG Credit pursuant to this Article III. -13- (b) Compensation of Agent. AFG and AFG Credit hereby agree that as compensation for acting hereunder as agent for AFG Credit, AFG, as Servicer, will retain the right to service the AFG Credit Leases pursuant to the Pooling and Servicing Agreement and shall be entitled to receive the Servicing Fee payable thereunder with respect to the AFG Credit Leases. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of AFG. AFG makes the following representations and warranties for the benefit of AFG Credit and any Assignee, on which AFG Credit relies in purchasing the Original Assets and any Additional Assets, in accepting any contribution of any Additional Assets, and in purchasing any Property and originating any AFG Credit Leases through AFG as its agent pursuant to Article III hereof. Unless otherwise indicated, such representations and warranties, with respect to the Original Assets, are as of the Closing Date, with respect to any Additional Assets, are deemed to be made as of the related Addition Date, and with respect to the AFG Credit Leases and the assets subject thereto, are deemed to be made as of the related Origination Date, and in each case will survive the contribution and/or sale of the Original and Additional Leases and related Equipment to AFG Credit, the origination of the AFG Credit Leases by AFG Credit, and the transfer of an interest in the Leases and the AFG Credit Leases to any Assignee. Upon discovery by AFG or AFG Credit or its assignee of a breach of any of the representations and warranties contained in this Section 4.1, the party discovering such breach shall give prompt written notice to the other. (a) Representations and Warranties with Respect to the Assets. As to the Assets: (i) as of the Cut-Off Date, the Original Lease Schedule is an accurate and complete listing in all material respects of all the Original Leases and the information contained therein with respect to the identity of such Leases and the amounts owing thereunder is true and correct in all material respects as of the Cut-Off Date; (ii) each Original Lease is an Eligible Lease; (iii) each Original Lease and the related Equipment has been transferred to AFG Credit or its Assignee free and clear of any Lien of any Person (other than Permitted Liens) and is in compliance, in all material respects, with all Requirements of Law applicable to AFG or the Originator thereof; -14- (iv) with respect to each Original Lease, all material consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by AFG in connection with the transfer of such Lease and the related Equipment to AFG Credit or its Assignee have been duly obtained, effected or given and are in full force and effect; (v) as of the Closing Date, the Original Leases satisfy the criteria set forth on the Portfolio Parameters Schedule attached to this Agreement as Schedule 2; (vi) as of any Additional Cut-Off Date, the related Additional Lease Schedule is an accurate and complete listing in all material respects of all the Additional Leases being transferred on the related Addition Date and the information contained therein with respect to the identity of such Leases and the amounts owing thereunder is true and correct in all material respects as of the related Additional Cut-Off Date; (vii) each such Additional Lease is an Eligible Lease; (viii) each such Additional Lease and the related Equipment has been transferred to AFG Credit or its Assignee free and clear of any Lien of any Person (other than Permitted Liens) and is in compliance, in all material respects, with all Requirements of Law applicable to AFG or the Originator thereof; (ix) with respect to each such Additional Lease, all material consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by AFG in connection with the transfer of such Lease and the related Equipment to AFG Credit or its Assignee have been duly obtained, effected or given and are in full force and effect; and (x) as of any Addition Date, the addition of the related Additional Leases does not cause any of the criteria set forth on the Portfolio Parameters Schedule attached to this Agreement as Schedule 2 to be untrue; and (xi) as of any Addition Date, AFG is not insolvent and will not be rendered insolvent by selling or contributing the related Additional Leases to AFG Credit. (b) Representations and Warranties with Respect to the AFG Credit Leases. As to the AFG Credit Leases: (i) each AFG Credit Lease is an Eligible Lease; -15- (ii) each AFG Credit Lease satisfies all of the same eligibility and other criteria as the Original Leases and the Additional Leases being sold or to be sold by AFG to AFG Credit pursuant to Article II of this Agreement; (iii) AFG will not record any of the AFG Credit Assets on its own books and will take no actions that are inconsistent with all right, title and interest of AFG Credit or any Assignee in and to the AFG Credit Assets; (iv) as of any Origination Date, the addition of the related AFG Credit Lease does not cause any of the criteria set forth on the Portfolio Parameters Schedule attached to this Agreement as Schedule 2 to be untrue, unless, with respect to any of the Individual Lessee Excess Concentration Amount, the Industry Excess Concentration Amount, the SemiAnnual Lease Excess Concentration Amount or the Equipment Excess Concentration Amount, the Rating Agency Condition shall have been satisfied with respect thereto; and (v) each AFG Credit Lease is in compliance, in all material respects, with all Requirements of Law applicable to the Originator thereof (if other than AFG Credit). (c) Representations and Warranties as to AFG. As to AFG: (i) Organization and Good Standing. AFG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own its properties and to conduct its business as presently conducted and to enter into and perform its obligations pursuant to this Agreement; (ii) Due Qualification. AFG is qualified to do business as a foreign corporation, is in good standing, and has obtained all licenses and approvals as required under the laws of, all states in which the ownership or lease of its property, the performance of its obligations pursuant to this Agreement or the other conduct of its business requires such qualification, standing, license or approval, except to the extent that the failure to so qualify, maintain such standing or be so licensed or approved would not, in the aggregate, materially and adversely affect the ability of AFG to comply with this Agreement or to perform its obligations hereunder or adversely effect the enforceability of the Leases; (iii) Power and Authority. AFG has the corporate power and authority to execute and deliver this Agreement and to carry out its terms. AFG has duly authorized the execution, -16- delivery, and performance of this Agreement by all requisite corporate action; (iv) No Violation. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement by AFG (with or without notice or lapse of time) will not (i) conflict with, result in any breach of any of the terms or provisions of, or constitute a default under, the certificate of incorporation or by-laws of AFG, or any term of any indenture, agreement, mortgage, deed of trust or other instrument to which AFG is a party or by which it is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, or (iii) violate any law, regulation, order, writ, judgment, injunction, decree, determination or award of any Governmental Authority applicable to AFG or any of its properties; (v) No Consent. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over AFG or any of its properties is required to be obtained by or with respect to AFG in order for AFG to enter into this Agreement or perform its obligations hereunder; (vi) Valid Contribution and Sale; Binding Obligations. The sale of the Original Assets constitutes, and each contribution and sale of any Additional Assets will constitute, a valid transfer to AFG Credit or its assignee of all right, title and interest of AFG in, to and under the Assets, and such property will be held by AFG Credit or its assignee free and clear of any Lien of any Person claiming through or under AFG or its Affiliates, except for Permitted Liens; and this Agreement constitutes a legal, valid and binding obligation of AFG, enforceable against AFG in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and (ii) general principles of equity (whether considered in a suit at law or in equity); (vii) No Proceedings. There are no proceedings or investigations pending, or, to the best of AFG's knowledge, threatened against AFG, before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might (in the reasonable judgment of AFG) materially and adversely affect the -17- performance by AFG of its obligations under, or the validity or enforceability of, this Agreement; (viii) Bulk Sales. The execution, delivery and performance of this Agreement do not require compliance with any "bulk sales" law by AFG; (ix) Fair Consideration. The consideration received by AFG in exchange for the transfer of the Assets on the date hereof and on each Addition Date is fair consideration having value equivalent to or in excess of the value of the Assets transferred on each such date; and the consideration received by AFG in exchange for performing the services as agent for AFG Credit pursuant to Article III hereof is fair consideration; (x) Principal Place of Business. AFG's principal place of business is in the State of California, City and County of San Francisco; (xi) Ability to Perform. At the date hereof, AFG does not believe, nor does it have any reasonable cause to believe, that it cannot perform each and every covenant contained in this Agreement; and (xii) Transfer Taxes. The sale, transfer, assignment and conveyance of the Assets by AFG described in this Agreement will not result in the imposition of any tax Lien or any liability of AFG Credit for any tax on such sale, transfer, assignment and conveyance. 4.2 Representations and Warranties of AFG Credit. AFG -------------------------------------------- Credit makes the following representations and warranties on which AFG relies in selling the Original Assets, contributing and selling any Additional Assets and purchasing Property and acting as agent on behalf of AFG Credit in connection with the purchase of Property and the origination of the AFG Credit Leases by AFG Credit. Such representations and warranties speak as of the Closing Date and each Addition Date and Origination Date, but shall survive the contribution and/or sale of the Leases and related Equipment to AFG Credit, the origination of the AFG Credit Leases, and the grant of a security interest to the Leases and to the AFG Credit Leases and the related Equipment to any Assignee. Upon discovery by AFG or AFG Credit or its assignee of a breach of any of the representations and warranties contained in this Section 4.2, the party discovering such breach shall give prompt written notice to the others. (a) Organization and Good Standing. AFG Credit is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and -18- such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and the Pooling and Servicing Agreement; (b) Due Qualification. AFG Credit is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained or will obtain all necessary licenses and approvals, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would have a material adverse effect on its ability to perform its obligations hereunder; (c) Due Authorization. The execution and delivery of this Agreement and the Pooling and Servicing Agreement and the consummation of the transactions provided for herein and therein have been duly authorized by AFG Credit by all necessary corporate action on the part of AFG Credit; (d) No Conflict. The execution and delivery of this Agreement and the Pooling and Servicing Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which AFG Credit is a party or by which it or any of its property is bound; (e) No Violation. The execution and delivery of this Agreement and the Pooling and Servicing Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or violate, in any material respect, any Requirements of Law applicable to AFG Credit; (f) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated by this Agreement, and the fulfillment of or terms hereof, have been obtained. 4.3 Purchase of Ineligible Leases and Equipment by AFG. In the event of a breach of any representation or warranty set forth in Section 4.1(a) with respect to a Lease or Section 4.1(b) with respect to an AFG Credit Lease (each such Lease or AFG Credit Lease, an "Ineligible Lease"), within 60 days of the receipt by AFG of written notice of such breach given by AFG Credit, AFG shall repurchase each such Lease or purchase each such AFG Credit Lease to which such breach relates on the terms and conditions set forth below; provided, however, that no such repurchase or purchase shall be required to be made with respect -19- to such Ineligible Lease (and such Lease or AFG Credit Lease, as the case may be, shall cease to be an Ineligible Lease) if, on any day within such 60 day period, the representations and warranties in subsection 4.1(a) or 4.1(b), as the case may be, with respect to such Ineligible Lease shall then be true and correct in all material respects with respect to such Ineligible Lease as if such Ineligible Lease had been sold or contributed to AFG Credit or originated by AFG Credit, as the case may be, on such day. With respect to each repurchase or purchase of an Ineligible Lease, as the case may be, required to be made pursuant to this Section 4.3, AFG shall repurchase or purchase, as the case may be, and AFG Credit shall convey, without recourse, representation or warranty, all of its right, title and interest in each Ineligible Lease. AFG shall be obligated to repurchase or purchase, as the case may be, each such Ineligible Lease. As payment for the Ineligible Leases, AFG shall, on the date of transfer or retransfer, as the case may be, of such Ineligible Lease, (i) make a payment to AFG Credit in immediately available funds in an amount equal to the Warranty Purchase Price. Upon each repurchase or purchase, as the case may be, by AFG of each such Ineligible Lease, AFG Credit shall automatically and without further action be deemed to transfer, assign and set-over to AFG, without recourse, representation or warranty, all the right, title and interest of AFG Credit in, to and under such Ineligible Lease and all monies due or to become due with respect thereto, the related Equipment and all proceeds of the Ineligible Lease and Liquidation Proceeds and Insurance Proceeds relating thereto and all rights to security for any such Ineligible Lease, and all proceeds and products of the foregoing. AFG Credit shall execute such documents and instruments of transfer and purchase or repurchase, as the case may be, as may be prepared by AFG and take such other actions as shall reasonably be requested by AFG to effect the purchase or repurchase, as the case may be, of such Ineligible Lease pursuant to this subsection. The obligation of AFG to purchase or repurchase, as the case may be, any Ineligible Lease and the indemnification provided for in Section 4.4 shall constitute the sole remedy respecting any breach of the representations and warranties set forth in subsection 4.1(a) with respect to such Lease or subsection 4.1(b) with respect to such AFG Credit Lease, as the case may be, available to AFG Credit or the Assignee. 4.4 Indemnification. In addition to any remedy pursuant to Section 4.3, AFG agrees to indemnify, defend and hold AFG Credit harmless from and against any out of pocket expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which AFG Credit or the Assignee may become subject insofar as such expense arises solely out of or is based solely upon the untruth of any representation or warranty of AFG set forth in Section 4.1. The obligations of AFG under this Section 4.4 will be considered to have been relied upon by AFG Credit and the Assignee and will survive the execution, delivery, and performance of this Agreement regardless -20- of any investigation made by AFG Credit or the Assignee or on their behalf. ARTICLE V COVENANTS OF AFG AND AFG Credit 5.1 AFG Covenants. AFG covenants and agrees with AFG Credit as follows for the benefit of AFG Credit and any Assignee: (a) Lease Files. AFG will comply with the provisions of the Custodian Agreement insofar as such provisions are applicable to it. (b) Compliance with Law. AFG will comply, in all material respects, with all laws and regulations of any Governmental Authority applicable to AFG, the Leases or the AFG Credit Leases and the related Equipment and Lease Files or any part thereof; provided that AFG may contest any such law or regulation in any reasonable manner which will not materially and adversely affect the value of (or the rights of AFG Credit or the Assignee, with respect to) the Assets or the AFG Credit Assets. (c) Preservation of Ownership Interest. AFG will execute and file such financing and continuation statements and any other documents reasonably requested by AFG Credit to be filed or which may be required by any law or regulation of any Governmental Authority to preserve and protect fully the interest of AFG Credit and the Assignee in, to and under the Assets and the AFG Credit Assets. (d) Obligations with Respect to Leases. AFG will duly fulfill and comply with, in all material respects, all obligations on the part of the "lessor" to be fulfilled or complied with under or in connection with each Lease, and will do nothing to impair the rights of AFG Credit in, to and under the Assets. AFG, as agent for AFG Credit, will duly fulfill and comply with, in all material respects, all obligations on the part of the "lessor" to be fulfilled or complied with under or in connection with each AFG Credit Lease and will do nothing to impair the rights of AFG Credit in, to and under the AFG Credit Assets. AFG will perform such obligations under the Leases and AFG Credit Leases and will not change or modify the Leases or AFG Credit Leases, except as otherwise provided in the Pooling and Servicing Agreement and except insofar as any such failure to perform, change or modification would not materially and adversely affect the value of (or the rights of AFG Credit or the Assignee, with respect to) the Leases or the AFG Credit Leases, or the related Equipment. -21- (e) No Bankruptcy Petition. AFG agrees that, prior to the date that is one year and one day after the termination of this Agreement pursuant to Section 7.1 herein, it will not institute against AFG Credit, or join any other Person in instituting against AFG Credit, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States. This Section 5.1(e) will survive the termination of this Agreement. (f) Security Interests. Except as otherwise herein provided, AFG will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Lease or related Equipment, whether now existing or hereafter transferred to AFG Credit, or any interest therein. AFG will immediately notify AFG Credit and the Assignee of the existence of any Lien on any Lease or related Equipment; and AFG shall defend the right, title and interest of AFG Credit in, to and under the Leases and the related Equipment, against all claims of third parties; provided, however, that nothing in this subsection 5.1(f) shall prevent or be deemed to prohibit AFG from suffering to exist upon any of the Leases Permitted Liens. (g) Location of Records. AFG (i) shall not move outside the State of California the location of its chief executive office without 45 days' prior written notice to AFG Credit and (ii) will promptly take all actions required (including but not limited to all filings and other acts necessary or advisable under the UCC of each relevant jurisdiction) in order to continue the first priority perfected ownership interest of the Assignee in the Leases. AFG will give AFG Credit prompt notice of a change within the State of California of the location of its chief executive office. (h) Agency Relationship. AFG (i) shall not take any actions on behalf of AFG Credit that are outside the scope of or are in violation of the agency agreement set forth herein, and (ii) when acting as agent for AFG Credit, will fully disclose this fact to the related Equipment vendor or Lessee, as applicable. (i) Indemnification. AFG agrees to indemnify, defend and hold AFG Credit and the Assignee harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) to which AFG Credit or the Assignee may become subject insofar as such loss, liability, damage, judgment, claim, deficiency or expense arises out of or is based upon a breach by AFG of its covenants contained in this Section -22- 5.1. The obligations of AFG under this Section 5.1(i) will be considered to have been relied upon by AFG Credit and the Assignee and will survive the execution, delivery, and performance of this Agreement regardless of any investigation made by AFG Credit or the Assignee or on their behalf. 5.2 Consent to Assignment. AFG understands that AFG Credit intends to assign all its right, title and interest in, to and under the Assets and the AFG Credit Assets to the Assignee pursuant to the Pooling and Servicing Agreement. AFG consents to the assignment of all or any portion of this Agreement by AFG Credit to any such Assignee. AFG agrees that any such Assignee (or, in each case, the Servicer or Trustee on its behalf) may exercise the rights of AFG Credit hereunder and will be entitled to all of the benefits of AFG Credit hereunder to the extent provided in the Pooling and Servicing or the related Transfer Agreement, as applicable. ARTICLE VI CONDITIONS PRECEDENT 6.1 Conditions to AFG Credit's Obligations. The obligations of AFG Credit to purchase the Original Assets on the Closing Date, to accept and/or purchase, as the case may be, any Additional Assets on the related Addition Date, and to originate any AFG Credit Leases on the related Origination Date are subject to the satisfaction or waiver of the following conditions as of such Closing Date, Addition Date or Origination Date, as applicable: (a) Representations and Warranties. All representations and warranties of AFG contained in this Agreement will be true and correct in all material respects as of the Closing Date, such Addition Date, and such Origination Date (except as otherwise specified herein), as if each such representation or warranty were made as of the Closing Date, such Addition Date or such Origination Date; (b) Other Information. All information concerning the Assets and the AFG Credit Assets provided to AFG Credit will be true and correct as of the Cut-Off Date, the related Additional Cut-Off Date or the related Origination Cut-Off Date, as applicable, in all material respects; (c) Obligations. AFG will have performed in all material respects all obligations required to be performed by AFG on or prior to the Closing Date, the related Addition Date, or the related Origination Date, as applicable, pursuant to the provisions of this Agreement; and -23- (d) Corporate Proceedings. All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement will be satisfactory in form and substance to AFG Credit, and AFG Credit will have received from AFG such copies of documents (including records of corporate proceedings, certificates of Responsible Officers and Opinions of Counsel) relevant to the transactions herein contemplated as AFG Credit may reasonably have requested. 6.2 Conditions to AFG's Obligations. The obligations of AFG to sell the Original Assets on the Closing Date, to contribute or sell any Additional Assets as of any Addition Date, and to act as agent on behalf of AFG Credit pursuant to Article III hereof as of any Origination Date will be subject to the satisfaction or waiver of the following conditions as of the Closing Date, such Addition Date or such Origination Date, as applicable: (a) Representations and Warranties. All representations and warranties of AFG Credit contained in this Agreement will be true and correct in all material respects as of the Closing Date, such Addition Date or such Origination Date (except as otherwise specified herein), as if each such representation or warranty were made as of the Closing Date, such Addition Date or such Origination Date; (b) Corporate Proceedings. All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement will be satisfactory in form and substance to AFG, and AFG will have received from AFG Credit such copies of documents (including records of corporate proceedings, certificates of Responsible Officers, and Opinions of Counsel) relevant to the transactions herein contemplated as AFG may reasonably have requested. ARTICLE VII TERMINATION 7.1 Termination. The respective obligations and responsibilities of AFG and AFG Credit created by this Agreement and the agency relationship established pursuant to Article III hereunder will terminate upon the last to occur of (i) the maturity or other liquidation of all Leases and AFG Credit Leases and (ii) the termination of all Transfer Agreements. 7.2 Effect of Termination. No termination, rejection or failure to assume the executory obligations of this Agreement in the bankruptcy of AFG or AFG Credit will be deemed to impair or affect the obligations pertaining to any executed -24- contribution, executed sale or executed obligations, including breaches of representations and warranties by AFG or AFG Credit prior to termination. Without limiting the foregoing, prior to termination, the failure of AFG to pay a Warranty Purchase Price will not render such contribution, sale or obligations executory and the continued respective duties of AFG and AFG Credit pursuant to Article V will not render an executed sale or contribution executory. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Amendment. This Agreement may be amended from time to time by AFG and AFG Credit, without the consent of the Assignee, (i) to cure any ambiguity, to revise any Exhibits or Schedules, to correct or supplement any provisions herein or thereon or (ii) to add any other provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with the provisions of this Agreement; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of the Assignee. 8.2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 8.3 Notice. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, return receipt requested, to (a) in the case of AFG, to One Market Place, Suite 900, San Francisco, California 94105, Attn: _________ ____________, Chief Financial Officer, with a copy to _______________________, and (b) in the case of AFG Credit, to One Market Place, Suite 900, San Francisco, California 94105, Attn: ____________________, with a copy to - ------------------------. 8.4 Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. 8.5 Assignment. This Agreement may not be assigned by AFG, without the prior written consent of AFG Credit and the Assignee. -25- 8.6 Further Assurances. AFG and AFG Credit agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Assignee more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Assets for filing under the provisions of the UCC of any applicable jurisdiction. 8.7 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of AFG Credit or AFG, any right, remedy, power or privilege under this Agreement will operate as a waiver of such right, remedy, power or privilege; nor will any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise of such right, remedy, power or privilege. The rights, remedies, powers and privileges provided under this Agreement are cumulative and not exhaustive of any other rights, remedies, powers and privileges provided by law. 8.8 Counterparts. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. 8.9 Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto, and their respective successors and permitted assigns and will also, to the extent expressly provided in this Agreement, inure to the benefit of the Servicer and the Assignee. Except as otherwise provided in this Section 8.9, no other Person will have any right or obligation hereunder. 8.10 Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. 8.11 Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 8.12 Schedules and Exhibits. The Schedules and Exhibits constitute a part of this Agreement and are incorporated into this Agreement for all purposes. -26- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. AMERICAN FINANCE GROUP, INC. By: Name: Title: AFG CREDIT CORPORATION By: Name: Title: EX-10 4 AFG CREDIT CORPORATION, as Transferor, AMERICAN FINANCE GROUP, INC., as Servicer, and BANKERS TRUST COMPANY, as Trustee and as Collateral Trustee on behalf of the Holders of the AFG MASTER TRUST POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST Dated as of July 1, 1995 TABLE OF CONTENTS ARTICLE I DEFINITIONS.......................................1 Section 1.1 Definitions.....................................1 Section 1.2 Other Definitional Provisions...................25 ARTICLE II TRANSFER OF TRUST ASSETS..........................26 Section 2.1 Transfer of Trust Assets........................26 Section 2.2 Acceptance by Trustee; Acknowledgment by Collateral Trustee..........................30 Section 2.3 Representations and Warranties of Transferor Relating to Transferor..............31 Section 2.4 Representations and Warranties of Transferor Relating to the Agreement and the Included Leases........................33 Section 2.5 Covenants of Transferor.........................36 Section 2.6 Addition of Leases..............................40 Section 2.7 Substitution or Reallocation of Leases..........42 Section 2.8 Removal of Leases...............................44 Section 2.9 Release of Lien on Equipment....................45 Section 2.10 Hedging of Included Leases After the Related Addition Date..........................46 ARTICLE III ADMINISTRATION AND SERVICING OF INCLUDED LEASES...46 Section 3.1 Appointment and Acceptance; Duties..............46 Section 3.2 Collection of Payments..........................48 Section 3.3 Servicer Advances...............................50 Section 3.4 Realization Upon Defaulted Lease................51 Section 3.5 Maintenance of Insurance Policies...............51 Section 3.6 Representations and Warranties of Servicer.......................................52 Section 3.7 Covenants of Servicer...........................53 Section 3.8 Servicing Compensation..........................54 Section 3.9 Payment of Certain Expenses by Servicer.........55 Section 3.10 Monthly Statement; Annual Report................55 Section 3.11 Annual Statement as to Compliance...............55 Section 3.12 Annual Independent Public Accountant's Servicing Reports..............................56 Section 3.13 Tax Treatment...................................56 Section 3.14 Adjustments.....................................57 i ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS...................57 Section 4.1 Rights of Holders...............................57 Section 4.2 Establishment of Accounts.......................58 Section 4.3 Collections and Allocations.....................61 Section 4.4 Determination of the Amortizing Pools...........66 Section 4.5 Interest Rate Hedges............................67 [THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES]..........................68 ARTICLE V [ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES].......................69 ARTICLE VI THE NOTES........................................69 Section 6.1 The Notes and the Transferor Interest...........69 Section 6.2 Authentication of Notes and Transferor Interest.......................................69 Section 6.3 Registration of Transfer and Exchange of Notes.......................................69 Section 6.4 Mutilated, Destroyed, Lost or Stolen Notes..........................................71 Section 6.5 Persons Deemed Owners...........................71 Section 6.6 Appointment of Paying Agent.....................72 Section 6.7 Access to List of Holders' Names and Addresses......................................72 Section 6.8 Authenticating Agent............................73 Section 6.9 Book-Entry Notes................................74 Section 6.10 Notices to Clearing Agent.......................75 Section 6.11 Definitive Notes Initially Issued as Book-Entry Notes...............................75 Section 6.12 Exchange of Transferor Interest.................76 Section 6.13 Note Transfer Restrictions......................78 Section 6.14 Constituent Transferor Interests................79 ARTICLE VII OTHER MATTERS RELATING TO TRANSFEROR.............80 Section 7.1 Liability of Transferor.........................80 Section 7.2 Merger or Consolidation of, or Assumption of the Obligations of, Transferor, etc................................80 Section 7.3 Limitation on Liability of Transferor...........81 ii Section 7.4 Liabilities.....................................81 Section 7.5 Decisions with Respect to the Trust.............82 ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER...........82 Section 8.1 Liability of the Servicer.......................82 Section 8.2 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer...................................82 Section 8.3 Limitation on Liability of the Servicer and Others.....................................83 Section 8.4 Indemnification of the Trust, the Trustee and the Collateral Trustee.............83 Section 8.5 The Servicer Not to Resign......................84 Section 8.6 Access to Certain Documentation and Information Regarding the Included Leases.........................................84 Section 8.7 Delegation of Duties............................85 Section 8.8 Contents of Records.............................85 ARTICLE IX PAY OUT EVENTS ..................................85 Section 9.1 Pay Out Events..................................85 Section 9.2 Additional Rights Upon the Occurrence of Certain Events..............................87 ARTICLE X SERVICER DEFAULTS................................88 Section 10.1 Servicer Defaults...............................88 Section 10.2 Trustee to Act; Appointment of Successor......................................90 Section 10.3 Notification to Holders.........................92 Section 10.4 Waiver of Past Defaults.........................92 ARTICLE XI THE TRUSTEE AND THE COLLATERAL TRUSTEE...........92 Section 11.1 Duties of Trustee...............................92 Section 11.2 Certain Matters Affecting the Trustee...........95 Section 11.3 Trustee Not Liable for Recitals in Notes..........................................96 Section 11.4 Trustee May Own Notes...........................97 Section 11.5 Servicer to Pay Trustee's Fees and Expenses.......................................97 Section 11.6 Eligibility Requirements for Trustee............98 Section 11.7 Resignation or Removal of Trustee...............98 Section 11.8 Successor Trustee...............................99 iii Section 11.9 Merger or Consolidation of Trustee..........................99 Section 11.10 Appointment of Co-Trustee or Separate Trustee....................................................99 Section 11.11 Tax Returns.................................................101 Section 11.12 Trustee May Enforce Claims Without Possession of Notes........................................101 Section 11.13 Suits for Enforcement.......................................102 Section 11.14 Rights of Holders to Direct Trustee.........................102 Section 11.15 Representations and Warranties of Trustee....................................................102 Section 11.16 Maintenance of Office or Agency.............................103 Section 11.17 Release of Collateral Trustee's Lien........................103 Section 11.18 Requests for Agreement......................................103 Section 11.19 Duties of Collateral Trustee................................103 Section 11.20 Certain Matters Affecting the Collateral Trustee.........................................105 Section 11.21 Collateral Trustee Not Liable for Recitals in Notes..........................................106 Section 11.22 Collateral Trustee May Own Notes............................107 Section 11.23 Servicer to Pay Collateral Trustee's Fees and Expenses..........................................107 Section 11.24 Eligibility Requirements for Collateral Trustee....................................................108 Section 11.25 Resignation or Removal of Collateral Trustee....................................................108 Section 11.26 Successor Collateral Trustee................................109 Section 11.27 Merger or Consolidation of Collateral Trustee....................................................109 Section 11.28 Appointment of Co-Collateral Trustee or Separate Collateral Trustee................................110 Section 11.29 Collateral Trustee May Enforce Claims Without Possession of Notes................................111 Section 11.30 Suits for Enforcement.......................................111 Section 11.31 Rights of Holders to Direct Collateral Trustee....................................................112 Section 11.32 Representations and Warranties of Collateral Trustee.........................................112 Section 11.33 Limitation of Liability.....................................112 ARTICLE XII TERMINATION......................................113 Section 12.1 Termination of Trust............................113 Section 12.2 Optional Purchase and Final Trust Termination Date of Notes......................114 Section 12.3 Final Distributions.............................115 Section 12.4 Termination Rights of the Holder of the Transferor Interest........................116 iv ARTICLE XIII MISCELLANEOUS PROVISIONS.........................116 Section 13.1 Amendment...................................................116 Section 13.2 Protection of Right, Title and Interest to Trust...................................................118 Section 13.3 Limitation on Rights of Holders.............................119 SECTION 13.4 GOVERNING LAW...............................................120 Section 13.5 Notices.....................................................120 Section 13.6 Severability of Provisions..................................121 Section 13.7 Rule 144A Information.......................................121 Section 13.8 Notes Nonassessable and Fully Paid..........................121 Section 13.9 Further Assurances..........................................121 Section 13.10 No Waiver: Cumulative Remedies..............................121 Section 13.11 Counterparts................................................121 Section 13.12 Third-Party Beneficiaries...................................122 Section 13.13 Actions by Holders..........................................122 Section 13.14 Merger and Integration......................................122 Section 13.15 No Bankruptcy Petition......................................123 Section 13.16 Headings....................................................123 v EXHIBITS Exhibit A: Form of Custodian Agreement Exhibit B: Form of Transfer Agreement of Additional Leases Exhibit C: Form of Opinion of Counsel with Respect to Additional Leases Exhibit D: Form of Retransfer Agreement Exhibit E: Form of Lockbox Agreement Exhibit F: Form of Monthly Servicer's Certificate Exhibit G: Form of Annual Independent Auditors' Report Exhibit H: Form of Monthly Payment Instructions and Notification Exhibit I: Form of Opinion with Respect to Amendments Exhibit J: Form of Annual Opinion of Counsel SCHEDULES Schedule 1 List of Leases Schedule 2 List of Lockboxes Schedule 3 Portfolio Parameters Schedule 4 Identification of Accounts vi POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST, dated as of July 1, 1995, among AFG CREDIT CORPORATION, a Delaware corporation, as Transferor, AMERICAN FINANCE GROUP, INC., a Delaware corporation ("AFG"), as Servicer, and BANKERS TRUST COMPANY, a banking corporation organized and existing under the laws of the State of New York, as Trustee (in such capacity, the "Trustee") and as Collateral Trustee (in such capacity, the "Collateral Trustee"). In consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties and for the benefit of the Noteholders and the Holder of the Transferor Interest: ARTICLE I DEFINITIONS Section 1.1 Definitions. Whenever used in this Agreement, the following words and phrases shall have the following meanings: "Accelerated Funding Requirement" shall mean, with respect to any Series, the obligation to prepay the Principal Amount of such Series to the extent specified in the related Supplement. "Accelerated Payment Event" shall have for any Series the meaning, if any, specified in the related Supplement. "Accrual Period" shall mean the period from and including a Distribution Date (or in the case of the initial Accrual Period, the Initial Closing Date) to but excluding the succeeding Distribution Date. "Accumulating Series" shall mean, as of a date of determination, each Series that is then in its Accumulation Period. "Accumulation Period" shall mean, with respect to any Series, the period, if any, specified as such in the related Supplement. "Addition Date" shall mean, with respect to any Additional Leases, the date on which such Additional Leases are transferred to the Trust pursuant to Section 2.6. "Additional Cut Off Date" shall mean each date as of which an Additional Lease is to be transferred to the Trust, as specified in the related Assignment. vii "Additional Leases" shall mean the Leases transferred to the Trust after the Initial Closing Date. "Additional Selection Criteria" shall have for any Series the meaning, if any, specified in the related Supplement. "Adjusted Principal Amount" shall mean on any date of determination, with respect to any Series, the excess, if any, of the Principal Amount for such Series over the amount on deposit in the related Distribution Account for application to reduce the Note Principal Amount thereof, in each case on such date of determination. "Advance Payment" means, with respect to any Lease and any Monthly Period, any Scheduled Payment (or portion thereof) which is due in a subsequent Monthly Period which the Servicer has received, and expressly permitted the related Lessee to make, in advance of its scheduled due date and which will be applied to such Scheduled Payment on such due date. "Affiliate" of any specified Person, shall mean any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Aggregate Adjusted Principal Amount" shall mean, as of any date of determination, the sum of the Adjusted Principal Amounts of all Series issued and outstanding on such date of determination. "Aggregate Net Pool Balance" means, on any date of determination, the product of (i) the excess of (A) the Aggregate Pool Balance over (B) the sum of the Excess Concentration Amounts, in each case as of such date of determination, and (ii) prior to the Crossover Date, 80% and thereafter, 100%. "Aggregate Pool Balance" means, on any date of determination, the sum of the Discounted Lease Balances of all Included Leases on such date. For purposes of calculating such sum on any date other than the last day of a Monthly Period, the Discounted Lease Balance of any Included Lease shall be as of the last day of the preceding Monthly Period or, with respect to any Lease transferred to the Trust after such last day, the Discounted Lease Balance on the Cut Off Date for such Lease. viii "Aggregate Principal Amount" shall mean, as of any date of determination, the sum of the Principal Amounts of all Series issued and outstanding on such date of determination. "Aggregate Principal Percentage" shall mean, as of any date of determination, the percentage equivalent of a fraction the numerator of which is the Aggregate Adjusted Principal Amount and the denominator of which is the Aggregate Net Pool Balance in each case on such date of determination; provided, however, that the Aggregate Principal Percentage shall not exceed 100%. "Agreement" shall mean this Pooling and Servicing Agreement and Indenture of Trust and all amendments hereof and supplements hereto, including any Supplement. "Amortization Commencement Date" shall mean, with respect to any Series, the first day to occur after the last day of the Revolving Period for such Series. "Amortization Period" shall mean, with respect to any Series, the period, if any, specified as such in the related Supplement. "Amortizing Pool" shall mean with respect to each Series that is then in its Amortization Period or Accumulation Period, the Included Leases (or portions thereof) that have been allocated to such Series pursuant to Section 4.4 for the purposes of making the calculations referred to therein. "Amortizing Series" shall mean each Series in its Amortization Period as of a date of determination. "Applicable Discount Rate" shall mean (i) with respect to each Included Lease that is a Hedged Lease, the sum of (w) the effective per annum interest rate implicit in the Interest Rate Hedge applicable thereto, (x) the Servicing Fee Percentage, (y) the Weighted Average Applicable Margin, and (z) the Weighted Average Applicable Additional Fees, and (ii) with respect to each Included Lease that is not a Hedged Lease, a rate per annum equal to the sum of (w) the yield (determined by the Servicer on the third Business Day prior to the Closing Date or Addition Date for such Lease, as the case may be) for actively traded U.S. Treasury securities having a constant maturity equal to the then- remaining weighted average life to maturity of such Lease (or, if there is no such security, such yield shall be obtained by interpolation of such securities having a constant maturity closest to such average life), (x) 1.60%, (y) the Servicing Fee Percentage and (z) the Weighted Average Applicable Additional Fees. ix "Applicable Margin" shall mean, with respect to each Series, or each Class within a Series, that bears interest at a floating rate, the margin over such rate specified for such Series or Class in the related Supplement. "Applicants" shall have the meaning specified in Section 6.7. "Asset Base" shall mean as of any date of determination the sum of (i) the amount on deposit in the Excess Funding Account on such day and (ii) the Aggregate Net Pool Balance on such day. "Asset Purchase Agreement" shall mean the Asset Purchase Agreement, dated as of July 1, 1995, between the Transferor and AFG, as amended from time to time. "Authorized Newspaper" shall mean The New York Times or the Wall Street Journal. "Available Amount" shall mean, in respect of any Distribution Date, the sum of (i) all amounts on deposit in the Collection Account on the immediately preceding Determination Date other than amounts representing Advance Payments due in a Monthly Period commencing after the last day of the preceding Monthly Period or that were received by the Servicer after the last day of the preceding Monthly Period, (ii) any investment earnings credited to the Collection Account, the Excess Funding Account or the Tax Escrow Account during the preceding Monthly Period pursuant to the terms of this Agreement or any Supplement, (iii) any amount to be received from a Hedging Counterparty on or prior to the Transfer Date preceding such Distribution Date in respect of the Accrual Period ending on such Distribution Date, and (iv) any other amounts received in respect of an Enhancement. "Available Excess Funding Amount" shall mean as of any date of determination the lesser of (i) the amount on deposit in the Excess Funding Account on such day and (ii) an amount that would not, after giving effect to the application thereof, cause the Asset Base to be less than the Aggregate Adjusted Principal Amount. "Book-Entry Notes" shall mean entries evidencing a beneficial interest in any Notes, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 6.9, provided, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Notes are to be issued to the Note Owners, such Notes shall no longer be "Book-Entry Notes". x "Business Day" shall mean each day which is neither a Saturday, a Sunday nor any other day on which banking institutions in Boston, Massachusetts, New York, New York, San Francisco, California (or, with respect to any Series, any additional city specified in the related Supplement) are authorized or obligated by law or required by executive order to be closed. "Casualty Loss" means, with respect to any item of Equipment, the loss, theft, damage beyond repair or governmental condemnation or seizure of such item of Equipment. "Casualty Payment" means any payment pursuant to the terms of a Lease in connection with a Casualty Loss. "Class" shall mean, with respect to any Series, any one or more of the classes of Notes of such Series as specified in the related Supplement. "Clearing Agency" shall mean an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "Clearing Agency Participant" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" shall mean, with respect to any Series, the date specified as such in the related Supplement. "Collateral Trustee" shall mean the institution executing this Agreement as Collateral Trustee, or its successor in interest, or any successor collateral trustee appointed as herein provided. "Collection Account" shall have the meaning specified in subsection 4.2(a). "Collections" means all payments received on or with respect to the Included Leases or the related Equipment, including, without limitation, Scheduled Payments, Advance Payments, Liquidation Proceeds, amounts received in respect of Warranty Purchase Prices, Insurance Proceeds, Early Termination Lease Proceeds and Expired Lease Proceeds, all as related to amounts attributable to the Equipment and the Included Leases, but excluding any Excluded Amounts. "Corporate Trust Office" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office xi at the date of the execution of this Agreement is located at Four Albany Street, New York, New York 10006. "Credit Guidelines" shall mean the Transferor's and AFG's Standard Credit Underwriting Guidelines as in effect from time to time. "Crossover Date" shall mean the first Distribution Date to occur after the Initial Closing Date on which the Aggregate Net Pool Balance equals or exceeds $30,000,000. "Custodian" shall mean initially the party that is designated as the custodian under the Custodian Agreement and its permitted successors and assigns, and thereafter any Person appointed as successor Custodian as therein provided. "Custodian Agreement" shall have the meaning specified in Section 2.2(b). "Cut Off Date" shall mean with respect to each Original Lease, the date established as such by the Servicer, and with respect to each Additional Lease, the related Additional Cut Off Date. "Date of Processing" shall mean, with respect to any transaction, the date on which such transaction is first recorded on the Servicer's computer master file of Leases (without regard to the effective date of such recordation). "Debtor Relief Laws" shall mean the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. "Default Amount" shall mean, for any Monthly Period, an amount (which shall not be less than zero) equal to the Discounted Lease Balance for each Included Lease that became a Defaulted Lease during such Monthly Period. "Defaulted Lease" means an Included Lease as to which (i) the Servicer has determined in its sole discretion, in accordance with its customary servicing procedures, that such Lease is not collectible, or (ii) all or part of a Scheduled Payment thereunder is more than 90 days delinquent. "Definitive Notes" shall have the meaning specified in Section 6.9. "Delinquent Lease" shall mean, on any date of determination, each Included Lease with respect to which any xii Scheduled Payment or portion thereof is more than 60 days delinquent as of such date of determination. "Depository Agreement" shall mean, with respect to any Series, the agreement (if any) among the Transferor, the Trustee and the initial Clearing Agency (if any) with respect to such Series. "Determination Date" shall mean with respect to any Monthly Period, the tenth day of the succeeding calendar month or, if such tenth day is not a Business Day, the next succeeding Business Day. "Discounted Lease and Residual Balance" means, with respect to any Included Lease, at any time of determination, the sum of (i) the Discounted Lease Balance plus (ii) the Equipment Residual Value for the related Equipment. "Discounted Lease Balance" means, with respect to any Included Lease, at any time of determination, the sum of (i) the present value of all of the remaining Scheduled Payments becoming due under such Lease after such date of determination (not to exceed the Stipulated Loss Value thereunder), discounted monthly at the Applicable Discount Rate in the manner described below and (ii) the aggregate amount of all Scheduled Payments (due after the applicable Cut Off Date) then due and payable under such Lease which have not been received by the Servicer; provided, however, that for purposes of computing the Aggregate Pool Balance, the Discounted Lease Balance of any Defaulted Lease, Ineligible Lease, Early Termination Lease or Expired Lease or Removed Lease shall be equal to zero. In connection with all calculations required to be made pursuant to this Agreement with respect to the determination of Discounted Lease Balances, for any date of determination the "Discounted Lease Balance" for each Lease shall be calculated assuming: (i) all payments due in any Monthly Period are due on the last day of such Monthly Period; (ii) payments are discounted on a monthly basis using a 30 day month and a 360 day year; (iii) payments are discounted to the last day of the Monthly Period in which the date of determination falls; and (iv) all security deposits are applied to reduce Scheduled Payments in inverse order of the due date thereof. xiii "Distribution Account" shall have the meaning specified in any applicable Supplement. "Distribution Date" shall mean the fifteenth day of each month or, if such fifteenth day is not a Business Day, the next succeeding Business Day. "Early Termination Lease" means any Lease that has terminated prior to its scheduled expiration date (including because of a Casualty Loss), other than a Defaulted Lease. "Early Termination Lease Proceeds" means any and all cash proceeds or rents realized from the sale or re-lease of Equipment under an Early Termination Lease (net of Liquidation Expenses). "Eligible Deposit Account" shall mean either (a) a segregated account with a Qualified Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States or any one of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as any of the securities of such depository institution shall have a credit rating from each Rating Agency in one of its short-term credit rating categories which signifies investment grade. "Eligible Equipment" shall mean any item of Equipment other than commercial jet aircraft designed to carry more than 50 passengers or self-powered ocean-going vessels. "Eligible Lease" shall mean at any date of determination, each Lease: (a) which is payable in United States dollars; (b) the Lessee in respect of which is an Eligible Lessee and with respect to which the related Equipment is Eligible Equipment; (c) which is not a Defaulted Lease as of the related Cut Off Date, and with respect to which, as of such date no Scheduled Payment was more than 60 days past due; (d) which was originated or acquired by the Transferor in accordance with the Credit Guidelines; (e) which was created in compliance, in all material respects, with all Requirements of Law and which complies, in all material respects, with all Requirements of Law; xiv (f) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by the Originator thereof or the Transferor in connection with the creation of such Lease or the execution, delivery and performance by such Originator or the Transferor of its obligations under the Lease, have been duly obtained, effected or given and are in full force and effect; (g) as to which and as to the related Equipment, immediately prior to the transfer of same to the Trust by the Transferor, the Transferor had good title thereto free and clear of all Liens arising under or through the Originator thereof, the Transferor or their respective Affiliates (other than Permitted Liens and except for the interest of the Lessee in the related Equipment pursuant to such Lease) and as to which immediately after the transfer of same to the Trust by the Transferor, the Trust will have good title thereto free and clear of all Liens arising under or through the Originator thereof, the Transferor or their respective Affiliates (other than Permitted Liens and except for the interest of the Lessee in the related Equipment pursuant to such Lease); (h) which is the legal, valid and binding payment obligation of the Lessee with respect thereto, enforceable against such Lessee in accordance with its terms, except as such enforceability may be limited by applicable Debtor Relief Laws, and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity); (i) which constitutes an "account," a "general intangible" or "chattel paper" under and as defined in Article 9 of the UCC as then in effect in the State of California; (j) no provision of which, at the time of transfer to the Trust, has been waived, altered or otherwise modified except by an instrument or document contained in the related Lease File; (k) which obligates the Lessee to maintain the related Equipment in good working order, to bear all costs of operating such Equipment (including taxes and insurance) and unconditionally, and without set-off or deduction, to make all payments thereunder, free and clear of any taxes, including without limitation withholding taxes, and, without limiting the foregoing, xv contains provisions requiring the Lessee to assume all risk of loss or malfunction of the related Equipment; (l) which provides to the lessor the option, upon a Casualty Loss, to do one or more of the following: (i) at the Lessee's expense to repair the Equipment, (ii) to replace the Equipment with similar Equipment of equal or greater value or (iii) to require that the Lessee pay to the lessor the Stipulated Loss Value; (m) which obligates the Lessee to make Scheduled Payments thereunder no less frequently than once every six months and provides that the lessor may accelerate all remaining Scheduled Payments upon default (and the expiration of any applicable grace period) by the Lessee thereunder; (n) which, as of the related Cut Off Date, had a lease term of not less than 6 months and of not more than 72 months; (o) which, as of the applicable Cut Off Date and after giving effect to its transfer to the Trust, did not cause any of the Portfolio Parameters to be untrue; (p) which are not and will not be subject to any claim of rescission, set-off, counterclaim or any other defense of the Lessee, other than defenses arising out of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general; and (q) as to which, at the time of transfer to the Trust, the related vendor has been paid in full, and each of the Transferor and the Originator has satisfied all its obligations required to be satisfied by such time. "Eligible Lessee" shall mean at any date of determination, a Lessee (i) that has provided a billing address for the related Lease in the United States of America, (ii) that is organized under the laws of the United States of America or any State thereof, or that is organized under the laws of Canada or any province thereof, or (iii) with respect to which the Rating Agency Condition has been satisfied. For purposes of this definition, any Lessee the obligations of which under the related Lease are fully and unconditionally guaranteed by an entity that would be an Eligible Lessee under the preceding sentence, shall be deemed to be an Eligible Lessee. "Enhancement" shall mean, with respect to any Series, the cash collateral account, letter of credit, guaranteed rate agreement, maturity guaranty facility, tax protection xvi agreement, interest rate swap or any other contract, arrangement or agreement for the benefit of the Noteholders of such Series (or Noteholders of a Class within such Series), as designated in the applicable Supplement. "Enhancement Provider" shall mean, with respect to any Series, the Person, if any, designated as such in the related Supplement. "Equipment" means the assets (including office or other equipment) leased to a Lessee pursuant to a Lease and/or, unless the context otherwise requires, a security interest in such assets. "Equipment Excess Concentration Amount" shall have the meaning specified in Schedule 3. "Equipment Residual Value" means the anticipated residual value of the Equipment related to a Lease upon the expiration of such Lease in accordance with its terms (as such residual value is estimated by the Servicer on or about the date on which such Lease was created in accordance with its normal valuation procedures), but not in excess of any purchase option price with respect thereto set forth in such Lease. "Excess Concentration Amount" shall mean as of any date of determination, the sum of the Individual Lessee Excess Concentration Amount, the Industry Excess Concentration Amount, the Semi-Annual Lease Excess Concentration Amount and the Equipment Excess Concentration Amount, in each case as of such date of determination. "Excess Funding Account" shall have the meaning specified in subsection 4.2(b). "Exchange" shall have the meaning specified in subsection 6.12(b). "Exchange Date" shall have the meaning specified in subsection 6.12(b). "Exchange Notice" shall have the meaning specified in subsection 6.12(b). "Excluded Amounts" means any Tax Collections and any payments received from a Lessee in connection with any insurance premiums or fees, any indemnity payments made by a Lessee for the benefit of the lessor under the related Lease or any payments collected from a Lessee relating to servicing and/or maintenance payments pursuant to the related Lease or maintenance agreement, as applicable. xvii "Expired Lease" means any Lease that has terminated on its scheduled expiration date. "Expired Lease Proceeds" means any and all cash proceeds or rents realized from the sale or re-lease of Equipment under an Expired Lease (net of Liquidation Expenses). "FDIC" shall mean the Federal Deposit Insurance Corporation, or any successor thereto. "Filing Locations" means the States of California and Massachusetts. "Final Trust Termination Date" shall mean December 31, 2015. "Floating Pool" shall mean on any date of determination, all Included Leases (or portions thereof) on such date other than Included Leases (or portions thereof) allocated to an Amortizing Pool as of such date. "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hedge Termination Payment" shall mean with respect to any Hedged Lease that becomes an Early Termination Lease and for which a Substitute Lease is not provided, the amount, if any, owing to the related Hedge Counterparty in respect of the corresponding early termination of the related Interest Rate Hedge. "Hedged Lease" shall mean on any date of determination each Included Lease that is the subject of an Interest Rate Hedge on such date of determination. "Hedging Counterparty" shall mean initially, First Union National Bank of North Carolina in its capacity as obligor under the Interest Rate Hedge, and any other Person that provides an Interest Rate Hedge as provided in Section 4.5(a) or if any Replacement Interest Rate Hedge or Qualified Substitute Arrangement is obtained pursuant to Section 4.5(b), any obligor with respect to such Replacement Interest Rate Hedge or Qualified Substitute Arrangement. "Highest Required Investment Category" shall mean (i) with respect to ratings assigned by Standard & Poor's, A-1+ for short-term instruments and AAA for long-term instruments and (ii) with respect to ratings assigned by Moody's, A-2 or P-1 for one month instruments, A-1 or P-1 for three month xvii instruments, AA3 or P-1 for six month instruments and AAA or P-1 for instruments with a term in excess of six months. "Holder" shall mean the Person in whose name a Note or the Transferor Interest is registered in the Register. "Included Lease" shall mean each Original Lease and each Additional Lease, but shall exclude any Removed Lease after the Removal Date with respect thereto. "Indebtedness" shall mean, with respect to any Person at any date, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current liabilities incurred in the ordinary course of business and payable in accordance with customary trade practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under capital leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person and (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Individual Lessee Excess Concentration Amount" shall have the meaning specified in Schedule 3. "Industry Excess Concentration Amount" shall have the meaning specified in Schedule 3. "Ineligible Lease" shall have the meaning specified in subsection 2.4(d). "Initial Closing Date" shall mean the date on which the initial Series is issued. "Initial Principal Amount" with respect to any Series, shall have the meaning specified in the related Supplement. "Insolvency Event" means, with respect to a specified Person, (a) the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such Person or any substantial part of its property in an involuntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or ordering the winding-up or liquidation of such Person's affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable Federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by xix such Person to the entry of an order for relief in an involuntary case under any such law, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person or for any substantial part of its property, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing. "Insurance Policy" means, with respect to any Lease, an insurance policy covering physical damage to or loss of the related Equipment. "Insurance Proceeds" means, depending on the context, any amounts payable or any payments made, to the Servicer under any Insurance Policy. "Interest Rate Hedge" shall mean the master agreement between the Trustee on behalf of the Trust and the initial Hedging Counterparty, and any other similar agreement executed by the Trust and delivered pursuant to Section 4.5(a), in each case as supplemented from time to time by the Trustee on behalf of the Trust and the relevant Hedging Counterparty, or any Replacement Interest Rate Hedge or Qualified Substitute Arrangement. "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Lease" shall mean each agreement, including, as applicable, schedules, subschedules, supplements and amendments to a master lease, pursuant to which the Originator, as lessor, leases specified assets to a Lessee at a specified monthly or quarterly rental. "Lease Files" shall mean, with respect to each Included Lease, the fully executed original counterpart (for UCC purposes) of the Lease, the original certificate of title or other title document with respect to the related Equipment (if applicable), and otherwise such documents, if any, that the Servicer keeps on file in accordance with its customary procedures, evidencing ownership of such Equipment. "Lessee" means, with respect to any Lease, the Person or Persons obligated to make payments with respect to such Lease, including any guarantor thereof. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), equity interest, participation interest, preference, priority or other security agreement or preferential arrangement of any kind or nature xx whatsoever, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing; provided, however, that any assignment pursuant to Section 7.2 shall not be deemed to constitute a Lien. "Liquidation Expenses" means, with respect to any Lease, the aggregate amount of all out-of-pocket expenses reasonably incurred by the Servicer (including amounts paid to any subservicer) and any reasonably allocated costs of internal counsel, in each case in accordance with the Servicer's customary procedures in connection with the repossession, refurbishing and disposition of any related Equipment upon or after the expiration or earlier termination of such Lease and other out-of-pocket costs related to the liquidation of any such Equipment, including the attempted collection of any amount owing pursuant to such Lease if it is a Defaulted Lease. "Liquidation Proceeds" means, with respect to a Defaulted Lease, proceeds from the sale or re-lease of the Equipment, proceeds of the related Insurance Policy and any other recoveries with respect to such Defaulted Lease and the related Equipment, net of Liquidation Expenses and amounts, if any, so received that are required to be refunded to the Lessee on such Lease. "Lockbox" shall mean the post office boxes listed on Schedule 2 to which the Lessees are instructed to remit payments on the Included Leases and/or such other post office boxes as may be established pursuant to subsection 3.2(f). "Lockbox Account" shall mean the intervening account used by a Lockbox Processor for deposit of funds received in a Lockbox prior to their transfer to the Collection Account. "Lockbox Agreement" shall have the meaning specified in Section 3.2(f). "Lockbox Processor" shall mean the depositary institution or processing company (which may be the Trustee) which processes payments on the Leases sent by the Lessees thereon forwarded to a Lockbox. "Monthly Period" shall mean a calendar month. "Monthly Servicing Fee" shall have the meaning specified in Section 3.8. "Monthly Statement" shall have the meaning specified in Section 3.10. xxi "Moody's" shall mean Moody's Investors Service, Inc., or any successor thereto. "Note" shall mean any one of the notes of any Series executed by the Trust and authenticated by the Trustee substantially in the form (or forms, in the case of a Series with multiple Classes) of the notes attached to the related Supplement. "Note Interest" shall mean interest payable in respect of the Notes of any Series pursuant to Article IV as set forth in the Supplement related to such Series. "Note Owner" shall mean, with respect to a Book-Entry Note, the Person who is the owner of such Book-Entry Note, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "Note Principal" shall mean principal payable in respect of the Notes of any Series pursuant to Article IV as set forth in the Supplement related to such Series. "Note Rate" shall mean, with respect to any Series of Notes (or, for any Series with more than one Class, for each Class of such Series), the rate (or formula on the basis of which such rate shall be determined) per annum stated for such Series in the related Supplement, which rate shall be calculated in each case on the basis set forth in the related Supplement. "Noteholder" shall mean the Person in whose name a Note is registered in the Register. "Notice Date" shall have the meaning specified in Section 2.6(b). "Officer's Certificate" shall mean a certificate signed by any officer of Transferor or the Servicer and delivered to the Trustee. "Opinion of Counsel" shall mean a written opinion of counsel, who may be counsel (including internal counsel) for the Transferor or the Servicer, which counsel shall be reasonably acceptable to the Trustee. "Optional Repurchase Percentage" shall have, with respect to any Series, the meaning specified in the related Supplement. "Original Lease" shall mean each Lease identified by account number and Lease Balance in a computer file or list xxii delivered to the Trustee by the Transferor on or prior to the Initial Closing Date pursuant to Section 2.1. "Originator" shall mean, with respect to each Lease, the party that is the original lessor thereunder. "Paying Agent" shall mean any paying agent appointed pursuant to Section 6.6 and shall initially be the Trustee. "Pay Out Commencement Date" shall mean, with respect to each Series, (a) the date on which a Trust Pay Out Event is deemed to occur pursuant to Section 9.1, or (b) the date on which a Series Pay Out Event is deemed to occur pursuant to the Supplement for such Series. "Pay Out Event" shall mean either a Trust Pay Out Event or a Series Pay Out Event. "Pay Out Event Series Share" shall mean, with respect to any allocation or payment following the occurrence of a Pay Out Event and any particular Series, the lesser of (i) the percentage equivalent of a fraction, the numerator of which is the Adjusted Principal Amount of such Series as of the first day of the Pay Out Event and the denominator of which is the Aggregate Adjusted Principal Amount, as of such first day and (ii) the remaining unpaid Adjusted Principal Amount of such Series. "Permitted Investments" shall mean negotiable instruments or securities or other investments (a) which, except in the case of demand or time deposits, investments in money market funds and Repurchase Obligations, are represented by instruments in bearer or registered form or ownership of which is represented by book entries by a Clearing Agency or by a Federal Reserve Bank in favor of depository institutions eligible to have an account with such Federal Reserve Bank who hold such investments on behalf of their customers and (b) which evidence: (i) direct obligations of, and obligations fully guaranteed as to full and timely payment by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America); (ii) demand deposits, time deposits or certificates of deposit of depository institutions or trust companies incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking or depository institution authorities; provided, however, that at the time of the Trust's investment or contractual commitment to invest therein, the commercial paper, if any, and short-term unsecured debt xxii obligations (other than such obligation whose rating is based on the credit of a Person other than such institution or trust company) of such depository institution or trust company shall have a credit rating from the Rating Agency in the Highest Required Investment Category granted by such Rating Agency; (iii) commercial paper having, at the time of the Trust's investment or contractual commitment to invest therein, a rating in the Highest Required Investment Category granted by the Rating Agency; (iv) bankers' acceptances issued by any depository institution or trust company referred to in (ii) above; (v) investments in money market funds having, at the time of the Trust's investment or contractual commitment to invest therein, a rating of the Highest Required Investment Category from the Rating Agency; (vi) time deposits (having maturities of not more than 90 days) or notes which are payable on demand by an entity the commercial paper of which has, at the time of the Trust's investment or contractual commitment to invest therein, a rating of the Highest Required Investment Category granted by the Rating Agency; and (vii) Repurchase Obligations. "Permitted Liens" shall mean (a) with respect to Included Leases: (i) Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable or if the Transferor shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto, and (ii) Liens in favor of the Trustee created pursuant to this Agreement; and (b) with respect to the related Equipment: (i) Liens for state, municipal or other local taxes if such taxes shall not at the time be due and payable or if the Transferor shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves with respect thereto, (ii) Liens in favor of the Trustee created pursuant to this Agreement, and (iii) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like xxiv non-consensual Liens arising in the ordinary course of business. "Permitted Transaction" shall mean any transaction or series of related transactions pursuant to which the Transferor finances an interest in the Trust Assets or the Transferor Interest pursuant to the transfer of a Note or the Transferor Interest or otherwise and (i) as to which the Rating Agency Condition is satisfied and (ii) which in the reasonable judgment of the Transferor as evidenced by an Officer's Certificate, could not reasonably be expected to have a material adverse effect on the interests of any of the Noteholders. "Person" shall mean any legal person, including any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, governmental entity or other entity of similar nature. "Pool Sale" shall have the meaning specified in Section 12.2(b). "Portfolio Parameters" shall mean the criteria specified in Schedule 3. "Principal Amount" shall have, with respect to any Series, the meaning specified in the related Supplement. "Principal Exchange" shall have the meaning specified in subsection 6.12(b). "Principal Percentage" shall have, for any Series, the meaning specified in the related Supplement. "Principal Terms" shall have the meaning, with respect to any Series issued pursuant to an Exchange, specified in subsection 6.12(c). "Publication Date" shall have the meaning specified in Section 9.2(a). "Qualified Institution" shall have the meaning specified in Section 4.2(a). "Qualified Substitute Arrangement" shall have the meaning specified in Section 4.5(b). "Rating Agency" shall mean, with respect to each Series, the rating agency or agencies, if any, designated as a "Rating Agency" in the related Supplement. "Rating Agency Condition" shall mean, with respect to any action or series of related actions or proposed xxv transaction or series of related proposed transactions, that each Rating Agency shall have notified the Transferor and the Trustee in writing that such action or series of related actions or the consummation of such proposed transaction or series of related transactions will not result in a reduction or withdrawal of the rating of any outstanding Series or Class with respect to which it is a Rating Agency. "Record Date" shall mean with respect to any Series, any date specified as such in the applicable Supplement. "Register" shall have the meaning specified in Section 6.3. "Removal Date" shall have the meaning specified in Section 2.8(a). "Removal Notice Date" shall have the meaning specified in Section 2.8(a). "Removed Leases" shall have the meaning specified in Section 2.8. "Replacement Interest Rate Hedge" shall mean any interest rate swap or cap having substantially the same terms and conditions as the Interest Rate Hedge and otherwise satisfying the conditions set forth in Section 4.5. "Replacement Series" shall mean a Series which is designated as such by the Transferor. "Repurchase Obligations" shall mean repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof, the obligations of which are backed by the full faith and credit of the United States of America (collectively, "Eligible Collateral"), in either case entered into with a depository institution or trust company (acting as principal) described in clause (b)(ii) of the definition of Permitted Investments. "Required Holders" shall have, for any Series, the meaning specified in the related Supplement. "Requirements of Law" for any Person shall mean the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or order or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject, whether Federal, state or local (including, without limitation, usury laws, xxvi the Federal Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors of the Federal Reserve System). "Reserve Funding Requirement" shall mean, with respect to any Series, the obligation to fund a reserve account to the extent specified in the related Supplement. "Response" shall have the meaning specified in subsection 9.2(a). "Responsible Officer" shall mean any Vice President, any Assistant Vice President, any Assistant Secretary, any Assistant Treasurer or any other officer of the Trustee with direct responsibility for the administration of this Agreement and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. The term "Responsible Officer", when used herein with respect to any Person other than the Trustee, means an officer or employee of such Person corresponding to any officer or employee described in the preceding sentence. "Retransfer Agreement" shall have the meaning specified in subsection 2.8(b)(ii). "Retransfer Date" shall have the meaning specified in subsection 2.4(e). "Revolving Period" shall have, with respect to any Series, the meaning specified in the related Supplement. "Scheduled Interest Payment" means, with respect to any Included Lease in any Monthly Period, the excess of the Scheduled Payment over the Scheduled Principal Payment for such Monthly Period. "Scheduled Payment" means, with respect to any Included Lease, the monthly or quarterly or semi-annual rent payment to be made by the related Lessee under the terms of such Lease after the related Cut Off Date or Additional Cut Off Date (it being understood that Scheduled Payments do not include any Excluded Amounts). "Scheduled Principal Payment" means, with respect to any Included Lease in any Monthly Period, the excess of the Discounted Lease Balance on the first day of such Monthly Period over the Discounted Lease Balance thereof on the first day of the succeeding Monthly Period. "Scheduled Termination Date" means, for each Series, its Scheduled Termination Date as set forth in the related Supplement. xxvi "Semi-Annual Lease Excess Concentration Amount" shall have the meaning specified in Schedule 3. "Series" shall mean any series of Notes, which may include within any such Series a Class or Classes of Notes subordinate to another such Class or Classes of Notes. "Series Account" shall mean, with respect to any Series, any of the accounts established and designated as such pursuant to the related Supplement. "Series Pay Out Event" shall have, with respect to any Series, the meaning specified in the related Supplement. "Series Representative" shall mean, with respect to any Series, the Series Trustee or other representative of the Noteholders of such Series, if any, appointed as such in the related Supplement. "Series Sale" shall have the meaning specified in Section 12.2(b). "Series Share" shall mean, with respect to any allocation or payment and any particular Series, the percentage equivalent of a fraction, the numerator of which is the aggregate amount required to be allocated or paid in respect thereof to such Series and the denominator of which is the total amount thereof to be allocated or paid to all Series, in each case without giving effect to any limitation based on insufficient available funds. "Series Termination Date" shall mean, with respect to any Series, the date, if any, specified as such in the related Supplement. "Series Trustee" shall have, with respect to any Series, the meaning, if any, specified in the related Supplement. "Servicer" shall mean initially AFG and its permitted successors and assigns, and thereafter any Person appointed as successor as herein provided to service the Trust Assets. "Servicer Advance" means an advance of Scheduled Payments made by the Servicer pursuant to Section 3.3. "Servicer Default" shall have the meaning specified in Section 10.1. "Servicing Fee Percentage" shall mean .75%. "Servicing Officer" shall mean any employee of the Servicer involved in, or responsible for, the administration and servicing of the Trust Assets whose name appears on a xxvi list of servicing officers furnished to the Trustee by the Servicer on the Initial Closing Date, as such list may from time to time be amended. "Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor thereto. "Stipulated Loss Value" shall mean, with respect to any Lease, the amount payable by the Lessee upon a Casualty Loss in respect of the related Equipment. "Substitute Lease" means a Lease that is added to the Trust pursuant to Section 2.7(a). "Successor Servicer" shall have the meaning specified in Section 10.2(a). "Supplement" shall mean, with respect to any Series, a supplemental Indenture to this Agreement complying with the terms of Section 6.12, executed in conjunction with the issuance of any Series (or, in the case of the issuance of Notes and the book-entry notation of the Transferor Interest in the Register on the Initial Closing Date, the supplemental indenture executed in connection with such issuance). "Target Repayment Amount" shall mean, for each Amortizing Series in respect of each Monthly Period commencing on and after the Amortization Commencement Date for such Series, the Target Repayment Percentage of the excess of (i) the sum of (A) the Scheduled Principal Payments, (B) Early Termination Lease Proceeds, (C) Warranty Purchase Price and (D) the Default Amount over (ii) any Unreimbursed Servicer Advances, in each case in respect of all Included Leases (or portions thereof) in the related Amortizing Pool for such Monthly Period and after giving effect to any substitution or reallocation. "Target Repayment Percentage" with respect to any Series, shall have the meaning specified in the related Supplement. "Tax Collections" means all payments received on or with respect to the Included Leases or the related Equipment that are Excluded Amounts attributable to any taxes, fees or other charges imposed by any Governmental Authority. "Tax Escrow Account" shall have the meaning specified in Section 4.2(c). "Tax Opinion" shall mean, with respect to any action, an opinion of outside counsel to the effect that, for federal income tax purposes, (i) such action will not xxix adversely affect the characterization as debt or as an interest in a partnership (other than a partnership taxable as a corporation), as the case may be, of any Notes of any outstanding Series or Class not retained by the Transferor or any affiliate of the Transferor, (ii) such action will not cause or constitute a sale, exchange or other disposition by the Transferor or the Trust of the Trust Assets, or by the Noteholders of such Noteholders' Notes of any Outstanding Series or Class and (iii) on each Closing Date, the Notes of the new Series which are not retained by the Transferor will be characterized as debt or as an interest in a partnership (other than a partnership taxable as a corporation). "Termination Notice" shall have the meaning specified in Section 10.1. "Transfer Agent and Registrar" shall have the meaning specified in Section 6.3(a) and shall initially be the Trustee. "Transfer Agreement" shall have the meaning specified in subsection 2.6(b)(iv). "Transfer Date" shall mean the Business Day immediately preceding each Distribution Date. "Transferor" shall mean AFG Credit Corporation, a Delaware corporation, or any successor thereto. "Transferor Amount" shall mean, on any date of determination, the Aggregate Net Pool Balance at the end of the day immediately prior to such date of determination, minus the Aggregate Adjusted Principal Amount at the end of such day. The Transferor Amount may be a negative number. "Transferor Exchange" shall have the meaning specified in subsection 6.12(b). "Transferor Interest" shall mean the interest which represents the Transferor Amount and which has been evidenced by book-entry notation in the Register, and is exchangeable as provided in Section 6.12; provided, that at any time there shall be only one Transferor Interest, which shall not be transferable except as provided in Section 6.3(b). "Transferor Percentage" shall mean, on any date of determination, a percentage equal to 100% minus the Aggregate Principal Percentage calculated on such date; provided, however, that the Transferor Percentage shall never be less than zero. xxx "Trust" shall mean the trust created by this Agreement and known as the "AFG Master Trust". "Trust Assets" shall have the meaning specified in Section 2.1. "Trust Pay Out Event" shall have, with respect to each Series, the meaning specified in Section 9.1. "Trust Termination Date" shall have the meaning specified in subsection 12.1. "Trustee" shall mean the institution executing this Agreement as Trustee, or its successor in interest, or any successor trustee appointed as herein provided. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in any specified jurisdiction. "Unreimbursed Servicer Advances" means, at any time, the amount of all previous Servicer Advances (or portions thereof) as to which the Servicer has not been reimbursed as of such time pursuant to Section 4.3(d) and which the Servicer has determined in its sole discretion will not be recoverable from Collections with respect to the related Included Leases. "Variable Funding Series" shall mean any Series designated as a Variable Funding Series in the related Supplement. "Warranty Purchase Price" means, with respect to an Included Lease and date of determination, an amount equal to the Discounted Lease and Residual Balance as of the preceding Determination Date, plus one month's interest thereon at the Applicable Discount Rate. "Weighted Average Applicable Additional Fees" shall mean at any date of determination the weighted average of any per annum fees that are identified as "Applicable Additional Fees" in a Supplement for a particular Series. "Weighted Average Applicable Margin" shall mean at any date of determination the weighted average of the Applicable Margins in effect on such date, as estimated by the Servicer using the weighted average life of the Included Leases and assuming no prepayments or defaults. Section 1.2 Other Definitional Provisions. (a) All terms defined in this Agreement or in any Supplement shall have the defined meanings when used in any xxxi certificate or other document made or delivered pursuant hereto or thereto unless otherwise defined therein. (b) As used in this Agreement or in any Supplement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partially defined in Section 1.1 to the extent not defined, shall have the meanings given to them under generally accepted accounting principles. To the extent that the definitions of accounting terms herein are inconsistent with the meaning of such terms under generally accepted accounting principles, the definitions contained herein shall control. (c) The agreements, representations and warranties of AFG in this Agreement and in any Supplement in its capacity as Servicer shall be deemed to be the agreements, representations and warranties of AFG solely in its capacity as Servicer for so long as it acts in such capacity under this Agreement. (d) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement or any Supplement shall refer to this Agreement or any Supplement as a whole and not to any particular provision of this Agreement or any Supplement; and Section, subsection, Schedule and Exhibit references contained in this Agreement or any Supplement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement or any Supplement unless otherwise specified. ARTICLE II TRANSFER OF TRUST ASSETS Section 2.1 Transfer of Trust Assets. (a) Transfer. The Transferor does hereby transfer, assign and set-over to the Trust for the benefit of the Noteholders and the Holder of the Transferor Interest, all right, title and interest of the Transferor in, to and under the following: (i) on the Initial Closing Date and as of the related Cut Off Date, the Original Leases and all monies due or to become due thereunder after such Cut Off Date and all Collections in respect thereof; (ii) on the Addition Date with respect thereto and as of the related Additional Cut Off Date, the Additional Leases and all monies due or to become due thereunder after such Additional Cut Off Date and all Collections in respect thereof; (iii) the related Equipment; (iv) the related Lease Files; xxxi (v) the Asset Purchase Agreement, including, but not limited to, the obligation of AFG to purchase or repurchase Leases under certain circumstances as specified therein; (vi) the Insurance Policies and any Insurance Proceeds related to the Included Leases; (vii) the right to any Enhancement with respect to any Series; and (viii) all income or proceeds of the foregoing or relating thereto. Such property, together with all monies and investments on deposit, from time to time, in the Collection Account, the Excess Funding Account and the Series Accounts, shall constitute the assets of the Trust (collectively, the "Trust Assets"). The foregoing transfer, assignment, set-over and conveyance does not constitute and is not intended to result in the creation of an assumption by the Trust, the Trustee or any Noteholder of any obligation of the Transferor, the Servicer or any other Person in connection with the Included Leases or any agreement or instrument relating thereto, including, without limitation, any obligation to any Lessees or insurers, or in connection with the Asset Purchase Agreement. (b) Financing Arrangement. The Transferor hereby transfers the Trust Assets to the Trust with the intent of issuing indebtedness secured by the Trust Assets. (c) Grant of Security Interest to Collateral Trustee. The Trustee hereby grants to the Collateral Trustee for the benefit of the Noteholders a security interest in all of the Trustee's right, title and interest in, to and under the Trust Assets to secure the payment of principal and interest on, and any other amounts owing in respect of, the Notes, and to secure compliance with the provisions of this Agreement, all as provided in this Agreement. This Agreement constitutes a security agreement under applicable law. (d) Perfection of Transfer. In connection with the transfer, assignment and set-over set forth in Section 2.1(a), the Transferor agrees as follows: (i) The Transferor shall record and file, at its own expense, financing statements (including any continuation statements with respect to such financing statements when applicable) with respect to the Included Leases now existing or hereafter transferred to the Trust meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the transfer of the Leases from the Transferor to the Trust and (subject to the limitations set forth below) to perfect the interest of the Trust in the related Equipment to the extent the same xxxi may be viewed as inventory of the Transferor, and to deliver file-stamped copies of such financing statements or continuation statements or other evidence of such filings (which may, for purposes of this Section 2.1, consist of telephone confirmations of such filings with the file-stamped copy to be provided to the Trustee as soon as practicable after receipt thereof by the Transferor) to the Trustee on or prior to the Initial Closing Date, in the case of the Original Leases, and the applicable Addition Date in the case of Additional Leases and in the case of any continuation statements filed pursuant to this Section 2.1(d), as soon as practicable after receipt thereof by the Transferor. Notwithstanding the foregoing, the Transferor shall only be obligated to record financing statements with respect to the Equipment in the Filing Locations. (ii) The Transferor shall, at its own expense, on or prior to (x) the Initial Closing Date in the case of the Original Leases, and (y) the applicable Addition Date, in the case of Additional Leases (A) indicate in its books and records, including the appropriate computer files relating to the Leases, that such Leases have been transferred to the Trust pursuant to this Agreement for the benefit of the Noteholders and the Holder of the Transferor Interest and stamp the related Lease Files or otherwise mark such Leases with a legend to the effect that such Leases have been transferred to the Trust for the benefit of the Noteholders and the Holder of the Transferor Interest pursuant hereto and (B) on or prior to the Initial Closing Date with respect to the Original Leases and on or prior to the related Addition Date with respect to Additional Leases to deliver to the Trustee a computer file or microfiche or written list containing a true and complete list of all Leases then being transferred to the Trust, identified by account number and by the Discounted Lease Balance as of the related Cut Off Date. Such file or list, as amended from time to time to reflect Additional Leases and Removed Leases, shall be marked as Schedule 1 to this Agreement and is hereby incorporated into and made a part of this Agreement. (iii) The Transferor shall, at its own expense, on or prior to (x) the Initial Closing Date in the case of the Original Leases, and (y) the applicable Addition Date, in the case of Additional Leases, deliver to the Custodian the related Lease Files to be held by the Custodian in accordance with the Custodian Agreement. (iv) The Transferor shall, at its own expense, on or prior to (x) the Initial Closing Date in the case of the Original Leases, and (y) the applicable Addition Date, in the case of Additional Leases, with respect to any item of related Equipment with respect to which title thereto or a security interest therein is required to be noted on a certificate of title or otherwise recorded, to take such xxxi steps as shall be necessary or appropriate, in the reasonable judgment of the Servicer, to fully vest all right, title and interest in such Equipment in the Trustee on behalf of the Trust, provided, that to the extent UCC or similar filings are required with respect to any item of related Equipment, the Transferor shall only be obligated to record such filings in the Filing Locations. The Trustee is hereby authorized and directed to sign all financing statements under this Section 2.1(d). (e) Perfection of Security Interest of Collateral Trustee. In connection with the grant of a security interest by the Trustee to the Collateral Trustee set forth in Section 2.1(b), the Servicer agrees that it will, on behalf of the Trustee, record and file, at its own expense, financing statements (including any continuation statements with respect to such financing statements when applicable) with respect to the Included Leases now existing or hereafter transferred to the Trust meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the security interest of the Collateral Trustee in the Included Leases, and to deliver file-stamped copies of such financing statements or continuation statements or other evidence of such filings (which may, for purposes of this Section 2.1, consist of telephone confirmations of such filings with the file-stamped copy to be provided to the Collateral Trustee as soon as practicable after receipt thereof by the Servicer) to the Collateral Trustee on or prior to the Initial Closing Date, in the case of the Original Leases, and the applicable Addition Date in the case of Additional Leases and in the case of any continuation statements filed pursuant to this Section 2.1(e), as soon as practicable after receipt thereof by the Servicer. Notwithstanding the foregoing, the Servicer shall only be obligated to record financing statements with respect to the Equipment in the Filing Locations. (f) Grant of Security Interest to Trustee. To the extent that the Transferor retains or is deemed to retain any interest in the Included Leases or the related Equipment or any other property included in the Trust Assets, the Transferor hereby grants to the Trustee, for the benefit of the Noteholders, a first priority perfected security interest in all of the Trust Assets to secure a loan in an amount equal to the unpaid principal amount of the Notes issued hereunder or to be issued hereunder, the interest accruing thereon at the applicable Note Rates and all of the Transferor's and the Servicer's other obligations hereunder, and agrees that this Agreement shall constitute a security agreement under applicable law. (g) References. The foregoing transfer, assignment, set-over, conveyance and grant from the Transferor to the Trust shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such transfer, assignment, set- over and conveyance to the Trust, and each retransfer, xxxv reassignment or reconveyance by the Trust, shall be construed accordingly. Section 2.2 Acceptance by Trustee; Acknowledgment by Collateral Trustee. (a) Acceptance by Trustee. The Trustee hereby acknowledges its acceptance, on behalf of the Trust, of the Trust Assets, and declares that it shall maintain such right, title and interest, upon the trust herein set forth in accordance with the terms of this Agreement, for the benefit of all Noteholders and the Holder of the Transferor Interest. The Transferor shall deliver to the Trustee on the Closing Date a certificate certifying that the computer file or microfiche or written list with respect to the Original Leases described in Section 2.1(d)(ii) has been provided to the Trustee. (b) Acknowledgment by Collateral Trustee. The Collateral Trustee hereby acknowledges its acceptance, on behalf of the Noteholders, of the grant by the Trustee of a security interest in the Trust Assets. (c) Custodian Agreement. In connection with the sale, transfer and assignment of the Included Leases to the Transferor pursuant to the Asset Purchase Agreement and to the Trust pursuant hereto, the Trustee, on behalf of the Trust, simultaneously with the execution and delivery of this Agreement, shall enter into a Custodian Agreement with the Custodian (the "Custodian Agreement") in a form substantially similar to Exhibit A, pursuant to which the Trustee, on behalf of the Trust, shall revocably appoint the Custodian, and the Custodian shall accept such appointment, to act as the agent of the Trustee, on behalf of the Trust, as custodian of the Lease Files. (d) Confidentiality. The Trustee hereby agrees not to disclose to any Person any of the account numbers or other information contained in the computer files or microfiche or written lists delivered to the Trustee by the Transferor pursuant to Sections 2.1 and 2.6, except as is required in connection with the performance of its duties hereunder or in enforcing its rights or the rights of the Noteholders and the Holder of the Transferor Interest, or to a Successor Servicer appointed pursuant to Section 10.2, any successor trustee appointed pursuant to Section 11.8, any co-trustee or separate trustee appointed pursuant to Section 11.10 or as mandated by any Requirement of Law applicable to the Trustee. The Trustee agrees to take such measures as shall be reasonably requested by the Transferor to protect and maintain the security and confidentiality of such information, and, in connection therewith, shall allow, upon reasonable notice, the Transferor to inspect the Trustee's security and confidentiality arrangements from time to time during normal business hours. xxxv (e) No Indebtedness. The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement. Section 2.3 Representations and Warranties of Transferor Relating to Transferor. The Transferor hereby represents and warrants as of the Initial Closing Date and on each Addition Date that: (a) Organization and Good Standing. The Transferor is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement and the Asset Purchase Agreement and to direct the Trustee to execute and deliver the Notes and to make a book-entry notation in the Register evidencing the Transferor Interest. (b) Due Qualification. The Transferor is duly qualified to do business and is in good standing as a foreign corporation (or is exempt from such requirements), and has obtained or will obtain all necessary licenses and approvals, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would have a material adverse effect on its ability to perform its obligations hereunder. (c) Due Authorization. The execution and delivery of this Agreement and the Asset Purchase Agreement and the consummation of the transactions provided for herein and therein have been duly authorized by the Transferor by all necessary corporate action on the part of the Transferor. (d) No Conflict. The execution and delivery of this Agreement and the Asset Purchase Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Transferor is a party or by which it or any of its property is bound. (e) No Violation. The execution and delivery of this Agreement and the Asset Purchase Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with or violate, in any material respect, any Requirements of Law applicable to the Transferor. xxxv (f) No Proceedings. There are no proceedings or investigations pending or, to the best knowledge of the Transferor, threatened against the Transferor, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Asset Purchase Agreement or the Notes, (ii) seeking to prevent the issuance of the Notes or the making of a book-entry notation in the Register evidencing the Transferor Interest or the consummation of any of the transactions contemplated by this Agreement, the Asset Purchase Agreement or the Notes or the Transferor Interest, (iii) seeking any determination or ruling that, in the reasonable judgment of the Transferor, could reasonably be expected to be adversely determined, and if adversely determined, would materially and adversely affect the performance by the Transferor of its obligations under this Agreement or the Asset Purchase Agreement or (iv) seeking to impose income taxes on the Trust. (g) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any Governmental Authority required in connection with the execution and delivery of this Agreement and the Notes and the book-entry notation in the Register evidencing the Transferor Interest, the performance of the transactions contemplated by this Agreement, and the fulfillment of or terms hereof, have been obtained. (h) Bulk Sales. The execution, delivery and performance of this Agreement do not require compliance with any "bulk sales" law by the Transferor. (i) Solvency. The transactions under this Agreement do not and will not render the Transferor insolvent. The representations and warranties set forth in this Section 2.3 shall survive the transfer of the Trust Assets to the Trust, and termination of the rights and obligations of the Servicer pursuant to Section 10.1. Upon discovery by the Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. For the purposes of the representations and warranties contained in this Section 2.3 and made by the Transferor on the Initial Closing Date, "Notes" shall mean the Notes issued on the Initial Closing Date. The Transferor hereby represents and warrants, with respect to any Series, as of the Closing Date with respect to such Series, unless otherwise stated in the related Supplement, that the representations and warranties of the Transferor set forth in this Section 2.3 will be true and correct as of such date (for the purposes of such representations and warranties, "Notes" shall mean the Notes issued on such Closing Date). xxxv Section 2.4 Representations and Warranties of Transferor Relating to the Agreement and the Included Leases. (a) Binding Obligation; Valid Transfer and Security Interest. The Transferor hereby represents and warrants that, as of the Initial Closing Date and, with respect to any Series issued after the Initial Closing Date, unless otherwise stated in the related Supplement, as of the Closing Date for such Series and as of each Addition Date: (i) This Agreement constitutes a legal, valid and binding obligation of the Transferor, enforceable against the Transferor in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (ii) This Agreement constitutes either (A) a valid transfer to the Trust of all right, title and interest of the Transferor in, to and under the Trust Assets, and such property will be held by the Trust free and clear of any Lien of any Person claiming through or under the Transferor or its Affiliates, except for (w) the interests of the Trustee and the Noteholders, (x) Permitted Liens, and (y) the interest of the Transferor as Holder of the Transferor Interest or (B) a grant of a security interest (as defined in the UCC as in effect in the State of California) in such property to the Trust. Upon the filing of the financing statements described in Section 2.1 and, in the case of Additional Leases on the applicable Addition Date, the Trustee on behalf of the Trust shall have a first priority perfected security interest in such property, subject only to Permitted Liens. Neither the Transferor nor any Person claiming through or under Transferor shall have any claim to or interest in the Collection Account, the Excess Funding Account or any Series Account, except as expressly provided in this Agreement or any Supplement, in accordance with the provisions of Article IV, and, if this Agreement constitutes the grant of a security interest in such property, except for the interest of the Transferor in such property as a debtor for purposes of the UCC as in effect in the State of California. (b) Eligibility of Leases. The Transferor hereby represents and warrants as of the Initial Closing Date that (i) as of the initial Cut Off Date, Schedule 1 to this Agreement and the computer file or microfiche or written list delivered pursuant to Section 2.1 is an accurate and complete listing in all material respects of all the Included Leases as of such Cut Off Date and the information contained therein with respect to the identity of such Leases and the amounts owing thereunder is true and correct in all material respects as of such Cut Off Date, (ii) each such Lease is an Eligible Lease, (iii) each such xxxi Lease and the related Equipment has been transferred to the Trust free and clear of any Lien of any Person (other than Permitted Liens and the interest of the Transferor as holder of the Transferor Interest) and in compliance, in all material respects, with all Requirements of Law applicable to the Transferor and (iv) with respect to each such Lease, all material consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by the Transferor in connection with the transfer of such Lease and the related Equipment to the Trust have been duly obtained, effected or given and are in full force and effect. On each day on which any Additional Lease is transferred by the Transferor to the Trust, Transferor shall be deemed to represent and warrant that (i) each Additional Lease transferred on such day is an Eligible Lease, (ii) each such Additional Lease and the related Equipment has been transferred to the Trust free and clear of any Lien of any Person (other than Permitted Liens and the interest of the Transferor as holder of the Transferor Interest) and in compliance, in all material respects, with all Requirements of Law applicable to the Transferor or the Originator thereof, (iii) with respect to each such Additional Lease, all material consents, licenses, approvals or authorizations of or registrations or declarations with any Governmental Authority required to be obtained, effected or given by the Transferor in connection with the transfer of such Lease and the related Equipment to the Trust have been duly obtained, effected or given and are in full force and effect and (iv) the representations and warranties set forth in subsection 2.4(a) are true and correct with respect to each Lease transferred on such day as if made on such day. (c) Notice of Breach. The representations and warranties set forth in this Section 2.4 shall survive the transfer of the respective Included Leases and related Equipment to the Trust, and termination of the rights and obligations of the Servicer pursuant to Section 10.1. Upon discovery by the Transferor, the Servicer or a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the others and any Enhancement Provider. (d) Retransfer of Ineligible Leases. In the event of a breach of any representation and warranty set forth in Section 2.4(b) or in subsection 2.6(b)(v)(w) with respect to an Included Lease (each such Lease, an "Ineligible Lease"), within 60 days of the receipt by the Transferor of written notice of such breach given by the Trustee or the Servicer, the Transferor shall accept a retransfer of each such Included Lease to which such breach relates on the terms and conditions set forth below; provided, however, that no such retransfer shall be required to be made with respect to such Ineligible Lease (and such Lease shall cease to be an Ineligible Lease) if, on any day within such 60 day xxxx period, the representations and warranties in subsection 2.4(b) or in subsection 2.6(b)(v)(w), with respect to such Ineligible Lease shall then be true and correct in all material respects with respect to such Ineligible Lease as if such Ineligible Lease had been transferred to the Trust on such day. With respect to each retransfer of an Ineligible Lease required to be made pursuant to this Section 2.6(d), the Transferor shall repurchase and the Trustee shall convey, without recourse, representation or warranty, all of the Trustee's right, title and interest in each such Ineligible Lease. The Transferor shall accept a retransfer of each such Ineligible Lease and there shall be deducted from the Aggregate Pool Balance the Discounted Lease Balance of each such Ineligible Lease. On and after the date such Lease becomes an Ineligible Lease, such Lease shall not be included in the Aggregate Pool Balance. In consideration of such retransfer the Transferor shall, on the date of retransfer of such Ineligible Lease, either (i) make a deposit in the Collection Account (for allocation pursuant to Article IV) in immediately available funds in an amount equal to the Warranty Purchase Price or (ii) transfer to the Trust a Substitute Lease. Upon each retransfer to the Transferor of such Ineligible Lease, the Trust shall automatically and without further action be deemed to transfer, assign and set-over to the Transferor, without recourse, representation or warranty (other than that the Trustee has not encumbered such Lease and the related Equipment, except for the grant of a security interest therein to the Collateral Trustee), all the right, title and interest of the Trust in, to and under such Ineligible Lease and all monies due or to become due with respect thereto, the related equipment and all proceeds of the Ineligible Lease and Liquidation Proceeds and Insurance Proceeds relating thereto and all rights to security for any such Ineligible Lease, and all proceeds and products of the foregoing. The Trustee shall execute such documents and instruments of transfer as may be prepared by the Transferor and take such other actions as shall reasonably be requested by the Transferor to effect the transfer of such Ineligible Lease pursuant to this subsection. The obligation of the Transferor to accept retransfer of any Ineligible Lease shall constitute the sole remedy respecting any breach of the representations and warranties set forth in Section 2.4(b) and subsection 2.6(b)(v)(w) with respect to such Lease available to Noteholders and the Holder of the Transferor Interest, or the Trustee on their behalf. (e) Retransfer of Trust Portfolio. In the event of a breach of any of the representations and warranties set forth in Section 2.4(a) hereof which breach could reasonably be expected to have a material adverse affect on the rights of the Noteholders or of the Trustee hereunder or on the ability of the Transferor to perform its obligations hereunder, either the Trustee, or the Holders of a principal amount of Notes aggregating more than 662/3% of the Aggregate Principal Amount, by notice then given in writing to the Transferor (and to the Trustee and the Servicer, if given by the Noteholders), may direct the Transferor to accept retransfer of all of the Included Leases and the Transferor shall be obligated to accept retransfer of such Leases on a Distribution Date specified by the Transferor (such date, the "Retransfer Date") occurring within the period of 60 days after such notice on the terms and conditions set forth below; provided, however, that no such retransfer shall be required to be made if, at any time during such applicable period, the representations and warranties contained in Section 2.4(a) shall then be true and correct in all material respects. The Transferor shall deposit on the Retransfer Date an amount equal to the deposit amount provided in the next sentence for such Leases in the Collection Account for distribution to the Noteholders pursuant to Section 12.3. The deposit amount for such retransfer will be equal to the sum of (i) the Aggregate Adjusted Principal Amount at the end of the day on the Business Day preceding the Distribution Date on which the retransfer is scheduled to be made, plus (ii) an amount equal to all interest accrued but unpaid on the Notes at the applicable Note Rate through such Distribution Date, plus (iii) an amount sufficient to pay all unreimbursed amounts owing to each Enhancement Provider (to the extent set forth in the applicable Supplement) less (iv) the amount, if any, available in the Collection Account and the Excess Funding Account on such Transfer Date. On the Retransfer Date immediately following the Transfer Date on which such amount has been deposited in full into the Collection Account, the Included Leases and all monies due or to become due with respect thereto, the related Equipment and all proceeds thereof, all rights to security for any such Leases, and all proceeds and products of the foregoing, shall be transferred to the Transferor, and the Trustee shall execute and deliver such instruments of transfer, in each case without recourse, representation or warranty (other than that the Trustee has not encumbered any such Lease and the related Equipment), as shall be prepared and reasonably requested by the Transferor to vest in the Transferor, or its designee or assignee, all right, title and interest of the Trust in, to and under the Included Leases, all monies due or to become due with respect thereto, the related Equipment and all proceeds thereof and Insurance Proceeds relating thereto. If the Trustee or the Noteholders give a notice directing the Transferor to accept a retransfer as provided above, the obligation of the Transferor to accept a retransfer of the Included Leases pursuant to Section 2.4(e) shall constitute the sole remedy respecting a breach of the representations and warranties contained in Section 2.4(a) available to the Noteholders or the Trustee on behalf of the Noteholders. Section 2.5 Covenants of Transferor. The Transferor hereby covenants that: (a) Leases Not to be Evidenced by Promissory Notes. The Transferor will take no action to cause any Included Lease to be evidenced by any "instrument" (as defined in the UCC as in effect in the State of California) that is not also considered "chattel paper", except in connection with the enforcement or collection of such Lease. The Servicer will deliver promptly any such instruments to the Custodian. (b) Security Interests. Except for the transfers hereunder, the Transferor will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on any Included Lease or related Equipment, whether now existing or hereafter transferred to the Trust, or any interest therein. The Transferor will immediately notify the Trustee of the existence of any Lien on any Included Lease or related Equipment; and the Transferor shall defend the right, title and interest of the Trustee on behalf of the Trust in, to and under the Included Leases and the related Equipment, against all claims of third parties; provided, however, that nothing in this subsection 2.5(b) shall prevent or be deemed to prohibit the Transferor from suffering to exist upon any of the Included Leases Permitted Liens; provided further, however, that nothing in this subsection 2.5(b) shall prevent or be deemed to prohibit the Transferor from granting a participation interest in the Transferor Interest or the interest in the Trust evidenced thereby. (c) Reserved. (d) Delivery of Collections. The Transferor agrees to pay to the Servicer promptly (but in no event later than two Business Days after receipt) all Collections and Tax Collections received by the Transferor in respect of the Included Leases. (e) Regulatory Filings. The Transferor shall make any filings, reports, notices, applications and registrations with, and seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or that Transferor deems advisable to comply with any federal or state securities or reporting requirements laws. (f) Reserved. (g) Reserved. (h) Compliance with Law. The Transferor hereby agrees to comply in all material respects with all Requirements of Law applicable to the Transferor. (i) Activities of Transferor. The Transferor shall not engage in any business or activity of any kind, or enter into any transaction or indenture, mortgage, instrument, agreement, contract, lease or other undertaking, which is not directly related to the transactions contemplated and er authorized by this Agreement or the Asset Purchase Agreement or which is otherwise a Permitted Transaction. (j) Indebtedness. The Transferor shall not create, incur, assume or suffer to exist any Indebtedness or other liability whatsoever, except (i) obligations incurred or owing to the Trust under this Agreement or the Asset Purchase Agreement, (ii) liabilities incident to the maintenance of its corporate existence in good standing or (iii) obligations incident to a Permitted Transaction. (k) Guarantees. The Transferor shall not become or remain liable, directly or contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise except incident to a Permitted Transaction. (l) Investments. The Transferor shall not make or suffer to exist any loans or advances to, or extend any credit to, or make any investments (by way of transfer of property, contributions to capital, purchase of stock or securities or evidences of indebtedness, acquisition of the business or assets, or otherwise) in, any Person except (i) for acquisitions of Leases pursuant to the Asset Purchase Agreement, (ii) for investments in Permitted Investments in accordance with the terms of this Agreement or (iii) pursuant to a Permitted Transaction. (m) Merger; Sales. The Transferor shall not enter into any transaction of merger or consolidation, or liquidate or dissolve itself (or suffer any liquidation or dissolution), or acquire or be acquired by any Person, or convey, sell, lease or otherwise dispose of all or substantially all of its property or business, except as provided for in this Agreement. (n) Distributions. The Transferor shall not declare or pay, directly or indirectly, any dividend or make any other distribution (whether in cash or other property) with respect to the profits, assets or capital of the Transferor or any Person's interest therein, or purchase, redeem or otherwise acquire for value any of its capital stock now or hereafter outstanding, except that so long as no Pay Out Event or Accelerated Payment Event has occurred and is continuing and no Pay Out Event or Accelerated Payment Event would occur as a result thereof or after giving effect thereto, the Transferor may declare and pay dividends on its capital stock. (o) Agreements. The Transferor shall not become a party to, or permit any of its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except this Agreement, the Asset Purchase Agreement and the Supplements and except incidental to a Permitted Transaction or amend or modify the provisions of its Certificate of Incorporation or issue any power of attorney except to the Trustee or to the Servicer. (p) Asset Purchase Agreement. The Transferor shall not give any material consent under the Asset Purchase Agreement unless the Rating Agency Condition is satisfied with respect thereto. (q) Net Worth. The Transferor shall maintain a net worth, exclusive of the Transferor Interest, that is, at any date of determination, at least equal to 5% of the sum of (i) the Aggregate Pool Balance plus (ii) the Equipment Residual Value calculated at such date. (r) Separate Corporate Existence. The Transferor shall: (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions. The funds of the Transferor will not be diverted to any other Person or for other than corporate uses of the Transferor, except as expressly permitted herein. (ii) Ensure that, to the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees. (iii) Ensure that, to the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Transferor contracts or does business with vendors or service providers when the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods and services are provided, and each such entity shall bear its fair share of such costs. All material transactions between Transferor and any of its Affiliates shall be either (i) in accordance with the Asset Purchase Agreement or, if such Affiliate is not a party to the Asset Purchase Agreement, on substantially similar terms), or (ii) only on an arm's length basis. (iv) Maintain a principal executive and administrative office through which its business is conducted separate from those of its Affiliates. To the extent that Transferor and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses. (v) Conduct its affairs strictly in accordance with its Certificate of Incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and preparing and maintaining its own accurate, separate, full and complete books, records, accounts and financial statements, including, but not limited to, payroll and intercompany transaction accounts. The Transferor's financial statements will comply with generally accepted accounting principles. (vi) Within 120 days after the end of its fiscal year, distribute a copy of its audited annual financial statements to the Trustee. (s) Location of Records. The Transferor (i) shall not move outside the State of California, the location of its chief executive office, without 45 days' prior written notice to the Trustee and (ii) will promptly take all actions required (including but not limited to all filings and other acts necessary or advisable under the UCC of each relevant jurisdiction) in order to continue the first priority perfected ownership interest of the Trust, the Noteholders and the Holder of the Transferor Interest in all Included Leases. The Transferor will give the Trustee prompt notice of a change within the State of California of the location of its chief executive office. Section 2.6 Addition of Leases. (a) Permitted Additions. The Transferor may from time to time, at its sole discretion, subject to the conditions specified in subsection 2.6(b) below, transfer additional Eligible Leases to the Trust as Additional Leases as of the applicable Additional Cut Off Date. (b) Conditions to Permitted Additions. The Transferor agrees that any Additional Leases and the related Equipment shall be transferred by the Transferor to the Trust under subsection 2.6(a) upon and subject to the following conditions: (i) On or before the fifth Business Day (the "Notice Date") prior to the Addition Date, the Transferor shall give the Trustee, the Servicer and any Enhancement Provider entitled thereto pursuant to the relevant Supplement written notice that such Additional Leases will be transferred to the Trust and specifying (A) the applicable Addition Date, (B) the Additional Cut Off Date (which shall be the last day of a Monthly Period), (C) the approximate number of Additional Leases expected to be added, (D) the approximate Discounted Lease Balances expected to be outstanding with respect to the Additional Leases to be added as of the Additional Cut Off Date with respect thereto and (E) if such Additional Leases are to be Hedged Leases, the identity of the Hedging Counterparty and the effective interest rate under the related hedging transaction, and if such Additional Leases are not Hedged Leases, the effective interest rate as calculated in accordance with the definition of "Discounted Lease Balance". (ii) The Transferor shall have complied with the requirements of Section 2.1(c) with respect to such Additional Leases and the related Equipment. (iii) The Transferor shall have deposited (A) in the Collection Account, Collections with respect to such Additional Leases since the Additional Cut Off Date and (B) in the Tax Escrow Account, any Tax Collections received in respect of such Lease that have not been disbursed to the relevant Governmental Authority. (iv) On or prior to the Addition Date the Transferor shall have delivered to the Trustee a written transfer agreement (including an acceptance by the Trustee on behalf of the Trust for the benefit of the Noteholders) in substantially the form of Exhibit B (the "Transfer Agreement"). (v) The Transferor shall be deemed to represent and warrant that (v) as of the Addition Date, Schedule 1 to the Transfer Agreement and the computer file or microfiche or written list delivered pursuant to Section 2.1 is an accurate and complete listing in all material respects of all the Additional Leases as of the Additional Cut Off Date and the information contained therein with respect to the identity of such Additional Leases is true and correct in all material respects as of the Additional Cut Off Date, (w) each Additional Lease is, as of the Additional Cut Off Date, an Eligible Lease, (x) no selection procedures reasonably believed by the Transferor to be materially adverse to the interests of the Noteholders were utilized in selecting the Additional Leases from the available Eligible Leases, (y) the transfer of such Leases to the Trust will not cause the Portfolio Parameters to be untrue and (z) as of the Addition Date, the Transferor is not insolvent and will not be rendered insolvent by transferring any such Additional Lease to the Trust. (vi) The Transferor shall be deemed to represent and warrant that, as of the Addition Date, the representations and warranties set forth in Section 2.4 are true and correct with respect to the Additional Accounts and the related Transfer Agreement. (vii) The Transferor shall, on each Addition Date, deliver an Officer's Certificate of a Vice President or more senior officer confirming the items set forth in paragraphs (ii), (iii), (iv), (v) and (vi) above. (viii) The Transferor shall on each Addition Date deliver an Opinion of Counsel with respect to the Additional Leases to the Trustee substantially in the form of Exhibit C. Section 2.7 Substitution or Reallocation of Leases. (a) Right of Substitution. Subject to the provisions of Sections 2.7(b) through (d), the Transferor may transfer to the Trust a Lease and the related Equipment (each a "Substitute Lease") in substitution for any Included Lease and the related Equipment. In instances where an Included Lease being substituted for had been allocated to an Amortizing Pool prior to the substitution, the Substitute Lease (or portion thereof) being substituted therefor shall be allocated to the corresponding Amortizing Pool. (b) Eligible Leases. Each Substitute Lease shall be an Eligible Lease the transfer of which to the Trust shall be subject to the satisfaction of the conditions set forth in Section 2.6(b). (c) Conditions to Substitution. The Servicer shall not permit any substitution under Section 2.7(a) on any Addition Date: (i) if the sum of the Discounted Lease Balances (as of the related Cut Off Date) of Leases substituted for Defaulted Leases on a cumulative basis (A) during any period of twelve consecutive Monthly Periods would exceed 4% of the Aggregate Net Pool Balance on the related Cut Off Date for such Substitute Leases or (B) after the Pay Out Commencement Date would exceed 7% of the Aggregate Net Pool Balance as of the Pay Out Commencement Date, unless, in either case, the Rating Agency Condition shall have been satisfied with respect thereto; (ii) if the sum of the Discounted Lease Balances (as of the related Cut Off Date) of all Substitute Leases on a cumulative basis (A) during any period of twelve consecutive Monthly Periods would exceed 10% of the Aggregate Net Pool Balance on the related Cut Off Date for such Substitute Leases or (B) after the Pay Out Commencement Date would exceed 15% of the Aggregate Net Pool Balance as of the Pay Out Commencement Date, unless, in either case, the Rating Agency Condition shall have been satisfied with respect thereto; (iii) unless as of the related Additional Cut Off Date, each Substitute Lease has a Discounted Lease Balance not less than the Discounted Lease Balance of the Lease being replaced; (iv) if after giving effect to all proposed substitutions to be made on such Addition Date, the sum of the Scheduled Principal Payments on all Included Leases due in any Monthly Period would be less than the sum of all Scheduled Principal Payments on the Included Leases in each such Monthly Period before giving effect to such proposed substitutions; (v) if an Insolvency Event has occurred with respect to the Transferor or the Servicer or a Servicer Default has occurred and is continuing. (d) Security Interest. Upon the replacement of an Included Lease and the related Equipment with a Substitute Lease as described above, the interest of the Trustee on behalf of the Trust in such replaced Lease, the related Equipment and all proceeds thereon shall be terminated. (e) Reallocation of Leases. During any period prior to the Pay Out Commencement Date when there is both a Floating Pool and an Amortizing Pool, subject to the provisions of this Section 2.7(e), the Servicer may reallocate an Included Lease (or a portion thereof) and the related Equipment from such Floating Pool to any such Amortizing Pool (each a "Reallocated Lease") in exchange for any Included Lease and the related Equipment in such Amortizing Pool that has become a Defaulted Lease, an Early Termination Lease or an Ineligible Lease. The Servicer shall not permit any reallocation under this Section 2.7(e) on any day: (i) unless as of the last day of the preceding Monthly Period, each Reallocated Lease has a Discounted Lease Balance not less than the Discounted Lease Balance of the Lease being replaced in such Amortizing Pool; and (ii) if after giving effect to all proposed exchanges to be made on such day, the sum of the Scheduled Principal Payments on all Included Leases due in any Monthly Period in such Amortizing Pool would be less than the sum of all Scheduled Principal Payments on the Included Leases in such pool in each such Monthly Period before giving effect to such proposed exchange. Upon the reallocation of an Included Lease and the related Equipment as described above, all Collections from the first day of the Monthly Period in which such reallocation occurs in respect of (i) the Reallocated Lease and the related Equipment shall be attributable to the Amortizing Pool and (ii) the Included Lease and the related Equipment being exchanged for such Reallocated Lease shall be attributable to the Floating Pool. Section 2.8 Removal of Leases. (a) Removal. Subject to the conditions set forth below, and without limiting its rights under Section 2.7(d), the Transferor may designate from time to time Included Leases no longer to be designated for inclusion in the Trust (the "Removed Leases"). On or before the fifth Business Day (the "Removal Notice Date") prior to the date on which Included Leases are to be removed (the "Removal Date"), the Transferor shall give the Trustee, the Servicer and each Enhancement Provider entitled thereto pursuant to the relevant Supplement written notice that the Removed Leases are to be retransferred to the Transferor. (b) Conditions to Removal. The Transferor shall be permitted to designate and require retransfer to it of the Removed Leases only upon satisfaction of the following conditions: (i) The Transferor shall satisfy the Rating Agency Condition with respect thereto by such Removal Date. (ii) On each Removal Date, the Trustee shall deliver to the Transferor a written retransfer agreement in substantially the form of Exhibit D (the "Retransfer Agreement") prepared by the Transferor, and the Transferor shall deliver to the Trustee a computer file, microfiche or written list containing a true and complete schedule identifying all Removed Leases specifying for each such Removed Lease, as of the Removal Notice Date, its account number and the Discounted Lease Balance thereof. Such computer file, microfiche or written list shall, as of the date of such Retransfer Agreement, be incorporated into and made a part of this Agreement. (iii) The Transferor shall represent and warrant as of each Removal Date that (a) the list of Removed Leases, as of the Removal Notice Date, complies in all material respects with the requirements of (ii) above; (b) no selection procedure used by the Transferor which is adverse to the interests of the Noteholders was utilized in selecting the Removed Leases; and (c) as of the Removal Notice Date and as of the Removal Date, the Transferor is not insolvent and the Transferor has no present intention of seeking protection under any Debtor Relief Laws. (iv) The removal of any Removed Leases on any Removal Date shall not cause a Pay Out Event to occur, or an event which with notice or lapse of time or both would constitute a Pay Out Event or cause the Portfolio Parameters to be untrue. (v) Such Lease shall not be allocated to an Amortizing Pool (unless such Lease is substituted for in accordance with Section 2.7). (vi) The Asset Base shall not be less than the Aggregate Adjusted Principal Amount; and (vii) The Transferor shall have delivered to the Trustee and to each Enhancement Provider entitled thereto pursuant to the relevant Supplement an Officer's Certificate of an officer of the Transferor confirming the items set forth in (i) through (vi) above. Upon satisfaction of the above conditions, the Trustee shall execute and deliver the Retransfer Agreement to the Transferor, and the Removed Leases shall no longer constitute a part of the Trust. Section 2.9 Release of Lien on Equipment. At the same time as (i) any Included Lease becomes an Expired Lease and the Equipment related to such Lease is sold, (ii) any Lease becomes an Early-Termination Lease and the Equipment related to such Early-Termination Lease is sold, or (iii) the Servicer substitutes or replaces any unit of Equipment as contemplated in Section 3.1 or any Lease and related Equipment as contemplated in Section 2.7 or 2.8, the Trustee, on behalf of the Trust, will to the extent requested by the Servicer release its interest in the Equipment relating to such Expired Lease or Early-Termination Lease or such substituted or replaced Equipment or Lease and related Equipment, as the case may be; provided that such release will not constitute a release of the Trust's interest in the proceeds of such sale (other than with respect to Equipment or Lease and related Equipment that is replaced pursuant to Section 3.1(c) or 2.7 or removed pursuant to Section 2.8, as the case may be). In connection with any sale of such Equipment, the Trustee will execute and deliver to the Servicer any assignments, bills of sale, termination statements and any other releases and instruments as the Servicer may request in order to effect such release and transfer; provided that the Trustee will make no representation or warranty, express or implied, with respect to any such Equipment in connection with such sale or transfer and assignment other than with respect to its interest in such Equipment or the absence of any such interest and other than that the Trustee has not encumbered such Lease or the related Equipment. Nothing in this Section 2.9 shall diminish the Servicer's obligations pursuant to Section 3.1(d) with respect to the proceeds of any such sale. Section 2.10 Hedging of Included Leases After the Related Addition Date. (a) Subject to the provisions of Section 2.10(b), the Transferor may on any Distribution Date transfer to the Trust an Interest Rate Hedge with respect to one or more Included Leases that were not originally Hedged Leases hereunder. (b) The Transferor agrees that any such Interest Rate Hedge shall be transferred to the Trust under Section 2.10(a) upon and subject to the following conditions: (i) On or before the Determination Date preceding such Distribution Date, the Transferor shall give the Trustee, the Servicer, each Rating Agency and any Enhancement Provider entitled thereto pursuant to the relevant Supplement written notice that such Interest Rate Hedge will be transferred to the Trust and specifying (A) the applicable Distribution Date for such transfer, (B) the specific Included Leases being hedged thereunder, (C) the sum of the Discounted Lease Balances of such Leases as of the last day of the preceding Monthly Period before giving effect to such Interest Rate Hedge and after giving effect thereto, (D) the identity of the Hedging Counterparty and the effective interest rate under the related hedging transaction and (E) a recalculation of the Asset Base, the Aggregate Pool Balance and the Aggregate Net Pool Balance as of such Determination Date (after giving effect to all transactions to occur on such date hereunder). (ii) On such Distribution Date, after giving effect to the transfer of such Interest Rate Hedge to the Trust and the corresponding recalculation of the Asset Base, no Pay Out Event or Accelerated Payment Event, or an event which with notice or lapse of time or both would constitute a Pay Out Event or Accelerated Payment Event, shall have occurred, the Asset Base shall be at least equal to the Aggregate Adjusted Principal Amount and the Portfolio Parameters shall be true. ARTICLE III ADMINISTRATION AND SERVICING OF INCLUDED LEASES Section 3.1 Appointment and Acceptance; Duties. (a) Appointment of Initial Servicer. AFG is hereby appointed as Servicer pursuant to this Agreement. AFG accepts the appointment and agrees to act as the Servicer pursuant to this Agreement. (b) General Duties. The Servicer will service, administer and enforce the Included Leases on behalf of the Trust and will have full power and authority to do any and all things in connection with such servicing and administration which it deems necessary or desirable. The Servicer will manage, service, administer, and make collections on the Included Leases with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to all comparable equipment leases that it services for itself or others. The Servicer's duties will include collection and posting of all payments, responding to inquiries of Lessees regarding the Included Leases, investigating delinquencies, accounting for collections, furnishing monthly and annual statements with respect to collections and payments in accordance with Section 3.10, making Servicer Advances in its discretion, enforcing the Asset Purchase Agreement and maintaining the perfected first priority security interest of the Trustee in the Trust Assets. The Servicer will follow its customary standards, policies, and procedures and will have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration, and collection that it deems necessary or desirable. If the Servicer commences a legal proceeding to enforce a Defaulted Lease pursuant to Section 3.4 or commences or participates in a legal proceeding (including a bankruptcy proceeding) relating to or involving an Included Lease, the Trust will be deemed to have automatically assigned such Included Lease to the Servicer for purposes of commencing or participating in any such proceeding as a party or claimant, and the Servicer is authorized and empowered by the Trustee, pursuant to this Section 3.1(b), to execute and deliver, on behalf of itself and the Trust, any and all instruments of satisfaction or cancellation, or partial or full release or discharge, and all other notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceedings. If in any enforcement suit or legal proceeding it is held that the Servicer may not enforce an Included Lease on the ground that it is not a real party in interest or a holder entitled to enforce the Included Lease, then the Trustee will, at the Servicer's expense and direction, take steps to enforce the Included Lease, including bringing suit in its name. (c) Consent to Assignment or Replacement. At the request of a Lessee, the Servicer may in its sole discretion consent to the assignment of the related Included Lease or the sublease of a unit of the Equipment relating to an Included Lease, so long as such Lessee remains liable for all of its obligations under such Included Lease. Upon the request of any Lessee, the Servicer may, in its sole discretion, provide for the substitution or replacement of any unit of Equipment for a substantially similar unit of equipment. (d) Disposition Upon Termination of Included Lease. Upon the expiration or termination of an Included Lease the Servicer will use commercially reasonable efforts to dispose of any related Equipment. Without limiting the generality of the foregoing, the Servicer may dispose of any such Equipment by selling such Equipment to the Servicer or any of its Affiliates for a purchase price equal to the fair market value thereof. The Servicer will deposit any Early Termination Lease Proceeds and any Expired Lease Proceeds of any such disposition in accordance with Section 4.3. (e) Subservicers. The Servicer may enter into servicing agreements with one or more subservicers (including any Affiliate of the Servicer) to perform all or a portion of the servicing functions on behalf of the Servicer; provided that the Servicer will remain obligated and be liable to the Trust for servicing and administering the Included Leases in accordance with the provisions of this Agreement without diminution of such obligation and liability by virtue of the appointment of such subservicer, to the same extent and under the same terms and conditions as if the Servicer alone were servicing and administering the Included Leases. The fees and expenses of the subservicer (if any) will be as agreed between the Servicer and its subservicer and neither the Trustee, the Trust nor the Holders will have any responsibility therefor. All actions of a subservicer taken pursuant to such a subservicer agreement will be taken as an agent of the Servicer with the same force and effect as though performed by the Servicer. (f) Further Assurances. The Trustee will furnish the Servicer, and the Servicer will furnish any subservicer, with any limited powers of attorney prepared by the Servicer and other documents reasonably necessary or appropriate to enable the Servicer or a subservicer, as applicable, to carry out its servicing and administrative duties under this Agreement. (g) Notice to Lessees. Subject to the provisions of Section 3.2(e), the Servicer will not be required to notify any Lessee that such Lessee's Included Lease or related Equipment has been sold, transferred, assigned, or conveyed pursuant to the Asset Purchase Agreement or pursuant to this Agreement; provided that, in the event that the Servicer resigns or is replaced, then if the place for payment pursuant to any Included Lease is changed, the Successor Servicer must give each related Lessee prompt written notice of the appointment of the Successor Servicer and the place to which such Lessee should make payments pursuant to each such Included Lease. Section 3.2 Collection of Payments. (a) Collection Efforts. The Servicer will make reasonable efforts to collect all payments called for under the terms and provisions of the Included Leases as and when the same become due, and will follow those collection procedures which it follows with respect to all comparable equipment leases that it services for itself or others. To the extent consistent with the Servicer's past practices, the Servicer may grant extensions, rebates, or adjustments on an Included Lease which will not, for purposes of this Agreement, extend the original due dates or the number of Scheduled Payments or reduce the amount of any Scheduled Payment. The Servicer may in its discretion waive any late payment charge or any other fees that may be collected in the ordinary course of servicing any Included Lease. (b) Early Termination Lease. The Servicer may, in its sole discretion, permit an Included Lease to become an Early Termination Lease (which shall not include an Included Lease that becomes an Early Termination Lease due to a Casualty Loss), so long as, unless another Included Lease is substituted therefor as described in Section 2.7, (i) the Servicer deposits in the Collection Account, not later than the second Business Day after the Date of Processing thereof by the Servicer, the sum of (A) the Discounted Lease and Residual Balance of such Included Lease as of the Determination Date in the month prior to the month in which such Included Lease becomes an Early Termination Lease and (B) the amount of any Hedge Termination Payment owing in respect thereof and (ii) at the time the Servicer permits an Included Lease to become an Early Termination Lease the Discounted Lease Balance of all Included Leases which have become Early Termination Leases (and for which substitute Included Leases have not been transferred to the Trust) for the period of twelve months ending with the current Monthly Period does not exceed 4% of the Aggregate Pool Balance as of the last day of the preceding Monthly Period. (c) Acceleration. The Servicer, in its sole discretion, may accelerate (or elect not to accelerate) the maturity of all or any Scheduled Payments under any Included Lease under which a default under the terms thereof has occurred and is continuing (after the lapse of any applicable grace period); provided that the Servicer is required to accelerate the Scheduled Payments due under any Included Lease (and take other action in accordance with the Originator's past practice, including repossessing or otherwise converting the related Equipment, to realize upon the value of such Included Lease and the related Equipment) to the fullest extent permitted by the terms of such Included Lease, promptly after such Included Lease becomes a Defaulted Lease. (d) Taxes and Other Amounts. To the extent provided for in any Included Lease, the Servicer will make reasonable efforts to collect all payments with respect to amounts due for taxes, assessments and insurance premiums relating to the Included Leases or the Equipment, to withdraw any such amounts deposited in the Tax Escrow Account, and to remit such amounts to the appropriate Governmental Authority or insurer on or prior to the date such payments are due. (e) Lockboxes. On or before the Initial Closing Date with respect to the Original Leases and on or before the relevant Addition Date, with respect to Additional Leases, the Servicer shall have instructed all Lessees to make all payments in respect of the Included Leases to a Lockbox. All Collections received in a Lockbox shall, within one Business Day of receipt thereof be deposited in the Lockbox Account. In the event that any payments in respect of the Included Leases are made directly to the Servicer, the Servicer shall, within two Business Days of receipt thereof, deposit such amounts in a Lockbox Account or in the Collection Account. (f) Lockbox Agreements. On or before the Initial Closing Date, the Transferor, the Servicer, the Collateral Trustee on behalf of the Noteholders and the Holder of the Transferor Interest and each Lockbox Processor shall have entered into an agreement (each a "Lockbox Agreement") in a form substantially similar to Exhibit E, as the same may be amended, supplemented or otherwise modified from time to time (provided, however, that if the Collateral Trustee is not the Lockbox Processor, no such amendment, supplement or modification will permit, without the consent of the Collateral Trustee, (i) any increase in the time between receipt of a payment and remittance to the Collateral Trustee, (ii) a change in the payment instruction to the Collateral Trustee or (iii) a change in the payment instruction to the Lockbox Processor), pursuant to which such Lockbox Processor is irrevocably directed, and such Lockbox Processor irrevocably agrees, to deposit funds received in the Lockbox in the Lockbox Account. Pursuant to the Lockbox Agreement, the Lockbox Processor maintaining the Lockbox Account shall be irrevocably directed, and shall irrevocably agree, to transfer funds on deposit in the Lockbox Account within two Business Days of receipt thereof to the Collection Account. The Lockbox Account shall be maintained in accordance with the terms and conditions of such documentation. A new Lockbox Account may be designated by the Transferor and the Servicer, and the Collateral Trustee shall consent to any such change in the Lockbox Account; provided that (i) the Collateral Trustee shall have received from the Transferor or the Servicer written notice of such change at least 30 days prior to the proposed effective date of such change and (ii) the Lockbox Processor chosen to maintain such new Lockbox Account shall enter into a Lockbox Agreement with the Transferor, the Servicer and the Collateral Trustee, substantially similar to Exhibit E. (g) Remittances. As soon as practicable but in any event not later than the Business Day following the date of establishment by the Servicer that any of the collected funds received in any of the Lockboxes do not constitute Collections on account of the Included Leases, such monies which do not constitute such Collections shall be remitted to or at the direction of the Transferor. Section 3.3 Servicer Advances. For each Monthly Period, if the Servicer determines that any Scheduled Payment (or portion thereof) which was due and payable pursuant to an Included Lease during such Monthly Period was not received prior to the end of such Monthly Period, the Servicer may make a Servicer Advance in an amount up to the amount of such delinquent Scheduled Payment (or portion thereof), to the extent that in its sole discretion it determines that it can recoup such amount from subsequent collections under the related Included Lease. The Servicer will deposit any Servicer Advances into the Collection Account on or prior to 11:00 a.m. (New York City time) on the related Transfer Date, in immediately available funds. The Servicer will be entitled to be reimbursed for Servicer Advances pursuant to Section 4.3(d). Section 3.4 Realization Upon Defaulted Lease. The Servicer will use its best efforts consistent with its customary and usual practices and procedures in its servicing of equipment leases to repossess or otherwise comparably convert the ownership of any Equipment relating to a Defaulted Lease and will act as sales and processing agent for Equipment which it repossesses. The Servicer will follow such other practices and procedures as it deems necessary or advisable and as are customary and usual in its servicing of equipment leases and other actions by the Servicer in order to realize upon such Equipment, which practices and procedures may include reasonable efforts to enforce all obligations of Lessees and repossessing and selling such Equipment at public or private sale in circumstances other than those described in the preceding sentence. Without limiting the generality of the foregoing, the Servicer may sell any such Equipment to the Servicer or its Affiliates for a purchase price equal to the then fair market value thereof. In any case in which any such Equipment has suffered damage, the Servicer will not expend funds in connection with any repair or towards the repossession of such Equipment unless it determines in its discretion that such repair and/or repossession will increase the Liquidation Proceeds by an amount greater than the amount of such expenses. The Servicer will remit to the Collection Account the Liquidation Proceeds received in connection with the sale or disposition of Equipment relating to a Defaulted Lease in accordance with Section 4.3(a). Section 3.5 Maintenance of Insurance Policies. The Servicer will use its best efforts to ensure that each Lessee maintains an Insurance Policy with respect to the related Equipment in an amount at least equal to the sum of the Discounted Lease and Residual Balance of the related Included Lease; provided that the Servicer, in accordance with its customary servicing procedures, may allow Lessees to self-insure. Additionally, the Servicer will require that each Lessee maintain physical damage and liability insurance during the term of each Included Lease in amounts and against risks customarily insured against by the Lessee on equipment owned by it. If a Lessee fails to maintain physical damage and liability insurance, the Servicer may purchase and maintain such insurance on behalf of, and at the expense of, the Lessee. In connection with its activities as Servicer of the Included Leases, the Servicer agrees to present, on behalf of itself, the Trust and the Holders, claims to the insurer under each Insurance Policy and any such liability policy, and to settle, adjust and compromise such claims, in each case, consistent with the terms of each Included Lease. The Servicer's Insurance Policies with respect to the related Equipment will insure against liability for personal injury and property damage relating to such Equipment, will name the Trustee as an insured thereunder. Section 3.6 Representations and Warranties of Servicer. The Servicer represents and warrants to the Trust, the Trustee and the Holders that, as of the Initial Closing Date and each subsequent Closing Date and on each Addition Date, insofar as any of the following affects the Servicer's ability to perform its obligations pursuant to this Agreement in any material respect: (a) Organization and Good Standing. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own its properties and to conduct its business as presently conducted and to enter into and perform its obligations pursuant to this Agreement. (b) Due Qualification. The Servicer is qualified to do business as a foreign corporation, is in good standing, and has obtained all licenses and approvals as required under the laws of, all states in which the ownership or lease of its property, the performance of its obligations pursuant to this Agreement or the other conduct of its business requires such qualification, standing, license or approval, except to the extent that the failure to so qualify, maintain such standing or be so licensed or approved would not, in the aggregate, materially and adversely affect the ability of the Servicer to comply with this Agreement or to perform its obligations hereunder or adversely effect the enforceability of the Included Leases. (c) Power and Authority. The Servicer has the corporate power and authority to execute and deliver this Agreement and to carry out its terms. The Servicer has duly authorized the execution, delivery and performance of this Agreement by all requisite corporate action. (d) No Violation. The consummation of the transactions contemplated by, and the fulfillment of the terms of, this Agreement by the Servicer (with or without notice or lapse of time) will not (i) conflict with, result in any breach of any of the terms or provisions of, or constitute a default under, the certificate of incorporation or by-laws of the Servicer, or any term of any indenture, agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which it is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust or other instrument, or (iii) violate any law, regulation, order, writ, judgment, injunction, decree, determination or award of any Governmental Authority applicable to the Servicer or any of its properties. (e) No Consent. No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any Governmental Authority having jurisdiction over the Servicer or any of its properties is required to be obtained by or with respect to the Servicer in order for the Servicer to enter into this Agreement or perform its obligations hereunder. (f) Binding Obligation. This Agreement constitutes a legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and (ii) general principles of equity (whether considered in a suit at law or in equity). (g) No Proceedings. There are no proceedings or investigations pending, or, to the best of the Servicer's knowledge, threatened against the Servicer, before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that might (in the reasonable judgment of the Servicer) materially and adversely affect the performance by the Servicer of its obligations under, or the validity or enforceability of, this Agreement. (h) Location of Lease Files. Except as provided in the Custodian Agreement, the Lease Files shall remain at all times in the possession of the Custodian or the Trustee. Section 3.7 Covenants of Servicer. The Servicer hereby covenants that: (a) Lease Files. The Servicer will, at its own cost and expense, maintain all Lease Files with the Custodian in accordance with the terms of the Custodian Agreement. Without limiting the generality of the preceding sentence, the Servicer will not dispose of any documents constituting the Lease Files in any manner which is inconsistent with the performance of its obligations as the Servicer pursuant to this Agreement and will not dispose of any Included Lease except as contemplated by this Agreement. (b) Compliance with Law. The Servicer will comply, in all material respects, with all laws and regulations of any Governmental Authority applicable to the Servicer or the Included Leases and related Equipment and Lease Files or any part thereof; provided that the Servicer may contest any such law or regulation in any reasonable manner which will not materially and adversely affect the value of (or the rights of the Trustee on behalf of the Holders, with respect to) the Trust Assets. (c) Preservation of Security Interest. The Servicer will execute and file such financing and continuation statements and any other documents reasonably requested by the Trustee to be filed or which may be required by any law or regulation of any Governmental Authority to preserve and protect fully the interest of the Trustee in, to and under the Trust Assets; provided that the Servicer will not be required (i) to file any financing or continuation statements with respect to the Equipment in any jurisdiction other than the Filing Locations. (d) Obligations with Respect to Included Leases. The Servicer will duly fulfill and comply with, in all material respects, all obligations on the part of the "lessor" to be fulfilled or complied with under or in connection with each Included Lease and will do nothing to impair the rights of the Trustee and the Holders in, to and under the Trust Assets. The Servicer will perform such obligations under the Included Leases and will not change or modify the Included Leases, except as otherwise provided herein and except insofar as any such failure to perform, change or modification would not materially and adversely affect the value of (or the rights of the Trustee, on behalf of the Holders, with respect to) the Included Leases or the related Equipment. (e) No Bankruptcy Petition. The Servicer agrees that, prior to the date that is one year and one day after the payment in full of all amounts owing in respect of all outstanding Notes, it will not institute against the Transferor, or the Trust, or join any other Person in instituting against the Transferor or the Trust, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceedings under the laws of the United States or any state of the United States. This Section 3.7(e) will survive the termination of this Agreement. Section 3.8 Servicing Compensation. As compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in Section 3.9, the Servicer shall be entitled to receive a monthly servicing fee in respect of any Monthly Period (or portion thereof) prior to the termination of the Trust pursuant to Section 12.1 (with respect to each Monthly Period, the "Monthly Servicing Fee") equal to one-twelfth of the product of (A) the Servicing Fee Percentage and (B) the Aggregate Pool Balance on the first day of such Monthly Period. Section 3.9 Payment of Certain Expenses by Servicer. The Servicer will be required to pay all expenses incurred by it in connection with its activities under this Agreement, including fees and disbursements of independent accountants, the Trustee, the Collateral Trustee, taxes imposed on the Servicer, expenses incurred in connection with payments and reports pursuant to this Agreement, and all other fees and expenses not expressly stated under this Agreement for the account of the Trust or the Transferor, but excluding Liquidation Expenses incurred as a result of activities contemplated by Section 3.4. The Servicer will be required to pay all reasonable fees and expenses owing to the Trustee and the Collateral Trustee in connection with the maintenance of the Trust Accounts. The Servicer shall be required to pay such expenses for its own account and shall not be entitled to any payment therefor other than the Monthly Servicing Fee. Section 3.10 Monthly Statement; Annual Report. (a) Monthly Statement. With respect to each Distribution Date and the related Monthly Period, the Servicer will provide to the Trustee and each Rating Agency, on the related Determination Date, a monthly statement (a "Monthly Statement"), signed by a Responsible Officer of the Servicer and substantially in the form of Exhibit F and such other information as may be specified in a Supplement. (b) Annual Summary Statement. The Servicer will provide to the Trustee, each Rating Agency and each Enhancement Provider, on or prior to March 31 of each year, commencing March 31, 1996, a cumulative summary of the information required to be included in the Monthly Statements for the Monthly Periods ending during the immediately preceding calendar year. Section 3.11 Annual Statement as to Compliance. The Servicer will provide to the Trustee, each Rating Agency and each Enhancement Provider, on or prior to March 31 of each year, commencing March 31, 1996, an annual report signed by a Responsible Officer of the Servicer stating that (a) a review of the activities of the Servicer, and the Servicer's performance pursuant to this Agreement, for the period ending on the last day of the immediately preceding calendar year has been made under such Person's supervision and (b) to the best of such Person's knowledge, based on such review, the Servicer has performed or has caused to be performed in all material respects all of its obligations under this Agreement throughout such year and no Servicer Default has occurred and is continuing (or, if a Servicer Default has so occurred and is continuing, specifying each such event, the nature and status thereof and the steps necessary to remedy such event, and, if a Servicer Default occurred during such year and no notice thereof has been given to the Trustee, specifying such Servicer Default and the steps taken to remedy such event). Section 3.12 Annual Independent Public Accountant's Servicing Reports. The Servicer will cause a firm of nationally recognized independent public accountants (who may also render other services to the Servicer) to furnish to the Trustee, each Rating Agency, and each Enhancement Provider, on or prior to March 31 of each year, commencing March 31, 1996, (i) a report relating to the previous calendar year to the effect that (a) such firm has reviewed certain documents and records relating to the servicing of the Included Leases, and (b) based on such examination, such firm is of the opinion that the Monthly Statements for such year were prepared in compliance with this Agreement, except for such exceptions as it believes to be immaterial and such other exceptions as will be set forth in such firm's report and (ii) a report covering the preceding calendar year to the effect that such accountants have applied certain procedures agreed upon by the Servicer and such accountants to certain documents and records relating to the servicing of Accounts under this Agreement, compared the information contained in the Servicer's certificates delivered during the period covered by such report with such documents and records in each case as specified in Exhibit G and that no matters came to the attention of such accountants that caused them to believe that such servicing was not conducted in compliance with Article III, Article IV and Article VIII of this Agreement, except for such exceptions as such accountants shall believe to be immaterial and such other exceptions as shall be set forth in such statement. A copy of such report may be obtained by any Noteholder by a request in writing to the Trustee addressed to the Corporate Trust Office. In addition, the Servicer shall cause such accountants to furnish a copy of such report to each Rating Agency and to each Enhancement Provider. Section 3.13 Tax Treatment. The Transferor has structured this Agreement and the Notes to facilitate a secured, credit-enhanced financing on behalf of the Transferor on favorable terms with the intention that the Notes will constitute indebtedness of the Transferor for federal income and state and local tax purposes and the Trust shall be treated as a "security device" for such purposes. The Transferor, the Servicer, each Holder and each Note Owner agree to treat and to take no action inconsistent with the treatment of the Notes (or any beneficial interest therein) as indebtedness for purposes of federal, state, local and foreign income or franchise taxes and any other tax imposed on or measured by income. Each Holder, by accepting its Note or the Transferor Interest, as the case may be, and each Note Owner, by acquiring a beneficial interest in a Note, agrees to be bound by the provisions of this Section 3.13. Each Noteholder will cause any Note Owner acquiring an interest in a Note through it to comply with this Agreement as to treatment as indebtedness under applicable tax law, as described in this Section 3.13. Furthermore, subject to Section 11.11, the Trustee shall not file tax returns or obtain an employer identification number on behalf of the Trust. Section 3.14 Adjustments. If (i) the Servicer makes a deposit into the Collection Account in respect of a Collection of an Included Lease and such Collection was received by the Servicer in the form of a check which is not honored for any reason or (ii) the Servicer makes a mistake with respect to the amount of any Collection and deposits an amount that is less than or more than the actual amount of such Collection, the Servicer shall appropriately adjust the amount subsequently deposited into the Collection Account to reflect such dishonored check or mistake. Any Scheduled Payment in respect of which a dishonored check is received shall be deemed not to have been paid. ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.1 Rights of Holders. (a) The Notes. The Notes shall represent indebtedness secured by the Trust Assets and an obligation to pay the Noteholders Note Interest and Note Principal out of the Trust Assets, which, with respect to each Series, shall consist of the right to receive, to the extent necessary to make the required Note Principal, Note Interest and any other payments with respect to the Notes of such Series at the times and in the amounts specified in the related Supplement, the portion of Collections allocable to Noteholders of such Series pursuant to this Agreement and such Supplement, funds on deposit in the Collection Account allocable to Noteholders of such Series pursuant to this Agreement and such Supplement, funds on deposit in any related Series Account and funds available pursuant to any related Enhancement, it being understood that the Notes of any Series or Class shall not represent any interest in any Series Account or Enhancement for the benefit of any other Series or Class. The Transferor Interest shall represent the interest in the remainder of the Trust Assets not allocated pursuant to this Agreement or any Supplement to the Noteholders, including the right to receive Collections with respect to the Included Leases and other amounts at the times and in the amounts specified in this Agreement or any Supplement to be paid to the holder of the Transferor Interest, provided, however, that the Transferor Interest shall not represent any interest in the Collection Account, any Series Account or any Enhancement, except as specifically provided in this Agreement or any Supplement. (b) No Recourse. No recourse may be taken, directly or indirectly, with respect to the obligations of the Transferor, the Trustee or the Collateral Trustee on the Notes or under this Agreement or any certificate or other writing delivered in connection herewith or therewith, against: (i) the Trustee or the Collateral Trustee in its individual capacity; (ii) any owner of a beneficial interest in the Transferor; or (iii) any partner, owner, beneficiary, agent, officer, director, employee or agent of the Trustee or the Collateral Trustee in their individual capacities, any holder of a beneficial interest in the Transferor, the Trustee or the Collateral Trustee or of any successor or assign of the Trustee or the Collateral Trustee in their individual capacities (or any of their successors or assigns), except as any such Person may have expressly agreed (it being understood that the Trustee and the Collateral Trustee have no such obligations in their individual capacities) and except that any such partner, owner or beneficiary shall be fully liable, to the extent provided by applicable law, for any unpaid consideration for stock, unpaid capital contribution or failure to pay any instalment or call owing to such entity. Section 4.2 Establishment of Accounts. (a) The Collection Account. The Servicer, for the benefit of the Noteholders and the Holder of the Transferor Interest, shall establish and maintain in the name of the Collateral Trustee on behalf of the Noteholders and the Holder of the Transferor Interest, or cause to be established and maintained, with an office or branch located in the state designated by the Servicer of a depository institution or trust company (which may include the Collateral Trustee) organized under the laws of the United States of America or any one of the states thereof a non-interest bearing segregated deposit account (the "Collection Account") bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Noteholders and the Holder of the Transferor Interest; provided, however, that at all times the certificates of deposit, short-term deposits or commercial paper or the long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such depository institution or trust company) of such depository institution or trust company if other than the Collateral Trustee or First Union National Bank of North Carolina, shall have a credit rating from the Rating Agency or Agencies for each Series outstanding hereunder of P-1, A-1+, as applicable, respectively, in the case of the certificates of deposit, short-term deposits or commercial paper, or a rating from the applicable Rating Agency of Aaa or AAA, as applicable, in the case of the long-term unsecured debt obligations, and which is a member of the FDIC (each of First Union National Bank of North Carolina, the Collateral Trustee or any such depository institution trust company, a "Qualified Institution"). The Supplement for a Series may require the Collateral Trustee to establish and maintain, for administrative purposes only, other Series Accounts for such Series bearing a designation clearly indicating that the funds allocated thereto are held in trust for the benefit of the Noteholders of such Series. Pursuant to authority granted to it pursuant to subsection 3.1(b), the Servicer shall have the power, revocable by the Trustee, to withdraw funds from the Collection Account for the purposes of carrying out its duties hereunder. (b) Establishment of the Excess Funding Account. The Servicer, for the benefit of the Noteholders and the Holder of the Transferor Interest, shall establish and maintain or cause to be established and maintained in the name of the Collateral Trustee, on behalf of the Noteholders and the Holder of the Transferor Interest, with a Qualified Institution designated by the Servicer, a segregated trust account within the corporate trust department of such Qualified Institution (the "Excess Funding Account"), bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Noteholders and the Holder of the Transferor Interest. The Collateral Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Excess Funding Account and in all proceeds thereof. Pursuant to the authority granted to it pursuant to subsection 3.1(b), the Servicer shall have the power, revocable by the Trustee, to withdraw funds and to instruct the Trustee to withdraw funds from the Excess Funding Account for the purposes of carrying out its duties hereunder. (c) Establishment of the Tax Escrow Account. The Servicer, for the benefit of the Noteholders and the Holder of the Transferor Interest, shall establish and maintain or cause to be established and maintained in the name of the Collateral Trustee, on behalf of the Noteholders and the Holder of the Transferor Interest, with a Qualified Institution designated by the Servicer, a segregated trust account within the corporate trust department of such Qualified Institution (the "Tax Escrow Account"), bearing a designation clearly indicating that the funds deposited therein are held in trust for the purpose of paying the underlying tax obligations. The Collateral Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Tax Escrow Account and in all proceeds thereof. Pursuant to the authority granted to it pursuant to subsection 3.1(b), the Servicer shall have the power, revocable by the Trustee, to withdraw funds and to instruct the Trustee to withdraw funds from the Tax Escrow Account for the purposes of carrying out its duties hereunder. (d) Failure of Institution to Qualify. If any institution with which any of the accounts established pursuant to this Section 4.2 are established ceases to be a Qualified Institution, the Servicer or the Collateral Trustee (as the case may be) shall within 10 Business Days establish a replacement account at a Qualified Institution after notice thereof. (e) Amounts in Excess Funding Account. Amounts on deposit in the Excess Funding Account on any Business Day will be invested, at the written direction of the Servicer to the Collateral Trustee or the Qualified Institution (with a copy to the Collateral Trustee), in Permitted Investments maturing or available for withdrawal on the next Transfer Day. Earnings from such investments received shall be treated as part of the Available Amount and shall be deposited in the Collection Account. Any investment instructions to the Collateral Trustee or the Qualified Institution may be in writing or made orally and confirmed promptly in writing, shall be deemed to include a certification that the proposed investment is a Permitted Investment that matures at or prior to the date required by this Agreement, and may be given pursuant to standing instructions. (f) Amounts in Collection Account. Amounts on deposit in the Collection Account on any Business Day will be invested, at the written direction of the Servicer to the Collateral Trustee or the Qualified Institution (with a copy to the Collateral Trustee), in Permitted Investments maturing or available for withdrawal on the next Business Day; provided that any portion of such funds that are allocable to a particular Monthly Period may be invested in Permitted Investments maturing on the Transfer Date preceding the Distribution Date on which such funds will be included in the "Available Amount". Earnings from such investments received shall be treated as part of the Available Amount and shall be deposited in the Collection Account. Any investment instructions to the Collateral Trustee or the Qualified Institution may be in writing or made orally and confirmed promptly in writing, shall be deemed to include a certification that the proposed investment is a Permitted Investment that matures at or prior to the date required by this Agreement, and may be given pursuant to standing instructions. (g) Amounts in Tax Escrow Account. Amounts on deposit in the Tax Escrow Account on any Business Day will be invested, at the written direction of the Servicer to the Collateral Trustee or the Qualified Institution (with a copy to the Collateral Trustee), in Permitted Investments maturing or available for withdrawal on the Business Day that the Servicer determines such funds will be required to be withdrawn from such account. Earnings from such investments received shall be treated as part of the Available Amount and shall be deposited in the Collection Account. Any investment instructions to the Collateral Trustee or the Qualified Institution may be in writing or made orally and confirmed promptly in writing, shall be deemed to include a certification that the proposed investment is a Permitted Investment that matures at or prior to the date required by this Agreement, and may be given pursuant to standing instructions. (h) Identification of Accounts. Schedule 4, which is hereby incorporated into and made a part of this Agreement, identifies the Collection Account, the Excess Funding Account, and the Tax Escrow Account by setting forth the account number of such account, the account designation of such account and the name of the institution with which such account has been established. Section 4.3 Collections and Allocations. (a) Collections. The Servicer shall, subject to subsections 4.3(c) and 4.3(d), transfer, or cause to be transferred, all Collections on deposit in the form of available funds in the Lockbox Account to the Collection Account as promptly as possible after the Date of Processing of such Collections, but in no event later than the fourth Business Day following such Date of Processing. The Servicer shall promptly (but in no event later than two Business Days after the Date of Processing thereof) deposit all Collections received directly by it in the Collection Account. The Servicer shall transfer, or cause to be transferred, all Tax Collections on deposit in the form of available funds in the Collection Account to the Tax Escrow Account as promptly as possible after the Date of Processing of such Tax Collections, but in no event later than the fourth Business Day following such Date of Processing. The Servicer shall promptly (but in no event later than two Business Days after the Date of Processing thereof) deposit all Tax Collections received directly by it in the Tax Escrow Account. The Servicer shall allocate such amounts to each Series of Notes and to the Holder of the Transferor Interest in accordance with this Article IV and shall withdraw the required amounts from the Collection Account or pay such amounts to the Holder of the Transferor Interest or to the other Persons entitled thereto in accordance with this Article IV. The Servicer shall make such deposits or payments on the date indicated therein, if applicable, by wire transfer in immediately available funds or as otherwise provided in the Supplement for any Series with respect to such Series. (b) Initial Deposits. On the Initial Closing Date and on each Addition Date thereafter, the Servicer will deposit (in immediately available funds) into the Collection Account all Collections received after the applicable Cut Off Date and through and including the Initial Closing Date or Addition Date, as the case may be, in respect of Leases being transferred to the Trust on such date. (c) Payments from Tax Escrow Account. The Servicer may from time to time withdraw amounts on deposit in the Tax Escrow Account for the purpose of paying, or reimbursing itself for paying, any taxes allocable to the Included Leases or the related Equipment. (d) Amounts Exempt from Deposit. Notwithstanding Sections 4.3(a) and 4.3(b), the following collections (or portions thereof) are not required to be deposited into the Collection Account: (i) Collections on any Included Leases on which (and to the extent that) the Servicer has previously made a Servicer Advance which has not been reimbursed, which amounts the Servicer may retain (as a reimbursement of such Servicer Advance); and (ii) Collections from any Removed Lease or any Included Lease for which another Included Lease has been substituted as described in Section 2.7, which amounts the Servicer may retain to the extent necessary to reimburse itself for any related Servicer Advance which has not been reimbursed, and the remainder of which amounts the Servicer will pay to the Transferor or Originator, as the case may be. (e) Allocations Prior to Pay Out Event. On each Determination Date prior to a Pay Out Event, the Servicer, by means of a Monthly Payment Instructions and Notification, substantially in the form of Exhibit H, shall instruct the Collateral Trustee to withdraw, and on the succeeding Distribution Date the Collateral Trustee acting in accordance with such instructions shall withdraw, the amounts required to be withdrawn from the Collection Account pursuant to this Section in order to make the following payments or allocations from the Available Amount for the related Distribution Date (in each case, such payment or transfer to be made only to the extent funds remain available therefor after all prior payments and transfers for such Distribution Date have been made), in the following order of priority: (i) pay to the Servicer, the amount of any Unreimbursed Servicer Advance; (ii) pay to the Servicer the Monthly Servicing Fee for the preceding Monthly Period together with any amounts in respect of the Monthly Servicing Fee that were due in respect of prior Monthly Periods that remain unpaid; (iii) pay to each Hedging Counterparty the amount owing to such Hedging Counterparty under the related Interest Rate Hedge for the Accrual Period ending on such Distribution Date, together with any such amounts that were due in respect of prior Accrual Periods that remain unpaid (excluding, in each case, any amounts owing in respect of termination payments (other than Hedge Termination Payments), liquidated damages and gross-ups); provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(e)(iii) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Hedging Counterparty pro rata based on the amount owing to it; (iv) allocate to each Series an amount equal to Note Interest accrued in respect thereof for the Accrual Period ending on such Distribution Date, together with any such amounts that accrued in respect of prior Accrual Periods for which no allocation was previously made; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(e)(iv) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Series in accordance with its Series Share thereof; (v) allocate to each Series which was as of the first day of the preceding Monthly Period an Amortizing Series or an Accumulating Series its Target Repayment Amount for such Monthly Period, together with any such amounts that were due in respect of prior Monthly Periods for which no allocation was previously made; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(e)(v) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Series in accordance with its Series Share thereof; and (vi) allocate any remaining Available Amount to the Excess Funding Account. (f) Allocations after a Pay Out Event. On each Determination Date after the occurrence of a Pay Out Event, the Servicer, by means of a Monthly Payment Instructions and Notification, substantially in the form of Exhibit H, shall instruct the Collateral Trustee to withdraw, and on the succeeding Distribution Date the Collateral Trustee acting in accordance with such instructions shall withdraw, the amounts required to be withdrawn from the Collection Account pursuant to this Section in order to make the following payments or allocations from the Available Amount for the related Distribution Date (in each case, such payment or transfer to be made only to the extent funds remain available therefor after all prior payments and transfers for such Distribution Date have been made), in the following order of priority: (i) pay to the Servicer, the amount of any Unreimbursed Servicer Advance; (ii) pay to the Servicer the Monthly Servicing Fee for the preceding Monthly Period together with any amounts in respect of the Monthly Servicing Fee that were due in respect of prior Monthly Periods that remain unpaid; (iii) pay to each Hedging Counterparty the amount owing to such Hedging Counterparty under the applicable Interest Rate Hedge for the Accrual Period ending on such Distribution Date, together with any such amounts that were due in respect of prior Accrual Periods that remain unpaid (excluding, in each case, any amounts owing in respect of termination payments (other than Hedge Termination Payments), liquidated damages and gross-ups); provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(f)(iii) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Hedging Counterparty pro rata based on the amount owing to it; (iv) allocate to each Series an amount equal to Note Interest accrued in respect thereof for the Accrual Period ending on such Distribution Date, together with any such amounts that accrued in respect of prior Accrual Periods for which no allocation was previously made; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(f)(iv) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Series in accordance with its Pay Out Event Series Share thereof; (v) allocate to each Series the remaining Adjusted Principal Amount thereof; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(f)(v) is less than the full amount required to be so allocated, such remaining amount shall be allocated to each such Series in accordance with its Pay Out Event Series Share thereof; and (vi) allocate any remaining Available Amount to the Excess Funding Account. (g) Excess Funding Account Prior to a Pay Out Event. On each Business Day prior to a Pay Out Event, the Servicer shall instruct the Collateral Trustee to withdraw, and on such day the Collateral Trustee acting in accordance with such instructions shall withdraw, the amounts required to be withdrawn from the Excess Funding Account pursuant to this Section in order to make the following payments or allocations from the amount on deposit therein on such day up to the Available Excess Funding Amount on such day (in each case, such payment or transfer to be made only to the extent funds remain available therefor after all prior payments and transfers for such day have been made and after giving effect to any Additional Leases transferred to the Trust on such day), in the following order of priority: (i) allocate to each Series which is a Variable Funding Series such amount, if any, as shall be directed by the Servicer to be applied in accordance with the terms of the related Supplement to reduce the Principal Amount thereof; (ii) allocate to each Series an amount equal to any amounts then due and payable in respect of any Reserve Funding Requirement thereunder or any Accelerated Funding Requirement thereunder; provided that if the Available Excess Funding Amount remaining to be allocated pursuant to this Section 4.3(g)(ii) is less than the full amount required to be so allocated, such remaining amount shall be allocated to each Series in accordance with its Series Share thereof; (iii) allocate to each Series an amount equal to any amounts then due and payable in respect of fees and expenses owing in respect thereof; provided that if the Available Excess Funding Amount remaining to be allocated pursuant to this Section 4.3(g)(iii) is less than the full amount required to be so allocated, such remaining amount shall be allocated to each Series in accordance with its Series Share thereof; (iv) pay to each Hedging Counterparty any unpaid amounts owing to such Hedging Counterparty under the related Interest Rate Hedge; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(g)(iv) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Hedging Counterparty pro rata based on the amount owing to it; and (v) So long as no event which, with the passage of time or the giving of notice or both, would be a Pay Out Event or an Accelerated Payment Event has occurred and is continuing, pay to the Holder of the Transferor Interest any remaining Available Excess Funding Amount. (h) Excess Funding Account after a Pay Out Event. On each Distribution Date after a Pay Out Event, the Servicer shall instruct the Collateral Trustee to withdraw, and on such day the Collateral Trustee acting in accordance with such instructions shall withdraw, the amounts required to be withdrawn from the Excess Funding Account pursuant to this Section in order to make the following payments or allocations from the amount on deposit therein on such day (in each case, such payment or transfer to be made only to the extent funds remain available therefor after all prior payments and transfers for such day have been made), in the following order of priority: (i) on the first Distribution Date following the Monthly Period in which a Pay Out Event occurs the entire balance in the Excess Funding Account shall be treated as part of the Available Amount on such day and shall be distributed pursuant to Section 4.3(f); (ii) on each subsequent Distribution Date, pay to the Trustee any unpaid fees and expenses owing to it hereunder; (iii) on each subsequent Distribution Date, allocate to each Series an amount equal to any amounts then due and payable in respect of fees and expenses owing in respect thereof; provided that if the amount remaining to be allocated pursuant to this Section 4.3(h)(iii) is less than the full amount required to be so allocated, such remaining amount shall be allocated to each Series in accordance with its Series Share thereof; (iv) on each Distribution Date to occur after all amounts owing in respect of all outstanding Series have been repaid in full, pay to each Hedging Counterparty any unpaid amounts owing to such Hedging Counterparty under the related Interest Rate Hedge; provided that if the Available Amount remaining to be allocated pursuant to this Section 4.3(h)(iv) is less than the full amount required to be so allocated, such remaining Available Amount shall be allocated to each Hedging Counterparty pro rata based on the amount owing to it; and (v) on each Distribution Date to occur after all amounts owing in respect of all outstanding Series and Interest Rate Hedges have been paid in full, pay to the Holder of the Transferor Interest any remaining amount. Section 4.4 Determination of the Amortizing Pools. (a) On or before the Distribution Date immediately preceding the Amortization Commencement Date for each Series, the Servicer will select a group of Included Leases (or portions thereof), to be used to establish a repayment schedule for such Series (each such group, an "Amortizing Pool") in accordance with the following criteria and procedures: (i) The Servicer shall make such selection from among those Included Leases that are not then assigned to another Amortizing Pool (unless the Principal Amount of the related Series has been repaid in full) and are not then Defaulted Leases. (ii) The aggregate number of Included Leases (or portions thereof) shall be such as to provide an Aggregate Pool Balance for such Amortizing Pool at least equal to the Principal Amount of such Series as of the related Amortization Commencement Date. (iii) If and to the extent Additional Selection Criteria are specified in the Supplement for such Series, the Servicer shall use such criteria. (iv) Except as specified above in this Section, the Servicer shall have complete discretion when selecting Included Leases for inclusion in an Amortizing Pool. (b) Upon the payment in full of the related Principal Amount, any Included Leases (or portions thereof) remaining outstanding in such Amortizing Pool shall be released from such Amortizing Pool. (c) It is understood that the allocation of specific Included Leases (or portions thereof) to a particular Amortizing Pool and Series is solely for the purpose of establishing a target repayment schedule for such Series and of allocating the Available Amount prior to a Pay Out Event and does not give any such Series any preference or priority with respect to the Included Leases (or portions thereof) allocated to the related Amortizing Pool. Section 4.5 Interest Rate Hedges. (a) The Servicer may from time to time designate Persons to become additional Hedging Counterparties hereunder, provided that (i) when designating such additional Hedging Counterparty, the Servicer shall deliver to the Trustee an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of the Interest Rate Hedge with such additional Hedging Counterparty and (ii) at the time of such designation, the long term unsecured debt or long term certificate of deposit rating assigned to such additional Hedging Counterparty, shall be at least A by Standard & Poor's and A2 by Moody's. (b) In the event that the long term unsecured debt or long term certificate of deposit rating of a Hedging Counterparty is withdrawn or reduced below A by Standard & Poor's or is withdrawn or reduced below A2 by Moody's, then within 30 days after receiving notice of such decline in creditworthiness, either (x) such Hedging Counterparty, at its own expense, will obtain a Replacement Interest Rate Hedge or (y) the Trustee, at the direction of the Servicer to do either of the following, shall either (i) with the prior written confirmation of the Rating Agency that such action will not result in a reduction or withdrawal of the rating of any Class of Notes, use its best efforts to (A) cause such Hedging Counterparty to pledge securities in the manner provided by applicable law or (B) otherwise cause to be pledged securities, which shall be held by the Trustee, its custodian, or its agent free and clear of the Lien of any third party, in a manner conferring on the Trustee a perfected first Lien in such securities securing the Hedging Counterparty's performance of its obligations under the Interest Rate Hedge, or (ii) provided that a Replacement Interest Rate Hedge or Qualified Substitute Arrangement meeting the requirements of Section 4.5(c) has been obtained, (A) provide written notice to the Hedging Counterparty of its intention to terminate the Interest Rate Hedge within such 30-day period and (B) terminate the Interest Rate Hedge within such 30-day period, request the payment to it of all amounts due to the Trust under the Interest Rate Hedge through the termination date and deposit any such amounts so received, on the day of receipt, to the Collection Account, or (iii) use reasonable efforts to establish any other arrangement satisfactory to the Rating Agency including collateral, guarantees or letters of credit, which arrangement will result in the Rating Agency's not reducing or withdrawing the then rating of any Class of Notes (a "Qualified Substitute Arrangement"); provided, however, that in the event at any time any alternative arrangement established pursuant to clause (x) or (y)(i) or (y)(iii) above shall cease to be satisfactory to the Rating Agency, then the provisions of this Section 4.5(b) shall again be applied and in connection therewith the 30-day period referred to above shall commence on the date the Servicer receives notice of such cessation or termination, as the case may be. (c) Unless an alternative arrangement pursuant to clause (x) or (y)(i) of Section 4.5(b) is being established, the Trustee, at the direction of the Servicer shall use its best efforts to obtain a Replacement Interest Rate Hedge or Qualified Substitute Arrangement meeting the requirements of this Section 4.5(c) during the 30-day period referred to in Section 4.5(b). The Trustee shall not at any time terminate the Interest Rate Hedge unless, prior to such termination, the Trustee or the Servicer has obtained (i) a Replacement Interest Rate Hedge or Qualified Substitute Arrangement, (ii) to the extent applicable, an Opinion of Counsel as to the due authorization, execution, delivery, validity and enforceability of such Replacement Interest Rate Hedge or Qualified Substitute Arrangement, as the case may be, and (iii) a letter from the Rating Agency confirming that the termination of the Interest Rate Hedge and its replacement with such Replacement Interest Rate Hedge or Qualified Substitute Arrangement will not adversely affect its rating of any Class of Notes. (d) The Servicer shall notify the Trustee and the Rating Agency within five Business Days after obtaining knowledge that the long term unsecured debt or the long term certificate of deposit rating of a Hedging Counterparty has been withdrawn or reduced by Standard & Poor's or Moody's. (e) Notwithstanding the foregoing, the Servicer may at any time obtain a Replacement Interest Rate Hedge, provided that the Servicer delivers to the Trustee (i) an Opinion of Counsel as to the due authorization, execution and delivery and validity and enforceability of such Replacement Interest Rate Hedge and (ii) a letter from the Rating Agency confirming that the termination of the then current Interest Rate Hedge and its replacement with such Replacement Interest Rate Hedge will not adversely affect its rating of any Class of Notes. Upon the effectiveness of a Replacement Interest Rate Hedge, the Trustee is authorized to reconvey the benefits of the replaced Interest Rate Hedge to the Transferor. (f) The Trustee on behalf of the Trust hereby appoints each Hedging Counterparty to perform the duties of the calculation agent under the related Interest Rate Hedge. [THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES] ARTICLE V [ARTICLE V IS RESERVED AND SHALL BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO ANY SERIES] ARTICLE VI THE NOTES Section 6.1 The Notes and the Transferor Interest. The Notes of each Series and any Class thereof shall be issued in fully registered form and shall be substantially in the form of the exhibits with respect thereto attached to the related Supplement. The Transferor Interest shall be evidenced by book-entry notation in the Register. The Notes shall, upon issue, be executed, authenticated and delivered by the Trustee. The Notes shall be issuable in a minimum denomination of $1,000 principal amount and integral multiples thereof, unless otherwise provided in any Supplement, and the Notes of each Series shall be issued upon initial issuance in an aggregate original principal amount equal to the Initial Principal Amount of such Series. Each Note shall be executed by manual or facsimile signature on behalf of the Trust by a Responsible Officer of the Trustee. Any Note bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to the authentication and delivery of such Note or does not hold such office at the date of such Note. No Note shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual or facsimile signature of a Responsible Officer, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. All Notes shall be dated the date of their authentication. Section 6.2 Authentication of Notes and Transferor Interest. Contemporaneously with the initial transfer of the Original Leases and the other initial Trust Assets to the Trust, the Trustee shall authenticate and deliver the initial Series of Notes. The Trustee shall evidence the Transferor Interest of the Transferor by notation in the Register simultaneously with its delivery to or upon the order of the Transferor of the initial Series of Notes. The Notes shall be duly authenticated by or on behalf of the Trustee. Section 6.3 Registration of Transfer and Exchange of Notes. (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (the "Transfer Agent and Registrar") in accordance with the provisions of Section 11.16 a register (the "Register") in which, subject to such reasonable regulations as it may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Notes and of transfers and exchanges of the Notes as herein provided. The Trustee is hereby initially appointed Transfer Agent and Registrar for the purpose of registering the Notes and transfers and exchanges of the Notes as herein provided. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days written notice to the Transferor. In the event that the Trustee shall no longer be the Transfer Agent and Registrar, the Transferor shall appoint a successor Transfer Agent and Registrar. Upon surrender for registration of transfer of any Note of any Series at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Trust shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of such Series in authorized denominations of like aggregate principal amounts. At the option of a Noteholder, Notes of any Series may be exchanged for other Notes of the same Series and authorized denominations of like principal amounts, upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange the Trust shall execute, and the Trustee shall authenticate and deliver the Notes which the Noteholder making the exchange is entitled to receive. Every Note presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in a form satisfactory to the Trustee and the Transfer Agent and Registrar duly executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Notes. All Notes surrendered for registration of transfer or exchange shall be canceled and disposed of in the Trustee's customary manner. (b) It is the understanding of the parties to this Agreement that AFG has particular expertise in performing the functions given by this Agreement to the Servicer and that the Noteholders will be purchasing Notes relying on its exercising such expertise in performing such functions. As provided in Sections 8.5 and 8.7, the Servicer is not permitted to resign, except as otherwise permitted in such sections. Except as provided in Section 6.12, Section 6.14 and Section 7.2, the Transferor Interest, or any interest therein, shall not be transferred, assigned, exchanged, or otherwise transferred, unless (i) the Rating Agency Condition will have been satisfied with respect thereto, (ii) the Transferor will have delivered to the Trustee an Officer's Certificate to the effect that, based upon the facts known to such officer at such time, such transfer, assignment or exchange will not cause a Pay Out Event and (iii) the Transferor will have delivered to the Trustee a Tax Opinion, and provided, however, in any event, the Transferor shall retain at all times at least 25% in interest of the Transferor Interest (without exclusion for any constituent interests therein) which interest cannot be subordinated to any constituent interests in the Transferor Interest. (c) The Transfer Agent and Registrar will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where Notes may be surrendered for registration of transfer or exchange. Section 6.4 Mutilated, Destroyed, Lost or Stolen Notes. If (a) any mutilated Note is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence to its satisfaction of the destruction, loss or theft of any Note and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Trustee that such Note has been acquired by a bona fide purchaser, the Trust shall execute, and the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of like tenor and aggregate principal amount. In connection with the issuance of any new Note under this Section 6.4, the Trustee or the Transfer Agent and Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and the Transfer Agent and Registrar) connected therewith. Any duplicate Note issued pursuant to this Section 6.4 shall constitute complete and indefeasible evidence of a right to receive payments from the Trust on the terms set forth therein, as if originally issued, whether or not the lost, stolen or destroyed Note shall be found at any time. Section 6.5 Persons Deemed Owners. Prior to due presentation of a Note for registration of transfer, the Trustee and the Paying Agent, the Transfer Agent and Registrar and any agent of any of them may treat the Person in whose name any Note is registered as the owner of such Note for the purpose of receiving distributions pursuant to Article V (as described in any Supplement) and for all other purposes whatsoever, and neither the Trustee and the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by any notice to the contrary: provided, however, that in determining whether the Holders of Notes evidencing the requisite principal amounts have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Transferor, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer in the Corporate Trust Office of the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Transferor, the Servicer or an Affiliate thereof. Section 6.6 Appointment of Paying Agent. (a) The Paying Agent shall make distributions to Noteholders from a Distribution Account pursuant to Article V. Any Paying Agent shall have the revocable power to withdraw funds from such Distribution Account for the purpose of making distributions referred to above. The Trustee may revoke such power and remove the Paying Agent for a particular Series, if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. The Paying Agent, unless the Supplement relating to any Series states otherwise, shall initially be the Collateral Trustee. The Collateral Trustee shall be permitted to resign as Paying Agent upon 30 days' written notice to the Transferor. In the event that the Collateral Trustee shall no longer be the Paying Agent, the Transferor shall appoint a successor. Each Paying Agent must be reasonably acceptable to the Transferor, the Trustee and the Servicer. The provisions of Sections 11.1, 11.2 and 11.3 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. (b) The Trustee shall cause the Paying Agent (other than itself or the Collateral Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee that such Paying Agent will hold all sums, if any, held by it for payment to the Noteholders in trust for the benefit of the Noteholders entitled thereto until such sums shall be paid to such Noteholders and shall agree, and if the Collateral Trustee is the Paying Agent it hereby agrees, that it shall comply with all requirements of the Internal Revenue Code regarding the withholding of payments in respect of federal income taxes due from Noteholders and the Holder of the Transferor Interest by the Collateral Trustee. Section 6.7 Access to List of Holders' Names and Addresses. The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Servicer or the Paying Agent, within five Business Days after receipt by the Trustee of a request therefor from the Servicer or the Paying Agent, respectively, in writing, a list in such form as the Servicer or the Paying Agent may reasonably require, of the names and addresses of the Noteholders as of the most recent Record Date for payment of distributions to Noteholders. If Holders of a principal amount of Notes aggregating not less than 10% of the Principal Amount of the Notes of any Series (the "Applicants") apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Noteholders of any Series with respect to their rights under this Agreement or under the Notes and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been indemnified to its satisfaction by such Applicants for its costs and expenses, shall afford or shall cause the Transfer Agent and Registrar to afford such Applicants access during normal business hours to the most recent list of Noteholders held by the Trustee and shall give the Servicer notice that such request has been made, within five Business Days after the receipt of such application. Such list shall be as of a date no more than 45 days prior to the date of receipt of such Applicants' request. Every Noteholder and the Holder of the Transferor Interest, by receiving and holding a Note or the Transferor Interest, as the case may be, agrees that neither the Trustee nor the Transfer Agent and Registrar nor the Transferor nor any of their respective agents shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Noteholders and the Holder of the Transferor Interest hereunder, regardless of the source from which such information was obtained. Section 6.8 Authenticating Agent. (a) The Trustee may appoint one or more authenticating agents with respect to the Notes which shall be authorized to act on behalf of the Trustee in authenticating the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of Notes. Whenever reference is made in this Agreement to the authentication of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be reasonably acceptable to the Transferor and the Servicer. (b) Any institution succeeding to the corporate agency business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (c) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Transferor. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent and to the Transferor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee or the Transferor or the Servicer, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless reasonably acceptable to the Trustee, the Transferor and the Servicer. (d) The Transferor agrees to pay each authenticating agent from time to time reasonable compensation for its services under this Section 6.8. (e) The provisions of Sections 11.1, 11.2 and 11.3 shall be applicable to any authenticating agent. (f) Pursuant to an appointment made under this Section 6.8, the Notes may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Notes described in the Pooling and Servicing Agreement and Indenture of Trust. as Authenticating Agent for the Trustee, By: Authorized Officer Section 6.9 Book-Entry Notes. Unless otherwise provided in any related Supplement, the Notes of any Series upon original issuance, shall be issued in the form of one or more physical Notes representing the Book-Entry Notes, to be delivered to the Clearing Agency specified in the Supplement for such Series, by, or on behalf of, the Transferor. The Notes of each Series shall, unless otherwise provided in the related Supplement, initially be registered on the Register in the name of the nominee of the Clearing Agency, and no Note Owner will receive a definitive certificate representing such Note Owner's interest in the Notes, except as provided in Section 6.11. Unless and until definitive, fully registered Notes of any Series (the "Definitive Notes") have been issued to Note Owners: (i) the provisions of this Section 6.9 shall be in full force and effect with respect to each such Series; (ii) the Transferor, the Servicer, the Paying Agent, the Transfer Agent and Registrar and the Trustee may deal with the related Clearing Agency and the related Clearing Agency Participants for all purposes (including the making of distributions on the Notes of each such Series) as the authorized representatives of such Note Owners; (iii) to the extent that the provisions of this Section 6.9 conflict with any other provisions of this Agreement, the provisions of this Section 6.9 shall control with respect to each such Series; and (iv) the rights of Note Owners of each such Series shall be exercised only through the Clearing Agency and the applicable Clearing Agency Participants and shall be limited to those established by law and agreements between such Note Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Depository Agreement applicable to a Series, unless and until Definitive Notes are issued pursuant to Section 6.11, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Notes to such Clearing Agency Participants. Section 6.10 Notices to Clearing Agent. Whenever notice or other communication to the Noteholders of a Series is required under this Agreement, unless and until Definitive Notes shall have been issued to the Note Owners of such Series, the Trustee shall give all such notices and communications specified herein to be given to Holders of the Notes of such Series to the Clearing Agency. Section 6.11 Definitive Notes Initially Issued as Book-Entry Notes. If (i)(A) the Transferor advises the Trustee in writing that the Clearing Agency is no longer willing or able properly to discharge its responsibilities under the related Depository Agreement, and (B) the Trustee or the Transferor is unable to locate a qualified successor, (ii) the Transferor, at its option, advises the Trustee in writing that it elects to terminate the book-entry system through such Clearing Agency or (iii) after the occurrence of a Pay Out Event, Note Owners of a Series representing beneficial interests aggregating not less than 50% of the Principal Amount of a Series advise the Trustee and the related Clearing Agency through the related Clearing Agency Participants in writing that the continuation of a book-entry system through such Clearing Agency is no longer in the best interests of the Note Owners, the Trustee shall notify all Note Owners of such Series through such Clearing Agency, of the occurrence of any such event and of the availability of Definitive Notes to Note Owners requesting the same. Upon surrender to the Trustee of the Notes of such Series by the related Clearing Agency, accompanied by registration instructions from the related Clearing Agency for registration, the Trustee on behalf of the Trust shall issue the Definitive Notes of such Series. Neither the Transferor nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Notes of such Series, all references herein to obligations imposed upon or to be performed by the Clearing Agency shall be deemed to be imposed upon and performed by the Trustee, to the extent applicable with respect to such Definitive Notes and the Trustee shall recognize the Holders of the Definitive Notes of such Series as Noteholders of such Series hereunder. Section 6.12 Exchange of Transferor Interest. (a) Upon any Exchange, the Transferor shall, pursuant to Section 6.1, deliver to the Trustee for execution and authentication under Section 6.2, one or more new Series of Notes. Any such Series of Notes shall be substantially in the form specified in the related Supplement and shall bear, upon its face, the designation for the Series to which it belongs, as selected by the Transferor. Except as specified in the related Supplement, all Notes of any Series shall rank pari passu and be equally and ratably entitled as provided herein to the benefits hereof (except that the Enhancement provided for any Series shall not be available for any other Series) without preference, priority or distinction on delivery, all in accordance with terms and provisions of this Agreement and the related Supplement. (b) The Holder of the Transferor Interest may direct the Trustee in writing to make an appropriate entry in the Register to evidence an exchange of the Transferor Interest for (i) one or more newly issued Series of Notes and (ii) a new Transferor Interest evidenced by book-entry notation in the Register (any such exchange, a "Transferor Exchange"). In addition, to the extent permitted for any Series of Notes as specified in the related Supplement, the Noteholders of such Series may tender their Notes and the Holder of the Transferor Interest may direct the Trustee in writing to make an appropriate entry in the Register to evidence an exchange of the Transferor Interest pursuant to the terms and conditions set forth in such Supplement in exchange for (i) one or more newly issued Series of Notes and (ii) a new Transferor Interest evidenced by book-entry notation in the Register (a "Principal Exchange"). The Transferor Exchange and Principal Exchange are referred to collectively herein as an "Exchange". The Holder of the Transferor Interest may perform an Exchange by notifying the Trustee in writing at least five days (but in no event less than three Business Days) in advance (an "Exchange Notice") of the date upon which the Exchange is to occur (an "Exchange Date"). Any Exchange Notice shall state the designation of any Series to be issued on the Exchange Date and, with respect to each such Series: (a) its Initial Principal Amount (or the method of calculating such Initial Principal Amount), (b) its Note Rate (or the method of allocating interest payments or other cash flows to such Series), if any, (c) the Enhancement Provider(s), if any, with respect to such Series, and (d) whether such Series is a Replacement Series. On the Exchange Date, the Trustee shall execute, authenticate and deliver any such Series of Notes only upon delivery to it of the following: (a) a Supplement in form satisfactory to the Trustee satisfying the criteria set forth in subsection 6.12(c) executed by the Transferor and specifying the Principal Terms of such Series, (b) the applicable Enhancement, if any, (c) the agreement, if any, pursuant to which the Enhancement Provider(s) agree(s) to provide the Enhancement, if any, (d) a Tax Opinion with respect to the newly issued Series of Notes, (e) proof that the Rating Agency Condition with respect to the Exchange has been satisfied, (f) an Officer's Certificate of the Transferor that on the Exchange Date (i) after giving effect to the Exchange, and any Additional Lease being transferred to the Trust on the Exchange Date pursuant to subsection 2.6(a), no Pay Out Event or an event which with notice or lapse of time or both would constitute a Pay Out Event shall have occurred and (ii) after giving effect to such Exchange, the Asset Base would at least equal the Aggregate Adjusted Principal Amount, and (g) evidence, satisfactory to the Trustee, of any deposit to a Distribution Account required in connection with the issuance of a Replacement Series. Upon satisfaction of such conditions, the Trustee shall cancel the existing Transferor Interest or applicable Notes, as the case may be, and issue or make an appropriate entry in the Register, as the case may be and as provided above, such Series of Notes and a new Transferor Interest, dated the Exchange Date. There is no limit to the number of Exchanges that may be performed under this Agreement. (c) In conjunction with an Exchange, the parties hereto shall execute a Supplement, which shall specify the relevant terms with respect to any newly issued Series of Notes, which may include without limitation: (i) its name or designation, (ii) an Initial Principal Amount or the method of calculating the Initial Principal Amount, (iii) the Note Rate (or formula for the determination thereof), (iv) the Closing Date, (v) the Rating Agency or Agencies rating such Series, (vi) the name of the Clearing Agency, if any, (vii) the rights of the Holder of the Transferor Interest that have been transferred to the Holders of such Series pursuant to such Exchange, (viii) the interest payment date or dates and the date or dates from which interest shall accrue, (ix) the method of allocating amounts to such Series pursuant to Article IV and, if applicable, with respect to other Series and the method by which the principal amount of Notes of such Series shall amortize or accrue, (x) the names of any accounts to be used by such Series and the terms governing the operation of any such accounts, (xi) the Series Termination Date, (xii) the terms of any Enhancement with respect to such Series, (xiii) the Enhancement Provider(s), if applicable, (xiv) the terms on which the Notes of such Series may be repurchased or remarketed to other investors, (xv) any deposit into any account provided for such Series, (xvi) the number of Classes of such Series, and if more than one Class, the rights and priorities of each such Class, (xvii) the priority of any Series with respect to any other Series, and (xviii) any other relevant terms of such Series (including whether or not such Series will be pledged as collateral for an issuance of any other securities, including commercial paper or whether or not such Series is a Replacement Series) (all such terms, the "Principal Terms" of such Series). The terms of such Supplement may modify or amend the terms of this Agreement solely as applied to such new Series. Section 6.13 Note Transfer Restrictions. (a) Unless otherwise provided in the related Supplement, in the case of any Notes issued by the Trust for which an Opinion of Counsel is not delivered that such Class of Notes will be treated as debt for federal income tax purposes (a "Restricted Note"), no sale, assignment, participation, transfer or other disposition (a "Transfer") of any such Restricted Note (or any interest therein) shall be made unless the Transferor and the Servicer shall have granted their prior consent to such Transfer, which consent shall not be unreasonably withheld. Moreover, in no event shall a transfer of a Restricted Note be permitted to a partnership, S corporation or grantor trust. The Transferor and Servicer shall not approve a Transfer of a Restricted Note and consent will be deemed to be reasonably withheld if the Transfer creates a substantial risk that the Trust would be taxable as a corporation for federal income tax purposes. Any Holder of a Restricted Note which wishes to effect a Transfer must deliver to the Transferor and the Servicer the following representation prior to the Transfer: The Purchaser has neither acquired nor will it sell, trade, assign or otherwise dispose of the Note(s) (or any interest therein) or cause the Note(s) (or any interest therein) to be marketed on or through (i) an "established securities market" within the meaning of section 7704(b)(1) of the Code, including, without limitation, an over-the-counter market or an interdealer quotation system that regularly disseminates firm buy or sell quotations or (ii) a "secondary market" within the meaning of section 7704(b)(2) of the Code, including a market wherein the Notes (or any interests therein) are regularly quoted by any person making a market in such interests and a market wherein any person regularly makes available bid or offer quotes with respect to the Notes (or any interest therein) and stands ready to effect buy or sell transactions at the quoted prices for itself or on behalf of others. If the Transferor and Servicer do not object to the Transfer within 5 Business Days of the receipt of the above representation, the Transfer Agent and Registrar shall record the Transfer. (b) The Transferor shall designate 20% of the principal amount of each Class of Notes of a Series which is issued by the Trust for which an Opinion of Counsel is not delivered that such Class of Notes will be treated as debt for federal income tax purposes ("Restricted Subclass Notes") to be subject to the following transfer restrictions in addition to those described in subparagraph (a) of this Section: (i) if Restricted Subclass Notes are held by the Transferor, such Notes will only be transferable with the consent of a majority in interest of each Class of Notes for which an Opinion of Counsel is not delivered that such Class of Notes will be treated as debt for federal income tax purposes and a majority in interest of the holders of each issuance of constituent interests in the Transferor Interest and (ii) if Restricted Subclass Notes are held by a Person other than the Transferor, such Notes will only be transferable with the consent of the Transferor, a majority in interest of each Class of Notes for which an Opinion of Counsel is not delivered that such Class of Notes will be treated as debt for federal income tax purposes and a majority in interest of the holders of any constituent interests in the Transferor Interest. Section 6.14 Constituent Transferor Interests. (a) Subject to the satisfaction of the conditions set forth in Section 6.14(c) and Section 6.3(b), the Holder of the Transferor Interest may at any time and from time to time create a constituent interest in the Transferor Interest by (i) authorizing or directing the Trustee to issue an interest in the Trust that is payable from amounts that are otherwise allocable to the Transferor Interest, or (ii) authorizing or directing the Trustee to reallocate all or any portion of the amounts distributable to the Holder of the Transferor Interest pursuant to Article IV and Article V to any other Holder. In connection with such issuance or reallocation, the Transferor may assign an interest rate to the Transferor Interest(s) or a portion thereof. Upon presentation to the Trustee and the Paying Agent of documentation satisfactory to the Trustee (to which the Trustee may be a party, if requested by the Transferor) reallocating payments with respect to the Transferor Interest, the Paying Agent shall pay amounts due hereunder to the Holder of the Transferor Interest or to the holders of such constituent interests, as the case may be, pursuant to the terms of such documentation. The minimum denomination of issuance of any constituent interest in the Transferor Interest will be $20,000. (b) The documentation referred to in subsection (a) of this Section 6.14 shall set forth the rights of the holders of the interests issued thereby with respect to the approval of amendments and waivers pursuant to Section 13.1. (c) As a condition precedent to the issuance of the constituent interests pursuant to this Section 6.14, (A) the Trustee and the Transferor shall have received an opinion of outside tax counsel to the effect that (i) the constituent interests issued and sold to third parties will be characterized as indebtedness or an interest in a partnership (not taxable as a corporation) for federal income tax purposes, (ii) the issuance of the constituent interests will not cause outstanding Notes to be characterized as other than indebtedness for federal income tax purposes and (iii) the issuance of the constituent interests will not be treated as a taxable sale, exchange or other disposition of the Trust Assets for federal income tax purposes, (B) in the reasonable belief of the Transferor, as evidenced by an Officer's Certificate, such issuance of constituent interests would not cause a Pay Out Event to occur, or an event which, with notice or lapse of time or both, would constitute a Pay Out Event, and (C) the Rating Agency Condition shall have been satisfied. (d) Any holder who wishes to effect a Transfer of a constituent interest must deliver to the Transferor and the Servicer the representation set forth in Section 6.13. ARTICLE VII OTHER MATTERS RELATING TO TRANSFEROR Section 7.1 Liability of Transferor. The Transferor shall be liable in accordance herewith to the extent, and only to the extent, of the obligations specifically undertaken by the Transferor hereunder. Section 7.2 Merger or Consolidation of, or Assumption of the Obligations of, Transferor, etc. (a) Transferor shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which Transferor is merged or the Person which acquires by conveyance or transfer the properties and assets of the Transferor substantially as an entirety shall be, if the Transferor is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the performance of every covenant and obligation of the Transferor, as applicable hereunder, and shall benefit from all the rights granted to the Transferor, as applicable hereunder; (ii) the Transferor shall have delivered to the Trustee and, to the extent provided in the related Supplement, to each Enhancement Provider, an Officer's Certificate of Transferor and an Opinion of Counsel, each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 7.2 and that all conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to such surviving entity; (iii) the Transferor shall have complied with Section 6.3(b) to the extent applicable; and (iv) the Transferor shall have delivered notice of such consolidation, merger, conveyance or transfer to each Rating Agency and, with respect to each Series that is rated by a Rating Agency, the Rating Agency Condition shall have been satisfied and, with respect to each other Series, the consent thereto of the Required Holders has been obtained. (b) The obligations of the Transferor hereunder shall not be assignable nor shall any Person succeed to the obligations of the Transferor hereunder except for mergers, consolidations, assumptions or transfers in accordance with the provisions of the foregoing paragraph. Section 7.3 Limitation on Liability of Transferor. Except as expressly provided herein, neither the Transferor nor any of the directors, officers, employees and agents of the Transferor shall be under any liability to the Trust, the Trustee, the Noteholders, the Holder of the Transferor Interest or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether arising from express or implied duties under this Agreement, it being expressly understood that all such liability is expressly waived and released as a condition of, and as consideration for, the execution of this Agreement and any Supplement and the issuance of the Notes and the book-entry notation in the Register evidencing the Transferor Interest; provided, however, that the Transferor hereby assumes liability for any liabilities, costs or expenses of the Trust arising under any tax law, including without limitation any foreign, federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by the Trust in connection herewith to any taxing authority; provided, further, that this provision shall not protect Transferor or any such Person against any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of willful misconduct hereunder. The Transferor and any director, officer, employee and agent of the Transferor may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. Section 7.4 Liabilities. A creditor of the Trust may seek personal satisfaction from the Transferor to the extent that the Trust assets are insufficient to satisfy the creditor's claims as though this Agreement created a partnership under the Delaware Uniform Partnership law in which the Transferor is the general partner; provided, however, that the Transferor shall not be liable to or indemnify or hold harmless the Trustee, the Noteholders or the Collateral Trustee or any of its respective officers, directors, employees or agents as to any loss, liability, expense, damage or injury suffered or sustained by reason of fraud, negligence or willful misconduct on the part of the Trustee or the Collateral Trustee, as the case may be, or any of its respective officers, directors, employees or agents; and provided further, however, that, in no event will the Transferor be liable, directly or indirectly, for or in respect of any indebtedness evidenced or created by any Note or the Transferor Interest, recourse as to which shall be limited solely to the assets of the Trust allocated for the payment thereof as provided in this Agreement and any applicable Supplement. Section 7.5 Decisions with Respect to the Trust. Transferor agrees that all decisions with respect to the Trust that are not, pursuant to the terms of this Agreement, otherwise required to be made by other parties, are to be made by the Transferor. ARTICLE VIII OTHER MATTERS RELATING TO THE SERVICER Section 8.1 Liability of the Servicer. The Servicer shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Servicer in such capacity herein. Section 8.2 Merger or Consolidation of, or Assumption of the Obligations of, the Servicer. The Servicer shall not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless: (i) the Person formed by such consolidation or into which the Servicer is merged or the Person which acquires by conveyance or transfer the properties and assets of the Servicer substantially as an entirety shall be, if the Servicer is not the surviving entity, organized and existing under the laws of the United States of America or any State or the District of Columbia and shall expressly assume, by an agreement supplemental hereto, executed and delivered to the Trustee in form satisfactory to the Trustee, the performance of every covenant and obligation of the Servicer hereunder, and shall benefit from all the rights granted to the Servicer, as applicable hereunder; (ii) the Servicer has delivered to the Trustee and each Enhancement Provider an Officer's Certificate and an Opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental agreement comply with this Section 8.2 and that all conditions precedent herein provided for relating to such transaction have been complied with and, in the case of the Opinion of Counsel, that such supplemental agreement is legal, valid and binding with respect to such surviving entity; (iii) the Servicer shall have delivered notice of such consolidation, merger, conveyance or transfer to each of the Rating Agencies; and (iv) after giving effect thereto, no Pay Out Event or an event which with notice or lapse of time or both would constitute a Pay Out Event shall have occurred. Section 8.3 Limitation on Liability of the Servicer and Others. Except as provided herein, neither the Servicer nor any of the directors or officers or employees or agents of the Servicer shall be under any liability to the Trust, the Trustee, the Noteholders, the Holder of the Transferor Interest or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement whether arising from express or implied duties under this Agreement; provided, however, that this provision shall not protect the Servicer or any such Person against any liability which would otherwise be imposed by reason of its willful misfeasance, bad faith or negligence in the performance of duties or by reason of its willful misconduct hereunder. The Servicer and any director or officer or employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. Section 8.4 Indemnification of the Trust, the Trustee and the Collateral Trustee. The Servicer shall indemnify and hold harmless the Transferor, the Trust, the Trustee (and its officers, directors, employees and agents) and the Collateral Trustee (and its officers, directors, employees and agents) from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of activities of the Trust, the Trustee or the Collateral Trustee pursuant to this Agreement, including those arising from acts or omissions of the Servicer pursuant to this Agreement, including, but not limited to any judgment, award, settlement, reasonable attorneys' fees and other costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; provided, however, that the Servicer shall not indemnify the Transferor, the Trust, the Trustee or the Collateral Trustee if such acts, omissions or alleged acts (other than its own) constitute willful misfeasance, bad faith or negligence by such Person; provided further, that the Servicer shall not indemnify the Transferor, the Trust, the Trustee or the Collateral Trustee (or, directly or indirectly, any Noteholders or any Note Owners), for any liabilities, costs or expenses of the Transferor or the Trust with respect to any action taken by the Trustee or the Collateral Trustee, as the case may be, at the request of any Noteholders; provided further, that the Servicer shall not indemnify the Transferor or the Trust (or, directly or indirectly, any Noteholders or any Note Owners) as to any losses, claims or damages incurred by any of them in their capacities as investors, including without limitation losses incurred as a result of Defaulted Leases which are written off as uncollectible; and provided further, that the Servicer shall not indemnify the Trust, the Trustee, the Collateral Trustee (or, directly or indirectly, any Noteholders or the Note Owners) for any liabilities, costs or expenses of the Trust, the Trustee, the Collateral Trustee (or, directly or indirectly, any Noteholders or the Note Owners) arising under any tax law, including without limitation any federal, state or local income or franchise taxes or any other tax imposed on or measured by income (or any interest or penalties with respect thereto or arising from a failure to comply therewith) required to be paid by the Trust, such Noteholders or such Note Owners in connection herewith to any taxing authority. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof. Any indemnification pursuant to this Section shall not be payable from the Trust Assets. The obligations of the Servicer under this Section 8.4 shall survive the termination of the Trust and the removal of the Servicer and the resignation or removal of the Trustee and/or the Collateral Trustee. Notwithstanding the foregoing, the Servicer shall not be responsible for the actions of a successor servicer. Section 8.5 The Servicer Not to Resign. The Servicer shall not resign from the obligations and duties hereby imposed on it except upon determination that (i) the performance of its duties hereunder is or becomes impermissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (i) above by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until the Trustee or a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 10.2. If the Trustee is unable within 120 days of the date of such determination to appoint a Successor Servicer, the Trustee shall serve as successor Servicer hereunder subject to the provisions of Section 10.2 hereof. Section 8.6 Access to Certain Documentation and Information Regarding the Included Leases. To the extent that documentation regarding Included Leases and related Equipment is not otherwise held in custody by the Trustee, the Servicer shall provide to the Trustee access to the documentation regarding such Included Leases and the related Equipment in such cases where the Trustee is required in connection with the enforcement of the rights of the Trust, or by applicable statutes or regulations to review such documentation, such access being afforded without charge but only (i) upon reasonable request, (ii) during normal business hours, (iii) subject to the Servicer's normal security and confidentiality procedures and (iv) at offices designated by the Servicer. Section 8.7 Delegation of Duties. Any delegation of duties permitted under Article III shall not relieve the Servicer of its liability and responsibility with respect to such duties, and shall not constitute a resignation within the meaning of Section 8.5. Section 8.8 Contents of Records. The Servicer shall clearly and unambiguously identify each Included Lease and the related Equipment in its computer or other records to reflect that such Leases and Equipment have been transferred by the Transferor to the Trust pursuant to this Agreement. ARTICLE IX PAY OUT EVENTS Section 9.1 Pay Out Events. If any one of the following events shall occur with respect to any Series: (a) failure on the part of the Transferor: (i) to make any payment or deposit required by the terms of (A) the Agreement, or (B) any Supplement, on or before the date occurring three Business Days after the date such payment or deposit is required to be made; or (ii) duly to observe or perform in any material respect any covenants or agreements applicable to it set forth in the Agreement or any Supplement, which failure has a material adverse effect on the Noteholders of such Series and which continues unremedied for a period of 60 days after the first to occur of (A) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor by the Trustee, or to the Transferor and the Trustee by the Holders of a principal amount of Notes aggregating not less than 25% of the Principal Amount of any Series adversely affected thereby or (B) the date on which a Responsible Officer of the Servicer becomes aware of such failure, and such failure continues to affect materially and adversely the interests of such Noteholders for such period; or (b) any representation or warranty made by the Transferor in this Agreement or any Supplement, or any information contained in a computer file or microfiche list required to be delivered by the Transferor pursuant to Section 2.1 or 2.6, shall prove to have been incorrect in any material respect when made or when delivered, which continues to be incorrect in any material respect for a period of 60 days after the first to occur of (A) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Transferor by the Trustee, or to the Transferor and the Trustee by the Holders of a principal amount of Notes aggregating not less than 25% of the Principal Amount of any Series adversely affected thereby and (B) the date on which a Responsible Officer of the Transferor becomes aware of such incorrectness, and as a result of which the interests of the Noteholders are materially and adversely affected and continue to be materially and adversely affected for such period; provided, however, that a Pay Out Event pursuant to this subsection 9.1(b) shall not be deemed to have occurred hereunder if the Transferor has accepted reassignment of the related Lease, or all of such Leases, if applicable, during such period in accordance with the provisions hereof; or (c) an Insolvency Event shall occur with respect to the Transferor or the Servicer; or (d) any Servicer Default shall occur; or (e) any Note has not been paid in full on or before its Scheduled Termination Date; or (f) the Trust or Transferor shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; then, and in any such event described in subparagraph (a), (b) or (d), after the applicable grace period set forth in such subparagraphs, either the Trustee or the Holders of a principal amount of Notes aggregating more than 662/3% of the Aggregate Principal Amount by notice then given in writing to the Transferor and the Servicer (and to the Trustee if given by the Noteholders) may declare that a pay out event (a "Trust Pay Out Event") has occurred as of the date of such notice and in the case of any event described in subparagraph (c), (e) or (f) a Pay Out Event shall occur immediately upon the occurrence of such event without any notice or other action on the part of the Trustee or the Noteholders. Notwithstanding the foregoing, a delay in or failure of performance referred to in subsection 9.1(a)(i) for a period of ten Business Days, or under subsection 9.1(a)(ii) or 9.1(b) for a period of 60 days, in each case without giving effect to any grace period specified in such subsections, shall not constitute a Pay Out Event for purposes of this sentence until the expiration of such period, if such failure could not be prevented by the exercise of reasonable diligence by the Transferor or the Servicer and such failure was caused by (i) an act of God or the public enemy, acts of declared or undeclared war, public disorder, rebellion, riot or sabotage, epidemics, landslides, lightning, fire, hurricanes, tornadoes, earthquakes, nuclear disasters or meltdowns, floods, power outages, bank closings, or similar causes or (ii) computer malfunction, communication malfunction or other electronic system malfunction or similar causes. The preceding sentence shall not relieve the Transferor or the Servicer from using all reasonable efforts to perform their respective obligations in a timely manner in accordance with the terms of this Agreement and any Supplement and the Transferor or the Servicer shall provide the Trustee and each Rating Agency with an Officer's Certificate giving prompt notice of such failure, together with a description of its efforts to so perform its obligations. Notice of any such Pay Out Event shall be given by the Servicer to the Rating Agencies. Section 9.2 Additional Rights Upon the Occurrence of Certain Events. (a) If an Insolvency Event occurs with respect to the Transferor, the Transferor shall promptly give notice to the Trustee thereof. Within 15 days after a Responsible Officer of the Trustee receives notice of the Insolvency Event or otherwise learns of an Insolvency Event, the Trustee shall (i) publish a notice in an Authorized Newspaper that an Insolvency Event has occurred and that the Trustee intends to sell, dispose of or otherwise liquidate the Trust Assets in a commercially reasonable manner and (ii) send written notice to the Noteholders describing the provisions of this Section 9.2 and requesting instructions from such Holders. If after 30 days from the day notice pursuant to clause (i) above is first published (the "Publication Date"), the Trustee shall not have received written instructions from a majority in interest of the Holders of each Class of Notes of a Series which is issued by the Trust for which an Opinion of Counsel is not delivered that such Class of Notes will be treated as debt for federal income tax purposes and a majority in interest of the holders of each issuance of constituent interests in the Transferor Interest to the effect that the Trustee shall not instruct the Servicer to sell, dispose of, or otherwise liquidate the Trust Assets, the Trustee, subject to the following proviso, shall instruct the Servicer to proceed to take such preparatory actions as the Trustee may deem appropriate in order to sell, dispose of, or otherwise liquidate the Trust Assets in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids; provided, however, no such sale, disposition or liquidation, whether in whole or in part, of the Trust Assets shall be consummated until and unless the occurrence of refusal to provide the written response referred to above within the 30 days described above (a "Response"). The Trustee may obtain a prior determination from any bankruptcy trustee, conservator or receiver that the terms and manner of any proposed sale, disposition or liquidation are commercially reasonable. The provisions of Sections 9.1 and 9.2 shall not be deemed to be mutually exclusive. (b) The proceeds from the sale, disposition or liquidation of the Trust Assets pursuant to subsection (a) above shall be treated as Collections on the Included Leases and shall be allocated and deposited in accordance with the provisions of Article IV. On the day following the Distribution Date on which such proceeds are scheduled to be distributed to the Noteholders, the Trust shall terminate. ARTICLE X SERVICER DEFAULTS Section 10.1 Servicer Defaults. If any one of the following events (a "Servicer Default") shall occur and be continuing: (a) any failure by the Servicer to make any payment, transfer or deposit or to give instructions or notice to the Trustee pursuant to Article IV or to make any required drawing, withdrawal, or payment under any Enhancement, or to deliver any required monthly servicing report hereunder on or before the date occurring three Business Days after the date such payment, transfer, deposit, withdrawal or drawing, or such instruction or notice or report is required to be made or given, as the case may be, under the terms of this Agreement; or (b) failure on the part of the Servicer duly to observe or perform in any material respect any other covenants or agreements of the Servicer set forth in this Agreement or any Supplement which has a material adverse effect on the Noteholders and the Holder of the Transferor Interest, which continues unremedied for a period of 30 days after the first to occur of (A) the date on which written notice of such failure requiring the same to be remedied shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of a principal amount of Notes aggregating not less than 25% of the Principal Amount of any Series adversely affected thereby and (B) the date on which a Responsible Officer of the Servicer becomes aware thereof and such failure continues to materially adversely affect such Noteholders for such period; or (c) any representation, warranty or certification made by the Servicer in this Agreement or any Supplement or in any certificate delivered pursuant to this Agreement or any Supplement shall prove to have been incorrect when made, which has a material adverse effect on the Noteholders and the Holder of the Transferor Interest and which continues to be incorrect in any material respect for a period of 30 days after the first to occur of (A) the date on which written notice of such incorrectness requiring the same to be remedied shall have been given to the Servicer by the Trustee, or to the Servicer and the Trustee by the Holders of a principal amount of Notes aggregating not less than 25% of the Principal Amount of any Series adversely affected thereby and (B) the date on which a Responsible Officer of the Servicer becomes aware thereof, and such incorrectness continues to materially adversely affect such Holders for such period; or (d) an Insolvency Event shall occur with respect to the Servicer; or (e) the Servicer delegates any of its duties hereunder except to the extent such delegation is permitted hereunder; or (f) as of the last day of any fiscal quarter of the Servicer the consolidated net worth of the Servicer is less than $6,000,000; then, so long as such Servicer Default shall not have been remedied, either the Trustee or the Holders of a principal amount of Notes aggregating more than 662/3% of the Aggregate Principal Amount, by notice then given in writing to the Servicer (and to the Trustee if given by the Noteholders) (a "Termination Notice"), may terminate all of the rights and obligations of the Servicer as Servicer under this Agreement. After receipt by the Servicer of such Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 10.2, all authority and power of the Servicer under this Agreement shall pass to and be vested in a Successor Servicer; and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of the Servicer to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing hereunder, including without limitation, the transfer to such Successor Servicer of all authority of the Servicer to service the Trust Assets provided for under this Agreement, including, without limitation, all authority over all Collections which shall on the date of transfer be held by the Servicer for deposit, or which have been deposited by the Servicer, in any Collection Account or Series Account, or which shall thereafter be received with respect to the Trust Assets, and in assisting the Successor Servicer and in enforcing all rights to Insurance Proceeds. The Servicer shall promptly transfer the Lease Files and its electronic records relating to the Included Leases to the Successor Servicer in such electronic form as the Successor Servicer may reasonably request and shall promptly transfer to the Successor Servicer all other records, correspondence and documents necessary for the continued servicing of the Included Leases in the manner and at such times as the Successor Servicer shall reasonably request. To the extent that compliance with this Section 10.1 shall require the Servicer to disclose to the Successor Servicer information of any kind which the Servicer reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as the Servicer shall deem reasonably necessary to protect its interest. The Servicer shall, on the date of any servicing transfer, transfer all of its rights and obligations, if any, in respect of any Enhancement to the Successor Servicer. In connection with any servicing transfer, all reasonable costs and expenses (including reasonable attorneys' fees and expenses) incurred in connection with transferring the Included Leases and the other Trust Assets to the Successor Servicer and amending this Agreement to reflect such succession as Successor Servicer pursuant to this Section 10.1 and Section 10.2 shall be paid by the Servicer (unless the Trustee is acting as the Servicer, in which case the original Servicer) upon presentation of reasonable documentation of such costs and expenses. Notwithstanding the foregoing, a delay in or failure of performance referred to in subsection 10.1(a) for a period of ten Business Days, or under subsection 10.1(b), (c) or (e) for a period of 60 days, in each case without giving effect to any grace period specified in such subsections, shall not constitute a Servicer Default if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Servicer and such delay or failure was caused by an act of God or public enemy, acts of declared or undeclared war, public disorder, rebellion, riot or sabotage, epidemics, landslides, lightning, fire, hurricanes, tornadoes, earthquakes, nuclear disasters or meltdowns, floods, power outages, bank closings, communications malfunction, computer malfunction or other electronic system malfunction or similar causes. The preceding sentence shall not relieve the Servicer from using its best efforts to perform its obligations in a timely manner in accordance with the terms of this Agreement and the Servicer shall provide the Trustee and the Transferor with an Officer's Certificate giving prompt notice of such failure or delay by it, together with a description of the cause of such failure or delay and its efforts so to perform its obligations. Section 10.2 Trustee to Act; Appointment of Successor. (a) On and after the receipt by the Servicer of a Termination Notice pursuant to Section 10.1, the Servicer shall continue to perform all servicing functions under this Agreement until the date specified in the Termination Notice or otherwise specified by the Trustee in writing or, if no such date is specified in such Termination Notice or otherwise specified by the Trustee, until a date mutually agreed upon by the Servicer and the Trustee. The Trustee shall as promptly as possible after the giving of a Termination Notice appoint a successor servicer (the "Successor Servicer"), and such Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. If the Trustee is unable to appoint any successor servicer and the Servicer delivers an Officer's Certificate to the effect that it cannot in good faith cure the Servicer Default which gave rise to a transfer of servicing, then the Trustee shall offer the Servicer the right to accept retransfer of all the Trust Assets and the Servicer may accept retransfer of all the Trust Assets, provided, however, that if the long-term unsecured debt obligations of the Servicer are not rated at the time of such purchase at least investment grade by each Rating Agency, no such retransfer shall occur unless the Servicer shall deliver an Opinion of Counsel reasonably acceptable to the Trustee that such retransfer would not constitute a fraudulent conveyance of the Servicer. The retransfer deposit amount for such a retransfer shall be equal to the sum of the Aggregate Principal Amount, plus accrued interest thereon, at the Note Rate, through the date of retransfer. In the event that a Successor Servicer has not been appointed and has not accepted its appointment at the time when the Servicer ceases to act as Servicer, the Trustee without further action shall automatically be appointed the Successor Servicer. Notwithstanding the above, the Trustee shall, if it is legally unable so to act, petition a court of competent jurisdiction to appoint any established financial institution having a net worth of not less than $20,000,000 and whose regular business includes the servicing of Leases as the Successor Servicer hereunder. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicer with respect to servicing functions under this Agreement and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on the Servicer by the terms and provisions hereof, and all references in this Agreement to the Servicer shall be deemed to refer to the Successor Servicer. Any Successor Servicer, by its acceptance of its appointment, will automatically agree to be bound by the terms and provisions of any Enhancement to the extent that such terms apply to the Servicer. (c) In connection with such appointment and assumption, the Trustee shall be entitled to such compensation, or may make such arrangements for the compensation of the Successor Servicer out of Collections, as it and such Successor Servicer shall agree; provided, however, that no such compensation shall be in excess of the Monthly Servicing Fee. (d) All authority and power granted to the Servicer under this Agreement shall automatically cease and terminate upon termination of the Trust pursuant to Section 12.1 and shall pass to and be vested in the Transferor and, without limitation, the Transferor is hereby authorized and empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights. The Servicer agrees to cooperate with the Transferor in effecting the termination of the responsibilities and rights of the Servicer to conduct servicing on the Included Leases. Section 10.3 Notification to Holders. Upon the Servicer's becoming aware of the occurrence of any Servicer Default, the Servicer shall give prompt written notice thereof to the Trustee and the Trustee shall give notice to the Noteholders at their respective addresses appearing in the Register. Upon any termination or appointment of a Successor Servicer pursuant to this Article X, the Trustee shall give prompt written notice thereof to the Noteholders at their respective addresses appearing in the Register. A copy of any notice given pursuant to this Section 10.3 shall be delivered by the Servicer to each Rating Agency. Section 10.4 Waiver of Past Defaults. The Holders of a principal amount of Notes aggregating not less than 662/3% of the Principal Amount of each Series affected thereby may, on behalf of all Noteholders and the Holder of the Transferor Interest, waive any default by the Servicer or the Transferor in the performance of its obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments in accordance with Article IV, provided, however, that no such waiver shall affect any rights of, or obligations to, any Enhancement Provider hereunder. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. ARTICLE XI THE TRUSTEE AND THE COLLATERAL TRUSTEE Section 11.1 Duties of Trustee. (a) The Trustee, prior to the occurrence of a Servicer Default of which a Responsible Officer of the Trustee has actual knowledge and after the curing of all Servicer Defaults which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied duties or covenants shall be read into this Agreement against the Trustee. If a Responsible Officer of the Trustee has received notice that a Servicer Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in the exercise of such rights and powers, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs, provided, however, that if the Trustee shall assume the duties of the Servicer pursuant hereto, the Trustee in performing such duties shall use the degree of skill and attention customarily exercised by a servicer with respect to comparable Leases that it services for itself or others. (b) The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Agreement, shall examine them to determine whether they reasonably conform to the requirements of this Agreement. The Trustee shall give prompt written notice to all Holders of any material lack of conformity of any such instrument to the applicable requirements of this Agreement discovered by the Trustee which would entitle a specified percentage of the Holders to take any action pursuant to this Agreement. Notwithstanding the foregoing, prior to the occurrence of a Servicer Default actually known to a Responsible Officer of the Trustee, the Trustee shall have no obligation to independently calculate, recompute, verify or confirm any information received from the Servicer. (c) No provision of this Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (ii) the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of a principal amount of Notes aggregating more than 50% of the Principal Amount of any Series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Agreement; and (iii) the Trustee shall not be charged with knowledge of any failure by the Servicer to comply with the obligations of the Servicer referred to in Section 10.1 or any Pay Out Event unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or Pay Out Event or the Trustee receives written notice of such failure from the Servicer or any Holders of a principal amount of Notes aggregating not less than 10% of the Principal Amount of any Series. (d) The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or indemnity against satisfactory to it such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of this Agreement. (e) Except for actions expressly authorized by this Agreement, the Trustee shall take no action reasonably likely to impair the interests of the Trust in the Trust Assets now existing or hereafter arising or to impair the value of any Included Lease. (f) Except as provided in Sections 2.6 and 2.7, the Trustee shall have no power to vary the corpus of the Trust, including, without limitation, the power to (i) accept any substitute obligation for a Lease initially assigned to the Trust under Section 2.1 or 2.6, (ii) add any other investment, obligation or security to the Trust or (iii) withdraw from the Trust any Leases, except for a withdrawal permitted under subsection 2.4(d) or 2.4(e), Article IV, or Section 9.2 or 12.1. (g) In the event that to the actual knowledge of a Responsible Officer of the Trustee the Paying Agent or the Transfer Agent and Registrar shall fail to perform any obligation, duty or agreement in the manner or on the day required to be performed by the Paying Agent or the Transfer Agent and Registrar, as the case may be, under this Agreement, the Trustee shall be obligated promptly to perform such obligation, duty or agreement in the manner so required. (h) If the Transferor has agreed to transfer any of its Leases to another Person, upon the written request of the Transferor, the Trustee on behalf of the Trust will enter into such intercreditor agreements with the transferee of such Leases as are customary and necessary to identify the rights of the Trust and such other Person, as the case may be, in the Transferor's Leases: provided, that the Trust shall not enter into any intercreditor agreement which could reasonably be expected to adversely affect the interests of itself or the Noteholders and the Holder of the Transferor Interest and, upon the request of the Trustee, the Transferor will deliver an Opinion of Counsel on any matters relating to such intercreditor agreement, requested by the Trustee. Section 11.2 Certain Matters Affecting the Trustee. Except as otherwise provided in Section 11.1: (a) the Trustee may rely on and shall be protected in acting on, or in refraining from acting in accordance with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; (b) the Trustee may consult with counsel and any advice from counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (c) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Noteholders or the Holder of the Transferor Interest or any Enhancement Provider, pursuant to the provisions of this Agreement, unless such Holders or such Enhancement Provider shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; provided, however, that nothing contained herein shall relieve the Trustee of the obligations, upon the occurrence of any Servicer Default (which has not been cured) of which a Responsible Officer of the Trustee has actual knowledge, to exercise such of the rights and powers vested in it by this Agreement or any Enhancement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (d) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) the Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of a principal amount of Notes aggregating more than 50% of the Principal Amount of any Series, provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation shall be, in the sole discretion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Agreement, the Trustee may require indemnity satisfactory to it against such cost, expense or liability as a condition to so proceeding; (f) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for the supervision of or any misconduct or negligence on the part of any such agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) except as may be required pursuant to subsection 11.1(a), the Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Included Leases or the related Equipment for the purpose of establishing the presence or absence of defects, the compliance by the Transferor with its representations and warranties or for any other purpose; and (h) the right of the Trustee to perform any discretionary act enumerated in this Agreement or any Supplement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act. (i) in the event that the Trustee is the Paying Agent, Transfer Agent or Registrar, the rights and protections afforded to the Trustee hereunder shall also be afforded to the Trustee acting in such other capacities. Section 11.3 Trustee Not Liable for Recitals in Notes. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Notes (other than the certificate of authentication on the Notes). Except as set forth in Section 11.15, the Trustee makes no representations as to the validity or sufficiency of this Agreement or any Supplement or of the Notes and the Transferor Interest (other than the certificate of authentication on the Notes) or of any Lease or related document. The Trustee shall not be accountable for the use or application by the Transferor of any of the Notes or the Transferor Interest or of the proceeds thereof, or for the use or application of any funds paid to the Transferor in respect of the Included Leases or deposited in the Collection Account, the Excess Funding Account or any other Series Account, or withdrawn from the Collection Account, by the Servicer. The Trustee shall have no duty to conduct any affirmative investigation as to the occurrence of any condition requiring the repurchase of any Lease by the Transferor pursuant to this Agreement or any Supplement or the eligibility of any Lease for purposes of this Agreement or any Supplement. The Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder (unless the Trustee shall have become the Successor Servicer) or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement or any Supplement. Section 11.4 Trustee May Own Notes. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes, and may deal with the Transferor, the Servicer or any Enhancement Provider, with the same rights as it would have if it were not the Trustee. Section 11.5 Servicer to Pay Trustee's Fees and Expenses. The Servicer covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to receive, compensation as agreed upon (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, subject to Section 8.4, the Servicer will pay or reimburse the Trustee (without reimbursement from any Series Account or otherwise) upon its request for all reasonable expenses, disbursements and advances, if any, incurred or made by the Trustee in accordance with any of the provisions of this Agreement (including the fees and reasonable expenses of its agents and counsel) except any such expense, disbursement or advance as may arise from its negligence or bad faith and except as provided in the following sentence. If the Trustee is appointed Successor Servicer pursuant to Section 10.2, the provisions of this Section 11.5 shall not apply to expenses, disbursements and advances made or incurred by the Trustee in its capacity as Successor Servicer. The obligations of the Servicer under this Section 11.5 shall survive the termination of the Trust and the resignation or removal of the Trustee. In the case of a sale, disposition or liquidation of the Trust Assets pursuant to subsection 9.2(a), the Trustee shall be entitled to retain from any amounts distributable to the Transferor pursuant to any Supplement with respect to any Series from the proceeds of such sale, disposition or liquidation an amount equal to the Trustee's expenses in connection with such sale, disposition or liquidation and the performance by the Trustee of the procedures set forth in subsection 9.2(a). Whenever the Trustee incurs expenses after the occurrence of an Insolvency Event with respect to the Transferor or Servicer, the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. Section 11.6 Eligibility Requirements for Trustee. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.6, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In addition, no institution shall qualify as a successor trustee hereunder unless its long-term debt obligations are rated at least investment grade by each Rating Agency. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 11.6, the Trustee shall resign immediately in the manner and with the effect specified in Section 11.7. Section 11.7 Resignation or Removal of Trustee. (a) The Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Transferor and the Servicer. Upon receiving such notice of resignation, the Transferor shall (i) promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee and (ii) provide written notice to each Rating Agency of such resignation. If no successor trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (b) The Servicer may at any time remove the Trustee and discharge it from the trust hereby created and appoint a successor trustee if (i) no Pay Out Event shall have occurred and is continuing and (ii) the Rating Agency Condition shall have been satisfied with respect thereto, by giving written notice thereof to the Trustee, provided, that all amounts then owing to the Trustee shall have been paid in full prior to any such removal. (c) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 11.6 and shall fail to resign after written request therefor by the Transferor, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Transferor may, but shall not be required to, remove the Trustee and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 11.7 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 11.8. Section 11.8 Successor Trustee. (a) Any successor trustee appointed as provided in Section 11.7 shall execute, acknowledge and deliver to the Transferor and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents and statements held by it hereunder; and Transferor and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. (b) No successor trustee shall accept appointment as provided in this Section 11.8 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 11.6. (c) Upon acceptance of appointment by a successor trustee as provided in this Section 11.8, such successor trustee shall mail notice of such succession hereunder to all Noteholders and the Holder of the Transferor Interest at their addresses as shown in the Register, and also to each Rating Agency. Section 11.9 Merger or Consolidation of Trustee. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.6, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 11.10 Appointment of Co-Trustee or Separate Trustee. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders and the Holder of the Transferor Interest, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 11.6 and no notice to Noteholders and the Holder of the Transferor Interest of the appointment of any co-trustee or separate trustee shall be required under Section 11.8. (b) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (c) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article XI. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer. (d) Any separate trustee or co-trustee may at any time constitute the Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. Section 11.11 Tax Returns. As set forth in Section 3.13, the Trustee shall not file any federal tax returns on behalf of the Trust; provided, however, that if the Trust shall be required to file tax returns, the Servicer, as soon as practicable after it is made aware of such requirement, shall prepare or cause to be prepared, and the Trustee is authorized hereunder to sign, any tax returns required to be filed by the Trust and, to the extent possible, the Servicer shall deliver such returns to the Trustee at least five days before such returns are due to be filed. The Servicer shall prepare or shall cause to be prepared all tax information required by law to be distributed to Noteholders and the Holder of the Transferor Interest and shall deliver such information to the Trustee at least five days prior to the date it is required by law to be so distributed to Holders. The Trustee, upon written request, will furnish the Servicer with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust. In no event shall the Trustee or the Servicer be liable for any liabilities, costs or expenses of the Trust, the Noteholders or the Note Owners arising under any tax law, including without limitation federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from a failure to comply therewith). Nothing in this Section 11.11 shall be construed as inconsistent with the characterization of the Notes as indebtedness of the Transferor for purposes of federal, state and local income or franchise taxes and any other tax imposed upon or measured by income, as expressed in Section 3.13. Section 11.12 Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Agreement or the Notes and the Transferor Interest may be prosecuted and enforced by the Trustee without the possession of any of the Notes and the Transferor Interest, or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Noteholders and the Holder of the Transferor Interest in respect of which such judgment has been obtained. Section 11.13 Suits for Enforcement. If a Servicer Default of which a Responsible Officer of the Trustee has actual knowledge shall occur and be continuing, the Trustee, in its discretion, may, subject to the provisions of Section 10.1, proceed to protect and enforce its rights and the rights of the Noteholders and the Holder of the Transferor Interest under this Agreement or any Supplement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any Supplement or in aid of the execution of any power granted in this Agreement or any Supplement or for the enforcement of any other legal, equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or such Holders. Section 11.14 Rights of Holders to Direct Trustee. Holders of a principal amount of Notes aggregating more than 50% of the Aggregate Principal Amount (or, with respect to any remedy, trust or power that does not relate to all Series, 50% of the aggregate unpaid principal amount of the Notes of all Series to which such remedy, trust or power relates) shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that, subject to Section 11.1, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Noteholders not parties to such direction; and provided further that nothing in this Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction. Section 11.15 Representations and Warranties of Trustee. The Trustee represents and warrants that: (i) The Trustee is a banking corporation organized, existing and in good standing under the laws of the State of New York; (ii) The Trustee is an entity that satisfies the eligibility requirements of Section 11.6; (iii) The Trustee has full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and (iv) This Agreement has been duly executed and delivered by the Trustee. Section 11.16 Maintenance of Office or Agency. The Trustee will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Notes and this Agreement may be served. The Trustee initially appoints its Corporate Trust Office as its office for such purposes in New York. The Trustee will give prompt written notice to the Servicer and to the Noteholders and the Holder of the Transferor Interest of any change in the location of the Register or any such office or agency. Section 11.17 Release of Collateral Trustee's Lien. Whenever under this Agreement the Trustee retransfers Trust Assets to the Transferor, the security interest in favor of the Collateral Trustee in such Included Leases and the related Equipment will be automatically released upon such retransfer. Whenever under this Agreement an Included Lease becomes an Expired Lease or an Early Termination Lease, the security interest in favor of the Collateral Trustee in such Included Lease will be automatically released upon such event. Whenever under this Agreement the Servicer substitutes or replaces any unit of Equipment as contemplated in Section 3.1 or any Included Lease and related Equipment as contemplated in Section 2.7 or 2.8, the security interest in favor of the Collateral Trustee in such unit of Equipment or Included Lease and related Equipment, as applicable, will be automatically released upon such event. In connection with any such release, the Collateral Trustee will execute and deliver to the Trustee (with a copy to the Servicer) any assignments, termination statements and any other releases and instruments as the Trustee or the Servicer may request in order to effect such release. Section 11.18 Requests for Agreement. A copy of this Agreement may be obtained by any Holder by a request in writing to the Trustee addressed to the Corporate Trust Office and will be provided at the expense of the Transferor. Section 11.19 Duties of Collateral Trustee. (a) The Collateral Trustee, prior to the occurrence of a Pay Out Event of which a Responsible Officer of the Collateral Trustee has actual knowledge and after the curing of all Pay Out Events which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Agreement, and no implied duties or covenants shall be read into this Agreement against the Collateral Trustee. If a Responsible Officer of the Collateral Trustee has received notice that a Pay Out Event has occurred (which has not been cured or waived), the Collateral Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in the exercise of such rights and powers, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) In the absence of bad faith on its part, the Collateral Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Trustee and conforming to the requirements of this Agreement; provided, however, that the Collateral Trustee shall examine the certificates and opinions to determine whether or not they conform to any applicable requirements of this Agreement. (c) No provision of this Agreement shall be construed to relieve the Collateral Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) the Collateral Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Collateral Trustee, unless it shall be proved that the Collateral Trustee was negligent in ascertaining the pertinent facts; (ii) the Collateral Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Holders of a principal amount of Notes aggregating more than 50% of the Principal Amount of any Series relating to the time, method and place of conducting any proceeding for any remedy available to the Collateral Trustee, or exercising any trust or power conferred upon the Collateral Trustee, under this Agreement; and (iii) the Collateral Trustee shall not be charged with knowledge of any Pay Out Event unless a Responsible Officer of the Collateral Trustee obtains actual knowledge of such Pay Out Event. (d) The Collateral Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or indemnity against satisfactory to it such risk or liability is not reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Collateral Trustee to perform, or be responsible for the manner of performance of, any of the obligations of the Servicer under this Agreement. (e) Except for actions expressly authorized by this Agreement, the Collateral Trustee shall take no action reasonably likely to impair the interests of the Trust in the Trust Assets now existing or hereafter arising or to impair the value of any Included Lease. Section 11.20 Certain Matters Affecting the Collateral Trustee. Except as otherwise provided in Section 11.19: (a) the Collateral Trustee may rely on and shall be protected in acting on, or in refraining from acting in accordance with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to this Agreement by the proper party or parties; (b) the Collateral Trustee may consult with counsel and any advice from counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such advice or Opinion of Counsel; (c) the Collateral Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Noteholders or any Enhancement Provider, pursuant to the provisions of this Agreement, unless such Holders or such Enhancement Provider shall have offered to the Collateral Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby; provided, however, that nothing contained herein shall relieve the Collateral Trustee of the obligations, upon the occurrence of any Pay Out Event (which has not been cured) of which a Responsible Officer of the Collateral Trustee has actual knowledge, to exercise such of the rights and powers vested in it by this Agreement or any Enhancement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs; (d) the Collateral Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Agreement; (e) the Collateral Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of a principal amount of Notes aggregating more than 50% of the Principal Amount of any Series, provided, however, that if the payment within a reasonable time to the Collateral Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation shall be, in the sole discretion of the Collateral Trustee, not reasonably assured to the Collateral Trustee by the security afforded to it by the terms of this Agreement, the Collateral Trustee may require indemnity satisfactory to it against such cost, expense or liability as a condition to so proceeding; (f) the Collateral Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys or a custodian or nominee, and the Collateral Trustee shall not be responsible for the supervision of or any misconduct or negligence on the part of any such agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) the Collateral Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Included Leases or the related Equipment for the purpose of establishing the presence or absence of defects, the compliance by the Transferor with its representations and warranties or for any other purpose; and (h) the right of the Collateral Trustee to perform any discretionary act enumerated in this Agreement or any Supplement shall not be construed as a duty, and the Collateral Trustee shall not be answerable for other than its negligence or willful misconduct in the performance of any such act. (i) in the event that the Collateral Trustee is the Paying Agent, Transfer Agent or Registrar, the rights and protections afforded to the Collateral Trustee hereunder shall also be afforded to the Collateral Trustee acting in such other capacities. Section 11.21 Collateral Trustee Not Liable for Recitals in Notes. The Collateral Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Notes. Except as set forth in Section 11.32, the Collateral Trustee makes no representations as to the validity or sufficiency of this Agreement or any Supplement or of the Notes and the Transferor Interest or of any Lease or related document. The Collateral Trustee shall not be accountable for the use or application by the Transferor of any of the Notes or the Transferor Interest or of the proceeds thereof, or for the use or application of any funds paid to the Transferor in respect of the Included Leases or deposited in the Collection Account, the Excess Funding Account or any other Series Account, or withdrawn from the Collection Account, by the Servicer. The Collateral Trustee shall have no duty to conduct any affirmative investigation as to the occurrence of any condition requiring the repurchase of any Lease by the Transferor pursuant to this Agreement or any Supplement or the eligibility of any Lease for purposes of this Agreement or any Supplement. The Collateral Trustee shall have no responsibility for filing any financing or continuation statement in any public office at any time or to otherwise perfect or maintain the perfection of any security interest or lien granted to it hereunder or to prepare or file any Securities and Exchange Commission filing for the Trust or to record this Agreement or any Supplement. Section 11.22 Collateral Trustee May Own Notes. The Collateral Trustee in its individual or any other capacity may become the owner or pledgee of Notes, and may deal with the Transferor, the Servicer or any Enhancement Provider, with the same rights as it would have if it were not the Collateral Trustee. Section 11.23 Servicer to Pay Collateral Trustee's Fees and Expenses. The Servicer covenants and agrees to pay to the Collateral Trustee from time to time, and the Collateral Trustee shall be entitled to receive, compensation as agreed upon (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Collateral Trustee, and, subject to Section 8.4, the Servicer will pay or reimburse the Collateral Trustee (without reimbursement from any Series Account or otherwise) upon its request for all reasonable expenses, disbursements and advances, if any, incurred or made by the Collateral Trustee in accordance with any of the provisions of this Agreement (including the fees and reasonable expenses of its agents and counsel) except any such expense, disbursement or advance as may arise from its negligence or bad faith and except as provided in the following sentence. The obligations of the Servicer under this Section 11.23 shall survive the termination of the Trust and the resignation or removal of the Collateral Trustee. Whenever the Collateral Trustee incurs expenses after the occurrence of an Insolvency Event with respect to the Transferor or Servicer, the expenses are intended to constitute expenses of administration under Title 11 of the United States Code or any other applicable federal or state bankruptcy, insolvency or similar law. Section 11.24 Eligibility Requirements for Collateral Trustee. The Collateral Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $100,000,000 and subject to supervision or examination by Federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purpose of this Section 11.24, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In addition, no institution shall qualify as a Successor Collateral Trustee hereunder unless its long-term debt obligations are rated at least investment grade by each Rating Agency. In case at any time the Collateral Trustee shall cease to be eligible in accordance with the provisions of this Section 11.24, the Collateral Trustee shall resign immediately in the manner and with the effect specified in Section 11.25. Section 11.25 Resignation or Removal of Collateral Trustee. (a) The Collateral Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Transferor and the Servicer. Upon receiving such notice of resignation, the Transferor shall (i) promptly appoint a successor collateral trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Collateral Trustee and one copy to the successor collateral trustee and (ii) provide written notice to each Rating Agency of such resignation. If no successor collateral trustee shall have been so appointed and have accepted within 30 days after the giving of such notice of resignation, the resigning Collateral Trustee may petition any court of competent jurisdiction for the appointment of a successor collateral trustee. (b) The Servicer may at any time remove the Collateral Trustee and discharge it from the trust hereby created and appoint a successor Collateral Trustee if (i) no Pay Out Event shall have occurred and be continuing and (ii) the Rating Agency Condition shall have been satisfied with respect thereto, by giving written notice thereof to the Collateral Trustee. (c) If at any time the Collateral Trustee shall cease to be eligible in accordance with the provisions of Section 11.24 and shall fail to resign after written request therefor by the Transferor, or if at any time the Collateral Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of the Collateral Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Collateral Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Transferor may, but shall not be required to, remove the Collateral Trustee and promptly appoint a successor collateral trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Collateral Trustee so removed and one copy to the successor collateral trustee. (d) Any resignation or removal of the Collateral Trustee and appointment of a successor collateral trustee pursuant to any of the provisions of this Section 11.25 shall not become effective until acceptance of appointment by the successor collateral trustee as provided in Section 11.26. Section 11.26 Successor Collateral Trustee. (a) Any ---------------------------- successor collateral trustee appointed as provided in Section 11.25 shall execute, acknowledge and deliver to the Transferor, the Trustee and to its predecessor Collateral Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Collateral Trustee shall become effective and such successor collateral trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Collateral Trustee herein. The predecessor Collateral Trustee shall deliver to the successor collateral trustee all documents and statements held by it hereunder; and Transferor and the predecessor Collateral Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor collateral trustee all such rights, powers, duties and obligations. (b) No successor collateral trustee shall accept appointment as provided in this Section 11.26 unless at the time of such acceptance such successor collateral trustee shall be eligible under the provisions of Section 11.24. (c) Upon acceptance of appointment by a successor collateral trustee as provided in this Section 11.26, such successor collateral trustee shall mail notice of such succession hereunder to all Noteholders and the Holder of the Transferor Interest at their addresses as shown in the Register, and also to each Rating Agency. Section 11.27 Merger or Consolidation of Collateral Trustee. Any Person into which the Collateral Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Collateral Trustee shall be a party, or any Person succeeding to all or substantially all of the corporate trust business of the Collateral Trustee, shall be the successor of the Collateral Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 11.24, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 11.28 Appointment of Co-Collateral Trustee or Separate Collateral Trustee. (a) Notwithstanding any other provisions of this Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Collateral Trustee shall have the power and may execute and deliver all instruments to appoint one or more Persons to act as a co-collateral trustee or co-collateral trustees, or separate collateral trustee or separate collateral trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Noteholders and the Holder of the Transferor Interest, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 11.28, such powers, duties, obligations, rights and trusts as the Collateral Trustee may consider necessary or desirable. No co-collateral trustee or separate collateral trustee hereunder shall be required to meet the terms of eligibility as a successor collateral trustee under Section 11.24 and no notice to Noteholders and the Holder of the Transferor Interest of the appointment of any co-collateral trustee or separate collateral trustee shall be required under Section 11.26. (b) Every separate collateral trustee and co-collateral trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Collateral Trustee shall be conferred or imposed upon and exercised or performed by the Collateral Trustee and such separate collateral trustee or co-collateral trustee jointly (it being understood that such separate collateral trustee or co-collateral trustee is not authorized to act separately without the Collateral Trustee joining in such act), except to the extent that under any laws of any jurisdiction in which any particular act or acts are to be performed (whether as Collateral Trustee hereunder or as successor to the Servicer hereunder), the Collateral Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate collateral trustee or co-collateral trustee, but solely at the direction of the Collateral Trustee; (ii) no collateral trustee hereunder shall be liable by reason of any act or omission of any other collateral trustee hereunder; and (iii) the Collateral Trustee may at any time accept the resignation of or remove any separate collateral trustee or co-collateral trustee. (c) Any notice, request or other writing given to the Collateral Trustee shall be deemed to have been given to each of the then separate collateral trustees and co-collateral trustees, as effectively as if given to each of them. Every instrument appointing any separate collateral trustee or co-collateral trustee shall refer to this Agreement and the conditions of this Article XI. Each separate collateral trustee and co-collateral trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Collateral Trustee or separately, as may be provided therein, subject to all the provisions of this Agreement, specifically including every provision of this Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Collateral Trustee. Every such instrument shall be filed with the Collateral Trustee and a copy thereof given to the Servicer. (d) Any separate collateral trustee or co-collateral trustee may at any time constitute the Collateral Trustee its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Agreement on its behalf and in its name. If any separate collateral trustee or co-collateral trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Collateral Trustee, to the extent permitted by law, without the appointment of a new or successor collateral trustee. Section 11.29 Collateral Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Agreement or the Notes may be prosecuted and enforced by the Collateral Trustee without the possession of any of the Notes, or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Collateral Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Collateral Trustee, its agents and counsel, be for the ratable benefit of the Noteholders in respect of which such judgment has been obtained. Section 11.30 Suits for Enforcement. If a Pay Out Event of which a Responsible Officer of the Collateral Trustee has actual knowledge shall occur and be continuing, the Collateral Trustee, in its discretion, may, subject to the provisions of Article IX, proceed to protect and enforce its rights and the rights of the Noteholders under this Agreement or any Supplement by a suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any Supplement or in aid of the execution of any power granted in this Agreement or any Supplement or for the enforcement of any other legal, equitable or other remedy as the Collateral Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Collateral Trustee or such Holders. Section 11.31 Rights of Holders to Direct Collateral Trustee. Holders of a principal amount of Notes aggregating more than 50% of the Aggregate Principal Amount (or, with respect to any remedy, trust or power that does not relate to all Series, 50% of the aggregate unpaid principal amount of the Notes of all Series to which such remedy, trust or power relates) shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Collateral Trustee, or exercising any trust or power conferred on the Collateral Trustee; provided, however, that, subject to Section 11.19, the Collateral Trustee shall have the right to decline to follow any such direction if the Collateral Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Collateral Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Collateral Trustee, determine that the proceedings so directed would be illegal or involve it in personal liability or be unduly prejudicial to the rights of Noteholders not parties to such direction; and provided further that nothing in this Agreement shall impair the right of the Collateral Trustee to take any action deemed proper by the Collateral Trustee and which is not inconsistent with such direction. Section 11.32 Representations and Warranties of Collateral Trustee. The Collateral Trustee represents and warrants that: (i) The Collateral Trustee is a banking corporation organized, existing and in good standing under the laws of the State of New York; (ii) The Collateral Trustee is an entity that satisfies the eligibility requirements of Section 11.24; (iii) The Collateral Trustee has full power, authority and right to execute, deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement; and (iv) This Agreement has been duly executed and delivered by the Collateral Trustee. Section 11.33 Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Bankers Trust Company, not individually or personally but solely (i) as Trustee of the Trust and (ii) as Collateral Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) except with respect to Section 11.15 (with respect to the Trustee) and Section 11.32 (with respect to the Collateral Trustee) hereof the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by the Trustee or the Collateral Trustee, as applicable, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on the Trustee or the Collateral Trustee, individually or personally, to perform any covenant of the Trust either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any Person claiming by, through or under such parties; provided, however, that the Trustee or the Collateral Trustee, as applicable, shall be liable in its individual capacity for its own willful misconduct or negligence and for any tax assessed against it based on or measured by any fees, commission or compensation received by it for acting as Trustee or Collateral Trustee, as applicable, and (d) under no circumstances shall the Trustee or the Collateral Trustee be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement. ARTICLE XII TERMINATION Section 12.1 Termination of Trust. The respective obligations and responsibilities of the Transferor, the Servicer, the Trustee and the Collateral Trustee created hereby (other than the obligation of the Trustee to make payments to Noteholders and the Holder of the Transferor Interest as hereafter set forth) shall terminate, except with respect to the duties described in Sections 7.4, 8.4 and 11.5 and subsections 2.4(c) and 12.3(b), upon the earlier of (i) the day, if any, designated by the Transferor after the Distribution Date following the date on which funds shall have been deposited in the Distribution Account sufficient to pay the Aggregate Principal Amount plus Note Interest accrued through such Distribution Date in full and (ii) the day on which final payment is made under the Notes and the Transferor Interest (any such day under either the preceding clause (i) or this clause (ii) is referred to as a "Trust Termination Date"); but in no event later than the Final Trust Termination Date. Section 12.2 Optional Purchase and Final Trust Termination Date of Notes. (a) If so provided in any Supplement, the Transferor or the Servicer may, but shall not be obligated to, repurchase Notes of the related Series by depositing into the related Distribution Account, if any, on the Transfer Date that is on or immediately preceding the Distribution Date specified in such Supplement, the amount so specified therein; provided, however, that if the long-term unsecured debt obligations of the Servicer are not rated at least Baa-3 by Moody's and BBB- by Standard & Poor's at the time of such purchase, such purchase shall not occur unless the Transferor shall deliver an Opinion of Counsel reasonably acceptable to the Trustee that such purchase of Notes would not constitute a fraudulent conveyance by the Transferor or the Servicer. On the Distribution Date that is on or following the Transfer Date on which such deposit is made, the Transferor shall be deemed, automatically and without requirement for any act on the part of the Transferor, or of any other Person, to have acquired all outstanding Notes and to have retired the Notes, thereby resulting in an increase in the Transferor Amount. If so provided in any Supplement, the Transferor may replace the Notes of such Series with a Replacement Series; provided that the Transferor shall follow the procedures set forth in related Supplement. (b) The Principal Amount of each Series shall be due and payable no later than the Series Termination Date with respect to such Series. If on the Determination Date in the third month immediately preceding the month in which such Series Termination Date occurs, the Adjusted Principal Amount with respect to such Series would be greater than zero (after giving effect to all transfers, withdrawals, deposits and drawings to occur on the next Transfer Date and the payment of principal on the Notes of such Series to be made on the related Distribution Date pursuant to Article IV), the Servicer shall sell, dispose of, or otherwise liquidate, in a commercially reasonable manner and on commercially reasonable terms (which shall include the solicitation of competitive bids from Persons who are not Affiliates of the Transferor), within 60 days of such Determination Date (a "Series Sale"), an amount of Included Leases and related Equipment equal to (i) the Adjusted Principal Amount of such Series determined as of the date of such sale, disposition or liquidation provided, however, that the Servicer shall give the Transferor at least 15 days' advance written notice of such sale, disposition or other liquidation. Notwithstanding the foregoing, if after giving effect to any such sale, disposition or liquidation and the application of the proceeds thereof, the Asset Base would be less than the Aggregate Adjusted Principal Amount, the Servicer shall sell, dispose of, or otherwise liquidate, in the manner specified above, all Included Leases and related Equipment (a "Pool Sale"). The Transferor shall have the option, exercisable at any time after the Servicer has obtained an offer from any Person that is not an Affiliate of the Transferor and prior to the consummation of any such sale, disposition or liquidation by giving notice of the exercise thereof to the Servicer, to purchase such Leases for cash (payable in immediately payable funds on the Series Termination Date) for the lesser of (i) 100% of the Discounted Lease and Residual Balance of such Leases, or (ii) the highest price offered therefor pursuant to such proposed sale, disposition or other liquidation. In the case of a Series Sale, the proceeds received upon the sale, disposition or other liquidation of such Leases in an amount up to (i) the Adjusted Principal Amount with respect to such Series on the Series Termination Date, plus (ii) unpaid interest thereon at the Note Rate for each Series as of the Series Termination Date with respect to such Series, and shall be distributed to the Holders of the Notes of such Series in final payment thereof pursuant to the terms of Section 12.3. Proceeds received in excess of the amount to be deposited as aforesaid shall be treated as Collections on the Included Leases and shall be allocated and deposited in accordance with the provisions of Article IV. In the case of a Pool Sale, all proceeds received shall be treated as Collections on the Included Leases and shall be allocated and deposited in accordance with the provisions of Article IV. (c) The amount deposited pursuant to subsections 12.2(a) and 12.2(b) shall be paid to the Noteholders in the manner provided in Section 12.3. Section 12.3 Final Distributions. (a) Written notice of any termination, specifying the Distribution Date upon which the Noteholders may surrender their Notes for payment of the final distribution and cancellation (unless otherwise specified in a Supplement), shall be given (subject to at least four Business Days' prior notice from the Servicer to the Trustee) by the Trustee to Noteholders mailed not later than the fifth day of the month of such final distribution specifying (a) the Distribution Date (which shall be the Distribution Date in the month in which the deposit is made pursuant to subsection 2.4(e), 12.1 or 12.2(a)) upon which final payment of the Notes will be made upon presentation and surrender of Notes (unless otherwise specified in a Supplement) at the office or offices therein designated, (b) the amount of any such final payment and (c) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Notes at the office or offices therein specified (unless otherwise specified in a Supplement). The Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 3.5 covering the period during the then current calendar year through the date of such notice. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to Noteholders. (b) All funds on deposit in the related Distribution Account, if any, in the case of a final payment, pursuant to Section 12.2 and, in the case of a termination of the Trust, pursuant to Section 12.1 (and notwithstanding such termination), shall continue to be held in trust for the benefit of the Noteholders and the Holder of the Transferor Interest and the Paying Agent or the Trustee shall pay such funds to the appropriate Noteholders upon surrender of their Notes (unless otherwise specified in a Supplement). In the event that all of the Noteholders shall not surrender their Notes for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Noteholders to surrender their Notes for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Notes shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Noteholders concerning surrender of their Notes, and the cost thereof shall be paid out of the funds in the Distribution Account held for the benefit of such Noteholders. The Trustee and the Paying Agent shall pay to the Transferor upon request any monies held by them for the payment of principal or interest which remains unclaimed for two years. After payment to the Transferor, Noteholders entitled to the money must look to the Transferor for payment as general creditors unless an applicable abandoned property law designates another Person. Section 12.4 Termination Rights of the Holder of the Transferor Interest. Upon the termination of the Trust pursuant to Section 12.1 and the surrender of the Transferor Interest, the Trustee shall return to the Holder of the Transferor Interest (without recourse, representation or warranty (other than that the Trustee has not encumbered such Lease and the related Equipment, except for the grant of a security interest therein to the Collateral Trustee)) all right, title and interest of the Trust in, to and under the Trust Assets, except for amounts held by the Trustee pursuant to subsection 12.3(b). The Trustee shall execute and deliver such instruments of transfer, in each case prepared by the Transferor and without recourse, representation or warranty as shall be reasonably requested by the Holder of the Transferor Interest to vest in the Holder of the Transferor Interest all right, title and interest which the Trust had in the Trust Assets. ARTICLE XIII MISCELLANEOUS PROVISIONS Section 13.1 Amendment. (a) This Agreement (including any Supplement) may be amended from time to time by the Servicer, the Transferor, the Trustee and the Collateral Trustee, without the consent of any of the Noteholders and the Holder of the Transferor Interest, (i) to cure any ambiguity, to revise any exhibits or Schedules, to correct or supplement any provisions herein or thereon or (ii) to add any other provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with the provisions of this Agreement; provided, however, that such action shall not, as evidenced by an Opinion of Counsel, adversely affect in any material respect the interests of any of the Noteholders. (b) This Agreement (including any Supplement) may be amended from time to time by the Servicer, the Transferor, the Trustee and the Collateral Trustee, without the consent of any of the Noteholders and the Holder of the Transferor Interest, to modify, eliminate or add to the provisions of this Agreement to such extent as shall be necessary to effect the qualification of this Agreement under the Trust Indenture Act of 1939, as amended (the "TIA"), or under any similar federal statute hereafter enacted and to add to this Agreement such other provisions as may be expressly required by the TIA. (c) This Agreement (including any Supplement) may be amended from time to time by the Servicer, the Transferor, the Trustee and the Collateral Trustee, without the consent of any of the Noteholders and the Holder of the Transferor Interest, to eliminate any restrictions on transferability applicable to any Series, or class thereof, of Notes, to the extent that, in the Opinion of Counsel, such restrictions are not necessary to comply with Section 7704 of the Code; provided, that prior to any such amendment, an Opinion of Counsel provided by tax counsel and to that effect shall have been delivered to the Trustee. (d) This Agreement and any Supplement may also be amended from time to time by the Servicer, the Transferor, the Trustee and the Collateral Trustee with the consent of Noteholders aggregating more than 662/3% of the Principal Amount of each and every Series adversely affected, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or of modifying in any manner the rights of the Noteholders of any Series then issued and outstanding; provided, however, that no such amendment under this subsection shall(i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Note of such Series without the consent of all of the related Noteholders; (ii) change the definition of or the manner of calculating the Principal Amount, or the Principal Percentage of such Series without the consent of the related Noteholders or (iii) reduce the aforesaid percentage required to consent to any such amendment, in each case without the consent of each Noteholder of all Series affected. (e) It shall not be necessary to obtain the consent of Noteholders under this Section 13.1 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Noteholders shall be subject to such reasonable requirements as the Trustee may prescribe. (f) Any Supplement executed and delivered pursuant to Section 6.12 and any amendments regarding the addition to or removal of Leases from the Trust as provided in Sections 2.6 or 2.7, executed in accordance with the provisions hereof, shall not be considered amendments to this Agreement for the purpose of Section 13.1. (g) In connection with any amendment, the Trustee may request, in addition to the Opinion of Counsel required by subsection 13.2(d), an Opinion of Counsel from the Transferor or the Servicer to the effect that the amendment complies with all requirements of this Agreement. For the purposes of this Section 13.1(g), such Opinion of Counsel may not be provided by internal counsel. The Trustee may, but shall not be obligated to, enter into any amendment which affects the Trustee's rights, duties or immunities under this Agreement or otherwise. Section 13.2 Protection of Right, Title and Interest to Trust. (a) The Servicer shall cause this Agreement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the Holders' and the Trustee's right, title and interest to the Trust Assets to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Trustee hereunder to all property comprising the Trust Assets. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Transferor shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this subsection 13.2(a). (b) Within 30 days after the Transferor makes any change in its name, identity or corporate structure which would make any financing statement or continuation statement filed in accordance with paragraph (a) above seriously misleading within the meaning of Section 9-402 of the UCC as in effect in the state where such financing statement or continuation statement was filed, the Transferor shall give the Trustee and the Rating Agencies notice of any such change and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Trust Assets and the proceeds thereof. (c) The Servicer will give the Trustee prompt written notice of any relocation of any office from which it services Included Leases or keeps the Lease Files or of its principal executive office and whether, as a result of such relocation, the applicable provisions of the UCC would require the filing of any amendment of any previously filed financing or continuation statement or of any new financing statement and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Included Leases and the proceeds thereof. The Servicer will at all times maintain each office from which it services Included Leases and its principal executive office within the United States of America. (d) The Servicer will deliver to the Trustee: (i) upon the execution and delivery of each amendment of Articles I, II, III or IV other than amendments pursuant to subsection 13.1(a), an Opinion of Counsel substantially in the form of Exhibit I; and (ii) on or before April 15 of each year, beginning - --------- with April 15, 1996, an Opinion of Counsel, dated as of a date during the preceding 90-day period, substantially in the form of Exhibit J. - --------- Section 13.3 Limitation on Rights of Holders. (a) ------------------------------- The death or incapacity of any Holder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Holder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (b) No Holder shall have any right to vote (except with respect to the Noteholders as provided in Section 13.1) or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Notes, be construed so as to constitute the Noteholders and the Holder of the Transferor Interest from time to time as partners or members of an association; nor shall any such Holder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (c) No Holder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Holder previously shall have given notice to the Trustee, and unless the Holders of a principal amount of Notes aggregating more than 50% of the Principal Amount of any Series affected shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Holder with every other Holder and the Trustee, that no one or more Holders shall have the right in any manner whatever by virtue or by availing itself or themselves of any provisions of this Agreement to affect, disturb or prejudice the rights of the Holders of any other of the Notes or the Transferor Interest, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable and common benefit of all Holders. For the protection and enforcement of the provisions of this Section 13.3, each and every Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 13.4 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, PROVIDED, HOWEVER, THAT THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE TRUSTEE AND THE COLLATERAL TRUSTEE SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 13.5 Notices. All demands, notices and communications hereunder shall be in writing (including by facsimile) and shall be deemed to have been duly given if personally delivered (including by overnight courier) at, mailed by registered mail, return receipt requested, to, or sent by facsimile, with receipt confirmed and with a hard copy sent promptly, to (a) in the case of the Servicer, to One Market Place, Suite 900, San Francisco, California 94105 (facsimile # (415) 882-0860), Attn: _________ ____________, Chief Financial Officer, (b) in the case of the Transferor, to One Market Place, Suite 900, San Francisco, California 94105 (facsimile # (415) 882-0860), Attn: ____________________, with a copy to the Servicer, (c) in the case of the Trustee or the Collateral Trustee, to the Corporate Trust Office (facsimile # 212-250- 6961), Attn: Corporate Market Services, (d) in the case of the Enhancement Provider for a particular Series the address, if any, specified in the Supplement relating to such Series, (e) in the case of Moody's, to Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007, Attn: ABS Monitoring Department, 4th Floor, and (f) in the case of Standard & Poor's, to Standard & Poor's Ratings Group, 25 Broadway, New York, New York 10004, Attention: Structured Finance Surveillance; or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. Any notice required or permitted to be mailed to a Holder shall be given by first class mail, postage prepaid, at the address of such Holder as shown in the Register. Any notice so mailed within the time prescribed in this Agreement shall be conclusively presumed to have been duly given, whether or not the Holder receives such notice. Section 13.6 Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement or of Page the Notes and the Transferor Interest or rights of the Holders thereof or any Enhancement Provider. Section 13.7 Rule 144A Information. For so long as any of the Notes of any Series or any Class are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act of 1933, as amended, each of the Transferor, the Servicer, the Trustee and any Enhancement Provider agree to cooperate with each other to provide to any Noteholders of such Series or Class and to any prospective purchaser of Notes designated by such a Noteholder upon the request of such Noteholder or prospective purchaser, any information required to be provided to such holder or prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4) under the Act. Section 13.8 Notes Nonassessable and Fully Paid. It is the intention of the parties to this Agreement that the Notes and the Transferor Interest shall not be liable for obligations of the Trust, that the interests in the Trust Assets represented by the Notes and the Transferor Interest shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever, and that Notes upon authentication thereof by the Trustee pursuant to Sections 2.1 and 6.2 are and shall be deemed fully paid. Section 13.9 Further Assurances. The Transferor and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Trust Assets for filing under the provisions of the UCC of any applicable jurisdiction. Section 13.10 No Waiver: Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Trustee, the Collateral Trustee or the Noteholders, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. Section 13.11 Counterparts. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Section 13.12 Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto, the Holders and, to the extent provided in any Supplement, the Enhancement Provider named therein, and their respective successors and permitted assigns. Except as otherwise provided in this Agreement or any Supplement, no other Person will have any right or obligation hereunder. Section 13.13 Actions by Holders. (a) Wherever in this Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Noteholders, such action, notice or instruction may be taken or given by any Noteholder, unless such provision requires a specific percentage of Noteholders. (b) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Holder shall bind such Holder and every subsequent Holder of such Note or the Transferor Interest, as the case may be, issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, Transferor or the Servicer in reliance thereon, whether or not notation of such action is made upon such Note or in the Register with respect to the Transferor Interest, as the case may be. (c) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Agreement or any Supplement to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, when required, to the Transferor or the Servicer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Agreement or any Supplement and conclusive in favor of the Trustee, Transferor and the Servicer, if made in the manner provided in this Section. (d) The fact and date of the execution by any Holder of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient. Section 13.14 Merger and Integration. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement. This Agreement may not be modified, amended, waived or supplemented except as provided herein. Section 13.15 No Bankruptcy Petition. Each of each Holder and the Trustee, severally and not jointly, hereby covenants and agrees that, prior to the date which is one (1) year and one (1) day after the payment in full of all Notes, it will not institute against, or join any other Person in instituting against, the Transferor or the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. Nothing in this Section 13.15 shall preclude, or be deemed to estop, any Holder or the Trustee from taking (to the extent such action is otherwise permitted to be taken by such Person hereunder) or omitting to take any action prior to such date in (i) any case or proceeding voluntarily filed or commenced by or on behalf of the Transferor or the Trust under or pursuant to any such law or (ii) any involuntary case or proceeding pertaining to the Transferor or the Trust under or pursuant to any such law. Section 13.16 Headings. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. AFG CREDIT CORPORATION, as Transferor By:___________________________ Title: AMERICAN FINANCE GROUP, INC. as Servicer By:___________________________ Title: BANKERS TRUST COMPANY, as Trustee By:___________________________ Title: BANKERS TRUST COMPANY, as Collateral Trustee By:___________________________ Title: EX-27 5
5 1,000 9-MOS DEC-31-1995 SEP-30-1995 15,077 0 5,965 0 0 0 121,871 66,758 140,571 0 0 74,535 0 0 (24,109) 140,571 0 46,704 0 34,156 0 0 5,540 9,036 3,884 5,152 0 0 0 5,152 .44 .44
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