-----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, J3WczqBBzD1yqGdtbsSK5ZZPXwcXQNnwclsTOX7e3D1UWkcPmBVGPHrliOWXtcvk vRVkBr6QI+RsFwQ0daMasw== 0000814677-97-000022.txt : 19971029 0000814677-97-000022.hdr.sgml : 19971029 ACCESSION NUMBER: 0000814677-97-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971028 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: SEC FILE NUMBER: 001-09670 FILM NUMBER: 97701721 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, 1997 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 800, San Francisco, CA 94105-1301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 974-1399 ---------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: common stock - $.01 par value; outstanding as of October 24, 1997 - 9,046,200 shares. PLM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1997 1996 1997 1996 ------------------------------------------------------------ Revenues: Operating leases $ 4,429 $ 4,351 $ 12,087 $ 13,508 Finance lease income 2,638 1,532 6,436 2,578 Management fees 2,792 2,752 8,450 8,198 Partnership interests and other fees 162 1,430 1,155 2,722 Acquisition and lease negotiation fees 986 2,596 1,749 5,260 Aircraft brokerage and services 479 621 1,814 2,037 Gain on the sale or disposition of assets, net 649 257 3,250 2,050 Other 794 521 2,329 1,664 ------------------------------------------------------------ Total revenues 12,929 14,060 37,270 38,017 ------------------------------------------------------------ Costs and expenses: Operations support 3,901 4,938 12,123 16,159 Depreciation and amortization 2,315 2,887 6,661 8,503 General and administrative 2,709 2,250 7,435 6,009 ------------------------------------------------------------ Total costs and expenses 8,925 10,075 26,219 30,671 ------------------------------------------------------------ Operating income 4,004 3,985 11,051 7,346 Interest expense (2,466 ) (2,117 ) (7,460 ) (5,100 ) Interest income 390 368 1,228 891 Other income (expense), net 15 (738 ) (9 ) (348 ) ------------------------------------------------------------ Income before income taxes 1,943 1,498 4,810 2,789 Provision for income taxes 624 133 1,562 371 ------------------------------------------------------------ Net income to common shares $ 1,319 $ 1,365 $ 3,248 $ 2,418 ============================================================ Earnings per weighted-average common share outstanding $ 0.14 $ 0.14 $ 0.34 $ 0.23 ============================================================
See accompanying notes to these consolidated financial statements. PLM INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
September 30, December 31, 1997 1996 ------------------------------------------ ASSETS Cash and cash equivalents $ 6,145 $ 7,638 Receivables 5,976 5,286 Receivables from affiliates 4,938 6,019 Investment in direct finance leases, net 80,417 69,994 Loans receivable 5,002 5,718 Equity interest in affiliates 27,716 30,407 Assets held for sale 520 6,222 Transportation equipment held for operating leases 58,556 66,546 Less accumulated depreciation (34,124 ) (41,750 ) ---------------------------------------- 24,432 24,796 Commercial and industrial equipment held for operating leases 15,770 15,930 Less accumulated depreciation (4,113 ) (2,302 ) ---------------------------------------- 11,657 13,628 Restricted cash and cash equivalents 18,164 17,828 Other, net 10,056 11,213 ---------------------------------------- Total assets $ 195,023 $ 198,749 ======================================== LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY Liabilities: Short-term secured debt $ - $ 30,966 Senior secured loan 22,059 25,000 Senior secured notes 25,098 18,000 Other secured debt 474 618 Nonrecourse securitization facility 68,507 45,392 Payables and other liabilities 12,922 16,757 Deferred income taxes 16,735 15,334 ---------------------------------------- Total liabilities 145,795 152,067 Minority interest 349 362 Shareholders' equity: Common stock ($0.01 par value, 50,000,000 shares authorized, 9,047,566 issued and outstanding at September 30, 1997 and 9,142,761 at December 31, 1996) 117 117 Paid-in capital, in excess of par 77,778 77,778 Treasury stock (3,548,825 and 3,453,630 shares at respective dates) (12,918 ) (12,382 ) ---------------------------------------- 64,977 65,513 Accumulated deficit (16,098 ) (19,193 ) ---------------------------------------- Total shareholders' equity 48,879 46,320 ---------------------------------------- Total liabilities, minority interest, and shareholders' equity $ 195,023 $ 198,749 ========================================
See accompanying notes to these consolidated financial statements. PLM INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Year Ended December 31, 1996 and the Nine Months Ended September 30, 1997 (in thousands)
Common Stock ----------------------------------------- Paid-in Capital in Total At Excess Treasury Accumulated Shareholders' Par of Par Stock Deficit Equity ------------------------------------------------------------------------------- Balances, December 31, 1995 $ 117 $ 77,743 $ (5,931 ) $ (23,309 ) $48,620 Net income 4,095 4,095 Common stock repurchases (6,451 ) (6,451 ) Exercise of stock options 35 35 Translation gain 21 21 ------------------------------------------------------------------------------- Balances, December 31, 1996 117 77,778 (12,382 ) (19,193 ) 46,320 Net income 3,248 3,248 Common stock repurchases (775 ) (775 ) Reissuance of treasury stock 239 (38 ) 201 Redemption of shareholder rights (92 ) (92 ) Translation loss (23 ) (23 ) =============================================================================== Balances, September 30, 1997 $ 117 $ 77,778 $ (12,918 ) $ (16,098 ) $48,879 ===============================================================================
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, 1997 1996 ------------------------------- Operating activities: Net income $ 3,248 $ 2,418 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,661 8,503 Foreign currency translation (23 ) 68 Increase in deferred income taxes 1,401 348 Gain on sale or disposition of assets, net (3,250 ) (2,050 ) Undistributed residual value interests 508 (405 ) Minority interest in net (loss) income of subsidiaries (13 ) 9 Decrease in payables and other liabilities (662 ) (1,966 ) Decrease in receivables and receivables from affiliates 391 3,260 Cash distributions from affiliates in excess of income accrued 2,183 2,086 Decrease (increase) in other assets 757 (368 ) ------------------------------- Net cash provided by operating activities 11,201 11,903 ------------------------------- Investing activities: Additional investment in affiliates - (4,972 ) Principal payments received on finance leases 12,627 2,603 Principal payments received on loans 1,493 - Investment in direct finance leases (60,996 ) (57,295 ) Investment in loans receivable (777 ) (3,006 ) Purchase of equipment (40,459 ) (40,759 ) Proceeds from the sale of transportation equipment for lease 10,761 7,288 Proceeds from the sale of assets held for sale 24,710 2,052 Proceeds from the sale of commercial and industrial equipment 44,988 35,902 Sale of investment in subsidiary - 372 Increase in restricted cash and restricted cash equivalents (336 ) (11,066 ) ------------------------------- Net cash used in investing activities (7,989 ) (68,881 ) -------------------------------
(continued) 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, 1997 1996 -------------------------------- Financing activities: Borrowings of short-term secured debt $ 76,427 59,390 Repayment of short-term secured debt (107,393 ) (31,599 ) Repayment of senior secured loan (2,941 ) - Proceeds from other secured debt - 90 Repayment of other secured debt (144 ) (39 ) Borrowings under senior secured notes 9,000 18,000 Repayment of senior secured notes (1,902 ) - Borrowings under securitization facility 36,055 29,989 Repayment of securitization facility (12,940 ) (7,681 ) Repayment of subordinated debt - (11,500 ) Purchase of treasury stock (775 ) (6,451 ) Redemption of shareholder rights (92 ) - Proceeds from exercise of stock options - 35 ---------------------------------- Net cash (used in) provided by financing activities (4,705 ) 50,234 ---------------------------------- Net decrease in cash and cash equivalents (1,493 ) (6,744 ) Cash and cash equivalents at beginning of period 7,638 13,764 ================================== Cash and cash equivalents at end of period $ 6,145 $ 7,020 ================================== Supplemental information - net cash paid for: Interest $ 7,088 $ 4,188 ================================== Income taxes $ 759 $ 1,285 ==================================
See accompanying notes to these consolidated financial statements. PLM INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 1. General In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary, consisting primarily of normal recurring accruals, to present fairly PLM International, Inc.'s (the Company's) financial position as of September 30, 1997 and December 31, 1996; statements of income for the three and nine months ended September 30, 1997 and 1996; statements of changes in shareholders' equity for the year ended December 31, 1996 and the nine months ended September 30, 1997; and statements of cash flows for the nine months ended September 30, 1997 and 1996. 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, 1996, on file with the Securities and Exchange Commission. 2. Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which requires the Company to replace its presentation of primary earnings per share with a presentation of basic earnings per share, and requires dual presentation of basic and diluted earnings per share on the face of the income statement. The principal difference between primary earnings per share under current accounting standards and basic earnings per share under the new statement is that basic earnings per share does not consider common stock equivalents such as stock options and warrants. Diluted earnings per share under the new statement will include potential dilution of convertible securities, stock options, and warrants. The statement is effective for the Company's first quarter of fiscal 1998 and requires restatement of all prior periods presented. Under the new statement, basic earnings per share would have been $0.14 and $0.15 for the three months ended September 30, 1997 and 1996, respectively, and $0.35 and $0.23 for the nine months ended September 30, 1997 and 1996, respectively. Under the new statement, diluted earnings per share for those periods would have been the same as net income per common and common equivalent share presented on the income statement. In June 1997, the Financial Accounting Standards Board issued two new statements: SFAS No. 130, "Reporting Comprehensive Income," which requires enterprises to report, by major component and in total, all changes in equity from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes annual and interim reporting standards for a public company's operating segments and related disclosures about its products, services, geographic areas, and major customers. Both statements are effective for the Company's fiscal year 1999 with earlier application permitted. The effect of adoption of these statements will be limited to the form and content of the Company's disclosures and will not impact the Company's results of operations, cash flow, or financial position. 3. Reclassifications Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 4. Financing Transaction Activities The Company's wholly-owned subsidiary, American Finance Group, Inc. (AFG), originates and manages lease and loan transactions on primarily new commercial and industrial equipment. While the majority of these leases are accounted for as finance leases, some are accounted for as loans or operating leases. During the nine months ended September 30, 1997, the Company funded $61.0 million in equipment that was placed on finance lease. Also during the nine months ended September 30, 1997, the Company sold equipment on finance lease with an original equipment cost of $37.3 million, resulting in a net gain of $1.7 million. During the nine months ended September 30, 1997, the Company funded loans of $0.8 million that were secured by commercial and industrial equipment. 5. Equipment Equipment held for operating lease includes transportation equipment, which is depreciated over its estimated useful lives, and commercial and industrial equipment, which is depreciated over the lease term to an estimated residual. During the nine months ended September 30, 1997, the Company funded $8.9 million in commercial and industrial equipment, which was placed on operating lease. During the nine months ended September 30, 1997, the Company sold commercial and industrial equipment that was on operating lease with an original cost of $7.5 million for a net gain of $0.2 million. 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 an affiliated partnership. Equipment held for sale is valued at the lower of the depreciated cost or the fair value less costs to sell. As of December 31, 1996, the Company had a 25.5% interest in a mobile offshore drilling unit (rig) with a net book value of $5.1 million that was held for sale to an affiliated program. Also as of December 31, 1996, two commuter aircraft with a combined net book value of $1.1 million were held for sale. The rig was sold to an affiliated program at its original cost in March 1997. The two commuter aircraft were sold in February 1997 for their approximate net book value to an unaffiliated third party. During the first nine months of 1997, the Company purchased a mobile offshore drilling unit for $10.5 million and a marine vessel for $19.0 million, which were resold to affiliated programs at cost. Also during the nine months ended September 30, 1997, the Company purchased two commercial aircraft for $5.0 million and trailers for $6.1 million. The aircraft were subsequently sold to an unaffiliated third party for a gain of $0.8 million. Other transportation equipment was sold for net gains of $0.6 million during the nine months ended September 30, 1997. As of September 30, 1997, the Company had one commuter aircraft with a net book value of $0.5 million held for sale to a third party. Periodically, the Company purchases groups of assets whose ownership may be allocated among affiliated programs and the Company. Generally in these cases, only assets that are on lease are purchased by affiliated programs. The Company generally assumes the ownership and remarketing risks associated with off-lease equipment. Allocation of the purchase price is determined by a combination of third-party industry sources, recent transactions, and published fair market value references. During the nine months ended September 30, 1996, the Company realized $0.7 million of gains from the sale of 69 railcars to an unaffiliated third party. These railcars were originally purchased as part of a group of assets by the Company in 1994 that had been allocated to PLM Equipment Growth Funds (EGFs) IV and IV, PLM Equipment Growth & Income Fund VII (EGF VII), Professional Lease Management Income Fund I, LLC (Fund I), and the Company. 6. Debt Assets acquired and held on an interim basis for placement with affiliated partnerships or purchased for placement in the Company's securitization facility have, from time to time, been partially funded by a $50.0 million short-term secured debt facility. The Company amended this facility on October 3, 1997 to extend its availability until November 3, 1997. The facility, which is shared with EGFs IV, V, VI, and VII, and Fund I, allows the Company to purchase equipment prior to its designation to a specific program or partnership. As of September 30, 1997, the Company had no borrowings under this facility and EGFs V and VI had $9.1 million and $10.0 million in borrowings, respectively. All borrowings under this facility are guaranteed by the Company. The Company believes it will be able to extend the facility prior to its expiration on similar terms. The Company has available a securitization facility to be used to acquire assets on a nonrecourse basis, secured by direct finance leases, operating leases, and loans on commercial and industrial equipment that generally have terms from two to seven years. The Company amended this facility on October 14, 1997, increasing the facility from $80.0 million to $125.0 million and extending the availability of the facility until October 13, 1998. As of September 30, 1997, outstanding borrowings totaled $68.5 million under this facility, payable through 2004. 7. Shareholders' Equity On March 3, 1997, the Company announced that the Board of Directors had authorized the repurchase of up to $5.0 million of the Company's common stock. As of September 30, 1997, 155,198 shares had been repurchased under this plan, for a total of $0.8 million. During the nine months ended September 30, 1997, 60,003 shares (net of forfeited shares) were issued from treasury stock as part of the senior management bonus program. During the nine months ended September 30, 1997, 155,198 shares were repurchased. Consequently, the total common shares outstanding decreased to 9,047,566 as of September 30, 1997 from the 9,142,761 outstanding as of December 31, 1996. Net income per weighted-average common share outstanding was computed by dividing net income to common shares by the weighted-average number of shares deemed outstanding during the period. The weighted-average number of shares deemed outstanding for the earnings-per-share calculation during the three months ended September 30, 1997 and 1996 was 9,405,003 and 9,505,195, respectively. The weighted-average number of shares deemed outstanding for the earnings-per-share calculation during the nine months ended September 30, 1997 and 1996 was 9,419,206 and 10,499,605, respectively. On March 12, 1989, the Company distributed rights as a dividend on each outstanding share of common stock. Upon the occurrence of certain events, characterized as unsolicited or abusive attempts to acquire control of the Company, the rights would have become exercisable. On June 10, 1997, the Company announced the redemption of these rights for $0.01 per right. Shareholders of record as of June 24, 1997 were paid a total of $0.1 million for the redemption of these rights on July 24, 1997. 8. Legal Matters As more fully described by the Company in its Form 10-K for the year ended December 31, 1996, in November 1995, a former employee of PLM International filed and served a first amended complaint (the Complaint) in the United States District Court for the Northern District of California (Case No. C-95-2957 MMC) against the Company, the PLM International, Inc. Employee Stock Ownership Plan (ESOP), the ESOP's trustee, and certain individual employees, officers, and directors of the Company. In January 1996, PLMI and other defendants filed a motion to dismiss the Complaint for lack of subject matter jurisdiction, arguing the plaintiff lacked standing. The motion was granted and on May 30, 1996, the Court entered a judgment dismissing the Complaint for lack of subject matter jurisdiction. Plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit, seeking a reversal of the District Court's judgment, and oral argument was heard on September 17, 1997. The Company is currently waiting for the 9th Circuit court's decision in this matter. As more fully described by the Company in its Form 10-K for the year ended December 31,1996, the Company and various of its affiliates are named as defendants in a lawsuit filed as a class action on January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch action). On March 6, 1997, the defendants removed the Koch action from the state court to the United States District Court for the Southern District of Alabama, Southern Division (Civil Action No. 97-0177-BH-C), following which plaintiffs filed a motion to remand the action to the state court. On September 24, 1997, the district court denied plaintiffs' motion and dismissed without prejudice the individual claims of the California class representative, reasoning that he had been fraudulently joined as a plaintiff. On October 3, 1997, plaintiffs filed a motion requesting that the district court reconsider its ruling, or in the alternative, that the court modify its order dismissing the California plaintiff's claims so that it is a final appealable order, as well as certify for an immediate appeal to the Eleventh Circuit Court of Appeals that part of its order denying plaintiffs' motion to remand. On October 7, 1997, the district court denied each of these motions. On October 10, 1997, defendants filed a motion to compel arbitration of plaintiffs' claims and to stay further proceedings pending the outcome of such arbitration. The Company believes that the allegations of the Koch action are completely without merit and intends to defend this matter vigorously. 8. Legal Matters (continued) On June 5, 1997, the Company and the affiliates who are also defendants in the Koch action were named as defendants in another purported class action filed in the San Francisco Superior Court, San Francisco, California, Case No. 987062 (the Romei action). The named plaintiff has alleged the same facts and the same nine causes of action as is in the Koch action (as described in the Company's Form 10-K for the year ended December 31, 1996), plus five additional causes of action against all of the defendants, as follows: violations of California Business and Professions Code Sections 17200, et seq. for alleged unfair and deceptive practices, a claim for constructive fraud, a claim for unjust enrichment, a claim for violations of California Corporations Code Section 1507, and a claim for treble damages under California Civil Code Section 3345. The plaintiff is an investor in PLM Equipment Growth Fund V, and filed the complaint on her own behalf and on behalf of all class members similarly situated who invested in certain California limited partnerships sponsored by PLM Securities, for which PLM Financial Services, Inc. acts as the general partner, including PLM Equipment Growth Funds IV, V, and VI, and PLM Equipment Growth & Income Fund VII. The Company and the other defendants removed the Romei action to the United States District Court for the Northern District of California (Case No. C-97-2450 SC) on June 30, 1997, based on the federal court's diversity jurisdiction. The defendants then filed a motion to compel arbitration of the plaintiffs' claims, based on an agreement to arbitrate contained in the PLM Equipment Growth Fund V limited partnership agreement, to which plaintiff is a party. Pursuant to an agreement with plaintiff, the Company and the other defendants withdrew their petition for removal of the Romei action and their motion to compel arbitration, and on July 31, 1997, filed with the district court for the Northern District of California (Case No. C-97-2847 WHO) a petition under the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims and for an order staying the state court proceedings pending the outcome of the arbitration. In connection with this agreement, plaintiff agreed to a stay of the state court action pending the district court's decision on the petition to compel arbitration. On October 7, 1997, the district court denied the Company's petition to compel and indicated that a memorandum decision would follow. To date such memorandum setting forth the court's reason(s) for denying the petition has not been filed by the district court. On August 22, 1997, the plaintiff filed an amended complaint with the state court alleging two new causes of action for violations of the California Securities Law of 1968 (California Corporations Code Sections 25400 and 25500), and for violation of California Civil Code Section 1709 and 1710. The Company will soon be required to respond to the amended complaint, and a status conference has been set for December 5, 1997. The Company believes that the allegations of the amended complaint in the Romei action are completely without merit and intends to defend this matter vigorously. The Company is involved as plaintiff or defendant in various other legal actions incident to its business. Management does not believe that any of these actions will be material to the financial condition of the Company. 9. Purchase Commitments As of September 30, 1997, the Company, through its AFG subsidiary, had committed to purchase $102.5 million of equipment for its commercial and industrial equipment lease portfolio, to be held by the Company or sold to the Company's institutional leasing investment program or to third parties. From October 1, 1997 to October 24, 1997, the Company, through its AFG subsidiary, funded $5.4 million of the commitments outstanding as of September 30, 1997 for its commercial and industrial equipment lease portfolio. As of October 24, 1997, the Company had committed to purchase $145.3 million of equipment for its commercial and industrial equipment lease portfolio. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations A major activity of the Company is the funding and management of longer-term direct finance leases, operating leases, and loans through its American Finance Group, Inc. (AFG) subsidiary. Master lease agreements are entered into with predominately investment-grade lessees and serve as the basis for marketing efforts. The underlying assets represent a broad range of commercial and industrial equipment, such as data processing, communications, materials handling, and construction equipment. Through AFG, the Company is also engaged in the management of an institutional leasing investment program for which it originates leases and receives acquisition and management fees. The Company operates 10 trailer rental facilities that engage in short-term and mid-term operating leases. Equipment operated in these facilities consists of dry van trailers leased to a variety of customers and refrigerated trailers used primarily in the food distribution industry. The Company is selling certain of its older trailers and is replacing them with new or late-model used trailers. The Company has syndicated investment programs from which it earns various fees and equity interests. The Professional Lease Management Income Fund I, LLC (Fund I) was structured as a limited liability company with a no front-end fee structure. The previously syndicated limited partnership programs allowed the Company to receive fees for the acquisition and initial lease of the equipment. The Fund I program does not provide for acquisition and lease negotiation fees. The Company invests the equity raised through syndication in transportation equipment, which it then manages on behalf of the investors. The equipment management activities for these types of programs generate equipment management fees for the Company over the life of a program, 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 a partnership, subject to certain allocation provisions. The Fund I agreement entitles the Company to a 15% interest in the cash distributions and earnings of a program, subject to certain allocation provisions, which will increase to 25% after the investors have received distributions equal to their original invested capital. On May 14, 1996, the Company announced the suspension of public syndication of equipment leasing programs with the May 13, 1996 close of Fund I. As a result of this decision, revenues earned from managed programs, which include management fees, partnership interests and other fees, and acquisition and lease negotiation fees, will be reduced in the future as the older programs begin liquidation and the managed equipment portfolio becomes permanently reduced. The Company also owns a portfolio of transportation equipment, in addition to the dry van and refrigerated over-the-road trailers mentioned above, from which it earns operating lease revenue and incurs operating expenses. The Company's transportation equipment held for operating lease, which consists of aircraft, marine containers, intermodal trailers, and storage equipment as of September 30, 1997, is equipment mainly built prior to 1988. As equipment ages, the Company continues to monitor the performance of its assets on lease and the current market conditions for leasing equipment in order to seek the best opportunities for investment. Failure to replace equipment may result in shorter lease terms, higher costs of maintaining and operating aged equipment, and, in certain instances, limited remarketability. For the Three Months Ended September 30, 1997 versus September 30, 1996 The following analysis reviews the operating results of the Company: Revenues
For the Three Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Operating leases $ 4,429 $ 4,351 Finance lease income 2,638 1,532 Management fees 2,792 2,752 Partnership interests and other fees 162 1,430 Acquisition and lease negotiation fees 986 2,596 Aircraft brokerage and services 479 621 Gain on the sale or disposition of assets, net 649 257 Other 794 521 ----------------------------------------- Total revenues $12,929 $14,060
The fluctuations in revenues for the three months ended September 30, 1997, compared to the same period in 1996, are summarized and explained below. Operating lease revenues by equipment type:
For the Three Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Trailers $2,187 $1,807 Commercial and industrial equipment 1,510 1,071 Marine vessel 501 - Storage equipment 95 276 Aircraft 69 1,111 Marine containers 61 70 Railcars 6 16 ----------------------------------------- Total operating lease revenues $4,429 $4,351
Operating lease revenues include revenues generated from assets held for operating leases and assets held for sale that are on lease. As of September 30, 1997, the Company owned transportation equipment held for operating lease or held for sale with an original cost of $60.9 million, which was $31.9 million less than the original cost of transportation equipment owned and held for operating lease or held for sale as of September 30, 1996. The reduction in equipment, on an original cost basis, is a consequence of the Company's strategic decision to dispose of certain underperforming transportation assets, and resulted in an 81% net reduction in its aircraft portfolio and a 25% net reduction in its marine container portfolio, compared to these portfolios as of September 30, 1996. The reduction in transportation equipment available for lease is the primary reason aircraft and marine container revenues were reduced, compared to the prior year. The $0.2 million decrease in storage equipment lease revenue is due to an agreement the Company entered into in January 1997 to lease all of its storage equipment assets to a third party on a triple-net operating lease, as opposed to short-term operating leases, resulting in both lower storage equipment operating lease revenues and operating expenses. The decrease in operating lease revenues as a result of the reduction in transportation equipment available for lease and the storage equipment agreement was partially offset by a $0.4 million increase in operating lease revenues as a result of an increase in commercial and industrial equipment owned and on operating lease and by a $0.4 million increase in trailer lease revenues as a result of higher lease rates received on new trailer additions. In addition, during the third quarter of 1997, the Company owned a 47.5% interest in an entity that owns a marine vessel, which generated $0.5 million in lease revenue. Finance lease income: The Company earns finance lease income for certain leases originated by its AFG subsidiary that are either retained for long-term investment or sold to third parties or to an institutional leasing investment program. Finance lease income increased $1.1 million in the third quarter of 1997, compared to the same period in 1996, reflecting an increase in commercial and industrial assets owned and on finance lease. For the quarter ended September 30, 1997, the average investment in direct finance leases was $73.5 million, compared to $38.9 million for the third quarter of 1996. Management fees: Management fees are, for the most part, based on the gross revenues generated by equipment under management. Management fees were $2.8 million for both the quarters ended September 30, 1997 and 1996. Although management fees related to Fund I and the institutional leasing investment program managed by the Company's AFG subsidiary increased, this increase was offset by a decline in management fees from the remaining older programs due to a decrease in managed equipment and due to lower lease rates. With the termination of syndication activities in 1996, management fees are expected to decrease in the future as the older programs begin liquidation and the managed equipment portfolio becomes permanently reduced. This decrease has been and is expected to continue to be offset, in part, by management fees earned from the institutional leasing investment program managed by the Company's AFG subsidiary. Partnership interests and other fees: The Company records as revenues its equity interest in the earnings of the Company's affiliated programs. The net earnings and distribution levels from the affiliated programs were $0.5 million and $0.6 million for the quarters ended September 30, 1997 and 1996, respectively. In addition, a decrease of $0.3 million in the Company's residual interests in the programs was recorded during the quarter ended September 30, 1997. A net increase of $0.8 million in the Company's residual interests in the programs was recorded during the quarter ended September 30, 1996. Residual income is based on the general partner's share of the present value of the estimated disposition proceeds of the equipment portfolio of affiliated partnerships when the equipment is purchased. 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, 1997, the Company, on behalf of the equipment growth funds, purchased trailer equipment and a 47.5% interest in an entity that owns a marine vessel for $12.7 million, compared to $45.1 million of equipment purchased on behalf of the equipment growth funds during the same quarter of the prior year, resulting in a $1.8 million decrease in acquisition and lease negotiation fees. Also during the quarter ended September 30, 1997, equipment purchased for the institutional leasing investment program managed by AFG was $10.2 million, compared to $4.3 million for the same period in 1996, resulting in an increase in acquisition and lease negotiation fees of $0.2 million. Because of the Company's decision to suspend syndication of equipment leasing programs with the close of Fund I on May 13, 1996, and because Fund I has a no front-end fee structure, acquisition and lease negotiation fees will be substantially reduced in the future. Aircraft brokerage and services: Aircraft brokerage and services revenue, which represents revenue earned by Aeromil Holdings, Inc., the Company's aircraft leasing and spare parts brokerage subsidiary, decreased $0.1 million during the quarter ended September 30, 1997, compared to the same period of the prior year, due to a decrease in spare parts sales. Gain on the sale or disposition of assets, net: During the quarter ended September 30, 1997, the Company recorded a $0.6 million net gain on the sale of commercial and industrial equipment. During the quarter ended September 30, 1996, the Company recorded a $0.3 million net gain on the sale or disposition of assets. Of this gain, $0.4 million resulted from the sale or disposition of trailers, marine containers, a commuter aircraft, railcars, and storage units, and $0.3 million related to the sale of commercial and industrial equipment. These gains were partially offset by a $0.4 million adjustment to decrease the estimated net realizable value of certain aircraft. Other: Other revenue increased $0.3 million during the quarter ended September 30, 1997, compared to the same period of the prior year, due to increased revenue earned from financing income and brokerage fees. Costs and Expenses
For the Three Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Operations support $ 3,901 $ 4,938 Depreciation and amortization 2,315 2,887 General and administrative 2,709 2,250 ----------------------------------------- Total costs and expenses $ 8,925 $10,075
Operations support: Operations support expense (including salary and office-related expenses for operational activities, equipment insurance, repair and maintenance costs, equipment remarketing costs, costs of goods sold, and provision for doubtful accounts) decreased $1.0 million (21%) for the quarter ended September 30, 1997, compared to the same quarter in 1996. The decrease resulted from a $0.3 million decrease in compensation and benefits expense due to staff reductions, a $0.3 million decrease in equipment operating costs due to sales of the Company's transportation equipment, a $0.2 million increase in allocable expenses due to system improvements that now enable program expenses to be allocated in the month incurred rather than one month in arrears, and a $0.2 million decrease in other fees. Depreciation and amortization: Depreciation and amortization expenses decreased $0.6 million (20%) for the quarter ended September 30, 1997, compared to the quarter ended September 30, 1996. The decrease resulted from the reduction in depreciable transportation equipment (discussed in the operating lease revenue section), and was partially offset by increased depreciation of commercial and industrial equipment on operating lease. General and administrative: General and administrative expenses increased $0.5 million (20%) during the quarter ended September 30, 1997, compared to the same quarter in 1996, primarily due to a $0.6 million increase in expense related to the redemption of stock options and to a $0.3 million increase in legal fees related to the Koch and Romei actions (refer to Note 8 to the consolidated financial statements). These expenses were partially offset by a $0.4 million decrease in compensation and benefits expenses. Other Income and Expenses
For the Three Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Interest expense $(2,466 ) $(2,117 ) Interest income 390 368 Other income (expense), net 15 (738 ) Provision for income taxes 624 133
Interest expense: Interest expense increased $0.3 million (16%) during the quarter ended September 30, 1997, compared to the same period in 1996, due to an increase in borrowings on the nonrecourse securitization facility and the senior secured notes facility. The increase in interest expense caused by these increased borrowings was partially offset by lower interest expense resulting from the reduction in the amount outstanding on the senior secured loan and the short-term secured debt facility. Other income (expense), net: During the third quarter of 1996, the Company prepaid the $8.6 million balance of its subordinated debt and incurred prepayment penalties of $0.7 million. No similar amounts were recorded during the quarter ended September 30, 1997. Provision for income taxes: For the three months ended September 30, 1997, the provision for income taxes was $0.6 million, representing an effective rate of 32%. For the three months ended September 30,1996, the provision for income taxes was $0.1 million, representing an effective rate of 9%. Tax-planning strategies, an adjustment for state tax apportionment factors, and an adjustment related to the Employee Stock Option Plan (ESOP) resulted in a reduction in the Company's effective tax rate for the third quarter of 1996. Net Income As a result of the foregoing, for the three months ended September 30, 1997, net income was $1.3 million, resulting in net income per weighted-average common share outstanding of $0.14. For the same period in 1996, net income was $1.4 million, resulting in net income per weighted-average common share outstanding of $0.14. For the Nine Months Ended September 30, 1997 versus September 30, 1996 The following analysis reviews the operating results of the Company: Revenues
For the Nine Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Operating leases $12,087 $13,508 Finance lease income 6,436 2,578 Management fees 8,450 8,198 Partnership interests and other fees 1,155 2,722 Acquisition and lease negotiation fees 1,749 5,260 Aircraft brokerage and services 1,814 2,037 Gain on the sale or disposition of assets, net 3,250 2,050 Other 2,329 1,664 ----------------------------------------- Total revenues $37,270 $38,017
The fluctuations in revenues for the nine months ended September 30, 1997, compared to the same period in 1996, are summarized and explained below. Operating lease revenues by equipment type:
For the Nine Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Trailers $ 6,047 $ 5,765 Commercial and industrial equipment 3,933 2,869 Mobile offshore drilling units 603 - Aircraft 521 3,676 Marine vessel 501 - Storage equipment 294 820 Marine containers 165 289 Railcars 23 89 ----------------------------------------- Total operating lease revenues $12,087 $13,508
Operating lease revenues include revenues generated from assets held for operating leases and assets held for sale that are on lease. As of September 30, 1997, the Company owned transportation equipment held for operating leases or held for sale with an original cost of $60.9 million, which was $31.9 million less than the original cost of transportation equipment owned and held for operating leases or held for sale as of September 30, 1996. The reduction in equipment, on an original cost basis, is a consequence of the Company's strategic decision to dispose of certain underperforming transportation assets, and resulted in an 81% net reduction in its aircraft portfolio and a 25% net reduction in its marine container portfolio, compared to these portfolios as of September 30, 1996. The reduction in transportation equipment available for lease is the primary reason aircraft and marine container revenue were reduced, compared to the prior year's comparable period. The $0.5 million decrease in storage equipment lease revenue is due to an agreement the Company entered into in January 1997 to lease all of its storage equipment assets to a third party on a triple-net operating lease, as opposed to short-term operating leases, resulting in both lower storage equipment operating lease revenues and operating expenses. The decrease in operating lease revenues as a result of the reduction in transportation equipment available for lease and the storage equipment agreement was partially offset by a $1.1 million increase in operating lease revenues as a result of an increase in commercial and industrial equipment owned and on operating lease and by a $0.3 million increase in trailer lease revenues as a result of higher lease rates received on new trailer additions. In addition, during the nine months ended September 30, 1997, the Company owned one mobile offshore drilling unit as well as a 25.5% interest in another mobile offshore drilling unit, which together generated $0.6 million in lease revenue, and owned a 47.5% interest in a marine vessel, which generated $0.5 million in lease revenue. Both of the drilling units and the marine vessel were sold at the Company's cost to affiliated programs during the nine months ended September 30, 1997. Finance lease income: The Company earns finance lease income for certain leases originated by its AFG subsidiary that are either retained for long-term investment or sold to third parties or to an institutional leasing investment program. Finance lease income increased $3.9 million during the nine months ended September 30, 1997, compared to the same period in 1996, due to an increase in commercial and industrial assets owned and on finance lease. For the nine months ended September 30, 1997, the average investment in direct finance leases was $70.4 million, compared to $28.1 million for the same period of 1996. Management fees: Management fees are, for the most part, based on the gross revenues generated by equipment under management. Management fees increased $0.3 million during the nine months ended September 30, 1997, compared to the same period of the prior year. Although management fees related to Fund I and the institutional leasing investment program managed by the Company's AFG subsidiary increased, management fees from the remaining older programs declined due to a net decrease in managed equipment and due to lower lease rates. With the termination of syndication activities in 1996, management fees are expected to decrease in the future as older programs begin liquidation and the managed equipment portfolio becomes permanently reduced. This decrease has been and is expected to continue to be offset, in part, by management fees earned from the institutional leasing investment program managed by the Company's AFG subsidiary. Partnership interests and other fees: The Company records as revenues its equity interest in the earnings of the Company's affiliated programs. The net earnings and distribution levels from the affiliated programs were $1.7 million and $2.1 million for the nine months ended September 30, 1997 and 1996, respectively. In addition, a decrease of $0.5 million in the Company's residual interests in the programs was recorded during the nine months ended September 30, 1997, and a $0.6 million increase in the Company's residual interests in the programs was recorded during the same period of 1996. Residual income is based on the general partner's share of the present value of the estimated disposition proceeds of the equipment portfolio of the affiliated partnership when the equipment is purchased. 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 nine months ended September 30, 1997, the Company, on behalf of the equipment growth funds, purchased trailer equipment and an entity that owns a marine vessel for $22.7 million, compared to $86.3 million of equipment purchased on behalf of the equipment growth funds during the same period of the prior year, resulting in a $3.5 million decrease in acquisition and lease negotiation fees. Acquisition fees related to equipment purchased for the institutional leasing investment program managed by AFG were $0.5 million for both the nine months ended September 30, 1997 and 1996. Because of the Company's decision to halt syndication of equipment leasing programs with the close of Fund I on May 13, 1996, and because Fund I has a no front-end fee structure, acquisition and lease negotiation fees will be substantially reduced in the future. Aircraft brokerage and services: Aircraft brokerage and services revenue, which represents revenue earned by Aeromil Holdings, Inc., the Company's aircraft leasing and spare parts brokerage subsidiary, decreased $0.2 million during the nine months ended September 30, 1997, compared to the same period of the prior year, due to a decrease in spare parts sales and due to the sale of the subsidiary's ownership interest in Austin Aero FBO Ltd. to third parties in January 1996. Gain on the sale or disposition of assets, net: During the nine months ended September 30, 1997, the Company recorded $3.3 million in net gains on the sale or disposition of assets. Of this gain, $0.6 million resulted from the sale or disposition of trailers, storage units, marine containers, commuter aircraft, and railcars. Also during the nine months ended September 30, 1997, the Company purchased and subsequently resold two commercial aircraft to an unaffiliated third party for a net gain of $0.8 million and earned $1.9 million from the sale of commercial and industrial equipment. During the nine months ended September 30, 1996, the Company recorded a $2.1 million net gain on the sale or disposition of assets. Of this gain, $1.9 million resulted from the sale or disposition of trailers, marine containers, railcars, storage units, and commuter aircraft, and $0.6 million related to the sale of commercial and industrial equipment. These gains were partially offset by a $0.4 million adjustment to decrease the estimated net realizable value of certain aircraft. Other: Other revenues increased $0.7 million during the nine months ended September 30, 1997, compared to the comparable prior year's period, due to increased revenue earned from financing income and brokerage fees. Costs and Expenses
For the Nine Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Operations support $12,123 $16,159 Depreciation and amortization 6,661 8,503 General and administrative 7,435 6,009 ----------------------------------------- Total costs and expenses $26,219 $30,671
Operations support: Operations support expense (including salary and office-related expenses for operational activities, equipment insurance, repair and maintenance costs, equipment remarketing costs, costs of goods sold, and provision for doubtful accounts) decreased $4.0 million (25%) for the nine months ended September 30, 1997, compared to the same period in 1996. The decrease resulted from a $1.4 million charge related to the termination of syndication activities recorded during the nine months ended September 30, 1996, a $1.1 million decrease in compensation and benefits expense due to staff reductions, a $0.8 million decrease in equipment operating costs due to sales of the Company's transportation equipment, a $0.5 million decrease in other office expenses, and a $0.2 million increase in allocable expenses due to system improvements that now enable program expenses to be allocated in the month incurred rather than one month in arrears. Depreciation and amortization: Depreciation and amortization expenses decreased $1.8 million (22%) for the nine months ended September 30, 1997, compared to the nine months ended September 30, 1996. The decrease resulted from the reduction in depreciable transportation equipment (discussed in the operating lease revenue section), and was partially offset by increased depreciation of commercial and industrial equipment on operating lease. General and administrative: General and administrative expenses increased $1.4 million (24%) during the nine months ended September 30, 1997, compared to the same period in 1996, due to a $0.6 million increase in expense related to the redemption of stock options, a $0.5 million increase in legal fees related to the Koch and Romei actions (refer to Note 8 to the consolidated financial statements), a $0.5 million increase in costs related to a submission of matters to a vote of security holders, a $0.3 million credit recorded in the second quarter of 1996 related to the ESOP, and a $0.2 million increase in compensation and benefits expenses. These expenses were partially offset by a $0.5 million decrease in office-related expenses and a $0.2 million decrease in consulting expense. Other Income and Expenses
For the Nine Months Ended September 30, 1997 1996 ----------------------------------------- (in thousands) Interest expense $(7,460 ) $(5,100 ) Interest income 1,228 891 Other income (expense), net (9 ) (348 ) Provision for income taxes 1,562 371
Interest expense: Interest expense increased $2.4 million (46%) during the nine months ended September 30, 1997, compared to the same period in 1996, due to an increase in borrowings on the nonrecourse securitization facility, the senior secured notes facility, and the short-term secured debt facility. The increase in interest expense caused by these increased borrowings was partially offset by lower interest expense resulting from the retirement of the subordinated debt and the reduction in the amount outstanding on the senior secured loan. Interest income: Interest income increased $0.3 million (38%) in the nine months ended September 30, 1997, compared to the same period in 1996, as a result of higher average cash balances for the nine months ended September 30, 1997, compared to the same period in 1996. Other income (expense), net: During the nine months ended September 30, 1996, the Company prepaid the $8.6 million balance of its subordinated debt and incurred prepayment penalties of $0.7 million, which was partially offset by other income of $0.4 million due to the sale of 32 wind turbines during the second quarter of 1996 that had previously been written off. No similar amounts were recorded during the nine months ended September 30, 1997. Provision for income taxes: For the nine months ended September 30, 1997, the provision for income taxes was $1.6 million, representing an effective rate of 32%. For the same period in 1996, the provision for income taxes was $0.4 million, representing an effective rate of 13%. Tax-planning strategies, an adjustment for state tax apportionment factors, and an adjustment related to the ESOP resulted in a reduction in the Company's effective tax rate for 1996. Net Income As a result of the foregoing, for the nine months ended September 30, 1997, net income was $3.2 million, resulting in net income per weighted-average common share outstanding of $0.34. For the same period in 1996, net income was $2.4 million, resulting in net income per weighted-average common share outstanding of $0.23. Liquidity and Capital Resources Cash requirements historically have been satisfied through cash flow from operations, borrowings, or sales of equipment. Liquidity in 1997 and beyond will depend, in part, on the continued remarketing of the equipment portfolio at similar lease rates, the management of existing sponsored programs, the effectiveness of cost control programs, the purchase and sale of equipment, and the volume of commercial and industrial equipment leasing transactions for which the Company earns fees and a spread. Management believes the Company can accomplish the preceding and that it will have sufficient liquidity and capital resources for the future. Future liquidity is influenced by the factors summarized below. Debt financing: Senior Debt: The Company's $22.1 million senior loan with a syndicate of insurance companies provides that equipment sale proceeds from pledged equipment or cash deposits be placed into collateral accounts or used to purchase additional equipment to the extent required to meet certain debt covenants. As of September 30, 1997, the cash collateral balance was $13.3 million. The facility required quarterly interest payments through March 31, 1997, with quarterly principal payments of $1.47 million plus interest charges beginning June 30, 1997 through termination of the loan in June 2001. Senior Notes: On June 28, 1996, the Company closed a floating-rate senior secured note agreement that allowed the Company to borrow up to $27.0 million within a one-year period. During the nine months ended September 30, 1997, the Company drew down $9.0 million and prepaid $1.9 million on this facility. The outstanding balance as of October 24, 1997 was $25.1 million. Beginning in November 1997, the Company will be required to make quarterly principal payments of $1.25 million. Bridge Financing: Assets acquired and held on an interim basis for placement with affiliated partnerships or purchased for placement in the Company's securitization facility have, from time to time, been partially funded by a $50.0 million short-term secured debt facility. The Company amended this facility on October 3, 1997 to extend its availability until November 3, 1997. The facility, which is shared with PLM Equipment Growth Funds (EGFs) IV, V, and VI, PLM Equipment Growth & Income Fund VII, and Professional Lease Management Fund I, LLC, allows the Company to purchase equipment prior to its designation to a specific program or partnership. As of October 24, 1997, the Company had $1.5 million in borrowings, and EGF V and EGF VI had $9.1 million and $10.0 million in outstanding borrowings, respectively, under this facility. The Company believes it will be able to extend this facility prior to its expiration on similar terms. Securitized Debt: The Company has available a securitization facility to be used to acquire assets on a nonrecourse basis, secured by direct finance leases, operating leases, and loans on commercial and industrial equipment that generally have terms from two to seven years. The Company amended this facility on October 14, 1997, increasing the facility from $80.0 million to $125.0 million and extending the availability of the facility until October 13, 1998. As of October 24, 1997, there were $72.1 million in borrowings outstanding under this facility. Interest-Rate Swap Contracts: The Company has entered into interest-rate swap agreements in order to manage the interest-rate exposure associated with its securitized debt. As of September 30, 1997, the swap agreements had remaining terms averaging 2.76 years, corresponding to the terms of the related debt. At September 30, 1997, a notional amount of $68.5 million of interest-rate swap agreements effectively fixed interest rates at an average of 7.16% on such obligations. For the nine months ended September 30, 1997, interest expense increased by $0.2 million due to these arrangements. Commercial and industrial equipment activities: The Company earns finance lease or operating lease income for leases originated and retained by its AFG subsidiary. The funding of leases requires the Company to retain an equity interest in all leases financed through the securitization facility. AFG also originated loans in which it takes a security interest in the assets. From January 1, 1997 through October 24, 1997, the Company purchased commercial and industrial equipment with an original equipment cost of $75.3 million. A portion of these transactions was financed, on an interim basis, through the Company's bridge-financing facility. Some equipment subject to leases is sold to an institutional leasing investment program for which the Company serves as the manager. Acquisition and management fees are received for the sale and subsequent management of these leases. The Company believes that this lease origination operation is a growth area for the future. As of September 30, 1997, the Company, through its AFG subsidiary, had committed to purchase $102.5 million of equipment for its commercial and industrial equipment lease portfolio, to be held by the Company or sold to the Company's institutional leasing investment program or to third parties. From October 1, 1997 through October 24, 1997, the Company, through its AFG subsidiary, funded $5.4 million of commitments outstanding as of September 30, 1997 for its commercial and industrial equipment lease portfolio. As of October 24, 1997, the Company had committed to purchase $145.3 million of equipment for its commercial and industrial equipment lease portfolio. Transportation equipment activities: During the nine months ended September 30, 1997, the Company generated proceeds of $10.8 million from the sale of owned transportation equipment. The net proceeds on the sale of assets that were collateralized as part of the senior loan facility were placed in a collateral account. The Company operates 10 trailer rental facilities that engage in short-term and mid-term operating leases. Equipment operated in these facilities consists of dry van trailers leased to a variety of customers and refrigerated trailers used primarily in the food distribution industry. The Company is selling certain of its older trailers and is replacing them with new or late-model used trailers. The new trailers will be placed in existing rental facilities or in new yards. Over the last four years, the Company has downsized its transportation equipment portfolio through the sale or disposal of underperforming assets. The Company will continue to analyze its transportation equipment portfolio for underperforming assets to sell or dispose of as necessary. Management believes that through debt and equity financing, possible sales of equipment, and cash flows from operations, the Company will have sufficient liquidity and capital resources to meet its projected future operating needs. Forward-looking information: Except for historical information contained herein, the discussion in this Form 10-Q contains forward-looking statements that contain risks and uncertainties, such as statements of the Company's plans, objectives, expectations, and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Company's actual results could differ materially from those discussed here. PART II - OTHER INFORMATION Item 1. Legal Proceedings See Note 8 to the consolidated financial statements. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits 10.1 Second Amendment to Warehousing Credit Agreement among American Finance Group Inc., First Union National Bank of North Carolina, and Fleet Bank, N.A., dated as of October 3, 1997. 10.2 Third Amendment to Amended and Restated Warehousing Credit Agreement among TEC AcquiSub, Inc., First Union National Bank of North Carolina, and Fleet Bank, N.A., dated as of October 3, 1997. 10.3 Third Amendment to Pooling and Servicing Agreement and Indenture of Trust among AFG Credit Corporation, American Finance Group, Inc. and Bankers Trust Company, dated as of October 14, 1997. 10.4 Series 1997-1 Supplemental Indenture to Pooling and Servicing Agreement and Indenture of Trust among AFG Credit Corporation, American Finance Group, Inc., First Union Capital Markets Corp., and Bankers Trust Company, dated as of October 14, 1997. 10.5 Note Purchase Agreement among AFG Credit Corporation, Variable Funding Capital Corporation, and First Union Capital Markets Corp., dated as of October 14, 1997. (B) Reports on Form 8-K July 28, 1997 - Announcement regarding the retirement of two members of PLM International's Board of Directors, J. Alec Merriam and Robert L. Pagel. September 3, 1997 - Announcement regarding the election of Robert N. Tidball as Chairman of the Board of Directors of the Company and the election of Randall L.W. Caudill as a Class II director of the Board of Directors of the Company. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PLM INTERNATIONAL, INC. /s/Richard Brock -------------------- Richard Brock Vice President and Corporate Controller Date: October 24, 1997 EX-27 2
5 1,000 9-MOS DEC-31-1997 SEP-30-1997 6,145 0 5,976 0 0 0 74,326 (38,237) 195,023 0 0 64,977 0 0 (16,098) 195,023 0 37,270 0 26,219 0 0 7,460 4,810 1,562 3,248 0 0 0 3,248 0.34 0.34
EX-10 3 EXECUTION COPY AMENDMENT NO. 3 TO POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST THIRD AMENDMENT, dated as of October 14, 1997 (the "Amendment") to the Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1, 1995, as amended by Amendment No. 1 thereto dated as of September 1, 1995, and Amendment No. 2 thereto dated as of December 5, 1995 (the "Agreement"), 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"). WHEREAS, the Transferor, AFG, the Trustee and the Collateral Trustee wish to amend the Agreement in the manner provided for in this Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. The definition of "Aggregate Net Pool Balance" in Section 1.1 of the Agreement is amended by deleting the definition in its entirety and replacing it with the following text: "Aggregate Net Pool Balance" means, on any date of determination, the excess of (x) the Aggregate Pool Balance over (y) the sum of the Excess Concentration Amounts, in each case of such date of determination. 2. The definition of "Applicable Discount Rate" in Section 1.1 of the Agreement is amended by deleting the text "actively traded" and substituting in its place the text "two year" and by deleting the text immediately after "U.S. Treasury securities" and substituting in its place the text "plus (x) 150 basis points". 3. The definition of "Collections" in Section 1.1 of the Agreement is amended by inserting the text "(including any Residual Value Insurance Proceeds), any cash payments made in connection with a substitution under Section 2.7," after the text "Insurance Proceeds," therein. 4. Section 1.1 of the Agreement is amended by deleting the definition of "Crossover Date" in its entirety. 5. The definition of "Defaulted Lease" in Section 1.1 of the Agreement is amended by deleting the text in its entirety and substituting in its place the following text: "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) such Lease is more than three (3) Scheduled Payments past due. 6. The definition of "Delinquent Lease" in Section 1.1 of the Agreement is amended by deleting the text in its entirety and substituting in its place the following text: "Delinquent Lease" shall mean, on any date of determination, each Included Lease with respect to which more than two (2) Scheduled Payments are past due. 7. The definition of "Discounted Lease Balance" in Section 1.1 of the Agreement is amended by adding at the end of such definition the following text: For the purposes of computing the Aggregate Pool Balance, the Discounted Lease Balance of Scheduled Payments due more than 84 months after the date of such computation of such Aggregate Pool Balance, shall be equal to zero. 8. The definition of "Distribution Date" in Section 1.1 of the Agreement is amended by adding the words "commencing in February, 1996" after the words "the fifteenth day of each month" therein. 9. The definition of "Eligible Lease" in Section 1.1 of the Agreement is amended by deleting subsections (a), (c), (l) and (n) in their entirety and substituting in each of their places the following text: (a) which is payable in United States dollars, or, if the Lessee of such Lease is a Foreign Lessee that is an Eligible Lessee as defined in clause (B)(ii)(y) of the definition of "Eligible Lessee", meets the requirement of such clause (B)(ii)(y); (c) which is not either (i) a Defaulted Lease as of the related Cut Off Date or (ii) a Delinquent Lease as of such date of determination; (l) which provides to the Lessee 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; (n) which, as of the related Cut Off Date, had a lease term of not less than 6 months; 10. The definition of "Eligible Lessee" in Section 1.1 of the Agreement is amended by deleting the text in its entirety and substituting in its place the following text: "Eligible Lessee" shall mean at any date of determination, a Lessee that either (A) (i) has provided a billing address for the related Lease in the United States of America or (ii) is organized under the laws of the Unites States of America or any State thereof, or that is organized under the laws of Canada or any province thereof, or (B) (i) with respect to which the Lessee is rated investment grade by Moody's or Standard and Poor's and (ii) with respect to which the Lessee's related Lease is either (x) denominated in United States Dollars or (y) denominated in the Lessee's local currency if the lease payments thereunder are subject to a currency swap acceptable to the Deal Agent that converts such local currency payments to United States Dollars. 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. 11. Section 1.1 of the Agreement is amended by adding the following definition after "Floating Pool" and before "Governmental Authority"; "Foreign Lessee" shall mean an Eligible Lessee that (i) has not provided a billing address for the related Lease in the United States of America or (ii) is not organized under the laws of the United States of America or any State thereof, or that is not organized under the laws of Canada or any province thereof. 12. Section 1.1 of the Agreement is amended by adding the following definition after "Responsible Officer" and before "Retransfer Agreement": "Restricted Note" shall have the meaning specified in Section 6.13. 13. The definition of "Servicing Fee Percentage" in Section 1.1 of the Agreement is amended by deleting the text in its entirety and substituting in its place the following text: "Servicing Fee Percentage" shall mean .40%. 14. Section 1.1 of the Agreement is amended by adding the following definition after "Target Repayment Percentage" and before "Tax Collections": "Targeted Holder" shall mean each holder of a Restricted Note, each holder of a participation with respect to a Restricted Note, and each holder of a right to receive any amount in respect of the Transferor Interest; provided, however, that any Person holding more than one interest, each of which would cause such Person to be a Targeted Holder, shall be treated as a single Targeted Holder. 15. Subsection 2.1(d)(ii)(A) of the Agreement is amended by deleting the words "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". 16. Section 2.5(q) of the Agreement is amended in its entirety to read as follows: 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 the original cost of the Equipment relating to all Included Leases. 17. Section 2.6(b)(i) of the Agreement is amended by deleting the word "fifth" in the first line therein and inserting in its place the word "third". 18. Section 2.6(b)(viii) of the Agreement is deleted in its entirety. 19. Section 2.7(a) of the Agreement is amended by adding the text "and/or cash" after the text "a Lease and the related Equipment" in the first sentence therein. 20. Section 2.7(c)(iii) of the Agreement is amended by adding the text ", except to the extent that cash or additional Substitute Leases has been contributed equal to any deficiency" after the word "replaced" therein. 21. Section 2.7(c)(iv) of the Agreement is deleted in its entirety. 22. Section 6.1 of the Agreement is amended by adding the text "Notwithstanding the above, Notes issued pursuant to a Variable Funding Series may be issued in an amount equal to the maximum commitment of each Purchaser, as specified in the appropriate Supplement." to the end of the paragraph therein. 23. Subsection 6.13(a) of the Agreement is amended by: (a) adding the text "if, after such transfer, the value of the transferee's interest (direct or indirect) in the Trust will exceed 50% of the total value of such transferee" to the end of the second sentence thereof. (b) adding the text "(i)" between the words "Transfer creates" in the third sentence thereof and adding the text "or (ii) would cause there to be more than one hundred Targeted Holders. Any transfer that would cause the number of Targeted Holders to exceed one hundred shall be deemed void" to the end of the third sentence thereof. (c) deleting the text "(i)" in the second paragraph thereof and deleting the text following the words "disseminated firm buy or sell quotations" and replacing it with the text ".". 24. Subsection 6.14(a) of the Agreement is amended by: (a) adding the following text to the end of the first sentence thereof: "; provided, however that any such issuance or reallocation shall not cause the number of Targeted Holders to exceed one hundred." (b) deleting the last sentence thereof. 25. Sections 11.6 and 11.24 of the Agreement are amended by deleting the text "each Rating Agency" therein and substituting in its place the text "Moody's and Standard and Poor's". 26. Subsection 13.1(c) of the Agreement is amended by deleting the text "provided" and substituting in its place the text "provided, that such amendment will not cause the Trust to be classified as an association taxable as a corporation for federal income tax purposes; provided, further,". 27. Subsection 13.2(d)(ii) of the Agreement is amended by deleting the text "Exhibit J" and substituting in its place the text "Exhibits C and J". 28. Paragraph 1(d) of Schedule 3 to the Agreement is amended by deleting the text "25% of the Aggregate Pool Balance" and substituting in its place the text "(i) 35% of the Aggregate Pool Balance as long as the Aggregate Pool Balance is less than $50,000,000 or (ii) 25% of the Aggregate Pool Balance as long as the Aggregate Pool Balance exceeds $50,000,000, provided that to the extent a Lease was an Included Lease when the Aggregate Pool Balance was less than $50,000,000, it shall remain an Included Lease when the Aggregate Pool Balance exceeds $50,000,000." 29. Paragraph 2(a) of Schedule 3 to the Agreement is hereby amended by replacing the chart therein with the chart attached hereto as Exhibit I. 30. Paragraph 2(b) of Schedule 3 to the Agreement is amended by deleting the text "$10,000,000" and adding the text "10% of the Asset Base." 31. Paragraph 3 of Schedule 3 to the Agreement is amended by deleting the text in its entirety and substituting in its place the following text: Other Lease Requirements: Utilizing the Definition of "Eligible Lease" in the Pooling and Servicing Agreement and Indenture of Trust; (a) the sum of the Discounted Lease Balances of all Included Leases, calculated for each Lease at the date of origination of each such Lease by AFG, would not, on a cumulative basis, exceed 90% of the sum of the original cost of the Equipment relating to all Included Leases; (b) Leases having remaining terms greater than 72 months, as of the related Cut Off Date, may not comprise greater than 15% of the Asset Base; and (c) Leases of Foreign Lessees may not exceed 10% of the Asset Base. 32. Section 3(d) of Exhibit B to the Agreement is amended by deleting the words "and to stamp such Leases 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". 33. Section 6(d) of Exhibit B to the Agreement is deleted in its entirety. 34. Exhibit C to the Agreement is amended by deleting the text "2.6(b)(viii)" from the heading of such Exhibit and substituting in its place the text "13.2(d)(ii)". 35. Pages 2 and 3 of Exhibit H to the Agreement is hereby amended and replaced to substantially conform with Exhibit H attached as Exhibit II hereto. 36. Except as expressly amended, modified and supplemented hereby, the provisions of the Agreement are and shall remain in full force and effect. 37. THIS AMENDMENT 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. 38. Capitalized terms used in this Amendment without definition shall have the meanings assigned to them in the Agreement. 39. This Amendment may be executed in two or more counterparts (and by different parties on separate counterparts), each or which shall be an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment 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: Exhibit I - -------------------------------------------------- ============================ Percentage of Aggregate Pool Balance Category - -------------------------------------------------- ============================ 1. Included Leases of any individual Lessee that are rated AA- or higher by Standard & Poor's and Aa3 or higher by Moody's 20% - -------------------------------------------------- ============================ - -------------------------------------------------- ============================ 2. Included Leases of any individual Lessee that are rated between investment grade and (i) AA- by Standard & Poor's and (ii) Aa3 by 9% Moody's - -------------------------------------------------- ============================ - -------------------------------------------------- ============================ 3. Included Leases of any individual Lessee that are not rated investment grade by Moody's and 3% Standard & Poor's - -------------------------------------------------- ============================ - -------------------------------------------------- ============================ 4. Included Leases of all Lessees that operate 40% in the same industry.* - -------------------------------------------------- ============================ - -------------------------------------------------- ============================ 5. Included Leases that relate to the same type 40% of Equipment** - -------------------------------------------------- ============================ - -------------------------------------------------- ============================ 6. Included Leases for which the Scheduled 10% Payments are payable semi-annually - -------------------------------------------------- ============================ * Based upon Primary Standard Industrial Classification Code Number. ** As determined by AFG Credit Corporation in accordance with its customary procedures. EX-10 4 EXECUTION COPY AFG CREDIT CORPORATION, Transferor, AMERICAN FINANCE GROUP, INC., Servicer, FIRST UNION CAPITAL MARKETS CORP., Deal Agent and BANKERS TRUST COMPANY, Trustee and Collateral Trustee on behalf of the Series 1997-1 Noteholders SERIES 1997-1 SUPPLEMENTAL INDENTURE Dated as of October 14, 1997 to POOLING AND SERVICING AGREEMENT AND INDENTURE OF TRUST Dated as of July 1, 1995 $125,000,000 AFG MASTER TRUST Series 1997-1 =============================================================================== TABLE OF CONTENTS Page Section 1. Designation. 1 Section 2. Definitions. 1 Section 3. The Notes. 6 Section 4. [Reserved]. 6 Section 5. [Reserved] 7 Section 6. Delivery. 7 Section 7. Procedure for Increasing the Principal Amount............7 Section 8. Procedure for Decreasing the Principal Amount............8 Section 9. [Reserved]. 8 Section 10. [Reserved]. 8 Section 11. Interest. 8 Section 12. Indemnification by Transferor...........................8 Section 13. Article IV of Agreement.................................9 Section 14. Article V of the Agreement.............................12 Section 15. Accelerated Payment Events; Series 1997-1 Pay Out Events..14 Section 16. Funding Costs. 15 Section 17. Conditions Precedent to Effectiveness of Supplement.......18 Section 18 Representation and Warranties of the Transferor and the Servicer..20 Section 19. Covenants of the Transferor......................................22 Section 20. Covenants of the Servicer........................................22 Section 21. Covenants of the Trustee.........................................23 Section 22. Obligations Unaffected...........................................23 Section 23. [Reserved]. 23 Section 24. Payments. 23 Section 25. Costs and Expenses..............................................23 Section 26. Amendments. 24 Section 27. Successors and Assigns...........................................25 Section 28. [Reserved]. 25 Section 29. Repurchase by Servicer...........................................25 Section 30. Repurchase by Transferor.........................................26 Section 31. Permitted Successor Servicer.....................................26 Section 32. Option to Repurchase.............................................26 Section 33. Final Distribution...............................................26 Section 34. [Reserved]. 26 Section 35. Ratification of Agreement........................................27 Section 36. Counterparts. 27 Section 37. GOVERNING LAW. 27 Section 38. The Trustee. 27 Section 39. Instructions in Writing..........................................27 EXHIBITS Exhibit A:........ Form of Note Exhibit B:........ [Reserved] Exhibit C:........ Form of Monthly Noteholder's Statement Exhibit D:........ Form of Purchaser's Certification Exhibit E:........ Form of Seller's Certification Exhibit F:........ Form of Commitment Transfer Supplement SCHEDULES Schedule 1........ Schedule of Purchasers' Commitments SERIES 1997-1 SUPPLEMENTAL INDENTURE, dated as of October 14, 1997 (this "Supplement") among AFG CREDIT CORPORATION, a Delaware corporation, as Transferor, AMERICAN FINANCE GROUP, INC., a Delaware corporation, as Servicer, FIRST UNION CAPITAL MARKETS CORP., a North Carolina corporation and BANKERS TRUST COMPANY, as Trustee (in such capacity, the "Trustee") and as Collateral Trustee (in such capacity, the "Collateral Trustee") under the AFG Master Trust Pooling and Servicing Agreement and Indenture of Trust dated as of July 1, 1995 among the Transferor, the Servicer, and the Trustee and Collateral Trustee (as amended, supplemented or otherwise modified from time to time, the "Agreement"). Section 6.12 of the Agreement provides, among other things, that the Transferor and the Trustee may at any time and from time to time enter into a supplement to the Agreement for the purpose of authorizing the delivery by the Transferor to the Trustee for execution and authentication of one or more Series of Notes. Pursuant to this Supplement, the Transferor shall create a new Series of Notes and shall specify the principal terms thereof. Section 1. Designation. There is hereby created a Series of Notes to be issued pursuant to the Agreement and this Supplement to be known as the "Series 1997-1 Notes". Series 1997-1 shall be a Variable Funding Series. The Series 1997-1 Notes shall be issued in definitive form. Section 2. Definitions. In the event that any term or provision contained herein shall conflict with or be inconsistent with any provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All Article, Section or subsection references herein shall mean Articles, Sections or subsections of the Agreement, as amended or supplemented by this Supplement, except as otherwise provided herein. All capitalized terms not otherwise defined herein are used herein as defined in the Agreement. Each capitalized term defined herein shall relate only to the Series 1997-1 Notes and no other Series of Notes issued by the Trust. Accelerated Funding Requirement: Shall mean, on any Distribution Date after an Accelerated Payment Event has occurred, the Principal Amount, after giving effect to the application of any amounts allocated under the Target Repayment Amount. Accelerated Payment Date: Shall mean the date on which an Accelerated Payment Event is deemed to occur pursuant to Section 15(a) of this Supplement. Accelerated Payment Event: Shall have the meaning set forth in Section 15(a) of this Supplement. Adjusted Principal Amount: Shall mean, on any date of determination, the excess of the Principal Amount over the Distribution Account Balance at the end of such date of determination. Aggregate Commitment Amount: Shall mean, as of any date, the sum of the Commitments of all Purchasers on such date. Amortization Period: The period from but excluding the last day of the Revolving Period through the day on which the Principal Amount of the Series 1997-1 Notes, all accrued Series 1997-1 Note Interest and all other amounts owed to the Series 1997-1 Noteholders are indefeasably paid in full. Average Principal Amount: Shall mean for any period the sum of the Principal Amounts on each day of such period divided by the number of days in such period. Change in Law: Shall have the meaning specified Section 16(c) hereof. Closing Date: Shall mean the date on which the Principal Amount is first increased to above zero. Commitment: Shall mean, as to any Purchaser, its obligation to maintain and, subject to the conditions set forth in Section 7 hereof and the Note Purchase Agreement, increase its Principal Amount, in an aggregate amount not to exceed at any one time outstanding the amount set forth in the Note Purchase Agreement; collectively, as to all such Purchasers, the "Commitments". Commitment Percentage: Shall mean, as to any Purchaser and as of any date, the percentage equivalent of a fraction, the numerator of which is such Purchaser's Commitment as set forth on Schedule 1 and the denominator of which is the Aggregate Commitment Amount as of such date. Deal Agent: First Union Capital Markets Corp., in its capacity as deal agent under the Note Purchase Agreement. Decrease: Shall have the meaning assigned in Section 8 hereof. Distribution Account: Shall have the meaning specified in Section 4.2B. Distribution Account Balance: Shall mean, on any date of determination, the amount on deposit in the Distribution Account on such date (excluding investment income for the Monthly Period which includes such date of determination and amounts designated to pay Series 1997-1 Note Interest). Effective Date: Shall have the meaning specified in Section 17 hereof. Facility Amount: $125,000,000. Facility Fee: Has the meaning given to such term in the Fee Letter. Fee Letter: The fee letter agreement between the Transferor, the Servicer, the Deal Agent and First Union, as liquidity agent, dated October 14, 1997, as amended, modified or supplemented from time to time. First Union: First Union National Bank, with its principal office in Charlotte, North Carolina, and its successors and assigns. Increase: Shall have the meaning assigned in Section 7(a) hereof. Increase Amount: Shall have the meaning assigned in Section 7(a) hereof. Increase Date: Shall have the meaning assigned in Section 7(a) hereof. Increased Costs: Shall mean any amounts owing to the Purchasers pursuant to Section 16(b) hereof. Initial Principal Amount: Shall mean $72,133,000. Monthly Sale Date: Shall mean (i) each Distribution Date and (ii) the last Business Day of each month. Noteholder: Shall mean the holder of record of any Series 1997-1 Note. Notes: Shall mean the Series 1997-1 Notes issued pursuant to this Supplement. Note Purchase Agreement: Shall mean the Note Purchase Agreement, dated as of August __, 1997, among the Transferor, the Servicer, VFCC, certain investors named therein, First Union, as liquidity agent and the Deal Agent, as amended from time to time and relating to the Series 1997-1 Notes. Notes: Shall have the meaning assigned in the preamble. Optional Series 1997-1 Pay Down Amount: Shall mean on a Distribution Date, the amount designated by the Servicer and available pursuant to Section 4.3(g)(i) in respect of such Distribution Date. Paired Series: Shall mean any series of Notes that is paired with Series 1997-1 in the related Supplement. Pay Out Commencement Date: Shall mean the date on which a Trust Pay Out Event is deemed to occur pursuant to Section 9.1 of the Agreement or a Series 1997-1 Pay Out Event is deemed to occur pursuant to this Supplement. Principal Amount: Shall mean, with respect to the Series 1997-1 Notes and as of any date, an amount equal to (a) the Initial Principal Amount plus (b) all Increase Amounts pursuant to Section 7 minus (c) the amount of any distributions made pursuant to Section 8 and all distributions made in reduction of the Principal Amount pursuant to Section 5.lA prior to such date of determination. Program Agreements: Shall have the meaning specified in Section 17(a) hereof. Program Fee: Has the meaning given to such term in the Fee Letter. Purchaser: Shall mean each purchaser of the Series 1997-1 Notes. Rating Agencies: Shall mean, collectively, each nationally recognized statistical rating agency which, at the request of the Transferor or the Servicer, has assigned a rating to one or more classes of the Series 1997-1 Notes; provided that so long as no such agency is currently rating a particular Class of Series 1997-1, the requirement to satisfy the Rating Agency Condition with respect to such Class shall be deemed to be a requirement to obtain the consent of the Required Purchasers of such Class. Record Date: Shall mean, with respect to any Distribution Date, the close of business on the last Business Day of the preceding month. Register: Shall mean a register maintained by the Deal Agent for recording (i) transfers of interests in the Series 1997-1 Notes, and (ii) the date, type, and amount of each Increase or Decrease made pursuant to this Supplement and the date and amount of each payment or prepayment of principal thereof. Required Purchasers: Shall mean, on any day, Purchasers having, in the aggregate, Voting Percentages of at least 66-2/3%. Revolving Noteholders' Interest: Shall have the meaning specified in Section 3 hereof. Revolving Period: Shall mean the period from and including the Closing Date to and including the earliest of (i) the latest Distribution Date that falls within 364 days after the Closing Date, (ii) the Pay Out Commencement Date and (iii) the Accelerated Payment Date. Scheduled Series 1997-1 Termination Date: Shall mean the Distribution Date which occurs 12 months after the last Scheduled Payment under any Included Lease in the Amortizing Pool related to Series 1997-1. Series Accounts: Shall mean the Distribution Account with respect to Series 1997-1. Series Available Amount: Shall mean on any Distribution Date the amount allocable to Series 1997-1 in accordance with Section 4.3(e) or (f) and Section 4.3(g) or (h) of the Agreement, as the case may be. Series Asset Base: Shall mean, on any date of determination, the Series Percentage of the Asset Base on such date. Series Percentage: Shall mean, on any date of determination: (a) prior to a Pay Out Event, the percentage equivalent of a fraction the numerator of which shall be the Adjusted Principal Amount on the preceding Business Day and the denominator of which shall be the Aggregate Adjusted Principal Amount on such day; (b) after a Pay Out Event, the percentage equivalent of a fraction the numerator of which shall be the Adjusted Principal Amount as of the end of the day on the last day of the Revolving Period and the denominator of which shall be the Aggregate Adjusted Principal Amount on such day. Series 1997-1: Shall mean the Series of the AFG Master Trust represented by the Series 1997-1 Notes. Series 1997-1 Note Interest: Shall have the meaning specified in Section 4.4A (a)(i). Series 1997-1 Pay Out Event: Shall have the meaning prescribed in Section 15(b) of this Supplement. Series Termination Date: Shall mean the earlier to occur of (i) the day after the Distribution Date on which the Series 1997-1 Notes are repaid in full, or (ii) the Scheduled Series 1997-1 Termination Date. Target Repayment Percentage: Shall mean 100%. Taxes: Shall have the meaning specified in Section 16(d) hereof. Unpaid Series 1997-1 Note Interest: Shall have the meaning specified in Section 11(a) hereof. VFCC: Variable Funding Capital Corporation, a Delaware corporation, and its successors and assigns. VFCC's Cost of Funds: Shall have the meaning specified in the Note Purchase Agreement. Voting Percentage: Shall mean with respect to any Purchaser, during the Revolving Period, the percentage equivalent of a fraction the numerator of which equals such Purchaser's Commitment and the denominator of which equals the Aggregate Commitment Amount and thereafter, the percentage equivalent of a fraction the numerator of which equals such Purchaser's Principal Amount and the denominator of which equals the Principal Amount. Working Day: Shall mean any Business Day on which dealings in foreign currencies and exchanges between banks may be carried on in London, England. Section 3. The Notes. (a) The Series 1997-1 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, consisting of the right of the Noteholders to receive (i) the applicable share of Collections and (ii) all other funds on deposit in the Collection Account allocable to the holders of the Series 1997-1 Notes and (iii) all funds on deposit in the Distribution Account (the "Revolving Noteholders' Interest"). The Transferor Interest and any other Series of Notes outstanding shall represent the interest in the remainder of the Trust Assets not allocated pursuant hereto to the Revolving Noteholders' Interest. (b) The Series 1997-1 Notes shall be issued, substantially in the form of Exhibit A, and shall, upon issue, be executed by the Trust and delivered to the Trustee for authentication and redelivery as provided in Section 6 hereof and Section 6.3 of the Agreement. (c) The Series 1997-1 Notes have not been registered under the United States Securities Act of 1933, as amended (the "Securities Act"). By accepting its Note, each Purchaser shall be deemed to acknowledge that it is purchasing the Notes for investment purposes and is not acquiring the Notes with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. (d) The Purchaser of the Series 1997-1 Notes is authorized to endorse on the schedules annexed thereto and made a part thereof or on a continuation thereof which shall be attached thereto and made a part thereof the date, type, and amount of each Increase or Decrease made pursuant to this Supplement and the date and amount of each payment or prepayment of principal thereof. (e) The Deal Agent shall maintain the Register and a subaccount therein for each Noteholder, in which shall be recorded the date, type, and amount of each Increase or Decrease made pursuant to this Supplement and the date and amount of each payment or prepayment of principal thereof. (f) The entries made in the Register and the endorsements made by each Noteholder on the schedules attached to each Series 1997-1 Note maintained pursuant to subsection 3(c) hereof shall, to the extent permitted by applicable law, be prima facie evidence of the (A) existence and amounts of the obligations of the Trust therein recorded; provided, however, that the failure of any Noteholder or the Deal Agent to maintain the Register or any such schedule, or any error therein, shall not in any manner affect the obligation of the Trust to repay (with applicable interest) the Commitments made to such Trust by such Noteholder in accordance with the terms of this Supplement. Section 4. [Reserved]. Section 5. [Reserved] Section 6. Delivery. (a) On the Closing Date, the Trust shall execute and the Trustee shall duly authenticate Series 1997-1 Notes in an aggregate denomination equal to the Initial Principal Amount. (b) The Trustee shall deliver the Series 1997-1 Notes when authenticated in accordance with Section 6.2 of the Agreement. Section 7. Procedure for Increasing the Principal Amount. (a) Subject to subsection 7(b) hereof, on any Monthly Sale Date during the Revolving Period, the Principal Amount may be increased by increasing each Purchaser's pro rata share of the Principal Amount (an "Increase"), up to an amount not exceeding each Purchaser's Commitment upon the request of the Servicer, on behalf of the Trust, (each date on which an increase in the Principal Amount occurs hereunder being herein referred to as the "Increase Date"); provided that the Servicer shall have given the Deal Agent irrevocable written notice (effective upon receipt) of such request as provided in the Note Purchase Agreement. Such notice shall state the Increase Date, the proposed amount of such Increase (the "Increase Amount"), and otherwise conform to the requirements of the Note Purchase Agreement. (b) The Purchasers shall be obligated to make an Increase only on the terms set forth in the Note Purchase Agreement and the Purchasers shall not be obligated to increase their respective Principal Amounts on any Increase Date hereunder if: (i) the related Increase Amount is less than $250,000; (ii) after giving effect to the Increase, the Principal Amount of any Purchaser would exceed its Commitment (determined as of the date the notice of such Increase is given); (iii) a Pay Out Event or an event which, with the passage of time or the giving of notice, or both, would be a Pay Out Event, has occurred; (iv) an Accelerated Payment Event, or an event which, with the passage of time or the giving of notice, would be an Accelerated Payment Event, has occurred and is continuing; and (v) the representations and warranties set forth in the Agreement, this Supplement and the Asset Purchase Agreement are not true and correct in all material respects on the Increase Date. Section 8. Procedure for Decreasing the Principal Amount. On any one or more Monthly Sale Dates during the Revolving Period, upon request of the Servicer on behalf of the Trust, the Aggregate Principal Amount may be reduced (a "Decrease") by (A)(i) a deposit by the Transferor to the Distribution Account of the amount of such reduction or (ii) the allocation to the Distribution Account of any amounts available pursuant to Section 4.3(g) of the Agreement or (iii) any combination of (i) and (ii). The Servicer shall give the Deal Agent written notice (effective upon receipt) prior to 12:00 Noon (New York City time) three Business Days prior to the date of any Decrease stating the amount of such Decrease; provided that each such Decrease shall be in an amount equal to or greater than $250,000. Section 9. [Reserved]. Section 10. [Reserved]. Section 11. Interest. (a) Interest shall accrue in respect of each day in each Accrual Period for the Series 1997-1 Notes at a rate equal to VFCC's Cost of Funds applicable to such day. Interest accrued during each Accrual Period on the Series 1997-1 Notes shall be payable on the Distribution Date immediately following the last day of such Accrual Period. If any interest that accrues on the Series 1997-1 Notes during an Accrual Period is not paid on the related Distribution Date in accordance with the preceding sentence ("Unpaid Series 1997-1 Note Interest"), such Unpaid Series 1997-1 Note Interest shall be payable on the immediately following Distribution Date, plus interest thereon for the additional Accrual Period calculated at VFCC's Cost of Funds. (b) Calculations of per annum rates and fees under this Supplement shall be made on the basis of a 360-day year for actual days elapsed. Each determination of VFCC's Cost of Funds hereunder and under the Note Purchase Agreement by the Deal Agent shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. Any change in interest payable hereunder resulting from a change in any of the interest rates upon which VFCC's Cost of Funds is based shall become effective as of the opening of business on the day on which such change is announced. Section 12. Indemnification by Transferor. The Transferor hereby agrees to pay, and to indemnify and hold harmless, the Deal Agent, each Purchaser, the Trustee and the Collateral Trustee and each officer, director, employee and agent thereof from (a) all claims, disputes, damages, penalties and losses arising from the entering into or management of Leases or the acquisition, management or operation of the related Equipment (including any product warranty-related claims, but excluding losses arising out of a lessee's failure to make timely lease payments or other credit losses) or the transactions contemplated by this Supplement or the subject matter thereof, (b) any taxes which may at any time be asserted in respect of this transaction or the subject matter thereof (including, without limitation, any sales, gross receipts, general corporation, personal property, privilege or license taxes, but not including taxes imposed upon the Deal Agent, any such Purchaser, the Trustee or the Collateral Trustee with respect to its income arising out of this transaction and imposed in any jurisdiction) and (c) costs, expenses and reasonable counsel fees in defending against the same, whether arising by reason of the acts to be performed by the Transferor or the Servicer hereunder or imposed against the Deal Agent, any Purchaser, the Trustee, the Collateral Trustee or any officer, director, employee or agent thereof, or the Transferor, the property involved or otherwise (regardless of whether the Deal Agent, the Trustee, any Purchaser, or any officer, employee or director thereof is a party thereto); provided, however, that the Transferor shall not be liable to or indemnify or hold harmless the Deal Agent, each Purchaser, the Trustee or the Collateral Trustee and each officer, director and employee or agent thereof as to any claims, disputes, damages, penalties and losses suffered or sustained by reason of gross negligence or willful misconduct on the part of the Deal Agent, each Purchaser, the Trustee or the Collateral Trustee, as the case may be, or any of their respective officers, directors, employees or agents. Section 13. Article IV of Agreement. Sections 4.1 through 4.5, inclusive, of the Agreement shall read in their entirety as provided in the Agreement and Sections 4.2B and Section 4.4A shall read in their entirety as provided in this Series 1997-1 Supplement to the Agreement. The remainder of Article IV of the Agreement shall read in its entirety as follows and shall be applicable only to the Series 1997-1 Notes: ARTICLE IV RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS Section 4.2B The Series 1997-1 Distribution Account. The Servicer, for the benefit of the Series 1997-1 Noteholders, shall cause to be established and maintained in the name of the Collateral Trustee, on behalf of the Trust, with an office or branch of a Qualified Institution a segregated demand deposit account maintained in the corporate trust department of such Qualified Institution, and held in trust by such Qualified Institution (the "Distribution Account") bearing a designation clearly indicating that the funds deposited therein are held in trust for the benefit of the Series 1997-1 Noteholders. The Paying Agent shall have the revocable authority to make withdrawals from the Distribution Account. Funds on deposit in the Distribution Account shall at all times be invested by the Collateral Trustee, at the written direction of the Servicer, in Permitted Investments. Any such investments shall mature and such funds shall be available for withdrawal on the Transfer Date preceding the Distribution Date on which such funds are to be distributed hereunder; provided, however, that any Permitted Investment in short-term U.S. treasury securities may mature one day after such Transfer Date and may be sold on such Transfer Date. Section 4.4A Allocations. (a) Allocations During the Revolving Period. On each Determination Date during the Revolving Period, the Servicer shall instruct the Collateral Trustee to deposit, and on the succeeding Distribution Date, the Collateral Trustee, acting in accordance with such instructions, shall deposit to the Distribution Account, the amounts required to be deposited pursuant to this Section in order to make the following payments from the Series Available Amount for the related Distribution Date (in each case, such deposit or payment to be made only to the extent funds remain available therefor after all prior payments and deposits for such Distribution Date have been made), in the following order of priority: (i) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to interest accrued in respect of the Series 1997-1 Notes in accordance with the provisions of Section 11 hereof ("Series 1997-1 Note Interest") 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, plus interest on any such amounts calculated at VFCC's Cost of Funds; (ii) pay to the Deal Agent, the Facility Fee and the Program Fee for the preceding Accrual Period, together with any amounts in respect of such fees that were due in respect of prior Accrual Periods that remain unpaid; (iii) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to the Optional Series 1997-1 Pay Down Amount for such Distribution Date; (iv) pay to each Hedging Counterparty any Hedge Termination Payments; (v) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to any amounts then due and payable in respect of Increased Costs in respect of the Series 1997-1 Notes accrued during the Accrual Period ending on such Distribution Date; (vi) pay to the appropriate parties an amount equal to any amounts then due and payable in respect of other fees and expenses owing thereto in respect of Series 1997-1; and (vii) allocate any remaining Series Available Amount to the Excess Funding Account. (b) Allocations During the Amortization Period and Prior to the Pay Out Commencement Date or Accelerated Payment Date. On each Determination Date during the Amortization Period and prior to the Pay Out Commencement Date or the Accelerated Payment Date, the Servicer shall instruct the Trustee to deposit, and on the succeeding Distribution Date the Trustee acting in accordance with such instructions shall deposit to the Distribution Account, the amounts required to be deposited pursuant to this Section in order to make the following payments from the Series Available Amount for the related Distribution Date (in each case, such deposit or payment to be made only to the extent funds remain available therefor after all prior payments and deposits for such Distribution Date have been made), in the following order of priority: (i) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to accrued in respect of the Series 1997-1 Notes 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, plus interest on any such amounts calculated at VFCC's Cost of Funds; (ii) pay to the Deal Agent, the Facility Fee and the Program Fee for the preceding Accrual Period, together with any amounts in respect of such fees that were due in respect of prior Accrual Periods that remain unpaid; (iii) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to the Percentage of the Target Repayment Amount for Series 1997-1 for such Distribution Date, together with any such amounts that were due on prior Distribution Dates for which no deposit was previously made; (iv) pay to each Hedging Counterparty any Hedge Termination Payments; (v) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to any amounts then due and payable in respect of Increased Costs in respect of the Series 1997-1 Notes accrued during the Accrual Period ending on such Distribution Date; (vi) pay to the appropriate parties an amount equal to any amounts then due and payable in respect of other fees and expenses owing thereto in respect of Series 1997-1; and (vii) allocate any remaining Series Available Amount to the Excess Funding Account. (c) Allocations After Pay Out Commencement Date or Accelerated Payment Date. On each Determination Date occurring after the Pay Out Commencement Date or the Accelerated Payment Date, the Servicer shall instruct the Trustee to deposit, and on the succeeding Distribution Date the Trustee acting in accordance with such instructions shall deposit to the Distribution Account, the amounts required to be deposited pursuant to this Section in order to make the following payments from the Series Available Amount for the related Distribution Date (in each case, such deposit or payment to be made only to the extent funds remain available therefor after all prior payments and deposits for such Distribution Date have been made), in the following order of priority: (i) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to Series 1997-1 Note Interest accrued in respect of the Series 1997-1 Notes 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, plus interest on any such amounts calculated at VFCC's Cost of Funds; (ii) pay to the Deal Agent, the Facility Fee and the Program Fee for the preceding Accrual Period, together with any amounts in respect of such fees that were due in respect of prior Accrual Periods that remain unpaid; (iii) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to the remaining Aggregate Principal Amount; (iv) pay to each Hedging Counterparty any Hedge Termination Payments; (v) allocate to the Distribution Account for the benefit of the Noteholders an amount equal to any amounts then due and payable in respect of Increased Costs in respect of the Series 1997-1 Notes accrued during the Accrual Period ending on such Distribution Date; (vi) pay to the appropriate parties an amount equal to any amounts then due and payable in respect of other fees and expenses owing thereto in respect of Series 1997-1; and (vii) allocate any remaining Series Available Amount to the Excess Funding Account. Section 14. Article V of the Agreement. Article V of the Agreement shall read in its entirety as follows and shall be applicable only to the Series 1997-1 Notes: ARTICLE V DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS Section 5.lA Distributions. On each Distribution Date, the Paying Agent shall distribute, in immediately available funds, to the Deal Agent, at the account specified pursuant to the Note Purchase Agreement on behalf of the Purchasers (in accordance with the certificate delivered by the Servicer to the Trustee pursuant to Section 5.2A(a) of amounts on deposit in the Distribution Account as are payable with respect to the Series 1997-1 Notes pursuant to Section 4.4A on such Distribution Date. Section 5.2A Noteholders' Statements. (a) Monthly Noteholders, Statement. On or before each Distribution Date, the Paying Agent shall forward to the Deal Agent a statement substantially in the form of Exhibit C to this Supplement prepared by the Servicer setting forth among other things the following information with respect to such Distribution Date (which, in the case of subclauses (i), (ii), (iii) and (v) shall be stated on an aggregate basis and on the basis of an original principal amount of $1,000 per Series 1997-1 Note): (i) the total amount distributed; (ii) the amount of such distribution allocable to Note Principal; (iii) the amount of such distribution allocable to Series 1997-1 Note Interest; (iv) the Aggregate Commitment Amount, the Principal Amount and the Average Principal Amount; and (v) the Adjusted Principal Amount, the Series Asset Base, the Aggregate Adjusted Principal Amount, the Asset Base, the Discounted Lease Balances of Included Leases that were classified as Delinquent Leases during each of the three preceding Monthly Periods, the Aggregate Pool Balance on the last day of the three preceding Monthly Periods and the Discounted Lease Balances of Included Leases that became Defaulted Leases during each of the three preceding Monthly Periods. (b) Annual Noteholders' Tax Statement. On or before January 31 of each calendar year, beginning with calendar year 1998, the Paying Agent shall distribute on behalf of the Transferor, to the Deal Agent for delivery to each Person who at any time during the preceding calendar year was a Series 1997-1 Noteholder, a statement prepared by the Servicer and delivered to the Trustee on or before January 31 of each calendar year containing the information required to be contained in the regular monthly report to Series 1997-1 Noteholders, as set forth in subclauses (i), (ii), (iii) and (iv) above, aggregated for such calendar year or the applicable portion thereof during which such Person was a Series 1997-1 Noteholder, together with such other customary information (consistent with the treatment of the Series 1997-1 Notes as debt) as the Servicer deems necessary or desirable to enable the Series 1997-1 Noteholders to prepare their tax returns consistent with the treatment of the Series 1997-1 Notes as debt instruments. Such obligations of the Transferor and the Paying Agent shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Trustee pursuant to any requirements of the Internal Revenue Code of 1986, as amended (the "Code") as from time to time in effect. (c) Monthly Statement. With respect to each Distribution Date and the related Monthly Period, the Servicer shall provide to the Deal Agent a copy of the Monthly Statement. Section 15. Accelerated Payment Events; Series 1997-1 Pay Out Events. (a) Accelerated Payment Events. If any one of the following events shall occur with respect to the Series 1997-1 Notes: (i) for any two (2) consecutive Distribution Dates after giving effect to all transactions and distributions to occur hereunder on such dates, the Adjusted Principal Amount on such dates shall exceed the Series Asset Base on such date; or (ii) for any two (2) consecutive Distribution Dates after giving effect to all transactions and distributions to occur hereunder on such dates, the Aggregate Adjusted Principal Amount on such dates shall exceed the Asset Base on such date; or (iii) on any Distribution Date after giving effect to all transactions and distributions to occur hereunder on such date, the aggregate Discounted Lease Balances shall be less than $20,000,000; or (iv) for any two (2) consecutive Distribution Dates after giving effect to all transactions and distributions to occur hereunder on such dates, the average of the Discounted Lease Balances of Included Leases that were classified as Delinquent Leases on the last day of each of the three preceding Monthly Periods exceeds 5% of the average Aggregate Pool Balance on the last day of such three preceding Monthly Periods; or (v) for any two (2) consecutive Distribution Dates after giving effect to all transactions and distributions to occur hereunder on such dates, the Discounted Lease Balances of Included Leases that became Defaulted Leases during the three preceding Monthly Periods exceeds 4% of the average Aggregate Pool Balance on the last day of such three preceding Monthly Periods; or (vi) for any two (2) consecutive Distribution Dates, Series 1997-1 Note Interest shall not have been paid with respect to the Series 1997-1 Notes; or (vii) an Accelerated Payment Event, as defined in the related Supplement, has occurred with respect to any other Series; then, and in any such event after the applicable grace period set forth in such subparagraphs, an accelerated payment event (an "Accelerated Payment Event") shall occur as of the date of such notice. (b) Series 1997-1 Pay Out Events. If the following event shall occur with respect to the Series 1997-1 Notes: (i) for any six (6) Distribution Dates, Series 1997-1 Note Interest shall not have been paid with respect to the Series 1997-1 Notes; then, and in any such event after the applicable grace period set forth in such subparagraphs, an event of default (a "Series 1997-1 Pay Out Event") shall occur as of the date of such notice. Section 16. Funding Costs. (a) Breakage. The Transferor agrees to indemnify each Purchaser and to hold each Purchaser harmless from any loss or expense arising from interest or fees payable by such Purchaser to lenders of funds obtained by it to purchase or maintain that portion of its Commitment hereunder with respect to which VFCC's Cost of Funds is determined by reference to the CP Rate (as defined in the Note Purchase Agreement) or the LIBOR Rate (as defined in the Note Purchase Agreement) as a consequence of (i) default by the Transferor in the performance of its obligations hereunder or under the Agreement, (ii) the occurrence of a Servicer Default or an event which would, with the giving of notice or the passage of time, constitute a Servicer Default, (iii) default by the Transferor in effecting an increase in the Aggregate Principal Amount on an Increase Date after having given notice of such Increase, or (iv) any prepayment of the Principal Amount prior to the termination of the applicable Tranche Period. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by any Purchaser to the Servicer shall show the additional amounts payable in reasonable detail and shall be conclusive absent manifest error. (b) Increased Costs. If any law, treaty or governmental regulation, or any change therein or in the interpretation or application thereof or compliance by any Purchaser with any request or directive (whether or not having the force of law) from any central bank or United States government (or any state or political subdivision thereof) or any entity exercising executive, legislative, regulatory or administrative functions of or pertaining to such government: (i) does or shall subject any Purchaser to any tax of any kind whatsoever with respect to this Supplement or such Purchaser's Commitment hereunder, or change the basis of taxation of payments to any Purchaser in respect of such Purchaser's portion of the amounts payable hereunder (except for changes in the rate of tax on the overall net income of such Purchaser imposed in the United States of America; (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirements against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of any Purchaser except as provided in clause (iii) below; or (iii) does or shall impose, modify or hold applicable any reserves against "Eurocurrency liabilities" (including, without limitation, basic, supplemental, marginal or emergency reserves) under Regulation D of the Board of Governors of The Federal Reserve System (or so long as such Purchaser may be required by such Board of Governors or by any other Governmental Authority in the United States having jurisdiction with respect thereto to maintain reserves (including, without limitation, basic, supplemental, marginal or emergency reserves) with respect to eurocurrency funding) in excess of the amount thereof on the Closing Date; or (iv) does or shall impose on any Purchaser any other condition; and the result of any of the foregoing is to increase the cost to such Purchaser of purchasing or maintaining its portion of the Purchasers' Commitment by an amount which such Purchaser deems to be material or to reduce the amount of any payment by an amount which such Purchaser deems to be material, then, in any such case, such Purchaser shall notify the Deal Agent, who will in turn notify the Servicer and the Transferor, of such Increased Costs and the event giving rise to such Increased Costs. (c) Changes in Capital Requirements. In the event that any Purchaser shall have determined that any Requirement of Law regarding capital adequacy or interpretation or application thereof or compliance by such Purchaser with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority (a "Change in Law") does or shall have the effect of reducing the rate of return on such Purchaser's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Purchaser or such corporation could have achieved but for such change or compliance (taking into consideration such Purchaser's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Purchaser to be material, then from time to time, after submission by such Purchaser to the Transferor (with a copy to the Deal Agent) of a written request therefor, the Transferor shall indemnify such Purchaser such additional amount or amounts as will compensate such for such reduction. (d) Taxes on Payments (i) All payments made under this Supplement shall be made free and clear of, and without reduction for or on account of, any present or future taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding, in the case of the Deal Agent and each Purchaser, income and franchise taxes imposed on the Deal Agent or such Purchaser (other than such income and franchise taxes imposed by a jurisdiction other than the United States or a subdivision thereof solely by reason of the location of the Equipment in such jurisdiction) (such non-excluded taxes being called "Taxes"). If any Taxes are required to be withheld from any amounts payable to the Deal Agent or any Purchaser hereunder, the amounts so payable to the Deal Agent or such Purchaser shall be increased to the extent necessary to yield to the Deal Agent or such Purchaser (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Supplement. Whenever any Taxes are payable by the Transferor, as promptly as possible thereafter, the Transferor shall send to the Deal Agent for its own account or for the account of such Purchaser, as the case may be, a certified copy of an original official receipt showing payment thereof. If the Transferor fails to remit to the Deal Agent the required receipts or other required documentary evidence, the Transferor shall indemnify the Deal Agent and the Purchasers for any incremental taxes, interest or penalties that may become payable by the Deal Agent or any Purchaser as a result of any such failure. (ii) Each Purchaser agrees that prior to the Closing Date (or if such Purchaser is not an Initial Purchaser, prior to or at the time such Purchaser becomes a "Purchaser" hereunder) it will deliver to the Transferor and the Deal Agent (A) either (1) a statement that it is incorporated under the laws of the United States of America or a state thereof or, (2) if its not so incorporated, two duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Purchaser is entitled to receive payments under this Supplement in respect of its interest in the Series 1997-1 Notes purchased hereunder, without deduction or withholding of any United States federal income taxes and (B) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each such Purchaser which delivers to the Transferor and the Deal Agent any such Form 1001 or 4224 and Form W-8 or W-9 further undertakes to deliver to the Transferor and the Deal Agent two further copies of Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Transferor and the Deal Agent and such extensions or renewals thereof as may reasonably be requested by the Transferor, certifying in the case of a Form 1001 or 4224 that such Purchaser is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes, unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Purchaser from duly completing and delivering any such form with respect to it and such Purchaser advises the Transferor that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (iii) The agreements in this Section 16(d) shall survive the termination of this Supplement and the payment of all amounts payable hereunder. (iv) No increased amount on account of Taxes shall be payable pursuant to this Section 16(d) to any Purchaser to the extent such Taxes would not have been payable if such Purchaser had furnished a form (properly and accurately completed in all material respects) which it was otherwise required to furnish in accordance with clause (ii) of this Section 16(d). (v) Each Purchaser shall furnish the Deal Agent, and the Deal Agent shall furnish the Transferor (to the extent received from the Purchasers), with information necessary to enable the Transferor to comply with United States federal income tax information reporting requirements regarding payments of interest received by Purchasers under this Supplement. (e) Notwithstanding anything to the contrary set forth in this Section 16, the payment to the Purchasers for any amounts payable under this Section 16, including Increased Costs, shall be limited to amounts available pursuant to Section 4.4A and the Purchasers shall have no other recourse to the assets of the Transferor, the Servicer, the Trust, the Trustee or the Collateral Trustee. Section 17. Conditions Precedent to Effectiveness of Supplement. This Supplement will become effective on the date (the "Effective Date") on which the following conditions precedent have been satisfied: (a) Documents. The Deal Agent shall have received an original executed copy for each Purchaser, each executed and delivered in form and substance satisfactory to the Deal Agent, of (i) the Agreement executed by a duly authorized officer of each of the Transferor, the Servicer and the Trustee and (ii) this Supplement executed by a duly authorized officer of each of the Transferor, the Servicer, the Trustee and the Purchasers. Each of the Agreement, the Asset Purchase Agreement, the Note Purchase Agreement and this Supplement (collectively, the "Program Agreements") shall be in full force and effect. (b) Corporate Proceedings of the Transferor and Servicer. The Deal Agent shall have received, with a counterpart for each Purchaser, a copy of the resolutions in form and substance reasonably satisfactory to the Deal Agent, of the Board of Directors of each of the Transferor and of the Servicer authorizing the execution, delivery and performance of each of the Program Agreements, certified by the Secretary or an Assistant Secretary of the Transferor or the Servicer, as the case may be, as of the date hereof, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate. All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Series 1997-1 Notes and the other Program Agreements and all other legal matters relating to such agreements and the transactions contemplated hereby and thereby shall be reasonably satisfactory in all material respects to counsel for the Deal Agent. (c) Corporate Documents. The Deal Agent shall have received, with a counterpart for each Purchaser, true and complete copies of the certificate of incorporation and by-laws of the Transferor and of the Servicer, certified as of the date hereof as true, complete and correct copies thereof by the Secretary or an Assistant Secretary of the Transferor or the Servicer, as the case may be. (d) Good Standing Certificates. The Deal Agent shall have received, with a counterpart for each Purchaser, copies of certificates dated as of a recent date from the Secretary of State or other appropriate authority of such jurisdiction, evidencing the good standing of the Transferor and the Servicer in each State where the ownership, lease or operation of property or the conduct of business requires it to qualify as a foreign corporation, except where the failure to so qualify would not have a material adverse effect on the business, operations, properties, condition (financial or otherwise) or prospects of the Transferor or the Servicer, as the case may be. (e) Consents, Licenses, Approvals, Etc. The Deal Agent shall have received, with a counterpart for each Purchaser, certificates dated the date hereof of the President, Vice Chairman, Chief Financial Officer or any Vice President of the Transferor and of the Servicer either (i) attaching copies of all material consents, licenses and approvals required in connection with the execution, delivery and performance by the Transferor or the Servicer, as the case may be, of this Supplement and the validity and enforceability against the Transferor and the Servicer of this Supplement and the Agreement, and such consents, licenses and approvals shall be in full force and effect or (ii) stating that no such consents licenses or approvals are so required. (f) Filings, Registrations and Recordings. Any documents (including, without limitation, financing statements) required to be filed in order (i) to perfect the sale of the Original Leases and the related Equipment by each Originator to the Transferor pursuant to the Asset Purchase Agreement and (ii) to create, in favor of the Trustee on behalf of the Trust, a perfected first priority interest in the Trust Assets under the Agreement with respect to which an interest may be perfected by a filing under the UCC and which shall, in each case, have been properly filed in each office in each jurisdiction listed in the Agreement or the Asset Purchase Agreement, as the case may be, and such filings are the only ones required in order to perfect the sale of the Original Leases and the related Equipment to the Transferor under the Asset Purchase Agreement and the transfer of such assets to the Trust, under the Agreement, as the case may be, in the jurisdictions listed therein. The Deal Agent shall have received evidence reasonably satisfactory to it of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (g) Lien Searches. The Deal Agent shall have received the results of a recent search by a Person satisfactory to the Deal Agent, of UCC and other filings with respect to the Transferor, each Originator and such other parties as it deems necessary. (h) Legal Opinions. The Deal Agent shall have received, with a counterpart for each Purchaser, (i) a legal opinion of internal counsel to the Transferor and the Servicer, dated the date hereof, addressing other customary matters in form and substance satisfactory to the Deal Agent; and (ii) a legal opinion of , counsel to the Trustee, dated the date hereof in form and substance satisfactory to the Deal Agent. Each such legal opinion shall be addressed the Deal Agent, as agent for the Purchasers under the Note Purchase Agreement; and the opinion referred to in subclause (i) above shall also be addressed to the Trustee, in its capacity as trustee hereunder and under the Agreement. (i) Certificates. The Deal Agent shall have received certificates of each of the Transferor and the Servicer, dated the Closing Date, of any two of the Chairman of the Board, the President, any Vice President, the chief financial officer and the Treasurer of the Transferor or the Servicer, as the case may be, stating that (i) the representations and warranties of the Transferor or the Servicer, as the case may be, contained in the Program Agreements, are true and correct on and as of the Closing Date, (ii) the Transferor or the Servicer, as the case may be, has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder and under such agreements at or prior to the Closing Date, (iii) the absence of any Pay Out Event on the Closing Date or the occurrence of any event that, with the passage of time, could be a Pay Out Event and (iv) since June 30, 1997, there has been no material adverse change in the financial position of the Transferor or the Servicer, as the case may be, or the Trust or any change, or any development including a prospective change, in or affecting the condition (financial or otherwise), results of operations. business or prospects of the Transferor or the Servicer, as the case may be, or the Trust except as described therein. Any officer making such certification may rely upon his or her knowledge as to the proceedings pending or threatened. (j) Series Accounts. The Deal Agent shall have received evidence satisfactory to it that the Series Accounts shall have been established. (k) Fees and Expenses. All fees and expenses to be paid on the Closing Date shall have been received by the appropriate Persons, provided that the Servicer shall have received an invoice setting forth such fees and expenses in reasonable detail. (n) Cancellation of Series 1995-1 Notes. All amounts due with respect to the Series 1995-1 Notes shall have been paid in full and such Series 1995-1 Notes, Classes A and B, shall have been canceled by the Trustee and such cancellation has been confirmed in writing to the Deal Agent. Section 18 Representation and Warranties of the Transferor and the Servicer. The Transferor and Servicer severally represent and warrant as follows: (i) Each of the representations and warranties included in the Program Agreements shall be true and correct in all material respects as of the Closing Date. (ii) Each of Transferor and the Servicer has the power and authority to execute and deliver this Supplement, the Agreement and the Series 1997-1 Notes and to perform their respective obligations hereunder and thereunder, and all corporate action required to be taken for the due and proper authorization, execution and delivery of this Supplement, the Agreement and the Series 1997-1 Notes and the consummation of the transactions contemplated by this Supplement, the Agreement and the Series 1997-1 Notes have been duly and validly taken. (iii) The Supplement constitutes the legal, valid and binding obligations of the Servicer and the Transferor, enforceable in accordance with its terms against each of them, 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 proceeding at law or in equity). (iv) When authenticated by the Trustee in accordance with the Agreement and delivered and paid for pursuant to this Supplement, the Series 1997-1 Notes will be duly issued and entitled to the benefits afforded by the Agreement and the Supplement. (v) The execution, delivery and performance of this Supplement and the consummation by the Transferor and the Servicer of the transactions contemplated hereby shall not conflict with, result in any breach of any of the terms and provisions of or constitute (with our without notice or lapse of time) a default under, the certificate of incorporation or by-laws of the Transferor or the Servicer, or any indenture, agreement or other instrument to which the Transferor or the Servicer is a party or by which it is bound, or violate and law or, to either the Transferor's or Servicer's knowledge, any order, rule or regulation applicable to such party of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over such party or any of its properties; and no permit, consent, approval of, or declaration to or filing with, any governmental authority is required in connection with the execution, delivery and performance of this Supplement or the consummation of the transactions contemplated hereby. (vi) Neither the Transferor nor the Servicer (i) is in violation of its certificate of incorporation or by-laws, (ii) is in default, in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, agreement, mortgage, deed of trust or other instrument to which the Transferor or the Servicer is a party or by which the Transferor or the Servicer is bound or to which any of the Transferor's or the Servicer's property or assets is subject or (iii) is in violation in any respect of any law, order, rule or regulation applicable to the Transferor or the Servicer or any of the Transferor's or the servicer's property of any court or of any federal or state regulatory body, administrative agency or other governmental instrumentality having jurisdiction over it or any of its property, except any violation or default that would not have a material adverse effect on the condition (financial or otherwise), results of operations, business or prospects of the Transferor or the Servicer. (vii) Neither the Trust nor the Transferor is an "investment company" or under the "control" of an "investment company" within the meaning thereof as defined in the Investment Company Act of 1940, as amended. (vii) Any taxes, fees and other governmental charges imposed upon the Transferor or the Servicer or on the assets of the Trust in connection with the execution, delivery and issuance by the Transferor or the Servicer of this Supplement, the Agreement, the Asset Purchase Agreement and the Series 1997-1 Notes and which are due at or prior to the Closing Date have been or will have been paid by the Transferor at or prior to the Closing Date. (ix) Each of the Transferor and the Servicer possesses all material licenses, certificates, authorizations and permits issued by, and has made all declarations and filings with, the appropriate state, federal or foreign regulatory agencies or bodies which are necessary or desirable for the ownership of its respective properties or the conduct of its respective businesses, except where the failure to possess or make the same would not have, singularly or in the aggregate, a material adverse effect on its condition (financial or otherwise), results of operations, business or prospects. Section 19. Covenants of the Transferor. The Transferor hereby agrees that: (i) it shall observe each and every of its respective covenants (both affirmative and negative) contained in the Agreement and this Supplement in all material respects; (ii) it shall not amend, supplement or otherwise modify or terminate the Agreement, unless in strict compliance with the terms thereof; and (iii) it shall not change in any material respect its current policies, practices or guidelines relating to the extension of credit to Lessees or the terms or provisions of the Leases so as to adversely effect the general quality of the Included Leases without the prior written consent of the Required Purchasers. Section 20. Covenants of the Servicer. The Servicer hereby agrees that: (i) it shall observe each and every of its covenants (both affirmative and negative) contained in the Agreement and this Supplement in all material respects; (ii) it shall not amend, supplement or otherwise modify or terminate the Agreement or this Supplement, unless in strict compliance with the terms thereof; (iii) it shall give prior notice to the Deal Agent of the delegation of any of its servicing, collection, enforcement or administrative duties with respect to the Accounts and the Receivables; (iv) it shall not change in any material respect its current policies, practices or guidelines relating to the extension of credit to Lessees or the terms or provisions of the Leases so as to adversely effect the general quality of the Included Leases without the prior written consent of the Required Purchasers; (v) it shall provide to the Deal Agent, simultaneously with delivery to the Trustee, all reports, certificates, statements and other documents required to be delivered to the Trustee pursuant to the Agreement; (vi) it shall provide at any time and from time to time to the Deal Agent access to documentation regarding the Included Leases, including the Lease Files, such access being afforded without charge but only (a) upon reasonable request, (b) during normal business hours, (c) subject to the Servicer's normal security and confidentiality procedures and (iv) at offices designated by the Servicer; (vii) it shall provide notice to the Deal Agent of the appointment of a Successor Servicer pursuant to Section 10.2 of the Agreement or Section 31 of this Supplement; and (viii) to the extent, if any, that the rating provided with respect to the Series 1997-1 Notes by a Rating Agency is conditioned upon the furnishing of documents or the taking of actions by the Servicer, to furnish such documents and take any such other actions. Section 21. Covenants of the Trustee. The Trustee hereby agrees that it shall provide at any time and from time to time to the Deal Agent access to documentation regarding the Included Leases, such access being afforded without charge but only (a) upon reasonable request, (b) during normal business hours, (c) subject to the Servicer's normal security and confidentiality procedures and (d) at offices designated by the Custodian or the Trustee. Section 22. Obligations Unaffected. The obligations of the Transferor and the Servicer to the Deal Agent, the Trustee and the Purchasers under this Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the Included Leases or the related Equipment or any sale of any of the Included Leases or the related Equipment. Section 23. [Reserved]. Section 24. Payments. Each payment to be made hereunder shall be made on the required payment date in lawful money of the United States and in immediately available funds, for the account of the Purchasers at the office of the Deal Agent set forth from time to time in the Note Purchase Agreement. Section 25. Costs and Expenses. The Transferor agrees to pay all out-of-pocket costs and expenses of the Trustee, the Deal Agent, First Union and VFCC (including, without limitation, in all of the following cases, reasonable fees and disbursements of counsel to such parties) in connection with (a) the preparation, execution, delivery, administration, waiver, amendment and modification of this Supplement, the Agreement and the Series 1997-1 Notes, and (b) the enforcement by the Purchasers of the obligations and liabilities of the Transferor and the Servicer under the Agreement, this Supplement or any related document. Section 26. Amendments. (a) Notwithstanding the provisions of Section 13.1 of the Agreement, this Supplement may be modified, amended, waived, supplemented or terminated in writing by the Transferor, the Servicer, the Trustee, the Collateral Trustee and the Required Purchasers; provided that no such amendment or waiver shall, unless signed by all Purchasers, (i) reduce in any manner the amount of or delay the timing of distributions for the account of any Purchaser under any provision of this Supplement, (ii) subject any Purchaser to any additional obligation (including, without limitation, any change in the determination of any amount payable by any Purchaser), (iii) change the Aggregate Commitment Amount or the number of Purchasers which shall be required for any action under this subsection or any other provision of this Supplement or (iv) change the definition of or the manner of calculating the Required Purchasers, Principal Amount, Aggregate Principal Amount, Average Principal Amount or the Series Percentage. (b) This Supplement may be amended from time to time by the Servicer, the Transferor, the Trustee and the Collateral Trustee, without the consent of the Required Purchasers, (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 Supplement which shall not be inconsistent with the provisions of this Supplement; 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. (c) Any amendment hereof can be effected without the Deal Agent being a party thereto. (d) With respect to any amendments to, or consents or waivers sought under, the Pooling and Servicing Agreement and Indenture of Trust, unless the Required Purchasers shall approve such amendment, consent, or waiver, as the case may be, then 100% of the Principal Amount of Series 1997-1 will be deemed to have voted in the negative with respect to such amendment, consent or waiver, as the case may be. With respect to any such amendments, consents or waivers, if the Required Purchasers shall approve such amendment, consent, or waiver, as the case may be, then 100% of the Principal Amount of Series 1997-1 will be deemed to have voted in the affirmative with respect to such amendment, consent or waiver, as the case may be. (e) Notwithstanding anything in this Section 26 to the contrary, no amendment may be made to this Supplement without satisfaction of the Rating Agency Condition. Section 27. Successors and Assigns. (a) This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Transferor may not assign or transfer any of its rights under this Supplement without the prior written consent of the Purchasers. (b) The Transferor and the Servicer each authorizes each Purchaser to disclose to any Participant or Acquiring Purchaser (each, a "Transferee") and any prospective Transferee any and all financial information in such Purchaser's possession concerning the Transferor or the Servicer which has been delivered to such Purchaser by the Transferor or the Servicer pursuant to this Supplement or which has been delivered to such Purchaser by or on behalf of the Transferor in connection with such Purchaser's credit evaluation of the Transferor, the Servicer, the Trust and the Trust Assets prior to becoming a party to this Supplement; provided, however, if any such information is subject to a confidentiality agreement between such Purchaser and the Transferor or the Servicer, the Transferee or prospective Transferee shall have agreed to be bound by the terms and conditions of such confidentiality agreement. (c) If, pursuant to this subsection, any interest in this Supplement or any Series 1997-1 Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Purchaser shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Purchaser (for the benefit of the transferor Purchaser, the Deal Agent, the Transferor and the Servicer) that under applicable law and treaties no taxes will be required to be withheld by the Deal Agent, the Transferor, the Servicer or the transferor Purchaser with respect to any payments to be made to such Transferee in respect of such Series 1997-1 Note, (ii) to furnish to the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Deal Agent and the Transferor) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Purchaser, the Deal Agent, the Transferor and the Servicer) to provide the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Deal Agent, the Transferor and the servicer) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. Section 28. [Reserved]. Section 29. Repurchase by Servicer. Upon any repurchase of the Series 1997-1 Notes by the Servicer pursuant to Section 10.1 of the Agreement, the Servicer shall pay, in addition to the amounts set forth in Section 10.1 of the Agreement and any accrued and unpaid Increased Costs and all other accrued and repaid costs, expenses or fees owing to any Person hereunder, under any Series 1997-1 Note or under the Note Purchase Agreement. Section 30. Repurchase by Transferor. Upon any repurchase of the Series 1997-1 Notes by the Transferor pursuant to Section 2.6 or Section 12.2(a), as the case may be, of the Agreement, the Transferor shall pay, in addition to the amounts set forth in Section 2.6 or Section 12.2(a), as the case may be, of the Agreement and any accrued and unpaid costs under Section 16 hereof and all other accrued and repaid costs, expenses or fees owing to any Person hereunder, under any Series 1997-1 Note or under the Note Purchase Agreement. Section 31. Permitted Successor Servicer. With respect to Series 1997-1, any financial institution which does not qualify as a permitted Successor Servicer under Section 10.2 of the Agreement shall qualify as a permitted Successor Servicer if approved by the Required Purchasers. Section 32. Option to Repurchase. Subject to the conditions set forth in Section 12.2 of the Agreement, the Transferor may, but shall not be obligated to, on any Distribution Date on or after the Distribution Date on which the Principal Amount is reduced to an amount less than or equal to 10% of the highest Principal Amount outstanding during the Revolving Period repurchase the Series 1997-1 Notes; provided that such option shall not be exercisable upon the happening of an Insolvency Event with respect to the Servicer or the Transferor. The deposit required in connection with any such repurchase shall be equal to (a) the Principal Amount, plus (b) the accrued and unpaid interest on the Series 1997-1 Notes through and including the day preceding the day on which such repurchase occurs which will be transferred to the Distribution Account and plus (c) all other accrued and repaid costs, expenses or fees owing to any Person hereunder, under any Series 1997-1 Note or under the Note Purchase Agreement. Section 33. Final Distribution. Written notice of any termination, specifying the Distribution Date upon which the Series 1997-1 Noteholders may surrender their Series 1997-1 Notes for payment of the final distribution and cancellation shall be given by the Trustee, at the written request of the Servicer, not later than the 60th day immediately preceding the Distribution Date on which final payment of the Series 1997-1 Notes shall be made. Section 34. [Reserved]. Section 35. Ratification of Agreement. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. Section 36. Counterparts. This Supplement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument. Section 37. GOVERNING LAW. THIS SUPPLEMENT 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 38. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplement or for or in respect of the recitals contained herein, all of which recitals are made solely by the Transferor. Section 39. Instructions in Writing. All instructions given by the Servicer to the Trustee pursuant to this Supplement shall be in writing, and may be included in a certificate delivered pursuant to Section 3.4(b) of the Agreement. [remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties have caused this Series 1997-1 Supplement 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: FIRST UNION CAPITAL MARKETS CORP., as Deal Agent By: Title: EXHIBIT A to SERIES 1997-1 SUPPLEMENTAL INDENTURE FORM OF SERIES 1997-1 NOTE $ [New York, New York] October ____, 1997 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED . NEITHER THIS NOTE NOR ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THIS NOTE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE INDENTURE REFERRED TO HEREIN. AFG MASTER TRUST SERIES 1997-1 NOTE FOR VALUE RECEIVED, the undersigned, the AFG Master Trust (the "Trust"), hereby promises to pay on the Scheduled Series 1997-1 Termination Date, to the order of at the office of [ ] located at [ ], in lawful money of the United States of America and in immediately available funds, the aggregate unpaid principal amount of this Note. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time at the applicable rate per annum as specified in the Indenture (as defined below) until any such amount shall become due and payable (whether at the stated maturity, by acceleration or otherwise), and thereafter on such overdue amount at the rate per annum set forth in the Indenture until paid in full. This evidences that (the "Noteholder") is the holder of this Note secured by the assets of the Trust, which include a portfolio of leases (the "Leases"), the related Equipment, all monies due or to become due with respect thereto, and the other assets and interest constituting the Trust Assets as defined in the AFG Master Trust Pooling and Servicing Agreement and Indenture of Trust, dated as of July 1, 1995, as supplemented by the Series 1997-1 Supplemental Indenture thereto (collectively, the "Indenture"), by and among, American Finance Group, Inc. ("AFG"), AFG Credit Corporation, and Bankers Trust Company, as trustee and as collateral trustee. THIS NOTE IS AN OBLIGATION OF THE TRUST AND DOES NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST IN, AFG, THE TRUSTEE OR THE COLLATERAL TRUSTEE. NONE OF THIS NOTE, THE LEASES, THE RELATED EQUIPMENT OR THE OTHER TRUST ASSETS IS INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THIS NOTE IS LIMITED IN RIGHT OF PAYMENT SOLELY TO CERTAIN COLLECTIONS RESPECTING THE LEASES AND TO THE OTHER TRUST ASSETS, ALL AS MORE SPECIFICALLY SET FORTH IN THE INDENTURE WITHOUT RECOURSE TO ANY OTHER ASSETS OR TO ANY OTHER PARTY, INCLUDING, WITHOUT LIMITATION, AFG CREDIT CORPORATION. AFG Credit Corporation has structured the Indenture and the Series 1997-1 Notes with the intention that the Series 1997-1 Notes will qualify under applicable tax law as indebtedness, and each Series 1997-1 Noteholder by acceptance of its Series 1997-1 Note agrees to treat and to take no action inconsistent with the treatment of the Series 1997-1 Notes for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. To the extent not defined herein, capitalized terms used herein have the meanings assigned in the Indenture, which more specifically sets forth the rights of the Noteholders. This Note is issued under and is subject to the terms, provisions and conditions of the Indenture, and the terms set forth herein are qualified thereby. The Noteholder by virtue of its acceptance hereof assents to and is bound by the Indenture, as amended from time to time. This Note is one of a series of Notes entitled "AFG Master Trust Series 1997-1 Notes" (the "Series 1997-1 Notes") which represents the right to receive interest payments and a return of principal as described herein and in the Indenture, including the right to receive the Collections and other amounts at the times and in the amounts specified in the Indenture to be deposited in the Series Accounts maintained for the benefit of such Notes or paid to the Series 1997-1 Noteholders. Series 1997-1 Note Interest will be distributed monthly on the fifteenth Business Day of each calendar month, or if such fifteenth day is not a Business Day, the next succeeding Business Day (a "Distribution Date"). In the case of the first interest payment, interest will accrue from the date of issuance and in the case of subsequent interest payments, interest will accrue from the preceding Distribution Date in each case to but excluding the date of payment thereof (an "Accrual Period"). On each Distribution Date, the Paying Agent shall pay to the Noteholder of record its pro rata share of the amount deposited into the Distribution Account pursuant to the Indenture on the related Transfer Date. On each Distribution Date occurring during the Amortization Period, the Paying Agent shall pay to the Noteholder its pro rata share of the Percentage of the Target Repayment Amount for Series 1997-1 for such Distribution Date. The Deal Agent is authorized to endorse on Schedule I attached to this Note all increases and decreases in the principal amount of this Note, and all payments made on account of the principal amount thereof, which endorsements shall, in the absence of manifest error, be conclusive as to the outstanding balance hereunder; provided, however, that the failure to make any such notation shall not limit or otherwise affect the obligations of the undersigned under the Indenture or this Note. No recourse may be taken, directly or indirectly, with respect to the obligations of the Transferor, the Trustee or the Collateral Trustee in connection herewith, 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 installment or call owing to such entity. Subject to the limitations set forth herein, the transfer of this Note shall be registered in the Register upon surrender of this Note for registration of transfer at any office or agency maintained by the Transfer Agent and Registrar 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 or such Noteholder's attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. The Trustee, the Paying Agent and the Transfer Agent and Registrar, and any agent of any of them, may treat the Person in whose name this Note is registered as the owner hereof for all purposes, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar nor any agent of any of them shall be affected by notice to the contrary except in certain circumstances described in the Indenture. The rights evidenced by this Note created by the Indenture and the Trust shall terminate on the earlier of (i) the day, if any, designated by AFG Credit Corporation 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 Series 1997-1 Note Interest accrued through such Distribution Date in full and (ii) the day on which final payment is made under the Notes, but in no event later than the Scheduled Series 1997-1 Termination Date. Upon the occurrence of any one or more of the Pay Out Events specified in the Indenture all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED 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 SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Unless the note of authentication hereon has been executed by or on behalf of the Trustee, by manual or facsimile signature of a duly authorized signatory, this Note shall not be entitled to any benefit under the Indenture, or be valid for any purpose. IN WITNESS WHEREOF, the Trustee on behalf of the Trust has caused this Note to be duly executed. AFG MASTER TRUST By: BANKERS TRUST COMPANY, not in its individual capacity but solely as Trustee on behalf of the Trust By: Title: Trustee's Certificate of Authentication This is one of the Series 1997-1 Notes referred to in the within mentioned Indenture. BANKERS TRUST COMPANY, as Trustee By: Date of Increase Principal Amount Principal Amount Decrease, or of Increase of Decrease Prepayment Principal Amount Outstanding Principal of Repayment Amount EX-10 5 EXECUTION COPY NOTE PURCHASE AGREEMENT Dated as of October 14, 1997 Among AFG CREDIT CORPORATION as Transferor VARIABLE FUNDING CAPITAL CORPORATION as a Purchaser FIRST UNION CAPITAL MARKETS CORP. as Deal Agent AFG MASTER TRUST Series 1997-1 Notes TABLE OF CONTENTS Page ARTICLE I DEFINITIONS........1 Section 1.1 Certain Defined Terms.................................1 Section 1.2 Other Terms...........................................4 Section 1.3 Computation of Time Periods...........................4 ARTICLE II PURCHASE OF THE NOTE...........................................5 Section 2.1 Sale and Delivery of the Note.........................5 Section 2.2 Acceptance and Custody of Note........................6 Section 2.3 Selection of Tranche Periods..........................6 ARTICLE III CONDITIONS OF PURCHASE........................................7 Section 3.1 Conditions Precedent..................................7 ARTICLE IV REPRESENTATIONS AND WARRANTIES.................................7 Section 4.1 Representations and Warranties of the Transferor......7 Section 4.2 Representations, Warranties and Agreements of the Purchaser..................................9 ARTICLE V GENERAL COVENANTS..9 Section 5.1 General Covenants of the Transferor...................9 ARTICLE VI INDEMNIFICATION...10 Section 6.1 Indemnities by the Transferor.........................10 ARTICLE VII THE DEAL AGENT...11 Section 7.1 Authorization and Action of the Deal Agent............11 Section 7.2 Delegation of Duties..................................11 Section 7.3 Exculpatory Provisions................................11 Section 7.4 Reliance..............................................12 Section 7.5 Non-Reliance on Deal Agent and Other Purchasers.......12 Section 7.6 Deal Agent in its Individual Capacity.................12 Section 7.7 Successor Deal Agent..................................12 ARTICLE VIII MISCELLANEOUS...13 Section 8.1 Amendments and Waivers................................13 Section 8.2 Notices, Etc..........................................14 Section 8.3 No Waiver; Remedies...................................14 Section 8.4 Binding Effect........................................14 Section 8.5 Term of this Agreement................................14 Section 8.6 GOVERNING LAW.........................................15 Section 8.7 WAIVER OF JURY TRIAL..................................15 Section 8.8 Costs, Expenses and Taxes.............................15 Section 8.9 No Proceedings........................................16 Section 8.10 Recourse Against Certain Parties.....................16 Section 8.11 Ratable Payments.....................................16 Section 8.12 Confidentiality......................................17 Section 8.13 Execution in Counterparts; Severability; Integration..17 LIST OF EXHIBITS AND SCHEDULES EXHIBITS EXHIBIT A Form of VFCC's Cost Funds Form SCHEDULES SCHEDULE I Conditions Precedent to Initial Purchase NOTE PURCHASE AGREEMENT (the "Agreement"), dated as of October 14, 1997, by and among: (1) AFG CREDIT CORPORATION, a Delaware corporation (the "Transferor"); (2) VARIABLE FUNDING CAPITAL CORPORATION, a Delaware corporation (together with its successors and assigns, "VFCC"); and (3) FIRST UNION CAPITAL MARKETS CORP. ("FCMC"), as agent (the "Deal Agent"). IT IS AGREED as follows: ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms. (a)......Certain capitalized terms used throughout this Agreement are defined above or in this Section 1.1. In addition, capitalized terms used but not defined herein have the meanings given to such terms in the AFG Master Trust Pooling and Servicing Agreement and Indenture of Trust dated as of July 1, 1995 (the "Base"), among the Transferor, American Finance Group, Inc., a Delaware corporation, as Servicer, and Bankers Trust Company, as Trustee (in such capacity, the "Trustee") and as Collateral Trustee (in such capacity, the "Collateral Trustee"), as amended by Amendment No. 1, dated as of September 1, 1995, Amendment No. 2, dated as of December 5, 1995 and Amendment No. 3, dated as of October 14, 1997 and as supplemented by the Series 1997-1 Supplemental Indenture (the "Supplement"), dated as of October 14, 1997, by and among the Transferor, the Servicer, the Deal Agent, the Collateral Trustee and the Trustee. The Base, as amended, and the Supplement are collectively referred to as the "Indenture." (b)......As used in this Agreement and its exhibits, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): Act: The Securities Act of 1933, as amended, together with the rules and regulations thereunder. Base Rate: For any day, a rate per annum equal to the lesser of (a) the Prime Rate in effect on such day and (b) the sum of the Federal Funds Effective Rate in effect on such day and 1.00% per annum. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the opening of business on the date of such change. Collection Date: The date following the Termination Date on which the Principal Amount has been reduced to zero, the Purchaser has received all amounts of interest due in respect of the Note and other amounts due to the Purchaser in connection with this Agreement and the Indenture and the Deal Agent has received all amounts due to it in connection with this Agreement. Commercial Paper: On any day, any commercial paper note issued by VFCC for the purpose of financing or maintaining its investment in the Note, including all such commercial paper notes so issued to re-finance matured commercial paper notes issued by VFCC that were originally issued to finance VFCC's investment in the Note. CP Disruption Event: The inability of the Purchaser, at any time, whether as a result of a prohibition, a contractual restriction or any other event or circumstance whatsoever, to raise funds through the issuance of its commercial paper notes (whether or not constituting Commercial Paper) in the United States commercial paper market. Deal Documents: This Agreement, the Indenture, the Liquidity Purchase Agreement and each other document, agreement, certificate, schedule or other writing entered into or delivered in connection with the foregoing, as the same may be amended, supplemented, restated, replaced or otherwise modified from time to time. Eurodollar Reserve Percentage: For any Tranche Period, the reserve percentage applicable during such Tranche Period (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Tranche Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for First Union National Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (as defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time) and having a term equal to such Tranche Period. Facility Termination Date: October 13, 1998 or such later date to which the Facility Termination Date may be extended, if extended, in the sole discretion of VFCC in accordance with the terms of Section 2.1(c). Federal Funds Effective Rate: For any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Deal Agent from three federal funds brokers of recognized standing selected by it. Fee Letter: The Transferor Fee Letter Agreement, dated as of October 13, 1997, between the Transferor and the Deal Agent. Investors: Has the meaning given to such term in the Liquidity Purchase Agreement. LIBOR: For any Tranche Period, a per annum interest rate determined pursuant to the following formula: LIBOR = LIBOR Rate 1 - Eurodollar Reserve Percentage LIBOR Rate: With respect to any Tranche Period of one, two or three months and for which VFCC's Cost of Funds is calculated by reference to LIBOR, an interest rate per annum equal to the average (rounded upward to the nearest one-sixteenth (1/16) of one percent) per annum rate of interest determined by First Union National Bank at its principal office in Charlotte, North Carolina as its LIBOR Rate (each such determination, absent manifest error, to be conclusive and binding on all parties hereto and their assignees) as the rate at which deposits in immediately available funds in U.S. dollars are being, have been, or would be offered or quoted by First Union National Bank to major banks in the applicable interbank market for Eurodollar deposits at or about 11:00 a.m. (Charlotte, North Carolina time) on the Business Day which is the Business Day immediately preceding the first day of such Tranche Period, for delivery on the first day of such Tranche Period, for a term of equal to such Tranche Period and in an amount approximately equal to the portion of the Principal Amount related to such Tranche Period. If no such offers or quotes are generally available for such amount, then the LIBOR Rate shall be the rate appearing on the Telerate Page 3750 as of 11:00 A.M. (London time) on the Business Day which is the Business Day immediately preceding the first day of such Tranche Period for a term equal to such Tranche Period. Liquidity Agent: Has the meaning given to such term in the Liquidity Purchase Agreement. Liquidity Purchase: Any purchase made by an investor pursuant to the terms and conditions of the Liquidity Purchase Agreement. Liquidity Purchase Agreement: The Liquidity Purchase Agreement, dated as of October 14, 1997, by and among VFCC, as seller thereunder, the Investors named therein, FCMC, as Deal Agent and as Documentation Agent, and First Union National Bank, as Liquidity Agent. Person: An individual, partnership, corporation (including a business trust), joint stock company, limited liability company, limited partnership, trust, association, joint venture, any governmental authority or any other entity of any nature. Prime Rate: At any time, the rate of interest per annum publicly announced from time to time by First Union National Bank at its principal office in Charlotte, North Carolina 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 First Union National Bank as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks. Principal Limit: On any day, an amount equal to the product of (i) the Asset Base on such day and (ii) the Series Percentage. Purchase: The initial purchase of the Note. Purchase Limit: $125,000,000; provided, however, that at all times, on or after the Termination Date, the Purchase Limit shall mean the Principal Amount. Purchaser: Collectively, VFCC and any other Person that may agree from time to time to purchase any interest in the Note from VFCC and their respective successors and assigns. Termination Date: The earliest of (a) the Facility Termination Date, (b) the occurrence of a Pay Out Event, (c) the occurrence of the Amortization Date or (d) the occurrence of a Series Pay Out Event. Tranche Period: For any portion of the Principal Amount, any period determined pursuant to Section 2.3. UCC: The Uniform Commercial Code as in effect in the applicable jurisdiction. United States: The United States of America. VFCC's Cost of Funds: For any Tranche Period and any portion of the Principal Amount assigned thereto, VFCC's Cost of Funds (including fees paid or payable to dealers in, or placement agents for, Commercial Paper, if applicable), as set forth in the most recent VFCC's Cost of Funds Form, which shall be (A) if Commercial Paper is available (as determined in the Deal Agent's sole discretion), VFCC's Cost of Funds in connection with such Commercial Paper which shall be calculated based upon the interest rate applicable to such Commercial Paper, or if such Commercial Paper is sold at a discount, the interest rate per annum resulting from converting such discount rate to an interest-bearing equivalent rate, or (B) if Commercial Paper is not available for any reason (as determined in the Deal Agent's sole discretion) and the Tranche Period is one, two or three months, LIBOR, or (C) if Commercial Paper is not available for any reason (as determined in the Deal Agent's sole discretion) and the Tranche Period is less than one month, the Prime Rate. VFCC's Cost of Funds Form: A certificate delivered to the Trustee by the Deal Agent on behalf of VFCC substantially in the form of Exhibit B hereto. Section 1.2 Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in the UCC in effect in the State of New York and not specifically defined herein are used herein as defined therein. Section 1.3 Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." ARTICLE II PURCHASE OF THE NOTE Section 2.1 Sale and Delivery of the Note. (a)......On the basis of the representations and warranties and subject to the terms and conditions herein set forth, the Transferor agrees to deliver to the Purchaser, on the Closing Date, the Note, which Note shall be duly executed by the Transferor, duly authenticated by the Trustee and registered in the name of the Deal Agent, as agent for the Purchasers. The Note will be delivered to the Deal Agent, as custodian for VFCC against payment of the purchase price therefor to the Transferor in same day funds, by wire transfer to the account specified to the Deal Agent by the Transferor in writing for the purpose of. (b)......On the terms and conditions hereinafter set forth, and subject to the terms and conditions of the Supplement, the Transferor may, at its option, request that the Purchasers make Increases. On each day prior to the Termination Date and subject to the satisfaction of the terms and conditions hereinafter set forth, VFCC agrees to make each such Increase on the date requested by the Transferor in an amount not to exceed the sum (such amount being the "Adjusted Increase Amount") of (i) the net proceeds from the sale of Commercial Paper on such date plus (b) the proceeds of Liquidity Purchases on such date. Notwithstanding anything to the contrary herein contained, VFCC shall have no obligation to make any Increase (i) in an amount in excess of the Adjusted Increase Amount or (ii) if, after giving effect to such Increase, the Principal Amount would exceed the lesser of (x) the Purchase Limit or (y) the Principal Limit. In addition, VFCC shall have no obligation to make available any Adjusted Increase Amount if on the date such Adjusted Increase Amount would be paid, (1) the sum of (A) the product of (I) the Asset Base and (II) the Series Percentage and (B) accrued and unpaid interest on the Notes to such date is less than (2) the sum of (A) the net proceeds of all Commercial Paper outstanding in the case of Commercial Paper issued at a discount and the principal balance of all Commercial Paper outstanding in the case of Commercial Paper issued on an interest bearing basis and (B) accrued and unpaid discount to such date in the case of Commercial Paper outstanding issued at a discount and accrued and unpaid interest to such date in the case of Commercial Paper outstanding issued on an interest bearing basis. (c)......The Transferor may, within 60 days, but no later than 45 days, prior to the then Facility Termination Date, by written notice to the Deal Agent, make written request for VFCC and the Investors to extend the Facility Termination Date for an additional period of 364 days. The Deal Agent will give prompt notice to VFCC and to the Liquidity Agent under the Liquidity Purchase Agreement of its receipt of such request for extension of the Facility Termination Date. VFCC shall make a determination, in its sole discretion and after a full credit review, not less than 15 days prior to the then applicable Facility Termination Date as to whether or not it will agree to extend the Facility Termination Date; provided, however, that the failure of VFCC to make a timely response to the Seller's request for extension of the Facility Termination Date shall be deemed to constitute a refusal by VFCC and the Investors to extend the Facility Termination Date. The Facility Termination Date shall only be extended upon the consent of both (i) VFCC and (ii) 100% of the Investors. Section 2.2 Acceptance and Custody of Note. On the Closing Date, the Deal Agent shall take delivery of the Note and maintain custody thereof on behalf of the Purchasers. Section 2.3 Selection of Tranche Periods. The Transferor may, subject to the Deal Agent's approval and the limitations described below and in the Supplement, select Tranche Periods and allocate a portion of the Principal Amount to each selected Tranche Period, so that the full Principal Amount is at all times allocated to a Tranche Period. Each subsequent Tranche Period shall commence on the last day of the immediately preceding Tranche Period, and the duration of and interest applicable to such subsequent Tranche Period shall be such as the Transferor has selected and the Deal Agent has approved on the Business Day prior to such last day; provided, however, that if the Deal Agent has not, by 3 p.m. (New York time) on the Business Day immediately preceding the last day of a Tranche Period (i) received from the Transferor notice of the Transferor's selection of the next Tranche Period(s) and the amount of Principal Amount to be allocated thereto and (ii) approved such selection and allocation, then the Deal Agent shall, in its sole discretion, choose such Tranche Period(s) and make such allocation. Any Tranche Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; provided, however, that if such next succeeding Business Day is in the next calendar month, then such Tranche Period shall end on the next preceding Business Day. In addition, whenever any Tranche Period commences on the last Business Day in a month or on a day for which there is no numerically corresponding day in the month in which such Tranche Period ends, the last day of such Tranche Period shall occur on the last Business Day of the month in which such Tranche Period ends. Any Tranche Period for which interest on the Note accrues at a rate based upon LIBOR shall have a duration of one, two or three months only. In no event shall the duration of any Tranche Period exceed [90] days. Furthermore, if a CP Disruption Event shall have occurred and be continuing, the Purchaser, or the Deal Agent on its behalf, may, upon notice to the Transferor and the Trustee, terminate any Tranche Period then in effect if the Purchaser has funded any portion of the Principal Amount allocated to such Tranche Period by issuing its commercial paper notes. Any Tranche Period which commences before the Termination Date and would otherwise end on a date occurring after the Termination Date shall end on the Termination Date. On or after the Termination Date, the Deal Agent shall have the right to allocate outstanding Principal Amount to Tranche Periods of such duration as shall be selected by the Deal Agent. The Purchaser shall, on the first day of each Tranche Period, notify the Deal Agent of the rate of interest upon which VFCC's Cost of Funds will accrue for the Principal Amount allocated to such Tranche Period. ARTICLE III CONDITIONS OF PURCHASE Section 3.1 Conditions Precedent. The Purchase hereunder is subject to the satisfaction, on or before the date of such purchase, as determined by the Deal Agent, of each condition precedent listed in Schedule I. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.1 Representations and Warranties of the Transferor. The Transferor represents and warrants as follows: (a)......Organization. It is a company, duly organized and validly existing in good standing under the laws of the State of Delaware, is duly qualified and in good standing as a foreign entity and authorized to do business in all other jurisdictions wherein the nature of its business or property makes such qualification materially necessary, and has full power and authority to own its properties and to conduct its business as presently conducted. (b)......Licenses and Approvals. It has obtained all necessary licenses and approvals in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such licenses and approvals except where the failure to have such licenses and approvals does not have a material adverse affect on its financial condition or on its ability to perform its obligations under the Deal Documents. (c)......Authority. It has full power and authority to execute and deliver, and perform each of its obligations under, each of the Deal Documents to which it is a party, including the Transferor's use of the proceeds of Purchases, and it has duly authorized the execution, delivery and performance of each of the foregoing and the sale of the Note to the Purchaser by all necessary corporate action. (d)......Enforceability. Each of the Deal Documents to which it is a party constitutes its legal, valid and binding obligations, enforceable against it in accordance with its respective terms, except as limited by bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium and other similar laws and equitable principles affecting creditors' rights and remedies. (e)......No Conflicts. The consummation of the transactions contemplated by the fulfillment of the terms of the Deal Documents will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice, lapse of time or both) a default under its memorandum of association, by-laws or any indenture, agreement, mortgage, deed of trust or other material instrument to which it is a party or by which it is bound, or result in the creation or imposition of any Lien (other than as contemplated by this Agreement or the Indenture) upon any of its properties pursuant to the terms of such indenture, agreement, mortgage, deed of trust or other such instrument, other than the Deal Documents, or violate any law, rule, regulation or any order applicable to it of any court or of any regulatory body, administrative agency or other governmental instrumentality having jurisdiction over it or any of its properties. (f)......Legal Proceedings. There are no proceedings or investigations to which it is a party pending, or, to its best knowledge, threatened, before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (a) asserting the invalidity of the Deal Documents, (b) seeking to prevent the consummation of any of the transactions contemplated by the Deal Documents, (c) seeking any determination or ruling that would materially and adversely affect the performance by it of its obligations under, or the validity or enforceability of, the Deal Documents or (d) which would have a material adverse effect on its ability to perform its obligations under the Deal Documents. (g)......Consents and Approvals. All approvals, authorizations, consents, orders or other actions of any Person, corporation or other organization, or of any court, governmental agency or body or official, required in connection with the execution, delivery and performance of the Deal Documents, have been received or taken, as the case may be. (h)......Information. No information, exhibit, financial statement, document, book, record or report furnished or to be furnished by it to the Deal Agent or a Purchaser (i) is or will be inaccurate in any material respect as of the date it is or shall be dated or (except as otherwise disclosed to the recipient thereof at the time of delivery or thereafter) as of the date so furnished and (ii) no such document contains or will contain any material misstatement of fact or omits or shall omit to state a material fact necessary to make the statements contained therein not misleading in light of the statements made therein. (i)......Accuracy of Representations and Warranties. Each representation and warranty made by it contained herein or in any certificate or other document furnished by it pursuant hereto or to any Deal Document or in connection herewith or therewith is true and correct in all material respects. (j)......Offer and Sale. Neither the Transferor nor any person acting on its behalf has offered to sell the Note by any form of general solicitation or general advertising. The Transferor has not offered or sold the Note or other similar security in any manner that would render the issuance and sale of the Note a violation of the Act, or require registration pursuant thereto, nor has it authorized nor will it authorize any person to act in such manner. (k)......Representations and Warranties. The Transferor hereby repeats each of the representations and warranties made by it in the Indenture and made in any officer's certificate of the Transferor delivered pursuant to the Indenture as if each such representation and warranty was set forth herein. Section 4.2 Representations, Warranties and Agreements of the Purchaser. The Purchaser hereby represents and warrants to, and agrees with, the Transferor that: (a)......The Purchaser understands that the Note purchased by it has not been registered under the Act or the securities laws of any State and, if the Note is not then registered under applicable federal and State securities law (which registration the Transferor is not obligated to effect), it will not offer to sell, transfer or otherwise dispose of the Note or any portion thereof except in a transaction which is exempt from such registration. (b)......The Purchaser is acquiring the Note for its own account, and not as a nominee for any other person, and the Purchaser is not acquiring the Note with a view to or for sale or transfer in connection with any distribution of the Note under the Act, but subject, nevertheless, to any requirement of law that the disposition of its property shall at all times be within its control. (c)......The Purchaser is an "accredited investor" as defined in Regulation D under the Act. (d)......The Purchaser is not, and is not purchasing for, or on behalf of, a "benefit plan investor" as such term is defined in 29 C.F.R. 2510.3-101, unless the transfer to, or holding of the Note by, such Person will either: (i) not result in any prohibited transaction under Title I of the Employee Retirement Income Security Act of 1974, as amended, or excise taxes under Section 4975 of the Internal Revenue Code of 1986, as amended, or (ii) result in a prohibited transaction, but any such transaction will be eligible for exemptive relief under Prohibited Transaction Class Exemption 91-38 (regarding investments by bank collective trust funds), Prohibited Transaction Class Exemption 90-1 (relating to investments by insurance company separate accounts), Prohibited Transaction Class Exemption 95-60 (relating to investments by insurance company general accounts), Prohibited Transaction Class Exemption 84-14 (relating to investments by qualified professional asset managers) or Prohibited Transaction Class Exemption 96-23 (relating to investments by in-house asset managers). (e)......Neither the Purchaser nor any person acting on its behalf has offered to sell the Note by any form of general solicitation or general advertising. The Purchaser has not offered the Note in any manner that would render the issuance and sale of the Note a violation of the Act, or require registration pursuant thereto, nor has it authorized nor will it authorize any person to act in such manner. ARTICLE V GENERAL COVENANTS Section 5.1 General Covenants of the Transferor. (a)......The Transferor hereby agrees to notify the Deal Agent, as soon as possible, and in any event within five (5) days after notice to the Transferor, of (a) the occurrence of any Pay Out Event and/or Series Pay Out Event, (b) the occurrence of any Accelerated Payment Event, (c) any fact, condition or event which, with the giving of notice or the passage of time or both, could become a Pay Out Event and/or a Series Pay Out Event, (d) any fact, condition or event which, with the giving of notice or the passage of time or both, could become an Accelerated Payment Event, (e) the failure of the Transferor to observe any of its material undertakings under the Deal Documents or (f) any change in the status or condition of the Transferor or the Manager that would reasonably be expected to adversely affect the Transferor's or the Manager's ability to perform its obligations under the Deal Documents. (b)......The Transferor agrees not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Note in a manner that would require the registration under the Act of the sale to the Purchaser of the Note. (c)......The Transferor agrees to deliver to the Deal Agent on each Distribution Date a copy of the Monthly Statement related to such Distribution Date. ARTICLE VI INDEMNIFICATION Section 6.1 Indemnities by the Transferor. Without limiting any other rights which the Deal Agent, the Purchasers or any of their respective Affiliates may have hereunder or under applicable law, the Transferor hereby agrees to indemnify each of the Deal Agent, the Purchasers and each of their respective Affiliates, together with their respective successors and permitted assigns (each of the foregoing Persons being individually called an "Indemnified Party") from and against any and all damages, losses, claims, liabilities and related costs and expenses, including reasonable attorneys' fees and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them arising out of, or relating to this Agreement, any Deal Document or the Note, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party. Any amounts subject to the indemnification provisions of this Section 6.1 shall be paid by the Transferor to the Deal Agent within ten (10) Business Days following the Deal Agent's demand therefor. ARTICLE VII THE DEAL AGENT Section 7.1 Authorization and Action of the Deal Agent. Each Purchaser hereby designates and appoints FCMC as Deal Agent hereunder, and authorizes the Deal Agent to take such actions as agent on its behalf and to exercise such powers as are delegated to the Deal Agent by the terms of this Agreement together with such powers as are reasonably incidental thereto. The Deal Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Deal Agent shall be read into this Agreement or otherwise exist for the Deal Agent. In performing its functions and duties hereunder, the Deal Agent shall act solely as agent for the Purchasers and does not assume nor shall be deemed to have assumed any obligation or relationship of trust or agency with or for the Transferor or any of its successors or assigns. The Deal Agent shall not be required to take any action which exposes the Deal Agent to personal liability or which is contrary to this Agreement, any other agreement by which the Deal Agent is bound or applicable law. The appointment and authority of the Deal Agent hereunder shall terminate on the Collection Date. Section 7.2 Delegation of Duties. The Deal Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Deal Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 7.3 Exculpatory Provisions. Neither the Deal Agent nor any of its directors, officers, agents or employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement (except for its, their or such Person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Purchasers for any recitals, statements, representations or warranties made by the Transferor contained in this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received under or in connection with, this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document furnished in connection herewith, or for any failure of the Transferor to perform its obligations hereunder, or for the satisfaction of any condition specified in Article III. The Deal Agent shall not be under any obligation to any Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements or covenants contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Transferor. The Deal Agent shall not be deemed to have knowledge of any Event of Default or Accelerated Payment Event unless the Deal Agent has received written notice from the Transferor or a Purchaser. Section 7.4 Reliance. The Deal Agent shall in all cases be entitled to rely, and shall be fully protected in relying, upon any 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 the Transferor), independent accountants and other experts selected by the Deal Agent. The Deal Agent shall in all cases be fully justified in failing or refusing to take any action under this Agreement or any other document furnished in connection herewith unless it shall first receive such advice or concurrence of VFCC or all of the Purchasers, as applicable, as it deems appropriate or it shall first be indemnified to its satisfaction by the Purchasers, provided that unless and until the Deal Agent shall have received such advice, the Deal Agent may take or refrain from taking any action, as the Deal Agent shall deem advisable and in the best interests of the Purchasers. The Deal Agent shall in all cases be fully protected in acting, or in refraining from acting, in accordance with a request of VFCC or all of the Purchasers, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Purchasers. Section 7.5 Non-Reliance on Deal Agent and Other Purchasers. Each Purchaser expressly acknowledges that none of the Deal Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to such Purchaser and that no act by the Deal Agent hereafter taken, including, without limitation, any review of the affairs of the Transferor, shall be deemed to constitute any representation or warranty by the Deal Agent. Each Purchaser represents and warrants to the Deal Agent that it has and will, independently and without reliance upon the Deal Agent or any other Purchaser and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Transferor and made its own decision to enter into this Agreement. Section 7.6 Deal Agent in its Individual Capacity. Any of the Deal Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Transferor or any Affiliate of the Transferor as though the Deal Agent were not the Deal Agent hereunder. With respect to the acquisition of any Note pursuant to this Agreement, each of the Deal Agent and its Affiliates shall have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not the Deal Agent and the terms "Purchaser" and "Purchasers" shall include the Deal Agent in its individual capacity, if the Deal Agent shall become a Purchaser hereunder. Section 7.7 Successor Deal Agent. The Deal Agent may, upon 5 days' notice to the Transferor and the Purchasers, and the Deal Agent will, upon the direction of all of the Purchasers (other than the Deal Agent, in its individual capacity), resign as Deal Agent. If the Deal Agent shall resign, then VFCC during such 5-day period shall appoint from among the Purchasers a successor Deal Agent. If for any reason no successor Deal Agent is appointed by VFCC during such 5-day period, then effective upon the termination of such five day period, the Purchasers shall perform all of the duties of the Deal Agent hereunder and the Transferor shall for all purposes shall deal directly with the Purchasers. After any retiring Deal Agent's resignation hereunder as Deal Agent, the provisions of this Article VII and Article VI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Deal Agent under this Agreement. ARTICLE VIII MISCELLANEOUS Section 8.1 Amendments and Waivers. (a) No amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Transferor, each of the Purchasers and the Deal Agent, and no termination or waiver of any provision of this Agreement or consent to any departure therefrom by the Transferor shall be effective without the written concurrence of each of the Purchasers and the Deal Agent. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b)......No provision of this Agreement may be amended, supplemented, modified or waived except in writing in accordance with the provisions of this Section 8.1(b). VFCC, the Transferor and the Deal Agent may enter into written amendments, modifications or waivers of any provisions of this Agreement, provided, however, that no such amendment, modification or waiver shall: (i) without the consent of each affected Purchaser, (A) reduce the interest rate (or change any component thereof, including without limit, the period for which such interest rate is calculated) or any fee payable to the Deal Agent for the benefit of the Purchasers, (B) consent to or permit the assignment or transfer by the Transferor of any of its rights and obligations under this Agreement or the Indenture, (C) consent to the amendment, modification or waiver of, or otherwise agree to amend, modify or waive, any provision of the Indenture requiring consent to the holder of the Note or (D) amend or modify any defined term (or any defined term used directly or indirectly in such defined term) used in clauses (A) through (C) above in a manner which would circumvent the intention of the restrictions set forth in such clauses; or (ii) without the written consent of the then Deal Agent, amend, modify or waive any provision of this Agreement if the effect thereof is to affect the rights or duties of such Deal Agent. Notwithstanding the foregoing, without the consents of any of the parties hereto, the Deal Agent and each of the Purchasers may amend this Agreement solely to add additional Persons as Purchasers hereunder. Any modification or waiver shall apply to each of the Purchasers equally and shall be binding upon the Transferor, the Purchasers and the Deal Agent. (c)......The Deal Agent shall provide prompt written notice of the nature of each amendment to this Agreement, and shall, simultaneously therewith, deliver a copy of such amendment to each Rating Agency. Section 8.2 Notices, Etc. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telex communication and communication by facsimile copy) and mailed, telexed, transmitted or delivered, as to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective, upon receipt, or in the case of (a) notice by mail, upon receipt, (b) notice by telex, when telexed against receipt of answerback, or (c) notice by facsimile copy, when verbal communication of receipt is obtained, except that notices and communications pursuant to Article II shall not be effective until received with respect to any notice sent by mail or telex. Section 8.3 No Waiver; Remedies. No failure on the part of the Deal Agent or a Purchaser to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 8.4 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Transferor, the Deal Agent, the Purchasers and their respective successors and permitted assigns. Section 8.5 Term of this Agreement. This Agreement, including, without limitation, the Transferor's obligations to observe its covenants and agreements set forth herein, shall remain in full force and effect until the Collection Date; provided, however, that the obligations of the Transferor under Section 2.2, the indemnification and payment provisions of Article VI and the provisions of Section 8.9 and Section 8.10 and the agreements of the parties contained in Sections 8.6, 8.7, 8.8 and 8.12 shall be continuing and shall survive any termination of this Agreement. Section 8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). Section 8.7 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PURCHASERS, THE TRANSFEROR AND THE DEAL AGENT WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY. Section 8.8 Costs, Expenses and Taxes. In addition to the rights of indemnification granted to the Deal Agent, the Purchasers and their respective Affiliates under Article VI hereof, the Transferor agrees to pay on demand all costs and expenses incurred by a Purchaser or the Deal Agent, and their respective Affiliates, successors or assigns, with respect to enforcing their respective rights and remedies as against the Transferor under this Agreement, the Indenture, any Note, any other Deal Document and the other documents to be delivered hereunder or in connection herewith provided, however, that none of the Deal Agent, any Purchaser or any affiliate thereof shall be entitled to any such payment (and shall reimburse the Transferor for any such payments previously received) if such person has been determined by a court of competent jurisdiction to not be entitled to receive indemnification pursuant to Article VI hereof in connection with such enforcement. The Transferor also agrees to pay on demand all costs and expenses of the Purchasers and the Deal Agent, and their respective Affiliates, successors or assigns, if any (including reasonable counsel fees and expenses), incurred in connection with the negotiation, execution, and delivery of this Agreement and the transactions contemplated hereby, any removal of the Facility and/or the enforcement, administration (including periodic auditing), amendment or modification of, or any waiver or consent issued in connection with, this Agreement, the Indenture, the Note, any other Deal Document and the other documents to be delivered hereunder or thereunder, or in connection herewith or therewith. The Transferor also agrees to pay on demand all reasonable out-of-pocket costs and expenses incurred by a Purchaser in connection with the administration (including rating agency requirements, modification and amendment) of this Agreement, the Deal Documents and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Purchaser and the Deal Agent with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, the Deal Documents and the other agreements executed pursuant hereto. Any amounts subject to the provisions of this Section 8.8 shall be paid by the Transferor to the Deal Agent within ten (10) Business Days following the Deal Agent's demand therefor. Section 8.9 No Proceedings. Each of the Transferor, the Deal Agent and the Purchasers hereby agrees that it will not institute, or join any other Person in instituting, against VFCC any bankruptcy, insolvency, winding up, dissolution, receivership, conservatorship or other similar proceeding or action so long as any commercial paper issued by VFCC shall be outstanding or there shall not have elapsed one year and one day since the last day on which any such commercial paper shall have been outstanding. Section 8.10 Recourse Against Certain Parties. No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of any of the Transferor, VFCC any Purchaser or the Deal Agent as contained in this Agreement or any other agreement, instrument or document entered into by it pursuant hereto or in connection herewith shall be had against any administrator of such party or any incorporator, affiliate, stockholder, officer, employee or director of such party or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of such party contained in this Agreement and all of the other agreements, instruments and documents entered into by it pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of such party, and that no personal liability whatsoever shall attach to or be incurred by any administrator of such party or any incorporator, stockholder, affiliate, officer, employee or director of such party or of any such administrator, as such, or any of them, under or by reason of any of the obligations, covenants or agreements of such party contained in this Agreement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of every such administrator of such party and each incorporator, stockholder, affiliate, officer, employee or director of such party or of any such administrator, or any of them, for breaches by such party of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Agreement. Section 8.11 Ratable Payments. If any Purchaser, whether by setoff or otherwise, has payment made to it with respect to any portion of any amount of the principal amount of the Note or other amount owing to such Purchaser (other than payments received pursuant to Article VI) in a greater proportion than that received by any other Purchaser, such Purchaser agrees, promptly upon demand, to pay to the Deal Agent, for distribution ratably to all other Purchasers the amount of such excess such that all Purchasers shall receive their ratable portion of such payment. Section 8.12 Confidentiality. (a)......Each of the Deal Agent, the Purchasers and the Transferor shall maintain and shall cause each of its employees and officers to maintain the confidentiality of this Agreement and the other confidential proprietary information with respect to the other parties hereto and their respective businesses obtained by it or them in connection with the structuring, negotiating and execution of the transactions contemplated herein, except that each such party and its officers and employees may (i) disclose such information to its external accountants and attorneys and as required by applicable law, applicable accounting requirements or order of any judicial or administrative proceeding and (ii) disclose the existence of this Agreement, but not the financial terms thereof. (b)......Anything herein to the contrary notwithstanding, the Transferor hereby consents to the disclosure of any nonpublic information with respect to it (i) to the Deal Agent, the Liquidity Agent, the Investors, prospective Investors (provided that each such prospective Investor has entered into a confidentiality agreement reasonably acceptable to both the Deal Agent and the Transferor) or a Purchaser by each other, (ii) by the Deal Agent or the Purchasers to any prospective or actual assignee or participant of any of them or (iii) by the Deal Agent to any rating agency that provides a rating for the Commercial Paper, Commercial Paper dealer or placement agent or provider of a surety, guaranty or credit or liquidity enhancement to a Purchaser and to any officers, directors, employees, outside accountants and attorneys of any of the foregoing, provided each such Person is informed of the confidential nature of such information and agrees to keep such information confidential pursuant to the terms of this Section 8.12. In addition, the Purchasers, the Liquidity Agent, the Investors and the Deal Agent may disclose any such nonpublic information pursuant to any law, rule, regulation, direction, request or order of any judicial, administrative or regulatory authority or proceedings (whether or not having the force or effect of law). As used herein, the terms "Investors" and the "Liquidity Agent" shall have their respective meanings as set forth in the Liquidity Purchase Agreement. Section 8.13 Execution in Counterparts; Severability; Integration. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to the subject matter hereof, superseding all prior oral or written understandings. [Signatures to Follow] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE TRANSFEROR: AFG CREDIT CORPORATION By Title: Attn: Facsimile: VFCC: VARIABLE FUNDING CAPITAL CORPORATION By First Union Capital Markets Corp., as attorney-in-fact By Title: Variable Funding Capital Corporation c/o First Union Capital Markets Corp. One First Union Center, TW6 Charlotte, North Carolina 28288 Attention: Bo Weatherly Facsimile No.: 704-383-6036 THE DEAL AGENT: FIRST UNION CAPITAL MARKETS CORP. By Title: First Union Capital Markets Corp. One First Union Center, TW6 Charlotte, North Carolina 28288 Attention: Darrell Baber Facsimile No.: 704-383-6036 SCHEDULE I CONDITIONS PRECEDENT TO PURCHASE As required by Section 3.1 of the Agreement, each of the following items must be delivered to the Deal Agent prior to the date of the Purchase: (a) The Notes shall have been duly authorized, executed and delivered by the Transferor and authenticated by the Trustee. (b) A copy of this Agreement and the Supplement, each duly executed by the Transferor and all other parties thereto. (c) A certificate of the Secretary or Assistant Secretary of the Transferor dated the Closing Date, certifying (i) the names and true signatures of its respective incumbent officers authorized to sign this Agreement and the other documents to be delivered by it hereunder (on which certificate the Deal Agent and the Purchasers may conclusively rely until such time as the Deal Agent shall receive from the Transferor a revised certificate meeting the requirements of this paragraph (c), (ii) that copies of its certificate of incorporation attached thereto are complete and correct copies and that such certificate of incorporation has not been amended, modified or supplemented and is in full force and effect, (iii) that the copy of its by-laws attached thereto is a complete and correct copy and that such by-laws have not been amended, modified or supplemented and are in full force and effect and (iv) the resolutions of its board of directors approving and authorizing the execution, delivery and performance by it of this Agreement and the documents related hereto and thereto. (d) Certified copies of the Transferor's certificate of incorporation. (e) Copies of the Indenture, and all other Deal Documents (other than this Agreement), in form and substance satisfactory to the Deal Agent, each duly executed and delivered by each party thereto. (f) Copies of all certificates and opinions of counsel delivered pursuant to or in connection with the execution and delivery of the other Deal Documents, which shall be in form and content satisfactory to and each addressed to the Trustee or to the Deal Agent for the benefit of the Purchasers. (g) An officer's certificate of a responsible officer of the Transferor to the effect that each of the conditions to the initial Purchase hereunder and to the authentication of the Note to be delivered on the Closing Date has been satisfied. (h) An opinion of counsel to the Trustee as to the due organization of the Trustee, the enforceability of the Indenture and as to such other matters as the Deal Agent may reasonably request. (i) All fees and expenses required by this Agreement, the Fee Letter and the other documents to be delivered hereunder or in connection herewith to be paid on or before the Closing Date. EXHIBIT A Form of VFCC's Cost of Funds Form [to be provided] EX-10 6 AMENDMENT NO. 3 TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT (TEC AcquiSub, Inc.) THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT dated as of October 3, 1997 (the "Amendment"), is entered into by and among TEC ACQUISUB, INC., a California special purpose corporation ("Borrower"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB"), FLEET BANK, N.A. ("Fleet") and each other financial institution which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one financial institution individually, a "Lender," and collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Credit Agreement. RECITALS A. Borrower, Lenders and Agent have entered into that Amended and Restated Warehousing Credit Agreement dated as of September 27, 1995, as amended by that Amendment No. 1 to Amended and Restated Credit Agreement dated as of May 31, 1996 and that Amendment No. 2 to Amended and Restated Credit Agreement dated as of November 5, 1996 (as so amended, the "Credit Agreement"), by and among Borrower, FUNB (as the sole Lender party thereto) and Agent pursuant to which Lenders have agreed to extend and make available to Borrower certain advances of money. B. Borrower desires that Lenders and Agent amend the Credit Agreement to extend the Commitment Termination Date from October 3, 1997 to November 3, 1997. C. Subject to the representations and warranties of Borrower and upon the terms and conditions set forth in this Amendment, Lenders and Agent are willing to so amend the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows: SECTION 1. AMENDMENT. SECTION 1. AMENDMENT. The definition of "Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Commitment Termination Date" means November 3, 1997. SECTION 2. LIMITATIONS ON AMENDMENT2.LIMITATIONS ON AMENDMENT. (a) The amendment set forth in Section 1, above, is effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with any Loan Document. (b) This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived or amended, are hereby ratified and confirmed and shall remain in full force and effect. SECTION 3. REPRESENTATIONS AND WARRANTIES 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and Agent to enter into this Amendment, Borrower represents and warrants to each Lender and Agent as follows: (a) Immediately after giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Default or Event of Default, or event which constitutes a Potential Event of Default, has occurred and is continuing; (b) Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party; (c) The articles of incorporation, bylaws and other organizational documents of Borrower delivered to each Lender as a condition precedent to the effectiveness of the Credit Agreement are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; (d) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of Borrower; (e) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting Borrower, (ii) the articles of incorporation, bylaws, or other organizational documents of Borrower, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower or (iv) any contractual restriction binding on or affecting Borrower; (f) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and (g) This Amendment has been duly executed and delivered by Borrower and is the binding Obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. SECTION 4. REAFFIRMATION. SECTION 4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under each Loan Document to which it is a party. SECTION 5. EFFECTIVENESS. SECTION 5. EFFECTIVENESS. This Amendment shall become effective upon the last to occur of: (a) The execution and delivery of this Amendment, whether the same or different copies, by Borrower, Lenders and Agent. (b) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 2 to Second Amended and Restated Warehousing Credit Agreement dated as of the date hereof by and among the Growth Funds, Lenders and Agent. (c) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 2 to Warehousing Credit Agreement dated as of the date hereof by and among AFG, Lenders and Agent. SECTION 6. GOVERNING LAW. SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF.SECTION 7.CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. BORROWER HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF. SECTION 8. COUNTERPARTS. SECTION 8. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. BORROWER TEC ACQUISUB, INC. By: J. Michael Allgood Chief Financial Officer LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: Printed Name: Title: FLEET BANK, N.A. By: Printed Name: Title: AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By: Printed Name: Title: ACKNOWLEDGEMENT OF AMENDMENT AND REAFFIRMATION OF GUARANTY (PLMI/Tec AcquiSub) SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Amendment No. 3 to Amended and Restated Warehousing Credit Agreement ("Amendment"). SECTION 2. PLMI hereby consents to this Amendment and agrees that its Guaranty of the Obligations of Borrower under the Credit Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Amendment or any other document or instrument delivered in connection herewith. SECTION 3. PLMI represents and warrants that, after giving effect to this Amendment, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM INTERNATIONAL, INC. By J. Michael Allgood Chief Financial Officer EX-10 7 AMENDMENT NO. 2 TO WAREHOUSING CREDIT AGREEMENT (American Finance Group, Inc.) THIS AMENDMENT NO. 2 TO WAREHOUSING CREDIT AGREEMENT dated as of October 3, 1997 (the "Amendment"), is entered into by and among AMERICAN FINANCE GROUP, a Delaware corporation ("Borrower"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("FUNB"), FLEET BANK, N.A. ("Fleet") and each other financial institution which may hereafter execute and deliver an instrument of assignment pursuant to Section 11.10 of the Credit Agreement (as defined below) (any one financial institution individually, a "Lender," and collectively, "Lenders"), and FUNB, as agent on behalf of Lenders (not in its individual capacity, but solely as agent, "Agent"). Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Credit Agreement. RECITALS A. Borrower, Lenders and Agent have entered into that Warehousing Credit Agreement dated as of May 31, 1996, as amended by that Amendment No. 1 to Warehousing Credit Agreement dated as of November 5, 1996 (as so amended, the "Credit Agreement"), by and among Borrower, FUNB (as the sole Lender party thereto), and Agent pursuant to which Lenders have agreed to extend and make available to Borrower certain advances of money. B. Borrower desires that Lenders and Agent amend the Credit Agreement to extend the Commitment Termination Date from October 3, 1997 to November 3, 1997. C. Subject to the representations and warranties of Borrower and upon the terms and conditions set forth in this Amendment, Lenders and Agent are willing to so amend the Credit Agreement. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto agree as follows: SECTION 1. AMENDMENT. The definition of "Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement is deleted and replaced with the following: "Commitment Termination Date" means November 3, 1997. SECTION 2. LIMITATIONS ON AMENDMENT2.LIMITATIONS ON AMENDMENT. (a) The amendment set forth in Section 1, above, is effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (i) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document or (ii) otherwise prejudice any right or remedy which Lenders or Agent may now have or may have in the future under or in connection with any Loan Document. (b) This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived or amended, are hereby ratified and confirmed and shall remain in full force and effect. SECTION 3. REPRESENTATIONS AND WARRANTIES3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders and Agent to enter into this Amendment, Borrower represents and warrants to each Lender and Agent as follows: (a) Immediately after giving effect to this Amendment (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Default or Event of Default, or event which constitutes a Potential Event of Default, has occurred and is continuing; (b) Borrower has the corporate power and authority to execute and deliver this Amendment and to perform its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party; (c) The articles of incorporation, bylaws and other organizational documents of Borrower delivered to each Lender as a condition precedent to the effectiveness of the Credit Agreement are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect; (d) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of Borrower; (e) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its respective Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting Borrower, (ii) the articles of incorporation, bylaws, or other organizational documents of Borrower, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower or (iv) any contractual restriction binding on or affecting Borrower; (f) The execution and delivery by Borrower of this Amendment and the performance by Borrower of its Obligations under the Credit Agreement, as amended by this Amendment, and each of the other Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and (g) This Amendment has been duly executed and delivered by Borrower and is the binding Obligation of Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. SECTION 4. REAFFIRMATION 4. REAFFIRMATION. Borrower hereby reaffirms its Obligations under each Loan Document to which it is a party. SECTION 5. EFFECTIVENESS. 5. EFFECTIVENESS. This Amendment shall become effective upon the last to occur of: (a) The execution and delivery of this Amendment, whether the same or different copies, by Borrower, Lenders and Agent. (b) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 2 to Second Amended and Restated Warehousing Credit Agreement dated as of the date hereof by and among the Growth Funds, Lenders and Agent. (c) Satisfaction, to the approval of Lenders and Agent, of all conditions precedent to the effectiveness of Amendment No. 3 to Amended and Restated Warehousing Credit Agreement dated as of the date hereof by and among TEC AcquiSub, Lenders and Agent. SECTION 6. GOVERNING LAW 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. BORROWER HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF. SECTION 8. COUNTERPARTS 8. COUNTERPARTS. This Amendment may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first written above. BORROWER AMERICAN FINANCE GROUP, INC. By J. Michael Allgood Chief Financial Officer LENDERS FIRST UNION NATIONAL BANK OF NORTH CAROLINA By Printed Name: Title: FLEET BANK, N.A. By Printed Name: Title: AGENT FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Agent By Printed Name: Title: ACKNOWLEDGEMENT OF AMENDMENT AND REAFFIRMATION OF GUARANTY (PLMI/AFG) SECTION 1. PLM International, Inc. ("PLMI") hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Amendment No. 2 to Warehousing Credit Agreement ("Amendment"). SECTION 2. PLMI hereby consents to this Amendment and agrees that its Guaranty of the Obligations of Borrower under the Credit Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Amendment or any other document or instrument delivered in connection herewith. SECTION 3. PLMI represents and warrants that, after giving effect to this Amendment, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. GUARANTOR PLM INTERNATIONAL, INC. By J. Michael Allgood Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----